Marks and Spencer Group plc Annual Report & Financial Statements 2023 ## Reshaping Marks and Spencer Group plc Annual Report & Financial Statements 2023 INTRODUCTION ## RESHAPING M&S ## for growth ### M&S has a heritage of quality, innovation and value ### for money and has been voted the UK’s most trusted ### brand. From these foundations, M&S is reshaping for ### sustainable profitable growth and value creation. Read more about our strategic priorities on pages 12-13 ## DELIVER IMPROVE ## PROFITABLE OPERATING ## SALES ## margins ## growth Read more on pages 14-21 Read more on pages 22-23 | DISCIPLINED | | DRIVE | | | --- | --- | --- | --- | | INVESTMENT | | SHAREHOLDER | | | choices | | returns | | | | Read more on | | Read more on page 27 | pages24-26 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ### FINANCIAL HIGHLIGHTS CONTENTS Group revenue Basic earnings per share STRATEGIC REPORT 02 Chairman’s Letter 04 Chief Executive’s Review ## £11.9bn 18.5p 06 CEO & Co-CEO 08 Our Business Model 21/22: +9.6% 21/22: +17.8% 10 How we engage with our stakeholders 12 Our Strategic Priorities 28 People & Culture Group profit before tax Group profit before tax APM 32 Our approach to sustainability and adjusting items 34 Our Key Performance Indicators 35 Financial Review 42 Non-Financial and Sustainability ## £475.7m £482.0m Information Statement 21/22: +21.4% 21/22: -7.8% 44 Task Force on Climate-related Financial Disclosures Report 56 Risk Management Net debt excluding lease liabilities Adjusted earnings per share APM APM 58 Principal Risks and Uncertainties 66 Our approach to assessing long-term viability ## £355.6m 18.1p 21/22: -15.4% 21/22: -16.6% GOVERNANCE 68 Chairman’s Governance Overview 70 Our Governance Framework ### NET PROMOTER SCORES 72 Our Board 75 Board Activities 80 S.172 Statement Group NPS Omni-channel NPS International NPS 83 Board Review 85 Nomination Committee Report 90 ESG Committee Report ## +36 +39 +84 92 Audit & Risk Committee Report 100 Remuneration Committee Report 21/22: +7 New metric 21/22: +4 130 Other Disclosures | High quality perception | To align with our strategic | Customers’ experience | 134 Directors’ Responsibilities | | | --- | --- | --- | --- | --- | | across both Food and | priorities, Digital and Store | ofM&S globally improved | | Statements | | Clothing & Home as well as | NPS metrics have been | as NPS increased by | | | | continued positive sentiment | replaced with a single | 4percentage points | | | | towards our customer service | Omni-channel NPS | thisyear. | | | FINANCIAL STATEMENTS | were key drivers of overall | measure to track customer | | | --- | --- | --- | | Group NPS increasing by | satisfaction as they shop | 135 Independent Auditor’s Report | | 7percentage points this year. | across channels. | 144 Consolidated Financial Statements | 150 Notes to the Financial Statements 203 Company Financial Statements APM 205 Notes to the Company Financial Statements ALTERNATIVE PERFORMANCE MEASURES 211 Group Financial Record The report provides alternative performance measures (“APMs”) 213 Glossary which are not defined or specified under the requirements of 218 Notice of Meeting UK-adopted International Accounting Standards. We believe these 230 Shareholder Information APMs provide readers with important additional information on our 232 Index business. We have included a glossary on pages 213 to 217 which provides a comprehensive list of the APMs that we use, including an explanation of how they are calculated, why we use them and how they can be reconciled to a statutory measure where relevant. COVER These icons, used throughout the report, Pure Cotton Printed Maxi Tiered Dress (T427541): indicate where you can find out more. Part of the Summer 23 campaign, the on-trend blue printed dress is £39.50, our best-selling dress price Read more point. M&S is now no.3 in the market for dresses, up from no.6 three years ago. Download M&S Tree Ripe Cox Apples: M&S is the only retailer to Link to Sustainability Report tree ripen its British Apples, ensuring a better flavour development and a richer colour. M&S has worked Website with its longstanding grower to use the method on four apple varieties and seen sales increase 19%. Annual Report & Financial Statements 2023 1 STRATEGIC REPORT ## CHAIRMAN’S LETTER ## We are now ## at last seeing ## the reshaping ## of M&S ## ta ke hold.” ## Archie Norman Chairman | DEAR SHAREHOLDER | This year almost all the main businesses | In reshaping the business, we still have | | --- | --- | --- | | When I arrived at M&S five years ago, | traded strongly, growing overall market | plenty of “old world” issues to tackle. | | weembarked on the most important | share in both Clothing & Home and | Because the cost headwinds remain | | turnaround mission in British retailing, | Food,despite a challenging consumer | strong, we are still “running up a down | | tobring this great British brand back | environment and strong regulatory | escalator”, not least because we rightly | | tohealth after years of drift. Of all the | headwinds. Overall I measure our | committed to a near 10% pay award to | | turnarounds I have been part of, this has | progress by the extent of change in the | support our colleagues through the cost- | | been the slowest and most intractable; | business and customer reaction to | of-living crisis. Our central support | | reflecting the deep-rooted nature of | product and service. Our ratings for | functions and supply chain processes | | ourproblems and culture at the | style, quality and value in Clothing are | remain inefficient by industry standards. | | ‘oldM&S’,but we are now at last seeing | well ahead and in Food, value perception | That means we must become leaner and | | the reshaping of M&S take hold with new | is at the highest it has been in six years | invest in improved technology support, | | energetic leadership, new strong trading | and our lead on quality has widened. | as well as supply networks. This is where | | results and the prospect of a return | | the “spirit of the turnaround” with the | At its core our strategy is clear: to todividends. imperative for change needs to be deliverexceptional product ranges at rekindled and sustained as the desire to Stuart Machin succeeded Steve Rowe as trusted value; shift our sales into high revert to business as usual at M&S is Chief Executive at the beginning of the performing growth channels; rationalise always strong. year with Katie Bickerstaffe as Co-Chief the rest and underpin it with a modern Executive reporting to Stuart. All new omni-channel infrastructure and lower I believe the M&S Board should be an leaders need to arrive with a bang, create cost base. Years of indecision had left engaged Board helping drive the new energy and set direction early. In the M&S with a sprawling store network, strategy by supporting and challenging last twelve months the sense of pace, including some historic but “legacy” the executive team. With the extent of openness to change and delivery of stores. By rotating into new high modern governance pressures, it is easy performance has accelerated. TheM&S productivity digitally-enabled stores in for Boards to lose their “edge”. We run challenge has always been fundamentally our new “renewal” format we can increase avery active Board involvement about culture, talent and organisation sales and margins and the year ahead will programme and our meetings are never and the change is palpable. see some exciting new developments. dull. Following their appointments in May, Katie and Stuart joined the Board M&S is a family of businesses each Our objective is to grow online, so that and through the year we welcomed withdifferent economics, suppliers 50% of our Clothing & Home business Ronan Dunne and Cheryl Potter as andconsumer dynamics bound willbe ordered online, and with a margin non-executive directors. Ronan has led togetherby a common brand, values that will exceed the store average. many businesses through technological andtrading philosophy. Thischannel shift will be supported by and people transformation and Cheryl our emerging competitive advantage brings a strong private equity ondata, so we will be able to talk to each shareholder lens as well as retail customer as an individual, moving away turnaround experience to our Board. from “one message fits all” marketing. Since Cheryl joined us in February, we now have a majority of women round thetable. 2 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS At the end of December, Andy Halford - our superb Senior Independent Director and Chair of the Audit Committee - stood ## HOW GOVERNANCE down from the Board after ten years and ## goes with our thanks. IS SUPPORTING M&S We believe M&S has to fight its corner in public life, standing up for our business and values, as well as our colleagues, ## customers and the thousands of trusted Reshaping suppliers – large and small – who work with us. We live in a world where retail, especially food, has become the “politicians playground” and we have to STAKEHOLDER ENGAGEMENT defend the customer’s right to choose. Our stakeholders underpin everything we do and Sowe have fought high profile are fundamental to the delivery of our strategy. campaigns on the Northern Ireland | Protocol and customs controls with | Read more in Our Business Model and | | --- | --- | | some success in the form of the Windsor | Stakeholder Engagement pages 8-11 | | Agreement. We are also leading a | andS.172Statement on pages 80-82 | national “Share your Voice” campaign to bring back retail shareholder democracy fit for a modern digital era. If M&S does not stand up for the small shareholder, ‘SHARE YOUR VOICE’ CAMPAIGN who will? This campaign aims to give all shareholders a voice by improving communication Given the scale and passion of our retail and engagement. shareholder base, we want to use today’s technology to make it easier to have a Read more in the Chairman’s stake and say in M&S and I look forward Governance Letter on pages 68-69 to welcoming many of you to our next digital AGM in July. Colleague culture and values are centralto our M&S history and we ANNUAL GENERAL MEETING (‘AGM’) wanttorecreate a business where every Following the success of previous years, colleague at every level can have a the2023AGM will once again take place sayand feel listened to. The support asadigitallyenabled meeting. from our store managers, the Business Involvement Group representatives and Read more in the Notice of Meeting all our colleagues across the business, onpages218-229 including Gist who have now joined the family, has been magnificent and we thank them all. Yours sincerely, NED APPOINTMENTS The Nomination Committee led the recruitment and appointment of two new Non-Executive Directors, Ronan Dunne and Cheryl Potter. Read more in the Directors’ biographies on Archie Norman pages 73-73 Chairman Details of the appointment and induction process can be found in the Nomination Committee Report on pages 85-89 ### SHARE YOUR ### VOICE Annual Report & Financial Statements 2023 3 STRATEGIC REPORT ## CHIEF EXECUTIVE’S REVIEW ## STRONG RESULTS AS M&S RESHAPES FOR GROWTH ## M&S is a ## special business ## with so much ## potential.” ## Stuart Machin Chief Executive Officer | OVERVIEW | Food sales grew 8.7% with like-for-like | RESHAPING M&S | | --- | --- | --- | | One year in, our strategy to reshape | sales up 5.4%, outperforming the market | TO DELIVER | | M&Sfor growth has driven sustained | in volume and value terms, as | LONG-TERM GROWTH | | trading momentum, with both businesses | webroadened appeal through focused | | M&S has a heritage of quality, style, continuing to grow sales and market product development and investment in innovation and value for money and share. Our Food and Clothing & Home trusted value. While investment in value during the year, was voted the UK’s most businesses invested in value to protect reduced margin, the positive customer trusted brand. After a number of years customers from the full force of inflation response supported the delivery of ofsubstantial change and investment, which, whilst impacting margin, was the improved trading performance in the astrengthening omni-channel position right thing to do as serving our second half. Margin in the second half in Clothing & Home and the broader customers well is the only route to also benefitted from the strategic reach of Food, including through delivering for our shareholders. acquisition of Gist. theOcado Retail joint venture, there | STRONG TRADING RESULTS | International sales were up 11.2% at | aresignificant opportunities for | | --- | --- | --- | | M&S delivered strong results in 2022/23 | constant currency, driven by demand | profitable growth. | | despite significant inflationary cost | forclothing from global partners. | | During the year, supported by Katie headwinds impacting margins, Asaresult, profits recovered despite Bickerstaffe as Co-CEO, I set out our reflectingthe benefits of our programme thecombined impacts of the exit priorities to reshape M&S to deliver to reshape for growth. Profit before tax fromRussia and ongoing EU border- sustainable growth. To support the and adjusting items for the period was related costs. implementation of our plan, Jeremy £482.0m (2021/22: £522.9m). Statutory Ocado Retail sales were down 1.2%. Townsend was appointed to the team as profit before tax was £475.7m (2021/22: Whileactive customers grew, revenues CFO in January 2023, and I am pleased £391.7m). Prior year results included reflected reduced volumes as a result of tosay he will remain with the business £59.8m of UK business rates relief and lower shopping frequency post- until May 2025. anet rates charge of £139.7m compared pandemic. Profitability was impacted by with a net rates charge of £186.6m in This Annual Report updates on our the effects of higher fixed costs from 2022/23. delivery against this plan, setting out under-utilised capacity, the impact of how these priorities will deliver profitable Clothing & Home grew sales 11.5% which we are working together to reduce, sales growth, improve operating margins, withlike-for-like sales up 11.2% driven as we build customer numbers over time. provide investment choices and drive byamoreconfident approach to buying Read more in our Financial Review shareholder returns. The nine priorities anda focus on the modern mainstream pages 35-41 are summarised below. customer, which is starting to drive better style perceptions. While store Exceptional product, trusted brand: sales outperformed, online sales were Developing exceptional product also up, with growth in Click & Collect worthy of a trusted brand, through sales, active App users and Sparks investment in great tasting, value for loyalty membership. Alongside this, money, quality Food and developing volume and value market share increased. stylish, great value, quality Clothing &Home ranges. 4 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Leading in omni-channel: OUTLOOK AND GUIDANCE Drivingomni-channel growth. M&S has had a good start to the new Increasing the participation of financial year, with both Food and ## WHERE TO FIND OUT Clothing & Home online sales, through Clothing & Home growing sales. While leveraging the national store and theeconomic outlook for consumer distribution network, to offer a spending is uncertain, cost inflation ## convenient and consistent service remains high, and market conditions are more however and wherever customers expected to become more challenging, choose to shop. And growing the strategy is beginning to deliver OUR EXTERNAL MARKET utilisation of Ocado Retail’s capacity, improved performance and there ENVIRONMENT by providing superior service, market- remains much within the Group’s control. leading choice and M&S products. Read more on pages 6-7 In FY24, modest growth is expected in Expanding global reach: revenues, driven by omni-channel as well Capitalisingon the strength of the as from the benefits of the accelerating M&S brand to grow global sales store rotation plan. Further investment in through capital light partnerships quality and trusted value will be partly andthe development of a multi- offset by actions to mitigate sourcing platform online business. cost pressures and to reduce waste and stock loss. Structurally reducing costs: | Making£400m of structural cost | Cost inflation includes over £50m of | | | --- | --- | --- | | savings over five years, reducing cost | energy costs as well as colleague pay | | | to serve and growing our margins | increases of more than £100m, which are | | | through technology improvements | expected to be offset by the delivery of | OUR STRATEGIC PRIORITIES | | toincrease retail and supply chain | over £150m of in-year savings from the | | Read more on pages 12-13 efficiency and simplified and structural cost reduction programme. streamlined digital, technology This gives scope to invest in customer andsupport centre functions. service and digital development, while DELIVER IMPROVE controlling costs. PROFITABLE OPERATING Creating a high-performance SALES ## margins culture: A simpler, faster, delivery Despite facing significant headwinds, ## growth focused business which is passionate weare encouraged by the strong about M&S products, puts the foundations established last year. customer first and has the digital DIVIDEND skillset to make fast, informed We suspended dividend payments at decisions. DISCIPLINED DRIVE thestart of the pandemic to protect | | | INVESTMENT | SHAREHOLDER | | --- | --- | --- | --- | | Accelerating store rotation: | ourbalance sheet. This enabled us to | | | | Accelerating store rotation and | invest inour transformation priorities | choices | returns | | renewal to create a more productive | andtrusted value. With the business | | | | estate of c.180 full line stores and | generating an improved operating | | | | opening more than 100 new Food | performance and having a strengthened | | | | stores positioned in growth locations, | balance sheet with credit metrics | | | | which support omni-channel retailing. | consistent with investment grade, the | | | Board plans to restore a modest annual Modernising our supply chain: OUR FINANCIAL PERFORMANCE dividend to our shareholders starting Modernising the supply chain to with an interim dividend at the results Read more on pages 34-41 improve availability and customer inNovember. service, while reducing costs and working capital. THANK YOU TO OUR REMARKABLEPEOPLE Compelling customer ecosystem: M&S is such a special business with so Creating a more engaging and much potential, and I want to thank all connected customer experience to ofmy colleagues for their contribution drive omni-channel growth. This tothese results. Delivering performance brings together the Sparks loyalty and driving change is everyone’s programme and payment options, responsibility at M&S, and they have supported by an effective and more done a remarkable job. Despite facing efficient technology infrastructure. significant headwinds, I am encouraged OUR APPROACH TO Disciplined capital allocation: by the strong foundations established SUSTAINABILITY Disciplined capital allocation, to last year and excited about what we can Read more on pages 32-33 strengthen the balance sheet, achieve in the year ahead. reinstate an investment grade rating for our debt and restore dividends. Robust liquidity and balance sheet metrics allow for a further bond repurchase exercise of c.£225m in Stuart Machin respect of our medium-term Chief Executive Officer maturities. Annual Report & Financial Statements 2023 5 STRATEGIC REPORT ## CEO & CO-CEO ## HOW M&S HAS RESPONDED TO ## THE EXTERNAL ENVIRONMENT ## Stuart Machin Katie Bickerstaffe Chief Executive Officer Co-Chief Executive Officer ### COST-OF-LIVING CRISIS How has M&S supported How has M&S supported KB As in Food, great value in Clothing & ## Q its colleagues? Q its customers? Home means more than just price, italso means great cost per wear, SM Whether you’ve been running SM We know value has been the hand-me-down quality, the ahome or running a business, singlemost important factor for confidence that it will fit and also everyone across the country has felt customers when deciding where wash well. Ultimately, customers the pressure of rising costs this year. toshop. Over the last three years want clothing that is made well and It was the top concern for our wehave started to change value made to last. Through our Back-to- colleagues, and we wanted to do perceptions of M&S thanks to the School marketing campaign we what we could to help ease some investment we have made in price showcased how we extend the life ofthat strain. Throughout 2022/23 – particularly in Food. Of course, at ofour school ranges through we invested over £46m in front-line M&S value isn’t just about price – it durable design features and colleague pay across two separate means never compromising on the innovations – such as grow-proof pay rises, including our first ever quality standards our customers hems and adjustable waistbands. Autumn pay review. In February expect. We wanted to protect this InJanuary, we launched “Value 2023, we announced a commitment and invested again in our value. YouCan Trust”; a Clothing & Home to invest a further £57m in store Read more on page 14 campaign designed to reaffirm our colleague pay, meaning the hourly value credentials and reassure on rate has increased 20% over the last Across both businesses we have our promise of stylish clothing at two years. When combined with focused on protecting prices on agreat everyday price without pension and benefits, this gives theproducts that matter most compromising on the quality M&Sone of the strongest reward tocustomers. In Food, alongside andstandards customers expect. packages in retail. oureveryday Remarksable ranges we launched “Price Locks” on over We have also been agile to have the KB Alongside pay, we have protected 100 customer favourites to give right product mix for cost conscious front-line roles this year. We also them certainty onthe products they customers. Their concerns peaked in wanted to offer practical support to love to shop. Customers have the Autumn with the reality of rising our colleagues. We used awareness noticed the difference, with M&S energy prices, so we bought deeper weeks to make sure colleagues knew price comparison videos going viral into warmwear ranges and launched about the help available to them – onTikTok. In Clothing, asthe market a “Cosy Shop” in September – such as our free financial planning leaders in Back-to-School season, offering great value on thermal workshops and the Unmind mental we took the decisionto hold prices ranges and unique innovations such wellbeing App. With input from our on uniforms last summer. as M&S Snuggle™, which sold 79% colleague listening schemes and Schoolwear is an essential purchase more than last year. BIG – our colleague representative for millions offamilies, and we group – we introduced free sanitary wanted them tohave confidence in products across all sites and stores the value ofour uniform. and a free meal per shift for colleagues at our Distribution Centre in Castle Donington. It was clear that Christmas was a particular pinch point, so we gave a £250 giftcard to store and junior colleagues to provide just a little extra help towards their celebrations. 6 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ### CUSTOMER PRIORITIES AND BEHAVIOUR REGULATION How has the external environment What technology trends How has M&S responded to ## Q impacted customer behaviour? Q haveinfluenced customer Q newregulation this year? shopping habits? | SM After the disruption of Covid, | | | | SM We know that health is a priority | | | --- | --- | --- | --- | --- | --- | | | customers were determined to | KB Ease of payment is an increasingly | | | forcustomers and 43% want to eat | | | enjoy events and occasions this | | important factor for customers in | | more healthily. We want to make | | | year. Our Family Matters Index | | building a relationship with a retailer. | | thiseasier for them and this year | | | (below) found they were prepared | | Digital payments have grown | | wecommitted to a new target of | | | tocut back in other areas to protect | | exponentially in recent years, and | | 62% of sales coming from healthier | | | these celebrations and eating out | | Apple Pay, Google Pay and PayPal | | products including our Eat Well | | | was the first thing to go. We | | are three of the most widely used | | ranges by 2025/26. As part of this, | | | responded in two ways in Food; | | Apps globally today. | | wehave an ongoing reformulation | | | firstly, through increased innovation | | | | programme to improve our | In October we launched Sparks Pay. in our event ranges and secondly, products, and this includes Unique to M&S, it’s a fully regulated bymaking sure we offered a great reducingHFSS (High Fat, Salt, digital credit account which gives value alternative to dining out. Our Sugar)within our ranges. Sparks customers a seamless, much replicated Dine In deal was personalised, one-click payment However, the implementation of launched in response to the 2008 experience on M&S.com and the thenew HFSS regulation across downturn and we have refreshed the App. This creates one definitive way England this year has placed offer with more of our Gastropub to pay at M&S, making it easier for additional operational complexity ranges and exciting new restaurant customers to purchase their and cost on a sector already under quality products like our slow favourites, and be rewarded for huge inflationary and logistical cooked meats, to make it feel really shopping with us. pressure. Compliance with the new special again. location requirements in England The customer base in our Sparks KB We saw a similar story in Clothing. required extensive preparatory work loyalty programme gives us a strong Customers are enjoying the return across our stores and we remain platform to test and trial, and this of events – particularly holidays. uncertain about the impact it will year we have started experimenting Over half of M&S customers told have across the wider business, as with different subscription models– usthey are planning a beach holiday we await consultation responses in such as Sparks Delivery Pass – and three quarters planned to both Wales and Scotland. Whilst we sowecan make shopping with refresh their summer wardrobe. support the regulation’s ambition M&San established part of That’s why we have extended the todrive healthier choices, we are customerroutines. size and scale of our “Holiday Shop” yetto see the influence it has on and brought forward the online SM Customer expectations for consumer behaviour. launch to January. personalised experiences Separately, we very much welcomed continuesto grow and with the SM Despite cost-of-living concerns, the decision within the Autumn acquisition of fashion marketplace customers’ focus on sustainability statement to drop the proposal for Thread’s IP and source code in hasn’t dipped. In fact, many have an online sales tax which would have November, we have taken a “buy-not- seen living more sustainably as an made it even harder for retailers to build” approach to accelerating our opportunity to save money. For invest in the digital transformation capabilities in the space. Wealready instance, seven in ten UK adults are required to survive and grow in the know the incremental value changing their behaviour, with 85% of modern, digital era. personalisation can bring andwe those cutting back on food waste in anticipate that personalisation will particular, according to our latest generate morethan £100m of Family Matters Index. In response, we annualised incremental revenue launched our partnership with Tom forthe business. Kerridge to provide families with inspiration for affordable, delicious recipes designed around “all taste, less waste”, helping to reduce waste FAMILY MATTERS and use up leftovers. Last July, we also removed best before dates from The M&S Family Matters Index Over the past year over 300 fruit andvegetable launched in 2021, in partnership with we have seen family products (85% of theproduce we sell) research specialists Yonder. Each optimism fluctuate. to encourage families to throw away quarter we undertake in-depth Back in April 2022, less edible waste at home by using research with 5,000 UK adults to help the overall index score was 53, before their judgement. | | | us understand what really matters to | dropping to 49 in October as cost-of- | | --- | --- | --- | --- | | | | families in the UK, and to track their | living concerns became the dominant | | | | feelings, priorities, and ambitions in | force in families’ day-to-day lives. With | | | | the years to come. The quarterly | our most recent index, conducted in | | | | findings include an overall index score, | January 2023, the overall family index | | | | ranging from 0 to 100, specifically | score has recovered slightly to 51 | | | | measuring family optimism. A score | – an initial sign of cautious optimism | | Marks and Spencer Group plc | | above 50 represents a positive, | returning. | | The M&S Family Matters Index, April 2023 | | | | | | TITLE | optimistic perspective. | | HERE Read the Family Matters Index here Although the concerns, of which the foremost is corporate.marksandspencer.com/ family-matters FAMILY Annual Report & Financial Statements 2023 7 MATTERS 1 | Family index report STRATEGIC REPORT ## OUR BUSINESS MODEL ### M&S operates as a family of businesses across Food, Clothing ### & Home and International, each led by its own integrated ### management team with accountability for their divisions, ### including marketing, supply chain and finance. ### WHAT MAKES US M&S? TRUSTED BRAND A heritage of almost 140 years has built aunique relationship between M&S and the British public. M&S is a brand trusted to do the right thing by the people and communities it serves. Read more on pages 14-17 T H E G R O U P CLOSER TO CUSTOMERS Insight from the 30 million customers C O U N T A B L E M&S serves each year and a company- A C B U O F S I N I L Y E S wide culture that puts colleagues close M S E F A S to the front line, helps ensure we develop products and services that make M&S | | | | | | | | R O | U G | H | O M | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | T H | | | | | N I - | | | | | | more relevant, more often. | | | | | | G | | | | | | C H | | | | | | | | | | I N | | | | | | | | A | | | | | | | | E | R | | | | | | | | N | | | | | | | | I V | | | | | | | | | | N | | | | | | | L | | | | | | | | | | E | | | | | | E | | | | | | | | | | | L | | | | Read more on page 29 | | D | | | | | | | | | | | | | | | | | | | | | S | T O | M E | R S | | | | | | | | | | | | | C | U | | | | | | | | | | | | | | | | | S | T E D | B R | A | | | | | | | | | Food | | | | | U | | | N | | | | | Clothing | | | | | | | | | R | | | D | | | | | | T & Home CLOSER TO COLLEAGUES Over 64,000 remarkable people all have a role in delivering change and great service at M&S. They bring extraordinary Digital Stores passion for the business and deep O Y technical expertise in areas such as I T U | | | | R | | | | | | | I L | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | sourcing, fit and product development. | | | A | | | | | | | B | | | | | | | P | | | | | A | | | | | | | | P | | | | | I N | | | | | | | | R | | | | | A | | | | | | | | | O | | | S T | | | | | | | | | | A | C | | U | | | | | | Read more on pages 28-31 | | | | | H | T O S | | | | | | | | Property | | | | | | | | | Services | | | | | | C | O | | | | | | | | | | | | | L | L E | U | E S | | | | | | | | | | | A | G | | | | | EXCEPTIONAL OWN-BRAND PRODUCT Innovative and exclusive to M&S product, made and sourced with care Ocado by longstanding trusted supplier partners, with market leading animal welfare standards, ethical trading International programmes and a sustainable approach to raw materials. Read more on page 32 OUR APPROACH TO SUSTAINABILITY OMNI-CHANNEL ADVANTAGE Read more about our The scale and reach of our network of approach to sustainability 1,064 UK-owned and franchise stores can in ourSustainability Report connect the digital and physical marksandspencer.com/ shopping experience to make it easier sustainabilityreport2023 forcustomers to shop the way they want. M&S has a 50% investment in Ocado Retail and a growing global presence inover 100 international markets. Read more on pages 18-21 8 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ### CREATING VALUE FOR ALL OUR STAKEHOLDERS | | 1 | SHAREHOLDERS | | 2 | COLLEAGUES | | 3 | CUSTOMERS | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Building shareholders’ trust through | | | Reshaping M&S requires a high | | | Put simply, without customers M&S | | | | | continuous engagement helps secure | | | performance culture where delivering | | | would not exist. Maintaining and growing | | | | | their ongoing investment and support. | | | performance and driving change is | | | their loyalty ensures the enduring | | | | | Given the scale of our shareholder base, | | | everyone’s accountability. We are | | | success of our business. We put | | | | | we operate a bespoke engagement | | | committed to making M&S a great place | | | customers at the heart of everything we | | | | | programme for retail shareholders to | | | to work; that is close to its colleagues and | | | do and provide great service and | | | | | enable them to make informed decisions. | | | customers, where everyone has a voice, | | | exceptional quality product, at | | | | | As the business generates an improved | | | can be themselves and be their best. | | | remarkable value however they want to | | | | | operating performance with investment | | | That starts with all our colleagues feeling | | | shop with us. | | | | | grade credit metrics, the Board plans to | | | fairly rewarded for the work they do and | | | | | | | | restore a modest dividend to | | | we have invested to provide a leading | | | | | | | | shareholders, starting with an interim | | | pay and benefits package to front-line | | | | | | YouGov No.1 High street, | | dividend at the results in November. | | | colleagues. | | | | No. | | fashion and supermarket | ## 1 retailer for 2022 | 48,000 | £100m | | --- | --- | | shareholders registered | Announced investment | | for digital communications | in store colleague pay | | | | | 64 5 | PARTNERSCOMMUNITIES SUPPLIERS | | --- | --- | --- | --- | --- | | Community acceptance and mutual | Trusted suppliers enable us to provide | Our franchise and joint venture partners | | | | respect provides us with a licence to | customers with the high-quality, ethically | provide avenues to expand our reach and | | | | operate and ensures we are a force for | sourced and produced goods they | access new customers in the UK and | | | | good for the people and places we impact. | expect. Long-term partnerships with M&S | internationally. These relationships | | | | This includes the wider environment, | allows suppliers to create great products, | provide our partners with benefits, | | | | where considerate use of resources | build volume at equitable prices and | including access to the M&S brand and | | | | contributes towards our long-term | gives them confidence to invest in | distribution of our unique product. | | | | sustainability. | sustainable solutions and new | | | | innovation. This year we invested further M&S makes a difference to the causes that ## in third-party brand Nobody’s Child, 27 matter to our customers and colleagues enabling them to scale the brand. We Franchise partners globally through activity such as our Marks & Start also fund specific innovation projects employability programme, Neighbourly with our suppliers, such as Farming with food redistribution scheme, Sparks charity Nature and international gender partnerships and by making it easier to live empowerment programmes. sustainable lives with facilities such as shwopping clothes recycling and plastic take back schemes at our stores. ## £400,000 funding to Farming with Nature Innovation ## 19.9m meals redistributed across the UK OUR STAKEHOLDERS S.172 STATEMENT The directors confirm that, during the year, they have acted Read more: 6 1 in good faith in a way that best promotes the success of Stakeholder M&S for the benefit of shareholders as a whole. In doing so, Engagement: they have had regard for the interest of all M&S 5 2 pages 10-11 stakeholders, whilst preserving M&S’ reputation and ensuring our long-term sustainability. Our complete 4 3 S.172Statement: pages 80-82 Annual Report & Financial Statements 2023 9 STRATEGIC REPORT ## HOW WE ENGAGE WITH OUR STAKEHOLDERS ### Understanding what matters most to our key stakeholders. ## 1 2 3 SHAREHOLDERS COLLEAGUES CUSTOMERS | HOW WE ENGAGED | HOW WE ENGAGED | HOW WE ENGAGED | | --- | --- | --- | | – Our Private Shareholder Panel, a group | – Our Business Involvement Group (“BIG”) | – In 2022/23 we brought customers into | | ofshareholders selected from an annual | isthe Board’s key engagement method | our Support Centre for a series of focus | | ballot, attend meetings with our Board | with colleagues. The Chair of BIG | groups reaching over 400 of our Clothing | | and senior management. This year’s | represents the collective colleague | & Home colleagues. We have also | | events included a sustainability session | voiceby attending one Board and one | conducted “Closer to Customer” events | | held at our Company Archive in Leeds | Remuneration Committee meeting | with Business Unit Leadership Teams on | | and an introduction to Stuart to discuss | during the year. Discussion at these | various topics from Sleepwear to | | the new leadership team’s priorities. | meetings was focused on the cost-of- | Autograph. | living crisis and its impact on our – The AGM is our key engagement – This year we launched the “Collective”, an colleagues. | opportunity for two-way dialogue between | | online community where 40,000 loyal | | --- | --- | --- | | the Board and shareholders. Ourdigital | – Our colleague suggestion scheme, | customers are engaged by our Food | | AGM format over the past three years has | “Straight to Stuart”, allows colleagues to | colleagues on problems they are working | | driven shareholder engagement, trebling | submit their ideas and receive a response | on. This direct contact means customers | | participation levels. At the 2022 meeting, | straight back from CEO, Stuart Machin. | can influence decision-making and see | | leading radio and television broadcaster, | This year, we have introduced live | results first hand. Topics included | | Anita Anand, put questions tothe Board as | sessions broadcast online, providing | seeking views on digital receipts and | | shareholder advocate. Ourdrive to engage | colleagues with the opportunity to have | exploring future product ideas. | | shareholders led to the launch ofour | their ideas discussed and answered in | | – This year we set up a quarterly “Share Your Voice” campaign. real time by Stuart and the leadership reputationtracker. Run by Portland team. Communications, it surveys a robust Read more on pages 68-69 sample of 20,000 nationally Read more on how we engage with – Board members, alongside our Investor representative customers four times colleagues in the People & Culture Relations team, regularly engaged with ayear to give a view of how we are section on pages 28-31 | major shareholders to understand their | | performing on ESG issues. | | --- | --- | --- | | views on our strategic performance. | PRIORITIES AND OUTCOMES | | | | IN 2022/23 | PRIORITIES AND OUTCOMES | OurInvestor Relations team met with – Managing the cost-of-living crisis and IN 2022/23 over120 institutional funds, engaging with inflationary pressures has created many – As well as great quality, good product investors who we estimate represent over challenges for our colleagues. It is availability and an easy and enjoyable half of our issued share capital. In October, important to them that support provided way to shop both in store and online, the we held a Capital Markets Daywith by the Company is meaningful in cost-of-living crisis has put value firmly shareholders, led by the CEOand Co-CEO, reducing their uncertainty. As a result, atthe forefront of customers’ minds. to communicate our strategic ambitions two out-of-cycle pay reviews have been Thishas been a key driver for our toreshape the business for growth. implemented to combat increasing “Remarksable” and “Price Lock” PRIORITIES AND OUTCOMES initiativesin Food. financial pressures. IN 2022/23 – Our customers continue to be more – During the year, we have frequently heard Read more on page 81 conscious of their environmental from private shareholders that they are – Colleagues continue to tell us having impactand look for sustainable options. focused on receiving a return on their their voice heard in Company decision- In February 2023 we stepped up our investment through the reinstatement making is a priority for them. Numerous commitment to reduce plastic packaging ofadividend payment. While the Board suggestions from our “Straight to Stuart” through the roll out of our “BYOB” agreed not to pay a dividend in 2022/23, scheme have been approved, from initiative; asking customers to bring itdid so to retain and reinvest the funds providing sanitary items in women’s theirown bag when collecting online inthe business instead. The Board plans toilets, to including the option to add orders in store. We also campaigned for to restore a modest dividend to stammer symbols to name badges. improved collection and recycling shareholders, starting with an interim infrastructure in the UK for plastic dividend at the results in November. PRIORITIES FOR THE COMING YEAR packaging and textiles. – Our institutional shareholders have – The cost-of-living crisis is not expected to improve dramatically, and colleagues will PRIORITIES FOR THE COMING YEAR continued to tell us they are interested continue to expect our ongoing support – With economic uncertainty and potential inour strategy and how this will ensure over the coming year. financial strains, our customers will delivery of value and long-term, continue to shop for value and style. sustainable growth. Our transition to a low-carbon economy hasalso featured – We expect customers to be increasingly strongly in these conversations. interested in personalisation, including product recommendations, loyalty PRIORITIES FOR THE COMING YEAR rewards, and a seamless omni-channel – Shareholders will want to see experience. acceleration of our transformation plansto deliver long-term sustainablegrowth. 10 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 4 5 6 COMMUNITIES SUPPLIERS PARTNERS | HOW WE ENGAGED | HOW WE ENGAGED | HOW WE ENGAGED | | --- | --- | --- | | – M&S donated £5.8m to various charitable | – We measure supplier satisfaction using | – After three years of travel restrictions, | | organisations in 2022/23, and through our | the independent Advantage Report | we have returned to in-person strategic | | customers, colleagues, and partners we | Mirror to survey a proportion of our | partner events, bringing our global | | were able to fundraise an additional £2.3m. | supplier base each year. The annual | franchise partners together to view | | Through our Sparks programme we | Groceries Code Adjudicator survey also | future product and discuss the | | donated £2.1m to our 35 Sparks charity | provides valuable insight on sector | strategicdirection of the business. | | partners in the UK. | priorities and supplier perceptions. | This,combined with digital selling | events, fully enhance the buying – We helped create meaningful employment – In 2022/23, we held three conferences experience for our partners. for those facing barriers to work through toalign supplier partners with our Food our Marks & Start Programme. priorities. Suppliers were given – Each of our non-executive directors met theopportunity to meet the new Food the new CEO of Ocado Retail Limited, Read more on page 9 | | leadership team. We also held a series | Hannah Gibson, to be briefed on her | | --- | --- | --- | | – We conducted widespread consultation | of“Supplier Exchanges” focused on | plans for her first 100 days and the | | with our community, sustainability experts | sustainability and human rights to set | future of the joint venture. Hannah | | and local government on our plans to | out our Plan A requirements, introducing | thenattended the Board strategy | | redevelop the Marble Arch store, and how | tools available to suppliers to facilitate | awayday in February 2023, to maintain | | this will support our Plan A net zero goals. | best practice sharing across our | acollaborative relationship between | | | supplybase. | M&S and Ocado. | – The M&S Archive shared our unique heritage through education workshops, – In September 2022, we completed the Read more on the Ocado joint public outreach programmes, online events acquisition of our Food logistics provider, venture on page 20 | and digital resources. The Archive, which is | Gist. We engaged collaboratively with | | | --- | --- | --- | | based on the University of Leeds campus | Gist throughout negotiations, to | PRIORITIES AND OUTCOMES | | and open to the public, has undergone a | balancebusiness as usual with working | IN 2022/23 | | complete refurbishment this year. | towards transaction completion. | – Ensuring sustainable and socially | responsible practices is a key priority archive.marksandspencercom Read more on the acquisition forM&S and our Partners. We have onpages26-82 worked closely with franchise partners PRIORITIES AND OUTCOMES to engage them on our ambition to PRIORITIES AND OUTCOMES IN 2022/23 become a net zero retailer by 2040. IN 2022/23 – A priority this year was supporting those Thishas included developing local – Building and maintaining long-term, impacted by the conflict in Ukraine, and sourcing on Food with partner Al- collaborative relationships and receiving theearthquakes in Turkey and Syria, Futtaim in the Middle East and Asia, fair payment terms has remained a particularly important given our presence aswell as increasing the number of food priority. Our Payment Practice submissions in Turkey. As a result, in February, M&S products available to be shipped using in November 2022 and May 2023 show donated £100k to the British Red Cross a freeze defrost model, reducing our our average days to pay suppliers earthquake appeal, in addition to reliance on air freight. reduced bytwo days during the year. supporting the UNICEF and Oxfam appeals – An exclusive agreement was signed through doubling our Sparks donations. – For our suppliers based in Turkey, withbp pulse as an existing franchise recovery from the impacts of the – Our community is focused on ESG issues partner to expand its national charging earthquake is key. Shortly after the and is looking for M&S to be a socially network with high-speed electric disaster, we partnered with VISMO responsible company, that cares about its vehicle charge points at around Tracking to offer those on the groundin long-term impact on the communities and 70M&Sstores. Turkey access to its Panic Button app. the environment it operates in. This has been a key feature in the ESG Committee’s – Ensuring sustainable practices is Read more on page 82 | discussions. | important to us, and as a result we | | | --- | --- | --- | | | worked with our renewable energy | PRIORITIES FOR THE COMING YEAR | | Read more on pages 90-91 | partner, Green Span, to model a | – Continuing to maintain a strong | | | renewable energy solution across our | relationship between our business and | PRIORITIES FOR THE COMING YEAR milk supply chain. We have also worked its partners, unlocking further value – Many communities are yet to recover with Food suppliers to establish andinnovative ways of working. from the impacts of the pandemic and roadmaps on carbon reductions. are likely to continue to rely on companies to provide financial support PRIORITIES FOR THE COMING YEAR and to invest in improving employability – Price will, of course, continue to be an and job creation. important factor for suppliers to remain competitive. However, as customers – Next year, we will be establishing a new become increasingly conscious of community strategy to address the sustainability, we expect suppliers to challenges that matter most to our lookto us to support their sustainable communities. innovations. Annual Report & Financial Statements 2023 11 STRATEGIC REPORT ## OUR STRATEGIC PRIORITIES ## RESHAPING FOR GROWTH AND VALUE CREATION EXCEPTIONAL PRODUCT, TRUSTED BRAND Protecting the magic customers love – driving quality, innovation and style at great value. LEADING IN OMNI-CHANNEL INCLUDING OCADO Becoming the UK’s leading omni-channel retailer, offering a seamless experience. EXPANDED GLOBAL REACH Leveraging the M&S brand to drive capital light growth around the world. ### Generating ## profitablelong- DELIVER ## term sales growth PROFITABLE SALES ### acrosschannels ### andmarkets. ## growth Read more on pages 14-21 ### Implementing ## capitalinvestment DISCIPLINED ## programmes to shift INVESTMENT ### volume into growth ### channels and reduce ## choices ### the cost base. Read more on pages 24-26 ACCELERATING STORE ROTATION Improving the productivity, profitability and quality of space to create a store estate fit for the future. MODERNISED SUPPLY CHAIN A faster and more agile M&S, reducing cost to serve in both Food and Clothing & Home. COMPELLING CUSTOMER ECOSYSTEM Connecting every customer engagement across M&S. 12 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ### During the year the new leadership team set out plans to reshape ### M&S to deliver sustainable, profitable sales and market share growth, ### and improve operating margins over time. These plans include the ### creation of a high performance focused culture, prioritisation of ### structural cost reduction and disciplined investment in the areas that ### will deliver long-term shareholder returns. STRUCTURALLY LOWER COST BASE Permanently removing £400m from the underlying cost base across M&S. HIGH PERFORMANCE CULTURE Building a leaner, faster M&S that is closer to customers and colleagues. ### Building a more ## IMPROVE productive M&S with ## OPERATING a culture of delivery. Read more on pages 22-23 ## margins ### Embedding a single- ## DRIVE minded focus on ## SHAREHOLDER value creation for ### our shareholders. ## returns Read more on page 27 DISCIPLINED CAPITAL ALLOCATION Investing in growth opportunities with returns commensurate with risk. Annual Report & Financial Statements 2023 13 STRATEGIC REPORT ## OUR STRATEGIC PRIORITIES CONTINUED ### DELIVERING ### PROFITABLE SALES ## growth ### M&S’ goal is to deliver profitable long-term sales ### growth through developing Exceptional Product and ### a Trusted Brand, offering a Leading Omni-channel ### retail experience including through Ocado Retail and ### Expanding the Global Reach of the business. This included: EXCEPTIONAL PRODUCT, – Sharpening the prices of over TRUSTEDBRAND 100‘Remarksable value’ lines which | FOOD OUTPERFORMS DUE TO | offer M&S quality at everyday prices, | | --- | --- | | INVESTMENT IN INNOVATION | implementing locked prices across | | AND TRUSTED VALUE | arange of c.150 everyday family | | The objective for Food is to achieve 1% | favourites and moving the iconic | | growth in market share and an adjusted | Dine-In offer to Always On – offering | | operating margin of c.4% over the next | anaffordable, restaurant-quality | | five years. This will be delivered through | alternative to eating out. | “protecting the M&S magic” of trusted – As a result, the mix of value lines value and innovation in fresh, easy-to- increased. For instance, Remarksable cook food, while fixing the backbone sales were up 40%, and featured in processes of the supply chain and over20% of customer baskets. Dine-In drivinggrowth in the store estate. launches such as “steak and chips” Food grew sales 8.7% to £7.22bn with alsodrove substantial sales growth like-for-like sales up 5.4%, with inthe offer. particularly good growth in hospitality and franchise. Sales in core categories were up 5.0% and well ahead of pre-Covid levels, reflecting the strategy to broaden appeal. Grocery market share increased ## VALUE GOES 20bps to 3.6%, with M&S outperforming all major full-line supermarkets. (source: Kantar 52 w/e19 March 2023). Operating Profit before adjusting items ## viral of £248.0m compared with £277.8m in Customers have really noticed our the prior year (which included £24.6m of investment in value this year and have business rates relief), resulting in a net taken to social media to tell the world adjusted operating margin of 3.4%. about it, with one TikTok post comparing | While investment in value reduced | M&S Remarksable ranges to a value | | --- | --- | | margin in the first half, as we did not pass | competitor generating over 1.4 million | | through the full impact of cost inflation | views. To maximise the power of peer-to- | | to customers, the resulting positive | peer recommendations, customer social | | effect on customer volumes drove sales. | media comments have been added to | | Combined with an in-year contribution to | store window displays too. M&S store | | operating profit from the Gist acquisition | social channels across TikTok and | | of £27m, this enabled an increase in | Facebook reach up to 3 million | | second half adjusted operating margin | customers every single week and the | | to 4.5%, compared with 3.8% last year. | in-store social champions across the 600 | accounts have been getting creative to Growth underpinned by investment make M&S value go viral, with M&S intrusted value: In recent years, Food Devizes store topping 1.2 million views on has shifted to trusted value to broaden its ‘What £20 can get you in M&S’ video. appeal, reducing the volume of promotions and become competitive atopening price points. At a time when customers’ focus is on the cost-of-living, ## 3m further investment was made early in the year, which meant that the business did Customers reached every week not pass through the full impact of cost via store social channels inflation on its margins. 14 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Performance fuelled by innovation andinvestment in basket building categories: The innovation pipeline helped to increase sales of fresh ## Raising categories across the year and ambient products over Christmas, Valentine’s and ## WELFARE Mother’s Day when event sales grew by ## STANDARDS an estimated 20%. Product launches included: We’re determined to keep raising the – A programme of quality upgrades bar when it comes to animal welfare withM&S winning c.200 “tried and standards. We offer more RSPCA tested” awards from titles such as Assured products than any other GoodHousekeeping. For instance, retailer and this year, took on our theintroduction of Oakham™ Gold biggest challenge yet. In 2021, we chicken means that all the fresh announced our ambition to become chicken sold is now slower-reared, the first major retailer to sell only British and RSPCA Assured. slower-reared, higher welfare chicken | across our fresh chicken products. | – Strong seasonal launches such as | | --- | --- | | InSeptember, we met that goal – a | the“Master Grill” range for summer | | move welcomed by RSPCA Assured | barbeques and limited editions for | | as “the biggest positive change to | keyevents. | | chicken farming in a generation”. | – Reset and relaunched ranges aimed at | | Our Hubbard breed birds now | driving market share in larger baskets | | have20% more space, benefit from | including soft drinks, household | | amultigrain diet, and have an | cleaning, frozen desserts, and cereals. | enhanced environment, including Quality and value perceptions highest pecking aids and perches, to insix years: M&S continues to generate encourage natural behaviours. market-leading quality and sustainability Themove, in line with the Better perceptions in Food, while the continued Chicken Commitment, builds on strategy of investment in trusted value ourlong history of leading animal has driven improved perceptions of value. welfare standards. Customers can find our slower-reared, higher-welfare fresh Oakham™ Gold chicken across stores, alongside our free-range andOrganic offering. ## 365 RSPCA Assured products STRATEGIC KPIs FOOD Market share Value for money perception | 3.6% | -3 | | --- | --- | | 21/22: +0.2% | 21/22: -3ppt | | Market share grew as M&S | Rising costs caused value | | invested in trusted value and | perceptions across the market | | innovation. | to fall this year. However, M&S | investment drove improvements across the year and its position relative to the market is now its strongest in six years (Source: YouGov). Quality perception Availability | 66 | 94.5% | | --- | --- | | 21/22: +1ppt | 21/22: Level | | M&S grew its lead in quality | Against a backdrop of market | | aswe continued to invest | wide supply chain challenges | | inupgrading our ranges | availability remained level. | | (Source: YouGov). | The acquisition of Gist will | support future improvements. Annual Report & Financial Statements 2023 15 STRATEGIC REPORT ## OUR STRATEGIC PRIORITIES CONTINUED ### DELIVERING ### PROFITABLE SALES ## growth ## FINDING OUR ## sweet spot ## in dresses Dresses are a key category in driving style perception and reducing the number of products across Clothing & Home has given us an opportunity to invest in category resets. Three years ago M&S ranked 6th in dress market share and now holds 3rd spot. This has been achieved by an overhaul of our pricing architecture, modernising our designs with forward-looking prints and taking a more confident trading approach with more open buys and testing earlier reactions in Spring and repeating. With a clearer and simpler strategy, we went after the consumer demand for versatile dressing – dresses that can be dressed down witha pair of trainers but equally dressed up for an occasion to really give our customers the cost per wear we know they are looking for. It was in FY2022/23, that we really established oursweet spot with the £39.50 price point – last year we sold more than 718,000 units, with the printed square neck midi dress (pictured to the right) our current best-seller, selling more than 9,000 units. As a result, casual dress sales have increased 40% vs. lastyear. ## +40% casual dress sales vs. last year ## #3 UK market share 16 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS | CLOTHING & HOME DELIVERING | Strong performance of event related | STRATEGIC KPIs | | --- | --- | --- | | IMPROVED STYLE PERCEPTIONS | categories: In a year when customers | CLOTHING & HOME | | ANDSUSTAINING LEADING | were making the most of the return of | | | VALUEPOSITION | events, weddings and holidays, growth | Market share | | The objective for Clothing & Home is to | was generated in top end ‘Autograph’ | | | deliver a 1% increase in market share and | sales while making further progress | | ## 9.3% an adjusted operating margin of c.10% incasual wear. over the next five years, by driving 21/22: +0.4% – Men’s ‘Autograph’ sales increased omni-channel growth of a stylish, c.60% while chino sales increased by M&S market share quality,value for money M&S range, c.25%, reflecting the strategy to strengthened this year as alongside a family of partner brands. | | builda‘smart separates’ business | itoutperformed on a value | | --- | --- | --- | | Clothing & Home grew sales 11.5% to | forworkwear. A focus in the current | and volume basis. | | £3.72bn with like-for-like sales up 11.2%. | year is on the introduction of more | | | Full price sell-through at 88% was level | regular newness. | | | with last year and well above historical | | Value for money perception | – Kidswear and Home offer important levels. Clothing & Footwear market share potential for improvement in market increased 30bps to 9.3% (source: Kantar ## share. However, growth in the year 37 52 w/e 2 April 2023). wasmodest, in a more difficult 21/22: Level Store sales increased 14.9% to £2.5bn with market,against pandemic related Customers continue to strength in city centre and shopping comparatives. Having established a recognise M&S as a value for centre locations. Online grew 4.8% to stronger value position, the aim is to money clothing retailer and £1.2bn, with strong growth in Click & build increased awareness and appeal ithas held its leading position Collect sales, which were up c.20%, of the range. For instance, partnerships this year (Source: YouGov). withmore than one third of orders now such as Fired Earth are being expanded generated through the M&S App. across more categories. Operating Profit before adjusting items Sustained, market leading value Quality perception | of £323.8m compared with £330.7m in | perception: As a result of improvements | | | --- | --- | --- | | the prior year (which included £35.2m | to the range and investment in trusted | | | ofbusiness rates relief), an increase of | value, we have held a leading value | 55 | | 9.6% excluding the impact of business | perception in recent years, alongside | 21/22: +1ppt | | rates. Adjusted operating margin of | Clothing & Home’s lead for quality and | | Customers continue to rank 8.7%is now c.170bps above 2019/20. sustainability. Encouragingly, style M&S above the competition Overall results reflected the leverage perception is also now improving. when it comes to quality and from sales growth offsetting cost positive perceptions grew a pressures, particularly from sourcing and further percentage point this currency as we did not pass through the year (Source: YouGov). full impact of cost inflation to customers and from planned digital investments. Style credentials improving with more confident buying: A more confident approach to buying, and focus on the modern mainstream customer, is starting to deliver increased value for money and style perceptions. – Clothing & Home has focused on buying more deeply into core lines and offering clearer price points and better availability. For instance, women’s denim sales have grown over several years, cementing M&S’ leading market share in the category, which has increased to 13% from less than 10% twoyears ago. – Greater investment has been made into categories which drive style perception. For example, casual dress sales grew 40% in 2022/23. As the strength of demand became apparent, increased purchases of popular lines were made using short lead-time supply routes, meeting demand while managing markdown risk. – The improved range is supported by digital analytics to assess profitability per option more accurately. In addition, availability is being measured, and stock is being allocated on a demand weighted basis. Annual Report & Financial Statements 2023 17 Annual Report & Financial Statements 2023 17 STRATEGIC REPORT ## OUR STRATEGIC PRIORITIES CONTINUED ### DELIVERING ### PROFITABLE SALES ## growth ## BRING ## your own bag Across Clothing & Home, we have removed 60m units of plastic since ## 2018, but we know we need to find 9% newand better ways of doing things. Click & Collect orders This year, we stepped up our packed in store commitment to reduce our use of plastic packaging, launching a new ‘BYOB’ – Bring Your Own Bag – Click & | Collect initiative in 251 of our stores. | 10m | | --- | --- | | More than 60% of our customers opt | units of plastic | | for Click & Collect – that’s over 15 | saved annually | million orders annually and, of those orders, 9% are picked and packed in stores – the equivalent of four million parcels. By simply asking customers STRATEGIC KPIs to bring their own bag when OMNI-CHANNEL collecting these orders, we will reduce unnecessary packaging waste, saving Percentage of UK Clothing 10 million units of plastic annually. & Homes sales online ## 32% 21/22: -2.1% Acquiring, converting and retaining Whilst online sales grew, the LEADING IN OMNI-CHANNEL, customers: Customers who move from percentage of Clothing sold INCLUDING OCADO shopping in one channel to multiple online dipped marginally channels and products typically spend dueto a strong store sales Omni-channel development, supporting more. An effective and profitable way performance. growth in Clothing & Home online: toserve these omni-channel customers Clothing & Home’s objective is to increase is through the M&S App. online sales participation and achieve a better margin for online sales. We aim to Active App users – Use of the M&S App and associated drive online growth through increased Sparks memberships continued to frequency and spend and using the grow with average active App users ## 4.3m national store and distribution network to increasing by c.40% to 4.3m supported 21/22: +40% offer a convenient and consistent service. by sign up campaigns such as the ‘12 days of Sparks’ in December when Investment in new App Online sales grew 4.8%, driven by an users could gain access to exclusive functionality helped drive improved omni-channel proposition, offers and rewards. strong growth in active with strong growth in Click & Collect Appusers. | sales which were up 20%. Customer | – The aim is that the App should provide | | | --- | --- | --- | | orders grew 12.6%, despite the effects | apersonalised “shop front” to the M&S | | | ofcourier capacity constraints over | brand and Sparks loyalty membership | | | peaktrading. This was partly offset | and connect the store and online worlds | Omni-channel NPS | | bythe normalisation of returns rates | through services such as easy collection | | | post-pandemic. As expected, online | & returns and “Scan and Shop”. | | ## +39 adjusted operating profit margin – Upgrades to the online experience New metric | reduced to 5.0% from 9.1%, this was due | have included “one click” checkout | | | --- | --- | --- | | to sourcing cost pressures which reduced | withdigital receipts and improved | To align with our strategic | | gross margin and planned investments in | functionality in the App. At the same | priorities, Digital and Store | | digital and omni-channel improvements | time, development of automation has | NPS metrics have been | | to drive future growth. | driven further growth in the volume of | replaced with a single | | | personalised interactions. | Omni-channel NPS measure | to track customer satisfaction as they shop across channels. 18 Marks and Spencer Group plc | Creating a convenient and consistent | Early stage growth of third-party | | --- | --- | | service across channels: The national | brands: M&S now trades with over 140 | | store and distribution network provides | partners, strengthening the customer | ## GROWING | an important customer service | offer where brands are important such | | --- | --- | | advantage with over 60% of orders | asdresses, sports, home and beauty. | | collected at store and more than three | Third-party brands help attract new | | quarters of returns processed through | shoppers, who also buy M&S products. | ## Nobody’s the store network. – Total sales of Clothing, Beauty and – Digital Click & Collect is being rolled Home brands increased 67% to £158 m. out to the estate enabling rapid Online brands sales now represent ## Child collection and we have implemented c.8% of total online sales. self-service returns, reducing the cost Nobody’s Child was the first – Launches during the year included of processing and turnaround time for third-party brand to launch on Clinique and Benefit in beauty and resale. | M&S.com in November 2020 and | | anextended sports offer through | | --- | --- | --- | | a year later, M&S cemented the | – Using in-store fulfillment to expand | TheSports Edit on M&S.com. | | partnership by taking a c.25% | capacity allowed 9% of items ordered | | – Having grown rapidly from a standing stake in Nobody’s Child. online to be filled from store stock. We start, investment is being made to are also trialling the resale of Clothing simplify on-boarding for partners, Through our infrastructure and & Home returns made to Simply Food tointroduce “drop ship” capability to financial backing, M&S is continuing stores through local hubs. enable fulfilment from partner stock to support Nobody’s Child to scale – A key goal over the next three years and to reduce the volume of split the business and its net sales have isto leverage the omni-channel shipments, thereby lowering costs. increased by 100% since the storeand warehouse network, original investment. furtherreducing costs and creating In March 2023 we launched additional capacity. Nobody’s Child pop-up shops across 30 M&S stores nationwide. Over two thirds of the brand’s annual sales take place in the Spring/Summer months, providing the perfect season to raise the brand’s profile within M&S. It remains one of the most popular third-party brands on M&S.com, shopped by over 340,000 customers each year, with 1 in 10 being new to M&S. At the heart of our third-party brand strategy is careful curation – finding the right partners who complement and complete the core offer at M&S. When we get these partnerships right, as shown with Nobody’s Child,everyone wins. ## 30 pop-up shops nationwide ## 1 in 10 new to M&S customers Annual Report & Financial Statements 2023 19 STRATEGIC REPORT ## OUR STRATEGIC PRIORITIES CONTINUED ### DELIVERING ### PROFITABLE SALES ## growth Ocado Retail Reset Underway: investing in value to broaden appeal, The Ocado Retail joint venture through the Ocado Price Promise. combinesthe strength of M&S’ brand, Improving operating costs: Alongside food qualityand innovation with unique this, steps to reduce costs are underway. and proprietary technology to create These include network optimisation, with acompelling offer. It has already the proposal to cease operations at the generated significant volume growth Hatfield site, shifting volume to more andbuying benefits for M&S Food with efficient Customer Fulfilment Centres over £600m of M&S product sales including Luton – thefirst site with through Ocado.com last year. During the on-grid robotic pick, as well as marketing year, new leadership was appointed, with efficiencies and overhead reductions. Hannah Gibson taking the role of CEO. Deepening collaboration between Ocado Retail generated total revenue Ocado Retail and M&S: The M&S core of£2.22bn, down 1.2%. While active range available on Ocado.com has been customers grew, revenues reflected increased by more than 300 lines to reduced volumes due to lower shopping c.5,700 and we are starting to leverage frequency as a result of pandemic the potential of the M&S customer base reversion and the impact of cost inflation more broadly. Efficiencies are also being on customers. The M&S share of Ocado scoped from joint sourcing and logistics. Retail net loss was £29.5m compared | with a net profit of £13.9m in 2021/22. | Substantial growth and profit potential: | | --- | --- | | Thereduction was driven by the effects | Ocado Retail has grown revenue by 40% | | ofhigher fixed costs from new and | since 2019 and has a large, addressable | | underutilised capacity, increased | market and substantial invested capacity | | marketing to drive new customer growth | to grow sales and to recover profitability | | and energy related cost pressures. | in the medium term. | Resetting the customer proposition: Theteam’s focus is on improving customer experience including re- ## engaging lapsed and occasional 300 customers with improved service new M&S core lines added to Ocado including ‘kitchen table’ deliveries and 20 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## EXPANDED GLOBAL REACH M&S' objective is to grow International retail sales by leveraging its brand through capital light partnerships and a multi-platform online business with global reach. International sales increased 11.2% at constant currency to £1.06bn, with partner retail sales growth of 8% driven by Clothing & Home. Sales were adversely impacted by c.5% by the exit from markets including Russia during the year. Online sales were up 5% and are more than double pre-Covid levels now accounting for 22% of International Clothing & Home sales. Operating profit before adjusting items of £84.8m compared with £73.6m in 2021/22, which included a contribution in the prior year of £5.5m from Russia. Excluding the Republic of Ireland, operating profit was £67.9m compared with £58.2m in the prior year. ### Demand recovery across partner markets: In franchise and partner markets, demand was robust as partners restocked as footfall increased following emergence from Covid, with particular strength in India and the Middle East. ### Investing in European operations: European online sales have grown rapidly in the past three years, and investment is being made to improve customer service and reduce cost to serve, including opening a new logistics hub in Croatia enabling the direct import of stock destined for EU markets. ### Working to improve Food profitability in the Republic of Ireland: In the Republic of Ireland, while performance in Clothing & Home was robust, the Food business continues to be impacted by Brexit related costs. Steps include cost restructuring, increasing the proportion of locally sourced supply and assessing new routes to market with a franchise store trial underway with roadside retailer Applegreen. ## Expanding THROUGH FRANCHISE In October 2022, M&S Ireland launched a trial partnership with Applegreen, one of Ireland's leading roadside retailers, to offer the best of M&S Food, including Food for Now favourites such as sandwiches, salads and delicious prepared meals including the iconic *Dine In*. The project has been piloted across five Applegreen locations: Celbridge, Co. Kildare; Cullenmore, Co. Wicklow; and Mountgorry, Booterstown, Kinsealy, Co. Dublin, with our food offering delivered as a 'shop within a shop' in a renewal environment. Applegreen opened its first service station in 1992, and now operates almost 200 locations in the Irish market. The partnership has expanded the M&S footprint in Ireland and is helping bring our delicious, great value M&S Food to even more customers. ![img-0.jpeg](img-0.jpeg) International NPS **+84** 21/22: +4ppt Customers' experience of M&S globally improved as NPS increased by 4 percentage points this year. International revenue **£1.1bn** 21/22: +12.6% International operating profit before adjusting items **£84.8m** 21/22: +15.2% Annual Report & Financial Statements 2023 21 STRATEGIC REPORT ## OUR STRATEGIC PRIORITIES CONTINUED ### IMPROVE ### OPERATING ## margins To deliver this, investment is being made – Simplified structures within the STRUCTURALLY LOWER | | in technology to increase retail efficiency | support centre, which in 2022/23 | | --- | --- | --- | | COSTBASE | and reduce energy costs, embarking on a | included bringing together the digital | | | multi-year programme in the supply chain | and technology teams in data science, | IMPLEMENTING A PROGRAMME and simplifying and streamlining digital, digital product development and TOSTRUCTURALLY REDUCE COSTS technology and support centre functions. enterprise systems. In 2022/23, adjusted operating margins Examples of programmes include: | were 8.7% in Clothing & Home and 3.4% in | | In the year ahead, inflation from | | --- | --- | --- | | Food, against a medium-term objective | – The roll out of a further c.800 self- | colleague pay of more than £100m | | of improving these to c.10% and c.4% | checkout tills (including within | andc.£50m in additional energy costs | | respectively. The purpose of the cost | Clothing & Home) and further | isexpected. Investments are planned in | | reduction programme is to structurally | developments to scan and pay. As a | store service, accelerating store rotation | | reduce costs by more than £400m over | result, in these stores over 70% of | and new technology such as the Clothing | | the next five years. Accelerated store | Foodtransactions are now self-serve. | & Home order planning system and the | | rotation and driving profitable online | Alongside the effects of sales leverage, | roll out of a new Food forecasting and | | growth will be an important driver to | this has enabled the business to reach | ordering system. These headwinds will | | increase margins. At the same time, we | its target of 10% retail staff costs as a | bepartly offset by cost savings of over | | will aim to offset annual inflation with | percentage of sales, ahead of plan. | £150m, resulting overall in a slight | | productivity improvements. | | increase in costs. | – Warehouse rationalisation and investment in automation at the Bradford warehouse in Clothing &Home, alongside changes to returnsprocessing. 22 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS – Raising the bar on talent; with fast- HIGH PERFORMANCE CULTURE track learning and future leaders’ programmes introduced developing CREATING A CULTURE OF DELIVERY skillsets at all levels. At the same time, A key element of the plan to reshape M&S robust goals linked to delivery of the is the creation of a high-performance nine priorities have been implemented. culture. The aim is to raise the “bench | strength” of M&S talent and create a | – Building the skills for tomorrow; | | --- | --- | | simpler, faster, digitally enabled | Thedata science and AI apprenticeship | | organisation. This requires a culture | group has expanded to over 200 | | thatis closer to colleagues, closer to | colleagues and the M&S BEAM | | customers, and a place where everyone | Academy, which develops technical | | can be themselves and be their best. | skillsets, continues to grow. Alongside | | Keyelements of the programme include: | this the Product Academy has | equipped over 25,000 colleagues – Building a simpler, faster, digitally withselling and service skills for enabled organisation; for instance, modern omni-channel retailing. digital leadership has been reset, including the introduction of a new This is supported by a set of core online and omni-channel director role. expectations and behaviours of how The technology, digital product and thebusiness operates from day to day. data teams have been brought together ## 680 as one function and M&S Connect Read more in our People colleagues took part created, putting M&S Bank & Services and Culture section on in the 24 hour hackathon and Sparks under one leadership. pages 28-31 – Creating a culture that is closer to colleagues and closer to customers, including a substantial investment in colleague pay and reward and the requirement for support centre colleagues to spend seven days per year working in store, bringing them close to the front-line. ## IT’S A ## yes! Since launch, the Straight to Stuart colleague suggestion scheme has generated over 8,000 ideas from colleagues and grown engagement by over 270% versus the previous scheme. More than 200 suggestions ## have been implemented in year one: 270% ranging from transformational ideas increase in colleague like raising awareness of the symptoms engagement of bowel cancer on our toilet roll packaging, suggested by Cara Hoofe (opposite) which instigated a sector wide ‘Get on a roll’ campaign, to simple ## 200 but effective ideas like adding Air ideas implemented Fryer cooking instructions to Food packaging, or adding Café opening times to M&S.com. Straight to Stuart LIVE was introduced in August giving colleagues the opportunity to discuss their ideas in a live webcast with Stuart and the relevant leadership. Each session has been focused on a specific deep dive theme – including a “Cost Saving Challenge” and “Making M&S agreat place to work”. Annual Report & Financial Statements 2023 23 STRATEGIC REPORT ## OUR STRATEGIC PRIORITIES CONTINUED ### DISCIPLINED ### INVESTMENT ## choices ### M&S’ capital investment programme is focused ### onincreasing volume in growth channels and on ### structural reductions of the cost base. Appraisal ### ofinvestments applies hurdle rates commensurate ### with risk, with a primary focus on cash payback ### onstore investments. Total investment during the year was over £500m, up from £300m in 2021/22. Thisincluded the £103m net initial payment for the acquisition of Gist ## andjust over £400m of capital Bigger, expenditure. Theincrease in capex largely related tostore renewals, the resumption of property asset ## better replacement following the pandemic andimprovements to the technology ## infrastructure. In the coming year, we STORES expect to maintain a similar level of capital expenditure. In November 2022, M&S moved Capital expenditure is focused on froman ageing town centre site in threeprogrammes: Chesterfield to a new 46,000 sq ft store in a former Debenhams site at ACCELERATING STORE Ravenside Retail Park just 0.5 miles away. The new store has a market-style ROTATION Foodhall, a spacious Clothing, Home | Accelerating store rotation and renewal | and Beauty department, and over | | --- | --- | | to create a high productivity brand | 400parking spaces to make shopping | | defining estate of c.180 full-line and c.400 | more convenient for customers. | | Food stores positioned in growth locations. | Sincethe relocation, sales are on track | | Over five years this is expected to reduce | to double year on year. The entire | | Clothing & Home selling space by c.20% | existing store team transferred across, | | and increase Foodspace by c.10-15% | and 100 new jobs were created for the | local community. The opening was – In 2022/23, the full-line estate reduced welcomed by the leader of the by three stores, while the owned Chesterfield Borough Council – who Simply Food estate increased by five. In ## 5 called out M&S’ commitment and some cases, we are on track to double confidence in the town’s future, as new flagship stores sales and pay back the capital invested complementary to its wider in c.3-4 years, including closure costs regeneration plans. for relocations. A good example of this is the Chesterfield High Street store, which was closed and the business relocated to the nearby retail park. ## 100 – This year the plan is to open 8 full-line new jobs created and 10 Food stores while closing c.20, of which 10 will be closed for relocation. Leeds The relocations include opening five Manchester new ‘flagship’ properties in Liverpool, Leeds, Manchester, Birmingham and Liverpool Thurrock. Birmingham – Over 80 stores are now in a renewal format including a new full-line store Thurrock at Stevenage. Infull Food renewals these add capacity in areas catering tothe larger family shop. Paybacks currently average c.4 years and in the next phase the plan is to refine space allocation, range and service to furtherincrease returns. 24 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS MODERNISED SUPPLY CHAIN Modernising the Clothing & Home and Food supply chains to create a lower cost network which prioritises the timely flow of products over storage and stock holding. Clothing & Home is planning a five-year programme of investment which includes: – Consolidation, to focus on fewer, more strategic clothing and fabric suppliers. – Systems upgrades to create greater visibility, improve replenishment and reduce excess stock commitment andstorage. – Creating a logistics network to support the omni-channel offering, largely using existing assets, and investing inautomation and new capacity to improve availability and speed up delivery and returns. In Food last year the acquisition of Gist was completed, taking control of the logistics network. – The H2 contribution from the acquisition was c.£27m, from the elimination of management fees, operational savings and improved service over peak. – There is the potential to drive productivity improvements from shared transport across Clothing & Home and Food and a plan for network modernisation is being developed. – A new forecasting, ordering and allocation system is being implemented, with the planned benefit of helping to reduce waste. Footfall (average per week) Store transactions Clothing & Home space (average per week) ## 15m 10.8m -0.8% 21/22: +6.4% 21/22: +11.3% 22/23: 9.9m sq ft 21/22: 10.0m sq ft restated As we target an estate of c.180 high productivity, brand defining stores, we reduced Clothing & Home space this year. Annual Report & Financial Statements 2023 25 STRATEGIC REPORT ## OUR STRATEGIC PRIORITIES CONTINUED ### DISCIPLINED ### INVESTMENT ## choices COMPELLING CUSTOMER ECOSYSTEM ## TAKING Creating a more engaging digital customer experience which brings together loyalty and payment, supported by an effective technology ## control infrastructure. ## OF OUR FOOD In 2022/23, the teams working on ## omni-channel and Sparks were combined SUPPLY CHAIN with those responsible for commercial and enterprise planning systems to optimise use of technology resources across the Group. During the year, M&S acquired Gist, our principal Food logistics provider for – Investment in the year included ## more than 40 years, which operates £27m technology improvements in stores viaa network of 16 distribution centres and the initial implementation of the initial contribution across the UK and Republic of Ireland. food forecasting and ordering system, from acquisition personalisation developments and the The acquisition provides a platform trial of Sparks Pay. toaccelerate our plans to modernise | – Steps are being taken to upgrade core | our supply chain and support growth, | | | --- | --- | --- | | systems including enterprise resource | whilst building on the successful | 16 | | and new payroll applications and the | implementation of the Vangarde | distribution centres | | supply chain improvements outlined | supply chain optimisation programme. | in the UK and ROI | above. Ownership allows us to take closer – The opportunity to create a more control of key decisions relating to effective payment and loyalty property and technology, as we seek proposition through a unified single to reduce costs to serve through a sign on across all M&S products is also more efficient supply chain being evaluated. operating model. 26 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ### DRIVING ### SHAREHOLDER ## return s grade credit rating which balances the DISCIPLINED CAPITAL needs of shareholders and creditors ALLOCATION while providing a robust “sponsor covenant” to pension trustees. In The Group’s ability to invest is driven by 2023/24, we will continue to focus on free its capital allocation framework, which cashflow, prioritised investment and look focuses on the generation of free to achieve an investment grade credit cashflow from operations. In 2022/23, rating during the year. this was £170m and after the initial | consideration for the acquisition of Gist, | RESTORING THE DIVIDEND | | --- | --- | | net debt excluding lease liabilities | With the business generating an | | reduced by a further c.£64m to £356m, | improved operating performance and | | with the group continuing to have | having a strengthened balance sheet | | substantial cash balances of £1,068m. | with credit metrics consistent with | | After recent improvements to the | investment grade, the Board plans to | | balance sheet, ratios of net debt to | restore a modest annual dividend to | | EBITDA and cashflow to net debt are now | shareholders starting with an interim | | at levels consistent with an investment | dividend with the results in November. | NET DEBT CONTINUING TO REDUCE Net Debt ## £2.6bn 21/22: -2.2% | /23 | 2.6 | | --- | --- | | 1/22 | 2.7 | | 0/21 | 3.5 | | 9/20 | 4.0 | Net Debt excluding leases ## £0.4bn 21/22: -15.4% | /23 | 0.4 | | --- | --- | | 1/22 | 0.4 | | 0/21 | 1.1 | | 9/20 | 1.4 | Free cash flow from operations ## £170.4m 21/22: -77.0% | | /23 | 170.4 | | --- | --- | --- | | | 1/22 | 739.6 | | | 0/21 | 273.7 | | | 9/20 | 203.9 | | 22 22 22 | | | | 2 2 2 | | | Annual Report & Financial Statements 2023 27 2 2 2 1 1 1 STRATEGIC REPORT ## PEOPLE & CULTURE ### The new leadership team has made high ### performance culture a core pillar of the ### strategic plan to reshape M&S for growth ### (see page 13). The aim is to raise the ### ‘benchstrength’ of M&S talent and ### createasimpler, faster, digitally-enabled ### organisation. This requires a culture that is ### closer to colleagues, closer to customers, ### and a place where everyone can be ### themselves and be their best. 28 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Straight to Stuart: ### 1 – BUILDING A SIMPLER, As one of his first actions, Stuart Machin COLLEAGUE REWARD relaunched the colleague suggestion ### FASTER, DIGITALLY-ENABLED Since the start of 2022/23, we have scheme as ‘Straight to Stuart’ giving ### ORGANISATION announced investments of over every colleague across M&S a direct line £100m in colleagues’ pay and to share ideas and feedback with the benefits. This has increased the CEO. Over 8,000 suggestions were As set out earlier in the strategic report, national hourly rate to a minimum of submitted during 2022/23 and over the priority has been creating a simpler £10.90, rising to £12.05 for London, 200ideas were put into action including organisation that is focused on the right meaning all colleagues are paid at or game-changing community initiatives things, with more empowered roles and above the real living wage. In such as the “Get on a Roll” campaign asustainably lower cost base. combination with health & wellness (seepage 23). A faster response time and benefits, generous pension and Whilst the programme helps mitigate the introduction of a new quarterly hot colleague discount, M&S continues therising costs of doing business, topic themed ‘Straight to Stuart Live’ to offer one of the best all-round through a reduction in planned support format, which gives colleagues the reward packages in retail. | centre staffing costs, it also enables | chance to discuss their ideas live, has | | --- | --- | | reinvestment in the capabilities that | helped boost engagement by over 270% | | willdrive growth – particularly in data | on the previous scheme. | Alongside this, over 44,000 colleagues and digital. Refinements have also been CommUnity: - equivalent to over 70% of headcount - made to the accountable business Adoption rate of Microsoft Teams is took part in two global Colleague Voice operating model to deliver the right veryhigh at over 93% and is an excellent surveys this year. This was slightly down on structure to support M&S’ strategic functional tool that allows colleagues last year’s relaunched survey participation plans. For example, in October, Katie todo their day-to-day job by allowing rate, but the overall engagement index Bickerstaffe reset her leadership team them to check shifts and access policies. increased 2ppts to 64%. tobring together the capabilities and However, it did not provide a singular skills required for M&S to become a The findings made clear that colleagues’ community channel for all colleagues. | world-class omni-channel retailer with | | primary concern was to see positive action | | --- | --- | --- | | data at the heart. This included the | To make colleague communication truly | taken following any survey. As a result, | | introduction of an online and omni- | two-way, M&S launched CommUnity, | M&S reset its approach in February to give | | channel director to improve how digital | inMay 2022; an internal social platform | greater accountability to line managers to | | channels interact with stores, uniting | designed for open and honest | engage with their teams and local BIG | | thetechnology, digital product and | interaction and connection for all | representatives and implement clear and | | datateams as one function and the | colleagues. It drives transparent | meaningful action plans to address issues. | | creation of M&S Connect, which brings | communication as colleagues respond | Every manager must show evidence of | | together the accountability for M&S Bank | publicly to leaders’ posts and leaders’ | leading this process in their annual | | and Services and Sparks under one | reactions are published for all to see. | review.Rather than relying on two surveys | | leadership – supporting the ambition to | Post launch there was an immediate | per year, the new approach aims to drive | | create a single digital identity. | 50%increase in ‘reactions’ to content. | more regular in-depth and action- | | | CommUnity is now the main route to | orientated conversations that will deliver | To build a more empowered Retail team, reach the entire colleague base – with positive change. spans of control across store leadership posts often achieving over 30,000 – from Team Manager to Regional CLOSER TO CUSTOMERS audience views. Manager - have been reset to create The Closer to Customers programme clearer accountabilities. Alongside this, BIG Network: launched in September to bring support the regional boundaries have been BIG – the M&S colleague representative centre colleagues closer to the front line redrawn to drive greater ownership group –forms the foundation with a new requirement to spend seven amongst regional managers. of an engaging and involving culture. days per year working in store built into This year, M&S has provided further everyone’s objectives. Shifts are planned investment in the elected BIG to allow managers to allocate tasks and representatives and focused on driving ensure training happens in advance – ### 2 – CREATING A CULTURE increased leadership accountability for socolleagues can support on tills and ### THAT IS CLOSER TO with specific processes such as Click & working effectively with BIG. The ### COLLEAGUES AND CLOSER National BIG Chair has regular meetings Collect. Colleagues are asked to with ExCo (Executive Committee) and complete four of the seven days over ### TO CUSTOMERS | the Board and the role BIG has played | thepeak trading period and this | | --- | --- | | this year in ensuring colleague support | Christmas over 75,000 hours of support | | during the cost-of-living crisis is set out | were given to stores. | CLOSER TO COLLEAGUES in the governance section (see page 10). It matters that every colleague at M&S Supplementary to this, CEO Stuart can share their ideas, be listened to with Machin meets regularly with National respect, and - together - help make M&S BIGand Co-CEO Katie Bickerstaffe leads a great place to work. M&S has a long engagement with Support Centre BIG. heritage of working closely with its colleagues, and over the past year the Retail Voice: business has taken steps to reinvigorate In November, M&S held its first Shop-a- a culture of two-way communication: thon. Taking inspiration from the success of Hack-a-thon formats, this ran as a 48-hour working session for over 60 Retail and Support Centre Colleagues to focus on identifying solutions to build more efficient retail operations. Outputs of the session included the introduction The ExCo team led by example and launched the Closer to Customer programme by taking over as of a new simplified morning checklist for management team at the Bluewater store in Kent stores and a reset of the weekly ‘Store for a week. Voice’ call to reduce time requirements for managers. Annual Report & Financial Statements 2023 29 STRATEGIC REPORT # PEOPLE & CULTURE CONTINUED ## 3 – RAISING THE BAR ON TALENT Talent development has moved up the people agenda and there is a regular cadence of talent discussion at an ExCo level. There has been increased focus on succession planning and more regular assessment of the internal talent pipeline to identify critical gaps and high potential candidates. In response, a 'Fast-track' learning programme is in development for 2023/24 to accelerate the highest potential candidates and provide more bespoke development exposure to the skills and experiences needed for pipeline roles. In May 2022, M&S relaunched its broader Future Leaders programmes, featuring two module stages; Build, for new to line management colleagues, and Evolve, for new to leadership colleagues. Over 200 colleagues completed the Build programme this year, which is designed to help newer managers develop their readiness to lead. Almost 70% of participants in the four-month programme were women, helping to support female career progression at M&S. Evolve is a more advanced module to help leaders enhance their leadership skills and style, with a focus on interpersonal relationships and capacity for strategic and complex thinking. 47 colleagues completed the six month Evolve programme this year and over 60% reported that their role, remit, or responsibilities had expanded as a result. Both programmes involve a mix of classroom learning, external speakers, group and individual coaching and include a longer-term impact evaluation between nine and 18 months post completion to assess colleague progression. ### Managing performance The foundation of a high-performance culture is robust goal setting. Objectives are now clearly linked to our nine strategic priorities and are monitored throughout the year via open and honest conversations between colleagues and line managers. End-of-year ratings are assigned to 100% of salaried colleagues and tracked in the MyHR system. This reporting database is used to identify performance trends and improve transparency. It enables better identification and recognition of high performers and supports effective performance improvement plans. Last year, the performance programme for Customer Assistants was reset to include clear outlines of what is expected in their role. The expectations have been refreshed this year to focus on priority areas including digital essentials, efficiency, customer service, product knowledge and stock loss. The expectations provide colleagues with greater clarity on the part they play in delivering the store plan and support line managers to have more robust performance conversations. ## 4 – SKILLS FOR TOMORROW The last 12 months has seen significant investment in the skills that will drive future growth. This reflects the strategic requirement but also direct feedback that showed, whilst colleagues understood the importance of a digital mindset, they did not believe M&S had invested enough in the capabilities to do their job better. The 2022/23 intake for the Data Science and AI apprenticeship, a 15-month Level 7 course, has been doubled and 200 colleagues have now been enrolled into a data-upskilling apprenticeship. M&S' BEAM Academy has grown the number of learning sessions from 14,000 to 26,000 – ranging from longer-term courses, to bite-sized sessions, interactive expos and hackathons. The programme of activity has included upskilling over 3,000 colleagues from Waterside, Chester and Salford Quays support centres through a half-day in-person workshop 'Digital Essentials'. All store and Castle Donington colleagues will be receiving in-person foundational digital and data upskilling throughout April, May and June 2023. Digital enablement must be underpinned by exceptional product knowledge. Since launch, M&S' dedicated Product Academy has trained over 40,000 colleagues – equipping them with selling and service skills. The specialist skills in-store training sits alongside the online Product Academy platform, which features all the latest product information on M&S unique innovations and quality to help colleagues sell better. ## 5 – A PLACE WHERE EVERYONE CAN BE THEMSELVES, AND BE THEIR BEST As an employer of over 65,000 people, M&S is committed to building a culture where everyone is listened to, has a voice and feels they can be their best. To help colleagues perform at their best, M&S provides a range of benefits and tools that promote and support a healthy lifestyle, healthy mind, healthy finances and increasingly a healthy work life balance. ### WORKLIFE: Working as a retail manager is a hands-on job spanning budget management, leading large teams and serving thousands of customers, which is why historically it's always been challenging to introduce flexible working across stores. However, to keep its retail employment offer competitive, M&S designed and successfully trialled Worklife – a new flexible working programme – with over 800 managers across 100 stores. Feedback was overwhelmingly positive, with 75% of managers agreeing it had a positive impact on their family life. Worklife launched nationwide in January, giving over 3,000 retail managers the option to choose different working patterns, such as a nine-day compressed fortnight or a four day compressed week, giving them greater flexibility. Following an idea at the 2022 International Women's Day Hackathon, a new Job Finder App was launched in October to further support colleagues and line managers exploring flexible working options, such as a job share, to access information in a central hub and help them identify potential job share partners. ### WELLBEING: In recent years, M&S has invested in new wellbeing benefits – such as its Virtual GP service – to make it easier for colleagues to live healthy lifestyles and strengthen its overall reward package. As outlined on page 6, with cost-of-living the top concern for colleagues this year, M&S has tried to alleviate some of the strain, with its biggest ever investment in front-line colleague pay. In addition, M&S has promoted the financial tools and advice available to colleagues during its Wellbeing Week and introduced new practical support – such as the introduction of free sanitary products to all sites and stores. 30 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS | GROWING INCLUSION | The increased profile of network events | | --- | --- | | & DIVERSITY NETWORKS | has contributed to a 70% increase in | | To help colleagues bring their whole | network membership over the last | | selfto work M&S operates a number of | 12months. Over 7,000 colleagues now | | colleague led networks - spanning | belong to a network and a new Cancer | | racial,family, cultural, sexual and gender | Network was launched to provide peer | | identities - designed to bring diverse | topeer support for colleagues. | communities together. Each network SHAPING OUR I&D STRATEGY: hasan ExCo sponsor and has its own Over the course of the year, M&S has designated site within the colleague undertaken a deep-dive review to better intranet offering the latest news and understand the experience of diverse information. TEN YEARS OF colleagues across the business. Over 350 MOVEMENT TO WORK M&S supports the networks to celebrate colleagues with a disability took part in M&S was a founding member and recognise relevant events in the alistening activity to shape the discovery ofMovement to Work in 2013; a inclusion and diversity calendar. For stage of a new accessibility strategy and voluntary collaboration of UK example, on International Women’s Day, over 500 female colleagues participated employers committed to tackling M&S celebrated Remarkable Women in activity to help validate and shape M&S’ youth unemployment through witha LinkedIn Live panel discussion plans as a leading employer of women. highquality vocational training. attended by almost 900 colleagues Inpartnership with The Prince’s Trust, andexternal participants and hosted M&S’ Marks & Start programme an‘Ideathon’ with over 150 colleagues offers young people who face totackle challenges and come up with barriers to employment a four-week ## new initiatives to drive gender equality 80% placement to gain practical forwards at M&S. Former rugby player, of Marks & Start participants experience, alongside structured Gareth Thomas, was invited to share his offered a contract with M&S employability and skills training. experiences as part of M&S’ Pride events, Since launch, M&S has supported and proved to be the most popular over 10,000 disadvantaged young Inspiring Speaker of the Year, with people aged between 16-30 and over over1,000 live views. 80% of participants who completed the programme have been offered acontract with M&S. COLLEAGUE REPRESENTATION MEASUREMENTS Total employees Senior Managers from Gender Pay Gap Ethnic Minorities Female ## 44,035 ## 5.4% 12.5% 21/22: 45,484 21/22: 6.8% 21/22: 12.5% Male Whilst representation levels have dipped The Gender Pay Gap, the average ## 20,226 slightly following colleague changes, difference in hourly earnings between 21/22: 20,726 M&S is making progress in attracting male and female colleagues, has more colleagues from diverse remained level. We remain focused backgrounds into the business. This is onmaking M&S a great place to work Total Senior Managers helping build a more diverse talent pipe for women and expanding talent line and we have strong representation development opportunities. Around Female | | ofcolleagues from ethnic minorities | 70% of participants in our Build | | --- | --- | --- | | 64 | participating in this year’s Future Leaders | programme – designed to develop the | | 21/22: 69 | programmes. | leadership skills of new line managers | – were women and this year, following Male the appointment of Cheryl Potter in ## 79 Engagement (Your Voice Survey) February, we now have a female 21/22: 92 majority Board. Read more in the Remuneration ## 64% section on page 107 Total Board 21/22: 62% Female Over 70% of colleagues participated inthe Your Voice surveys giving M&S ## 6 aninsight into how engaged colleagues 21/22: 5 are feeling in their roles. This year, engagement levels increased by 2% Male following the initiatives set out within ## 5 thepeople chapter. 21/22: 6 Annual Report & Financial Statements 2023 31 STRATEGIC REPORT Our Sustainability Report gives ## OUR APPROACH a full update on our progress marksandspencer.com/ sustainabilityreport2023 ## TO SUSTAINABILITY The ESG Committee Report can be found on page 90 M&S’ founders knew that value means As we grow our business, how we source, ### Since its inception, M&S has much more than price; it means giving make, sell and serve our customers will ### built trust by doing the right customers assurance that raw materials impact our business carbon footprint. ### thing by its people and the are sourced responsibly to protect the However, as an own-brand retailer, we planet for tomorrow, providing are uniquely positioned to innovate in ### communities it serves, and confidence that the people who make partnership with our long-standing ### this remains one of its core and sell products are treated fairly, and it suppliers and business partners to means setting the standards that others reduce emissions in our Food, Clothing ### values today. The unique follow, whether that’s animal welfare or & Home, Property and International ### relationship of trust between product traceability. Over the years, M&S’ businesses and ultimately be a net zero ### M&S and its customers runs approach to doing business has been business by 2040. increasingly codified into what became ### much deeper than its Today, Plan A is not a separate one of the first fully integrated programme but rather sits within the ### community impact - it runs sustainability programmes, launched in business, with accountability for its 2007 as Plan A. ### right through our entire value delivery devolved to each of the ### chain and the trusted value In building a business in this way, M&S Managing Directors. Our approach to has created competitive advantage by sustainability encompasses the critical ### promise made to its | | offering exceptional quality products | issues and concerns of our stakeholders | | --- | --- | --- | | customers. | atremarkable value; products that are | with clear governance and oversight | | | made and sourced with care so that | bythe Board and ExCo as outlined on | | | they’re simply too good to go to waste. | page 70. | It’s for this reason that Exceptional Product and Trusted Brand is at the heart of our strategic priorities to reshape M&S. ### OUR ESG PROGRAMME Building & maintaining trust and upholding our product point of difference is dependent on the delivery of our full ESG programme ENVIRONMENT SOCIAL GOVERNANCE PLANET GOVERNANCE ANIMAL ETHICAL HEALTHIER PEOPLE COMMUNITY WELFARE TRADE FOOD LEADING IN EXPANDED STRUCTURALLY HIGH ACCELERATING MODERNISED COMPELLING OMNI-CHANNEL GLOBAL REACH LOWER COST PERFORMANCE STORE ROTATION SUPPLY CHAIN CUSTOMER ## Exceptional BASE CULTURE ECO SYSTEM PRODUCT & TRUSTED BRAND PLANET PLANET PLANET PEOPLE PLANET PLANET COMMUNITY PLANET NET ZERO PRIORITY NET ZERO PRIORITY NET ZERO PRIORITY NET ZERO PRIORITY NET ZERO PRIORITY ANIMAL Reduce and Suppliers and Reduce food Zero emissions Zero emissions WELFARE recycle businesses waste property transport ETHICAL TRADE packaging NET ZERO PRIORITY NET ZERO PRIORITY ETHICAL COMMUNITY HEALTHIER NET ZERO PRIORITY TRADE Zero emissions Circular FOOD Zero emissions transport economy PEOPLE transport PEOPLE COMMUNITY (Across programmes drive GOVERNANCE new and more efficient ways of doing things) DISCIPLINED CAPITAL ALLOCATION Achieving ESG goals will require us to pioneer new approaches and invest in emerging technology, but we must do so with clear evidence of carbon reduction, cost and payback. GOVERNANCE In doing the right thing by our customers, colleagues and the communities we serve, we will do right by our shareholders. 32 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS | This approach is underpinned by our | A high-performance culture is about | Modernising the supply chain will be | | --- | --- | --- | | ESGmetrics and targets which we report | making M&S a place where everyone | akey contributor to reaching M&S’ net | | transparently in our 2023 Sustainability | can be their best and be themselves. | zero target. The acquisition of Gist | | Report. We have reset the operating | That starts with everyone feeling | – M&S’ primary food logistics provider | | model and ways of working to more | fairly rewarded and recognised | – gives M&S full control of the food | | deeply devolve Plan A into the business | forthework they do. As set out on | supply chain for the first time and | | with higher level of oversight. The ESG | pages 6 and 81, with the rising | theability to lead decision making | | Business Forum meets quarterly chaired | cost-of-living, the priority this year | insustainable investments and | | by the Corporate Affairs Director. | has been to support front-line | innovation. Overall, M&S has seen a 3% | | | colleagues with asignificant | reduction in Scope 1 & 2 emissions (our | While M&S’ approach to sustainability investment in front-line pay. property and logistics network) in starts with Exceptional Product and 2022/23. | Trusted Brand, it runs through all the | | As M&S expands its global reach, | | | --- | --- | --- | --- | | strategic priorities to provide the | | the challenge is to do so without | A compelling customer ecosystem | | foundation for its plans to reshape | | compromising the delivery of its net | connects every customer engagement | | M&S for growth that is sustainable | | zero goals or the trust in its brand. | across M&S to deliver a personalised, | | in every sense. | | This year the international team has | rewarding experience. One aspect of | | | | delivered a 75% increase in the | personalisation is supporting the | | | RESHAPING M&S | adoption of ‘freeze defrost’ delivery | causes that matter to customers. | | | FOR SUSTAINABLE GROWTH | methods. This approach enables M&S | Through Sparks they can select from | | | OUR PROGRESS THIS YEAR: | to reach its international customers | 35 charities from Macmillan to WWF | | | | using a lower carbon transport | and M&S will donate every time they | Our Exceptional Product and method, such as shipping, whilst shop with us. It’s the most popular Trusted Brand are core to what makes retaining exceptional product quality. feature of Sparks and this year M&S has us M&S. This year M&S raised the bar donated £2.1m to its Sparks charity again by becoming the first retailer to Structurally lowering the cost base partners. | only sell slower-reared higher welfare | means finding new and better ways of | | | --- | --- | --- | | chicken across fresh products. In | doing things. But better can mean | Disciplined capital allocation requires | | Clothing we stepped up our sourcing | more efficient and more sustainable. | a single-minded focus on delivering | | due diligence, with the introduction | In Food, M&S has reduced waste by a | value creation for shareholders. | | of new technologies that can trace | further 24% on last year through new | Thismeans investing in growth | | our cotton right back to its region and | interventions such as the removal of | opportunities that are commensurate | | farm of origin – giving us and our | best before dates on over 300 fruit | to risk. Achieving its sustainability | | customers increased confidence in | and vegetables – helping extend the | goals will require M&S to pioneer new | | our Responsible Cotton Sourcing | shelf life of 85% of the fresh produce | alternatives and invest in emerging | | Policy (Read more on page 22 of our | we sell. | technologies. To test the business | | Sustainability Report). | | case for such investment, M&S has | Accelerating store rotation helps relaunched its Plan A Accelerator True leadership in Omni-channel build an estate that’s fit for the future; Fund – a £1m annual fund to support includes leading the way in this means a more efficient, lower projects tackling climate related sustainable operations as more sales energy and lower carbon M&S estate. challenges across our value chain. transition into growth channels. For To support this goal, M&S has invested Thisapproach allows M&S to innovate, example, in 2022/23 there was a 20% in new metering and data capture whilst building clear evidence of growth in Click & Collect sales, with 9% technology to help better plan carbon reduction, costs and payback of orders picked and packed in stores. emission reductions into the ongoing rates to inform any decision to invest As set out in detail on page 18, M&S store investment programme. at scale. | became the first major retailer to | Alongside this, in December, M&S | | | --- | --- | --- | | introduce a Bring your Own Bag | announced a new 10 year agreement | | | initiative for Click & Collect orders, | with bp pulse, which includes the | ROADMAP TO NET ZERO – | | which will save 10 million pieces of | roll-out of 900 electric vehicle | PROGRESS HIGHLIGHTS | | plastic annually. | charging points to M&S stores over | – Our 2030 corporate greenhouse gas | | | the next two years. | emissions reduction target has been | approved by the Science Based Target initiative (SBTi) (see official science based target on page 55). – We now have clear line of sight to 62% of the 2.1 million emissions reduction we are committed to deliver in 2025/26 – We rolled out an ESG data performance platform (Sphera) to better track and manage our Scope 1 & 2 emissions across our property estate and logistics network (including Gist). – As part of our SBTi approval process and after the acquisition ofGist, we restated our base year (2016/17) emissions. – A summary of changes of our base year and current greenhouse gas emissions can be found on page 15 ofour Sustainability Report. Best before dates replaced Read more in our Task Force on with a code used to ensure Climate-related Financial freshness and quality Disclosure Report on page 44 Annual Report & Financial Statements 2023 33 STRATEGIC REPORT ## OUR KEY PERFORMANCE INDICATORS ### FINANCIALS GROUP REVENUE RETURN ON CAPITAL EMPLOYED (ROCE) APM | £11.9bn | | | 10.6% | | | --- | --- | --- | --- | --- | | 21/22: +9.6% | | | 21/22: -1.6ppt | | | | /23 | 11.9 | /23 | 10.6 | | 1/22 | | 10.9 | 1/22 | 12.2 | | 0/21 | | 9.0 | 0/21 | 3.8 | | 9/20 | | 10.2 | 9/20 | 10.0 | | Group statutory revenue was £11.9bn, an increase of 9.6% vs. | | | Return on capital employed decreased 1.6ppt largely driven by the | | | 2021/22. This was driven by Clothing & Home revenue up 10.6%, | | | decrease in earnings before interest, tax and adjusting items. | | Food revenue up 8.7% and International revenue up 12.6%. GROUP PROFIT BEFORE TAX AND ADJUSTING ITEMS GROUP PROFIT BEFORE TAX APM | £482.0m | | £475.7m | | | --- | --- | --- | --- | | 21/22: -7.8% | | 21/22: +21.4% | | | /23 | 482.0 | /23 | 475.7 | | 1/22 | 522.9 | 1/22 | 391.7 | | 0/21 | 41.6 | 0/21 | (201.2) | | 9/20 | 403.1 | 9/20 | 67.2 | | Group profit before tax and adjusting itemswas £482.0m, down | | Group profit before tax was £475.7m, up 21.4% on 2021/22. | | 7.8% vs 2021/22, largely due todeclines in Food, Clothing & Home and Ocado Retail,offset by an increase in International operating profit and reduced interest. ADJUSTED EARNINGS PER SHARE (EPS) BASIC EARNINGS PER SHARE APM | 18.1p | | | 18.5p | | | --- | --- | --- | --- | --- | | 21/22: -16.6% | | | 21/22: +17.8% | | | | /23 | 18.1 | /23 | 18.5 | | 1/22 | | 21.7 | 1/22 | 15.7 | | 0/21 | | 1.1 | 0/21 | (9.8) | | 9/20 | | 16.7 | 9/20 | 1.3 | | Adjusted basic earnings per share was 18.1p due to lower adjusted | | | Basic earnings per share was 18.5p, up from 15.7p in 2021/22, due to | | | profit year on year. | | | the increase in profit year-on-year. The weighted average number of | | shares in issue during the period was 1,963.5m (2021/22: 1,958.1m). DIVIDEND PER SHARE FREE CASH FLOW FROM OPERATIONS APM | Nil | | | £170.4m | | | --- | --- | --- | --- | --- | | 21/22: Level | | | 21/22: -77.0% | | | | /23 | Nil | /23 | | | 1/22 | | Nil | 1/22 | 739.6 | | 0/21 | | Nil | 0/21 | 273.7 | | 9/20 | | 3.9 | 9/20 | | | As stated elsewhere, the Board plans to restore a modest | | | The business generated free cash flow from operations of £170.4m, | | | dividend to shareholders starting with an interim dividend | | | reducing year on year. This was driven by lower operating profit as a | | | with the results in November. | | | result of business rates relief in 2021/22, prior year working capital | | inflows, increased capital expenditure, and tax payments. APM Read more about our alternative performance measures on page 1 22 22 22 22 22 22 22 22 170.4 2 2 2 2 2 2 2 2 34 Marks and Spencer Group plc 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 203.9 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # FINANCIAL REVIEW ![img-1.jpeg](img-1.jpeg) A focus on cost reduction and cash generation is enabling investment in growth and a stronger balance sheet.” Chief Finance Officer ## FINANCIAL SUMMARY | 52 weeks ended | 1 Apr 23 £m | 2 Apr 22 £m | Change vs 2021/22 % | | --- | --- | --- | --- | | Group statutory revenue | 11,931.3 | 10,885.1 | 9.6 | | Group sales | 11,988.0 | 10,909.0 | 9.9 | | UK Food | 7,218.0 | 6,639.6 | 8.7 | | UK Clothing & Home | 3,715.0 | 3,332.2 | 11.5 | | International | 1,055.0 | 937.2 | 12.6 | | Group operating profit before adjusting items | 626.6 | 709.0 | -11.6 | | UK Food | 248.0 | 277.8 | -10.7 | | UK Clothing & Home | 323.8 | 330.7 | -2.1 | | International | 84.8 | 73.6 | 15.2 | | M&S Bank and Services | (0.5) | 13.0 | -103.8 | | Share of result in associates and joint ventures | (29.5) | 13.9 | -312.2 | | Interest payable on lease liabilities | (111.1) | (115.6) | -3.9 | | Net financial interest | (33.5) | (70.5) | -52.5 | | Profit before tax & adjusting items | 482.0 | 522.9 | -7.8 | | Adjusting items | (6.3) | (131.2) | -95.2 | | Profit before tax | 475.7 | 391.7 | 21.4 | | Profit after tax | 364.5 | 309.0 | 18.0 | | Basic earnings per share | 18.5p | 15.7p | 17.8 | | Adjusted basic earnings per share | 18.1p | 21.7p | -16.6 | | Net debt | 2.64bn | 2.70bn | -2.2 | | Group capex and disposals | 409.2 | 213.5 | 91.7 | | Free cash flow from operations | 170.4 | 739.6 | -77.0 | ### Notes: There are a number of non-CAAP measures and alternative profit measures (“APMs”) discussed within this announcement, and a glossary and reconciliation to statutory measures is provided at the end of this report. Adjusted results are consistent with how business performance is measured internally and presented to aid comparability of performance. Refer to the adjusting items table below for further details. Annual Report & Financial Statements 2023 35 STRATEGIC REPORT ## FINANCIAL REVIEW CONTINUED GROUP RESULTS Operating profit before adjusting items was £248.0m Group sales were £11,988.0m. This was an increase of 9.9% compared with £277.8m in 2021/22, with last year’s result versus 2021/22, driven by Clothing & Home sales up 11.5%, Food benefiting from £24.6m of UK business rates relief. sales up 8.7% and International sales up 12.6%. UK Food sales The overall Food adjusted operating margin decreased by growth also reflects the impact of third party sales by Gist 80bps (40bps excluding rates relief). Within this, gross margin Limited of £84.2m following its acquisition, which had a positive declined 110bps, largely as a result of investment in trusted effect of c.1.3% in the year. Like-for-like sales were unaffected value, while operating costs improved 70bps as sales grew bythe acquisition of Gist. faster than costs. Statutory revenue in the period was £11,931.3m, an increase Total adjusted operating costs grew c.7%, with growth of c.4% of9.6% versus 2021/22. excluding business rates relief and the acquisition of the Gist The Group generated profit before tax and adjusting items third-party business. This included pay and inflation related of£482.0m, compared with £522.9m in the prior year. cost increases such as energy of c.7%, new space and volume ofc.1.5%, and investments such as in-store technology The Group benefited from Covid-related UK business rates improvements. However, this was partly offset by efficiencies relief of £59.8m in 2021/22, which was not repeated in 2022/23. ofc.6%, predominantly in store staffing and benefits from the Adjusting items were a net charge of £6.3m, compared with a Gist management fee saving, following acquisition. charge of £131.2m in the prior year. The reduction was largely a The table below sets out the resulting movement in Food result of a credit of £108.0m representing the revaluation of the adjusted operating margin by key cost driver: contingent consideration payable for the investment in Ocado Retail Limited. – Store staffing costs decreased 50bps. Colleague pay increases were largely offset by retail efficiencies and As a result the Group generated a statutory profit before tax salesgrowth. of£475.7m, compared with £391.7m in the prior year. – Other store costs increased 10bps, with a 40bps adverse Adjusted basic EPS were 18.1 pence, down 16.6% on 2021/22 impact from the receipt of business rates relief in the prior reflecting business rates relief in the prior year. Basic EPS were year, and additional energy cost headwinds. 18.5 pence, up 17.8% on 2021/22, reflecting the reduced net – Distribution and warehousing costs increased 10 bps. The charge for adjusting items. increase largely reflects pay and inflation increasing faster For full details on adjusting items and the Group’s related than sales, although these were partly offset by Gist policy, read more on notes 1 and 5 to the financial information. management fee savings in H2. – Central costs decreased 10bps due to sales leverage, despite UK: FOOD additional technology investments in store and trials of the UK Food sales increased 8.7%, with like-for-like sales up 5.4%, new forecasting, ordering and allocation system. underpinned by strong performance of hospitality and | franchise sales, following Covid restrictions in the prior year. | | Operating profit margin before adjusting items % | | --- | --- | --- | | Change vs 2021/22 % Q1 Q2 Q3 Q4 FY | | 2021/22 4.2 | | | 1 | Gross margin (1.1) | | Food | 6.6 4.5 10.2 13.2 8.7 | | | Food like-for-like sales 3.4 2.5 6.3 9.2 5.4 | | Store staffing 0.5 | Other store costs (0.1) 1 UK Food sales growth in Q3 and Q4 reflect the impact of third party sales by Gist Limited, which had a positive effect in the FY of c.1.3%. UK Food sales are equal to Distribution and warehousing (0.1) statutory revenue. Central Food costs 0.1 M&S Food has an online grocery presence with Ocado Retail 2022/23 3.4 and these sales are reported through Ocado Retail and are notcontained within these numbers. UK: CLOTHING & HOME Clothing & Home sales increased 11.5% with continued recovery Change vs 52 weeks ended 1 Apr 23 2 Apr 22 2021/22 % of store sales, which are now above pre-Covid levels, and a robust performance by the online business. Footfall, m (average/week) 10.5 10.2 2.9 Change vs 2021/22 % Q1 Q2 Q3 Q4 FY Transactions, m (average/week) 9.0 8.0 12.5 | Basket value inc VAT (£) 15.2 15.9 -4.4 | | | Clothing & Home sales 18.2 10.3 8.8 10.2 11.5 | | --- | --- | --- | --- | | | 1 | | Clothing & Home | | Total sales ex VAT £m | | 7,218.0 6,639.6 8.7 | | like-for-like sales 17.6 10.2 8.6 9.6 11.2 1 Includes M&S.com Clothing & Home stores sales 24.3 14.0 12.8 9.8 14.9 Transactions increased, driven by the growth in hospitality and franchise sales which are typically smaller value and which Clothing & Home online were reflected in a reduction in overall basket value. However, sales 7.0 2.9 0.7 11.1 4.8 larger basket transactions continued to grow. Clothing & Home statutory revenue 16.7 9.6 7.1 10.8 10.6 1 Apr 23 2 Apr 22 Change vs 52 weeks ended £m £m 2021/22 % To enable greater insight into these movements, further detail Sales 7,218.0 6,639.6 8.7 is provided on the performance of each channel. Operating profit before adjusting items 248.0 277.8 -10.7 Adjusted operating margin 3.4% 4.2% -80bps 36 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS | ONLINE | | | | Total adjusted operating costs increased 7.6%, with growth | | --- | --- | --- | --- | --- | | | | | Change vs | of5.2% adjusted for business rates relief. Pay and inflation | | 52 weeks ended 1 Apr 23 2 Apr 22 | | | 2021/22 % | related costs such as energy contributed 4% to cost growth, | | | 1 | | | while space, volume and channel mix contributed 3% and | | Traffic (m) | | 446.5 405.7 10.1 | | | investments were made in digital development, the growth 2 Conversion (%) 6.7 7.0 -30bps ofthird-party brands and marketing. These were partly Average order value incl. VAT offsetby efficiencies of c.3%, including store staffing. prereturns (£) 58.6 55.4 5.8 The table below sets out the drivers of the movement in 3 Returns rate (%) 29.5 25.6 390bps Clothing & Home operating profit before adjusting items Sales ex VAT £m 1,176.4 1,122.7 4.8 forthe total segment and by channel. 1 Traffic: the number of site visits to M&S.com and the app. – Store staffing costs decreased 60bps. Colleague pay 2 Conversion: the number of orders as a % of the number of site visits. increases were more than offset by retail efficiencies 3 Prior year number restated due to basis of calculation. Returns rate represents returns andsales growth. on despatch sales. – Other store costs were level. There was a 100bps adverse Following strong performance last year, online sales remained impact from the receipt of business rates relief in the prior solid with growth throughout the year despite a tough market year, which was offset by the effects of sales growth. backdrop. Average order value grew almost 6% reflecting – Distribution and warehousing costs improved 110bps due higher average selling prices, partly driven by mix. tosales growth and channel mix, which more than offset The online returns rate increased year-on-year due to the payinflation. growth of third-party brands which have a higher returns rate – Central costs were level as a percentage of sales despite and a reversion in product mix and customer behaviour. Store significant additional digital investments including website returns rates reduced, with fitting rooms now reopened post front end development and increased personalisation. pandemic. Operating profit margin STORES beforeadjusting items Total % Stores % Online % Change vs 2021/22 9.9 10.3 9.1 52 weeks ended 1 Apr 23 2 Apr 22 2021/22 % Gross margin (2.9) (2.1) (4.5) Footfall, m (average/week) 4.5 4.0 12.5 Store staffing 0.6 0.9 0.4 Transactions, m (average/week) 1.8 1.7 5.9 Other store costs 0.0 0.4 0.1 Average basket value inc VAT prereturns (£) 37.4 34.9 7.2 Distribution and warehousing 1.1 0.8 0.9 Sales ex VAT £m 2,538.6 2,209.5 14.9 Central Clothing & Home costs 0.0 0.1 (0.9) 2022/23 8.7 10.4 5.0 UK Clothing & Home store sales increased 14.9%, with all clothing store formats seeing an improvement in sales year- As outlined above, store margin increased, largely due on-year, also supported by higher average selling prices and tostrong sales growth. Online margin was adversely mix. Average weekly footfall was up 12.5% following Covid impacteddue to slower sales growth, product mix and restrictions lifting during Q1 last year, contributing to an digitalinvestments. increase in transactions. INTERNATIONAL TOTAL CLOTHING & HOME Total International sales increased 11.2% at constant currency. Operating profit before adjusting items was £323.8m compared Store sales grew 14% as the business recovered from lockdown with £330.7m in 2021/22, with last year’s result benefitting from in several markets in Q1 of the prior year. Online sales were up £35.2m of UK business rates relief. 5% led by India and growth through European marketplaces inH2. 1 Apr 23 2 Apr 22 Change vs 52 weeks ended £m £m 2021/22 % Sales excluding the Republic of Ireland were up 15.1% at constant currency, driven by Clothing & Home sales in India Statutory revenue 3,658.3 3,308.3 10.6 and continued robust demand from partners in the Middle Sales 3,715.0 3,332.2 11.5 East. Trading in Europe was adversely impacted by the closure | Operating profit before | of operations in Russia and France. Sales growth in the Republic | | | | | | --- | --- | --- | --- | --- | --- | | adjusting items 323.8 330.7 -2.1 | of Ireland was robust despite continuing EU border related | | | | | | Adjusted operating margin 8.7% 9.9% -120bps | headwinds in Food. | | | | | | | | 1 Apr 23 | 2 Apr 22 | Change vs | Change vs | The overall Clothing & Home adjusted operating margin 52 weeks ended £m £m 2021/22 % 2021/22 CC % decreased by c.120bps (20bps excluding rates relief). Within this, gross margin decreased 290bps, although this was partly Total sales 1,055.0 937. 2 12.6 11.2 offset by lower operating costs as a percent of sales, as sales Memo: Sales excl. grew faster than costs. Republic of Ireland 741.0 637.8 16.2 15.1 Within gross margin, bought-in margin declined c.200bps. Sourcing, freight and in-year currency related cost pressures, Operating profit particularly in H2, were not fully offset by pricing activity. before adjusting Inaddition, as expected, promotional mix normalised and, items 84.8 73.6 15.2 16.2 third-party brands grew, diluting margin by c.30bps. Adjusted operating margin 8.0% 7.9% 10bps 30bps Memo: Operating profit before adjusting items excl. Republic of Ireland 67.9 58.2 16.7 18.6 Annual Report & Financial Statements 2023 37 STRATEGIC REPORT ## FINANCIAL REVIEW CONTINUED Total International operating profit before adjusting items was Ocado Retail EBITDA before exceptional items was down, up 15.2% to £84.8m, with adjusted operating margin up 10bps reflecting smaller baskets, lower gross margins, under-utilised to8.0%. This was largely driven by growth in markets excluding CFC capacity and higher fulfilment and delivery costs. the Republic of Ireland. Ocado Retail recognised £21.2m of exceptional income Gross margin decreased by 20bps, driven by a reduced beforetax, predominantly relating to the insurance income Clothing & Home gross margin in the Republic of Ireland. forAndover and Erith CFCs, offset by costs relating to the Operating costs increased 11.6% but reduced as a percent of development and introduction of new IT systems as Ocado sales. The increase in operating costs was largely driven by the Retail transition away from Ocado Group IT services, tools business returning to a fully operational state following Covid andsupport. related lockdowns in Q1 last year. In addition, pay and energy As a result of lower EBITDA, partly offset by exceptional profits, related cost inflation was absorbed in owned markets. M&S Group share of Ocado Retail loss after tax was £29.5m. OCADO RETAIL LTD M&S BANK AND SERVICES The Group holds a 50% interest in Ocado Retail Ltd (“Ocado M&S Bank and Services generated a loss before adjusting Retail”). The remaining 50% interest is held by Ocado Group plc itemsof £0.5m, as compared with profit of £13.0m in 2021/22. (“Ocado Group”). Full Year Results are consistent with the Deterioration of the forward macro-economic environment quarterly results reported by Ocado Group on behalf of Ocado guidance drove the need for higher bad debt provision resulting Retail for the quarterly periods ended 29 May 2022, 28 August in insufficient profits to generate a profit share payment. 2022, 27 November 2022 and 26 February 2023. NET FINANCE COST Q1 Q2 Q3 Q4 FY Change vs Revenue growth (%) -9.8 2.6 0.3 3.4 -1.2 1 Apr 23 2 Apr 22 2021/22 52 weeks ended £m £m £m Active customers (k) 867 947 942 957 957 Interest payable (76.3) (85.1) 8.8 Average orders perweek (k) 385 374 382 381 380 Interest income 23.8 9.6 14.2 Net interest payable (52.5) (75.5) 23.0 Notes: Retail revenue comprises revenues from Ocado.com and Ocado Zoom. Average orders per week refers to results of Ocado.com Pension net finance income 28.7 13.2 15.5 Unwind of discount on Scottish Revenue declined 1.2% over the 52 weeks to 26 February 2023. Limited Partnership liability (4.3) (4.4) 0.1 While active customers grew 14.6% and order numbers increased 3.9%, basket sizes have continued to decline due to Unwind of discount on provisions (5.4) (3.8) (1.6) the near-term pressures of the pandemic unwind and cost-of- Net financial interest (33.5) (70.5) 37.0 living crisis. Revenue performance in the last three quarters Net interest payable on lease was ahead of last year. liabilities (111.1) (115.6) 4.5 | | | 26 | | | 27 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | February | | February | | | | | | | | | 2023 | | 2022 | | Change | | Net finance costs before | | 52 weeks ended | | £m | | | £m | | % | adjusting items (144.6) (186.1) 41.5 | | Revenue 2,222.0 2,248.8 -1.2 | | | | | | | | Adjusting items included in net | finance costs 105.2 5.6 99.6 EBITDA before exceptional items (15.1) 104.8 -114.4 | | 1 | | Net finance costs (39.4) (180.5) 141.1 | | --- | --- | --- | --- | | Exceptional items | | 21.2 (14.4) 247. 2 | | | Depreciation and amortisation (69.4) (41.3) 68.0 | | | Net finance costs before adjusting items decreased £41.5m | | Operating (loss)/profit (63.3) 49.1 -228.9 | | | to£144.6m. This was driven by higher average interest rates | oncash balances and higher pension finance income from a Net interest charge (14.3) (16.4) -12.8 larger opening pension surplus balance. In addition, interest Taxation 18.6 (4.9) 479.6 expense reduced as a result of the partial buy-back of 2023 (Loss)/profit after tax (59.0) 27.8 -312.2 and2025 bonds. M&S 50% share of (loss)/profit Adjusting items within net finance costs reflect a credit after tax (29.5) 13.9 -312.2 relatingto the remeasurement of Ocado Retail contingent consideration of £108m and a charge of £2.8m reflecting the 1 Exceptional items are defined within the Ocado Group plc Annual Report and Accounts 2022. discount unwind on deferred consideration and revaluation of contingent consideration on the acquisition of Gist Limited. 38 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS GROUP PROFIT BEFORE TAX AND ADJUSTING ITEMS Adjusting items recognised were a net charge of £6.3m. Group profit before tax and adjusting items was £482.0m, down Theseinclude: 7.8% on 2021/22. The profit decrease was largely due to declines A charge of £51.3m in relation to UK store estate rotation in Food, Clothing and Home and Ocado Retail, offset by an plans.This reflects a revised view of latest store exit routes, increase in International operating profit and reduced interest. assumptions, estimated closure costs, charges relating to the UK profits in the prior year benefitted from £59.8m business impairment of buildings, fixtures and fittings, and accelerated rates relief. depreciation. GROUP PROFIT BEFORE TAX A non-cash charge of £10.7m within organisation relating to Group profit before tax was £475.7m, up 21.4% on 2021/22. updated assumptions regarding the sub-let of previously ADJUSTING ITEMS closed Merchant Square offices. The Group makes certain adjustments to statutory profit A charge of £16.4m for structural simplification of the measures in order to derive alternative performance measures organisation, which has resulted in a reduction of c.700 roles (APMs) that provide stakeholders with additional helpful across support centres, management and stores, with the information and to aid comparability of the performance of charge reflecting the associated redundancy and exit costs. thebusiness. For further detail on these (charges)/gains and the Group’s policy for adjusting items, please see notes 1 and 5 A net charge of £10.5m for UK logistics, reflecting estimated to the financial information. These (charges)/gains are reported costs of closure relating to the announced closure of a further | as adjusting items on the basis that they are significant in | | | | distribution centre in 2023/24, as part of the previously | | --- | --- | --- | --- | --- | | quantum in current or future years and to aid comparability | | | | announced programme to transition to a single-tier UK | | from one period to the next. | | | | distribution network. | | | | | Change vs | A non-cash net credit of £15.1m in relation to UK and | | | 1 Apr 23 | 2 Apr 22 | 2021/22 | | International store impairments, driven by revised future cash 52 weeks ended £m £m £m flow projections in relation to the carrying value of stores. Strategic programmes – A charge of £22.1m relating to the acquisition of Gist to UK store estate (51.3) (161.4) 110.1 transform the supply chain. Within this, £18.2m of charges Strategic programmes – relate to the settlement of our pre-existing relationship with Structural simplification (16.4) – (16.4) Gist Limited. Strategic programmes – A non-cash charge of £14.0m with respect to the amortisation Organisation (10.7) 14.3 (25.0) of intangible assets acquired on the purchase of our share in Strategic programmes – Ocado Retail partly offset by the related deferred tax credit. UKlogistics (10.5) 21.9 (32.4) Charges of £2.0m have been incurred relating to M&S Bank, Strategic programmes – International store closures primarily due to the insurance mis-selling provision. andimpairments – 0.4 (0.4) In 2021/22, the Group announced the restructure of its | Store impairments, reversals and | franchise operations in France. Following finalisation of costs, | | --- | --- | | other property charges 15.1 60.0 (44.9) | £0.4m of the provision has been released, with no future costs | | Acquisition of Gist Limited (22.1) – (22.1) | currently expected. | | Amortisation and fair value | A credit of £108m representing the revaluation of the | | adjustments arising as part | contingent consideration payable for the investment in | | ofthe investment in Ocado | OcadoRetail Limited to £64.7m. | RetailLimited (14.0) (32.5) 18.5 TAXATION M&S Bank charges incurred in The effective tax rate on profit before tax and adjusting relation to the insurance itemswas 25.9% (2021/22: 18.2%). This was higher than the UK mis-selling provisions (2.0) (16.0) 14.0 statutory tax rate primarily due to the impact of the recapture Franchise restructure 0.4 (41.3) 41.7 of tax relief on distributions to the Scottish Limited Partnership Directly attributable gains (SLP), which have resumed in the year, and non-taxable Ocado resulting from the Covid-19 Retail losses. pandemic – 17.8 (17. 8) The effective tax rate on statutory profit before tax was 23.4% (111.5) (136.8) 25.3 (2021/22: 21.1%). This is lower than the effective tax rate on profit before adjusting items due to the impact of non-taxable Included in net finance adjusting items. income/(costs) In 2023/24 we expect the effective tax rate on profit before tax Remeasurement of Ocado Retail and adjusting items to increase to c.31-32%, largely as a result of Limited contingent consideration 108.0 5.6 102.4 the increase in the UK corporation tax rate. Net finance costs incurred in EARNINGS PER SHARE relation to Gist Limited deferred Basic earnings per share was 18.5p (2021/22: 15.7p), due to the and contingent consideration (2.8) – (2.8) increase in profit year-on-year. The weighted average number 105.2 5.6 99.6 of shares in issue during the period was 1,963.5m (2021/22: 1,958.1m). Adjustments to profit before tax (6.3) (131.2) 124.9 Adjusted basic earnings per share was 18.1p (2021/22: 21.7p) due to lower adjusted profit year-on-year. Annual Report & Financial Statements 2023 39 STRATEGIC REPORT ## FINANCIAL REVIEW CONTINUED | CASH FLOW | | | | | | | pandemic, which are partially reversing as Clothing & Home | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | Change vs | | shifts back towards pre-Covid terms. The outflow was lower | | | 1 Apr 23 | | 2 Apr 22 | | 2021/22 | | than anticipated due to the phasing of payables over yearend. | | 52 weeks ended | | £m | | £m | | £m | | Defined benefit scheme pension funding of £36.8m reflects Operating profit 515.1 572.2 (57.1) theagreed SLP interest distribution to the pension scheme. Adjusting items within Increased taxation was principally due to the resumption operatingprofit 111.5 136.8 (25.3) of UK corporation tax payments in the period. Operating profit before adjustingitems 626.6 709.0 (82.4) Adjusting items in cashflow includes £26.4m relating to the exit Depreciation and amortisation of the Russian franchise business, £22.8m relating to the UK before adjusting items 523.2 510.7 12.5 store estate strategy, £8.9m related to structural simplification, £6.7m for costs related to the Gist acquisition and £2.0m Cash lease payments (353.8) (344.3) (9.5) relating to the M&S Bank insurance mis-selling provisions. Working capital (10.1) 239.7 (249.8) Loans to associates reflects drawdown of the shareholder Defined benefit scheme loanfacility by Ocado Retail, with an outflow of up to £70m pensionfunding (36.8) (36.8) – anticipated in 2023/24. Capex and disposals (409.2) (213.5) (195.7) Acquisitions, investments and divestments were driven Financial interest (66.5) (79.9) 13.4 principally by the payment of £102.8m relating to the Taxation (70.6) (7.7 ) (62.9) acquisition of Gist, net of cash received. Employee-related share The business generated free cashflow of £63.6m, resulting transactions 37.9 39.1 (1.2) in a further reduction of net debt. Share of (profit)/loss from associate 29.5 (13.9) 43.4 CAPITAL EXPENDITURE Change vs Adjusting items in cashflow (69.9) (61.8) (8.1) | | | 1 Apr 23 | | 2 Apr 22 | | 2021/22 | | | --- | --- | --- | --- | --- | --- | --- | --- | | Loans to Associates (30.0) (1.0) (29.0) | 52 weeks ended | | £m | | £m | | £m | | Free cash flow from operations 170.4 739.6 (569.2) | UK store remodelling 70.5 50.1 20.4 | | | | | | | New UK stores 55.0 49.9 5.1 Acquisitions, investments, and International 28.9 18.2 10.7 divestments (106.8) (40.4) (66.4) Supply chain 36.8 28.6 8.2 Free cash flow 63.6 699.2 (635.6) IT and M&S.com 109.5 68.2 41.3 Dividends paid – – – Property asset replacement 102.1 85.2 16.9 Free cash flow after Capital expenditure before shareholderreturns 63.6 699.2 (635.6) property acquisitions and disposals 402.8 300.2 102.6 Opening net debt excluding Property acquisitions and disposals (1.1) (43.9) 42.8 lease liabilities (420.1) (1,110.0) 689.9 Capital expenditure 401.7 256.3 145.4 Free cash flow after Movement in capital accruals and shareholderreturns 63.6 699.2 (635.6) other items 7.5 (42.8) 50.3 Exchange and other non-cash Capex and disposals as per movements excluding leases 0.9 (9.3) 10.2 cashflow 409.2 213.5 195.7 Closing net debt excluding leaseliabilities (355.6) (420.1) 64.5 Group capital expenditure before property acquisitions and disposals increased £102.6m to £402.8m due to increased investment in technology, store remodelling and property Opening net debt (2,698.8) (3,515.9) 817.1 asset replacement. Free cash flow after shareholderreturns 63.6 699.2 (635.6) UK store remodelling costs reflects 31 Food renewals and upgrades to Clothing & Home space in several full line stores. Decrease in lease obligations 231.8 216.0 15.8 New lease commitments and Spend on new UK stores primarily related to the opening of remeasurements (249.4) (100.6) (148.8) 3full line and 6 Food stores and one Food extension. New leases from acquisitions (21.3) (21.3m) Supply chain expenditure reflects investment in the Exchange and other non-cash underlyingbase food infrastructure together with spend movements 36.9 2.5 34.4 onupgrading vehicles. Closing net debt (2,637.2) (2,698.8) 61.6 IT and M&S.com spend includes technology replacement andupgrades in stores, continued investment in website The business generated free cashflow from operations of development and investment in Food planning systems. £170.4m, reducing year on year. This was driven by lower operating profit as a result of business rates relief in 2021/22, Property asset replacement has increased in the current year, prior year working capital inflows, increased capital primarily driven by the resumption of investment following the expenditure (detailed below), and tax payments. pandemic. This includes roof works and replacement of fridges, freezers, boilers, lifts and escalators. Prior year working capital inflows were partly a result of changes to payment terms for Clothing & Home suppliers during the Prior year disposals include receipts from the sale of two warehouses. 40 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS The movement in capital accruals and other items is driven Within offices, warehouses and other lease liabilities, £143.0m bylandlord contributions partially offset by an increase in relates to the sublet lease on the Merchant Square offices in capital accruals as capex spend normalises post pandemic. central London, which is part of the strategic programme, organisation. Average lease length of all other offices and NET DEBT warehouses to break is c.8 years. Group net debt decreased £61.6m driven by free cashflow from operations of £170.4m, and a net cash outflow of £102.8m International leases relate primarily to India (c.£99m) and relating to the acquisition of Gist. Ireland (c.£62m). Average lease length to break in India is close to nil, as the majority of these leases are past the break point, New lease commitments, remeasurements (including from and so we have the flexibility to exit these at any time on acquisitions) in the period were £270.7m, largely relating to 14 several months’ notice. Average length to lease break or new UK leases, the consolidation of Gist Limited lease liabilities, expiryin Ireland is c.8 years. lease additions in India, and UK property and logistics liability remeasurements. This was offset by £231.8m of capital lease PENSION repayments. At 1 April 2023, the IAS 19 net retirement benefit surplus was£477.4m (2021/22: £1,038.2m). There has been a decrease The composition of Group net debt is as follows: of£560.8m from the start of the year largely driven by an Change vs increase in gilt yields. 1 Apr 23 2 Apr 22 2021/22 The pension scheme is fully hedged for movements in gilt 52 weeks ended £m £m £m yields. However, on an IAS 19 basis there is an inherent basis risk Cash and cash equivalents 1,067.9 1,197.9 (130.0) to the scheme valuation, with the pension assets moving with Medium Term Notes (1,346.4) (1,529.5) 183.1 underlying movements in rates and scheme liabilities exposed to the movement in corporate bonds yields. In a normal period, Current financial assets this always results in some dislocation between movements in andother 44.8 99.4 (54.6) the scheme assets and liabilities. However, the increase in gilt Partnership liability (121.9) (187.9) 66.0 yields in the year led to a larger dislocation. Nevertheless, Net debt excluding therehas been no material worsening of the scheme’s overall leaseliabilities (355.6) (420.1) 64.5 funding position and the scheme remains fully funded on atechnical provisions basis. Lease liabilities (2,281.6) (2,278.7) (2.9) The most recent actuarial valuation of the Marks & Spencer – Full-line stores (909.2) (919.5) 10.3 UKPension Scheme was carried out as at 31 March 2021 and showed a funding surplus of £687m. This is an improvement – Simply Food stores (673.1) (712.8) 39.7 onthe previous position at 31 March 2018 (funding surplus – Offices, warehouses and other (494.6) (449.5) (45.1) of£652m), primarily due to lower assumed life expectancy. – International (204.7) (196.9) ( 7.8) MARKS AND SPENCER SCOTTISH LIMITED PARTNERSHIP Group net debt (2,637.2) (2,698.8) 61.6 Marks and Spencer plc is a general partner of the Marks and Spencer Scottish Limited Partnership, with the UK defined The Medium Term Notes include five bonds, with maturities out benefit pension scheme, which is a limited partner. The to 2037, and the associated accrued interest. During the period Partnership holds £1.3bn (last year: £1.3bn) of properties at part of the 2023 and 2025 bonds were repurchased, reducing book value which have been leased back to Marks and Spencer near-term liquidity draws. The USD 300m 2037 bond is valued plc. The first limited Partnership interest held by the scheme by reference to the embedded exchange rate in the associated entitles it to receive £73.0m in 2023 and £54.4m in 2024 and is cross currency swaps. During the year these swaps were reset included as a financial liability in the financial statements as it and the embedded mark to market value realised resulting in isa transferable financial instrument. The second Partnership an increased value of the debt. The full breakdown of interest held by the scheme, entitles it to receive a further maturities is as follows: £36.4m annually from June 2017 until June 2031. It is not a transferable financial instrument, so the associated liability Bond and maturity date Value (£m) isnot included on the Group’s statement of financial position, | Dec 2023, GBP 185.3 | rather the annual distribution is recognised as a contribution | | --- | --- | | Jun 2025, GBP 330.0 | tothe scheme each year. | | May 2026, GBP 298.9 | LIQUIDITY | | Jul 2027, GBP 248.6 | At 1 April 2023, the Group held cash and cash equivalents | of£1,067.9m (2021/22: £1,197.9m). In the period, as part of its Dec 2037, USD 251.8 approach to liability management, the Group bought back Total principal value 1,314.6 c.£190m of bonds due for maturity in 2023 and 2025. Other 31.8 The Group currently has an unused £850m revolving credit Total carrying value 1,346.4 facility which is due to expire in June 2026 on terms linked todelivery of its net zero roadmap. With the facility undrawn, Full-line store lease liabilities include £192.2m relating to stores theGroup has liquidity headroom of £1.9bn. identified as part of the UK store estate strategic programme. Of the remaining full-line stores lease liability, the liability- DIVIDEND weighted average lease length to break is c.21 years. However, With the business generating an improved operating these average lease lengths are skewed by five particularly performance and having a strengthened balance sheet with long leases on stores which are trading well in locations credit metrics consistent with investment grade, the Board wherethe Group intends to remain. Excluding these five plans to restore a modest annual dividend to shareholders leases,the average term to break of leases outside the starting with an interim dividend with the results in November. programme is c.16 years. STATEMENT OF FINANCIAL POSITION Simply Food store lease liabilities include £26.3m relating Net assets were £2,814.9m at the period end, a decrease of 3.5% tostores identified as part of the UK store estate strategic since the start of the year, largely due to the decrease in the IAS programme. Of the remaining lease liability, the average lease 19 pension surplus, partially offset by profits. length to break is c.10 years. Annual Report & Financial Statements 2023 41 STRATEGIC REPORT ## NON-FINANCIAL ## AND SUSTAINABILITY ## INFORMATION STATEMENT ### The statements below reflect our commitment to, and management of, employees, ### communities, the environment, human rights, anti-bribery and anti-corruption in the ### last 12months as required by sections 414CA and 414CB of the Companies Act 2006. Policies on these matters can be found at corporate.marksandspencer.com. Our Business Model can be found on pages 8 to 9. Sections within the Annual Report to read more Relevant policies, documents, or reports abouttheoutcomes and related non-financial KPIs Our Commitment that set out our approach ofOurCommitment EMPLOYEES | We are committed to providing our | – Code of Conduct | – CEO and Co-CEO Q&A, on page 6 | | --- | --- | --- | | colleagues with a safe and healthy working | – Inclusion, Diversity & Equal | – Stakeholder engagement, on pages 9 and 10 | | environment and an organisational culture | Opportunities Policy | – People & Culture, on pages 28 to 31 | | which promotes inclusivity, diversity, equal | – People Principles | – S.172 Statement, on pages 80 to 82 | | opportunities, personal development and | | – Board Diversity, on page 88 | mutual respect. We want people to enjoy coming to work and for the workplace to be free from discrimination, harassment andvictimisation. Dedicated corporate website area: – Sustainability: OurPeople Go to corporate.marksandspencer. com/sustainability/our-people ENVIRONMENTAL MATTERS | M&S is committed to becoming a net zero | – Climate & Energy Policy | – Our TCFD Report, on pages 44 to 55 | | | --- | --- | --- | --- | | business across the entire value chain by | – Food Waste Policy | – S.172 Statement, on pages 80 to 82 | | | 2040. Anambitious roadmap has been | – Sustainability Report 2023 | – ESG Committee Report, on pages 90 to 91 | | | established and will ensure M&S plays its | | – Climate-related (“CR”) financial disclosures: | | | part in limiting global warming to 1.5°C. | | | – (a) governance arrangements, on pages 45 | | This year, to support us on our journey | | | and 46; | | tonet zero, we had our 2030 corporate | | | – (b) how CR risks and opportunities are | | greenhouse gas emissions reduction | | | identified, assessed and managed, | | target approved by the SBTi (see official | | | on pages 47 to 53; | | science based target on page 55). | | | – (c) how processes for identifying, assessing | and managing CR risks are integrated within M&S is a supporter of the Task Force on the Group’s overall risk management Climate-Related Financial Disclosures framework, on page 54; (“TCFD”) which provides a framework for – (d) description of:- our approach to identifying, assessing and (i) principal CR risks and opportunities, managing our climate-related risks and onpages 48 to 50; opportunities. (ii) time periods to which these are assessed, on page 47; Dedicated corporate website area: – (e) actual and potential impacts of the – Plan A: Our Planet principal CR risks and opportunities on the business model and strategy, on page 47; | Go to corporate.marksandspencer. | – (f) resilience of the business model and | | --- | --- | | com/sustainability/plan-a-our- | strategy, taking into consideration different | | planet | CR scenarios, on pages 52 to 53; | – (g) targets used to manage CR risks and – Look Behind theLabelhub realise CR opportunities and performance against targets, on page 55 and in the Go to www.marksandspencer.com/c/ Sustainability Report on pages 57 to 65; look-behind-the-label and – (h) KPIs used to assess (g) targets above and calculations on which these are based, on page 54 and in the Sustainability Report onpages 57 to 65. 42 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Sections within the Annual Report to read more Relevant policies, documents, or reports abouttheoutcomes and related non-financial KPIs Our Commitment that set out our approach ofOurCommitment COMMUNITIES AND SOCIAL MATTERS | M&S has been committed to supporting | – Charity Partnerships | Our contributions towards, and consideration of, | | --- | --- | --- | | local communities throughout its 139-year | &Fundraising Policy | communities isintegrated throughout the report | | history. We aim to take a progressive | – Trading Standards & Consumer | and can also be found in: | | approach to our community engagement | Protection Policy | | – Stakeholder engagement, on pages 9 and 11 and actions that make a big difference on – Food & Product Safety – S.172 Statement, on pages 80 to 82 some of the most pressing causes in many &IntegrityPolicy – ESG Committee Report, on pages 90 to 91 parts of the world. – Farm Animal Health &WelfarePolicy – Groceries Supply Code Dedicated corporate website area: ofPractice (“GSCOP”) – Our Communities Compliance Report – Responsible Marketing Go to corporate.marksandspencer. Principles com/sustainability/our-communities – Sustainability Report 2023 – Our Products Go to corporate.marksandspencer. com/sustainability/our-products HUMAN RIGHTS | M&S is committed to respecting human | – Modern Slavery Statement | – Stakeholder Engagement, on page 11 | | --- | --- | --- | | rights in the UK and internationally; | – Human Rights Policy | – ESG Committee Report, on pages 90 to 91 | | ensuring people in our business and | – Code of Conduct | | | supply chain are always treated fairly. | – M&S Global Sourcing | | | Tosupport this, we are committed to | Principles | | | continuous improvement by building | – Child Labour Procedure | | | knowledge and awareness on human | – M&S grievance procedure for | | | rights for all of our colleagues and | Food and Clothing & Home | | | suppliers, as well as ensuring there are | supply chains | | methods of speaking up through our improved “Worker Voice” technology platform. Dedicated corporate website area: – Human Rights & Our Supply Chain Go to corporate.marksandspencer. com/sustainability/human-rights- our-supply-chain ANTI-BRIBERY AND ANTI-CORRUPTION | M&S is committed to the highest standards | – Anti-Bribery & | – Audit & Risk Committee Report, on page 95 | | --- | --- | --- | | of ethics, honesty and integrity. We have | CorruptionPolicy | | | azero-tolerance approach to any form | – Code of Conduct | | ofbribery and corruption and operate a compliance programme to prevent bribery and corruption in our business and supply chain. We set expected standards of conduct that colleagues, contractors, suppliers, business partners and any other third parties who act for or on behalf of M&S are obliged to follow. PRINCIPAL RISKS | We are committed to maintaining an | – Risk Management Policy – Risk Management Framework, on pages 56 | | | --- | --- | --- | | agileapproach to risk management with | | to57 | | effective processes in place to proactively | | – Overview of Principal Risks and Uncertainties, | | identify and manage risks that may impact | | on pages 58 to 65 | | the achievement of our business strategy | | – TCFD: Climate-related risks, on pages 44 | | and objectives. | | to55 | Annual Report & Financial Statements 2023 43 STRATEGIC REPORT ## TASK FORCE ON CLIMATE-RELATED ## FINANCIALDISCLOSURES REPORT ### This section sets out our climate-related financial disclosures, ### aligned to the Task Force on Climate-related Financial Disclosures ### (“TCFD”) recommendations and LR 9.8.6R. TCFD DISCLOSURES INDEX Marks and Spencer Group plc has complied with the requirements of TCFD PILLARS TCFD RECOMMENDATION REFERENCE LR 9.8.6R by including climate- related financial disclosures Governance A) Describe the board’s oversight Read more on consistent with the TCFD of climate-related pages 45-46 recommendations and risks and opportunities. recommended disclosures, save for B) Describe management’s role Read more on page 52 our work on financial quantification in assessing and managing climate- in the Sustainability which will continue over the next related risks and opportunities. Report year, expanding to other risk and opportunities currently identified Strategy A) Describe the climate-related Read more on as“not yet quantified”. This will enable risks and opportunities the pages 47-53 us to provide fuller disclosure of organisation has identified over resilience and of the financial theshort, medium, and long term. impacts of all climate-related B) Describe the impact of climate- risksand opportunities in line Read more in the related risks and opportunities withstrategy B & C. Financial Sustainability Report ontheorganisation’s businesses, quantification work to date has strategy, and financial planning. focussed on the areas provisionally identified as potentially having the C) Describe the resilience of the most material impacts. organisation’s strategy, taking into consideration different climate- related scenarios, including a 2°C For ease, the index provides a guide to or lower scenario. the disclosure including where information is set out elsewhere in this Risk Management A) Describe the organisation’s report. Further information can also be Read more on page 54 process for identifying found in our separate Sustainability and assessing climate risk. Report providing more comprehensive reporting of our climate strategy and B) Describe the organisations Read more on progress. The Sustainability Report was processesfor managing pages 56-65 in the Risk published on 6th June and is available at climate-related risks. Management section marksandspencer.com/sustainability C) Describe how processes for report2023 identifying, assessing and managingclimate-related risksareintegrated into the organisation’soverall risk management. Metrics and Targets A) Disclose the metrics used by Read more on the organisation to assess pages 54-55 climate-related risks and opportunities in line with its strategyand risk management process. B) Disclosure scope 1, 2 and, if appropriate scope 3 greenhouse gas emissions and the related risks. C) Describe the targets used Read more in the by the organisation to manage Sustainability Report climate-related risks and opportunities and performance against targets. 44 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OUR TCFD JOURNEY Published our Roadmap towards Develop detailed Net Zero financial framework Started quantitative scenario Work towards plan Launched Plan A, Achieved carbon Signed up to British analysis for transition in line our sustainability neutrality in Retail Consortium’s with TPT guidance Disclosed scope 3 footprint programme International Climate Action Enhance scope 3 operations Roadmap Issued first compliant disclosure Set an ambition to reporting against the recommendations be carbon neutral in of TCFD operations by 2012 NEXT 201420122007 2017 2019/20 2020/21 2022/232021/22 YEAR Achieved carbon Signed up as a Began preparations Undertook climate-related business neutrality in UK TCFD supporter for the future adoption wide risk and opportunity review ownoperations of TCFD reporting Published quantitative Strengthened governance scenarioanalysis with the creation of our Enhanced governance with ESG Committee theintroduction of an ESG BusinessForum * Transition Plan Taskforce: https://transitiontaskforce.net/ However, as the ESG Committee has Executive Committee (ExCo) members ### GOVERNANCE oversight of activities addressing our are individually responsible for reviewing climate change and environmental andconfirming risks in their own responsibility risks, it supports the risk areasand subsequently reviewing the A) DESCRIBE THE BOARD’S management process by reviewing and Group’s principal risks at the half year OVERSIGHT OF CLIMATE-RELATED providing the Audit & Risk Committee and year end. This process provides the RISKS AND OPPORTUNITIES. with recommendations on all ESG- Audit & Risk Committee with assurance related risks. All members of both the that significant risks are appropriately The Board has ultimate responsibility for ESG and Audit & Risk Committees are monitored and managed throughout both risk management and ESG matters, Non-Executive Directors (Committee theyear. including those risks and opportunities membership and meeting attendance related to climate change. The Board is This year, we have enhanced our isoutlined in the respective Committee also responsible for reviewing and ESG governance process with the Reports on page 90 for the ESG guiding significant strategic programmes introduction of an ESG Business Forum, Committee and page 92 for the and expenditure and, as set out below, to replace the Plan A (Net Zero) Steering Audit&Risk Committee). | relies on the support and advice of the | | Group. This forum, which is chaired by | | --- | --- | --- | | ESG and Audit & Risk Committees in | An overview of our risk management | amember of the ExCo, meets on a | | doing so. | governance, including that relating to | quarterly basis and is made up of the | | | climate change, is set out on page 57. | accountable business leaders for ESG | Responsibilities in relation to ESG related issues. Quarterly updates from matters are discharged to the ESG these meetings are provided to the ExCo Committee. The ESG Committee is B) DESCRIBE MANAGEMENT’S ROLE and the ESG Committee. responsible for ensuring the Company’s INASSESSING AND MANAGING ESG strategy and associated governance, CLIMATE-RELATED RISKS AND including management of climate- OPPORTUNITIES. related issues, is fit for purpose and | appropriate metrics and targets are | As outlined in our risk management | | --- | --- | | inplace and reported on. The ESG | process (see page 56), ESG risks, | | Committee oversees progress against | including those climate change risks | | these targets via a quarterly ESG report. | identified via our business-wide risk | | Responsibilities in relation to risk | andopportunities review, are considered | | management are discharged to the | as part of each business’ risk register. | | Audit& Risk Committee, who review | Each business area considers the capital | | theprincipal risks twice a year, of which | expenditure required for projects to | | climate change and environmental | mitigate the likely short term climate- | | responsibility is one. | related risks within the annual budget. | Annual Report & Financial Statements 2023 45 STRATEGIC REPORT ## TCFD REPORT CONTINUED GOVERNANCE STRUCTURE BOARD Ultimate responsibility for both Risk Management and ESG matters, including those risks and opportunities related to climate change. Approves the Company’s ESG strategy, including the group-wide target to become net zero. EXECUTIVE COMMITTEE BOARD COMMITTEES – The CEO/Co-CEO are responsible for overseeing the ESG COMMITTEE development of group-wide ESG strategic goals and are – Responsible for ensuring the Company’s ESG strategy accountable for the delivery of the Company’s group- and associated governance is fit for purpose, and that wide ESG programme (including the roadmap towards plans are in place and reported on. net zero). The Executive Committee members are individually responsible for setting ESG strategy in their – Advises the Audit & Risk Committee on ESG-related risks respective areas of the business to achieve group-wide and opportunities, including climate-related issues. strategic goals (overseen by the ESG Committee and for ultimate approval by the Board) and putting in place mechanisms to deliver their strategy, in turn managing the climate-related risks and opportunities impacting their business areas. AUDIT & RISK COMMITTEE – The Executive Committee members are individually responsible for reviewing and confirming risks in their – Responsible for ensuring the effectiveness of the risk own areas as part of our risk management process, management process. including climate risks. – Receive updates from the business leadership on how principal risks and uncertainties of the business are being appropriately addressed. – Reviews the principal risks twice a year, of which climate change and environmental responsibility is one. MANAGEMENT FORUMS BUSINESS AND FUNCTIONAL LEADERSHIP TEAMS ESG BUSINESS FORUM – Responsible for their business’ risk register, and for – Accountable for driving progress against the managing and resourcing mitigating activities. workstreams/targets of the Company’s ESG programme, which mitigate our climate risks. Meets quarterly to – Responsible for ensuring climate-related risks are review progress and agree the right metrics and targets considered as part of the business’ risk register. on a forward-looking basis. – Responsible for ensuring climate-related opportunities – Updates the Executive Committee and ESG Committee are realised as part of their ESG strategy. on a quarterly basis on progress against targets. – Accountable for managing climate-related risks and opportunities. Includes representatives from Group Finance and Group Risk to ensure ESG considerations are being appropriately reviewed and considered within risk management and financial planning. 46 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Processes used to determine which risks B) DESCRIBE THE IMPACT OF ### STRATEGY and opportunities could have a material CLIMATE-RELATED RISKS AND financial impact on the organisation. OPPORTUNITIES ON THE This year, we supplemented our risk ORGANISATION’S BUSINESSES, A) DESCRIBE THE CLIMATE-RELATED management process with a detailed STRATEGY, AND FINANCIAL RISKS AND OPPORTUNITIES THE business-wide review of climate risks and PLANNING. ORGANISATION HAS IDENTIFIED opportunities over the short, medium OVER THE SHORT, MEDIUM, AND and long term. This review included This year, our workshops across the LONG TERM. workshops with risk, finance and business identified potential implications sustainability leads across the of climate risks and opportunities on our We know physical and transition climate- accountable businesses to identify key products and services, our supply chain, related risks and opportunities can risks and opportunities. As part of this our adaptation and mitigation activities manifest themselves to different review, we utilised this groups insight to and own operations. Climate-related proportions over a longer-term time map potential impact and likelihood over risks and opportunities specifically horizon. To ensure we have a resilient the different time horizons to determine associated with the acquisition of Gist organisation fit for the future, it is relative materiality. have been considered (more information important that the management of our can be found on page 32 of our climate-related risks and opportunities Determining materiality Sustainability Report) and, other isnot only integrated into our existing The business determines the severity acquisitions are in line with our sectoral three-year strategy and planning ofarisk by considering two factors: risks of clothing and home. Our focus on processes as an ongoing consideration thelikelihood of the risk materialising research and development is embedded but also that we supplement current inagiven timeframe and the potential in our Foodand Clothing & Home processes with reviews focused on an impact(s) such as financial, reputational, businesses. During the year our extended time horizon. This process operational or regulatory. A combination innovation teams have included a focus better informs our assessment of of these two factors provides an overall on climate-related opportunities as part emerging risks and opportunities and risk severity score of either ‘minor’, of their horizon scanning processes and identifies the appropriate actions to ‘moderate’, ‘major’ or ‘critical’ which aids investment, andwe have also relaunched strengthen business resilience. the business in determining the our climate focused innovation fund, the materiality of a risk. We applied this We have used the following definitions ‘Plan A Accelerator Fund’ (see Sustainability approach to our climate focused oftime horizons for the purposes of Report page 16). We know having an business-wide reviews to determine the identifies and managing our climate risks automated system in place to manage materiality of risks and opportunities and opportunities. These time horizons and report on our greenhouse gas (GHG) identified. are informed by the Paris Agreement emissions data is key to managing risks which influences global policy responses, The review considered two scenarios: on a ongoing basis. This year, we have the UNFCC data on physical risks and our implemented Sphera, asystem that – A low-carbon transition scenario own company’s science aligned net zero weare now using to collect, analyse focusing on the rapid policy, targets. andreport data on Scope 1 and 2 GHG regulatory, technological and market changes that will be required by 2030 emissions. to restrict emissions to a level which TIME HORIZONS In addition to summarising the risks and limits global warming to 1.5°C. opportunities identified, Table 1 outlines | | Short | <3 years | | | | --- | --- | --- | --- | --- | | | | | – A physical climate impact scenario | our business response to the impact on | | Aligned to our risk management and | | | assuming limited policy or regulatory | our businesses, strategy, and financial | | financial planning processes. | | | support for emission reduction, | planning in line with the considerations | | | | | leading to a world with increasing | outlined above. We have also mapped | | | Medium | | physical climate change impacts. | our targets to the impact areas to | 3-10 years highlight how we are building resilience Captures transition risk and opportunities, A summary of this review can be found into our business strategy. | linked to both our science-based target | | | inTable 1. Table 1 categorises the risks | | | --- | --- | --- | --- | --- | | andthe emerging risks included in our risk | | | and opportunities in line with TCFD | The above actions are reflected in the | | management disclosure. | | | Guidance Table A1.1 and A1.2. We agreed | inclusion of net zero in our corporate | | | | | that our business risks and opportunities | strategy and transformation priorities, | | | | | are most appropriately considered from | inthe strengthened governance now | | | Long | > 10 years | | | | | | | asectoral perspective. For M&S that is | in place for ESG and net zero and in the | Captures physical risks and opportunities predominately agricultural, food and roadmap towards net zero influence on over the long term. Linked to our long-term clothing & home and property. We built our financial planning processes of our net zero goals and the emerging risks up a group wide view following individual budget and three-year plan. included in our risk management disclosure. workshops with our businesses. We have highlighted the relevance of our risks andopportunities in Table 1. Given this sectoral focus is of most relevance toour organisation, this year we have notfelt it appropriate to break risks and opportunities down geographically. Annual Report & Financial Statements 2023 47 STRATEGIC REPORT Quantified Short-term: <3 years ## TCFD REPORT CONTINUED Immaterial Medium-term: 3-10 years Not yet quantified Long-term: > 10 years TABLE 1: BUSINESS WIDE RISK AND OPPORTUNITY SUMMARY | RISK/OPPORTUNITY | SECTOR TIME | | POTENTIAL FINANCIAL | | BUSINESS RESPONSE | 2 | TARGETS | | --- | --- | --- | --- | --- | --- | --- | --- | | & CLASSIFICATION | | HORIZON | IMPACT ON THE BUSINESS | 1 | Icons relate to Net Zero Priorities – see page 51 | | | | TRANSITION RISK | Group wide | | Increase in operating costs | | Group – mitigation | | – 55% reduction | | – Policy and Legislation | | | tomanage environmental | | - Validated our science-based target, for 2030 | | in absolute | Agriculture | | | compliance such as | which guides our goal setting process for net | Scope 1 & 2 | | --- | --- | --- | --- | --- | | 1. Current and new | Foods | | | | | | | carbontax. | zero targets as part of our business | emissions | environmental Clothing transformation. by2029/30 Summary of relevant compliance including &Home from 2016/17 quantitative scenario analysis legislation and tax. Supply Chain – mitigation base year. Property which looked at the impact - Built net zero as a consideration into our Examples include the across different sectors – 55% reduction Fleet sourcing strategy for Food and Clothing introduction of a (Food, Clothing and Home in absolute &Home. carbon tax to M&S | | and Property) can be found | | Scope 3 | | --- | --- | --- | --- | | orour supply chain | | - Identified the suppliers who have greatest | | | | inTable 2. | | emissions | | sectors (agriculture, | | impact on emissions in our supply chain as | | by2029/30 food production, akeyfocus for engagement. from 2016/17 clothing & home) and Increase in capital - Communicated our expectations – measure base year. the decarbonisation expenditure required to and report emissions, develop net zero plans ofour estate and fleet address emissions areas in and switch to renewable energy sourcing. driven by legislation. M&S owned assets such as - Continued our partnership with the HIGG Index refrigeration, energy to support the management of supply chain consumption and diesel fleet. emissions in Clothing & Home. Foods have signed up to Manufacture 2030 to support Capital expenditure on themanagement of supply chain emissions. LED lighting, store controls See Sustainability Report pages 23 to 25. upgrades, voltage | optimisation, fridge doors, | Our operations – capital investment | | --- | --- | | electric vehicles and other | - Planned asset replacement process in place | | areas can be found in page 179 | and integrated into our 3-year financial plan | | of the Financial Statement. | tophase out our F gas refrigeration systems. | TRANSITION RISK Foods Short/Medium Term – Our own brand food and clothing – Increase sales – Market and Reputation Revenue opportunity from & home products and services of plant-based Clothing climate conscious customers - Sustainable preferences and perceptions are products to &Home OPPORTUNITY who want to choose low integrated into our customer insights tracker. £75m by – Products and Services carbon products. 24/25. - Ongoing investment in innovation and new | 2. Ability to keep | Sales from plant-based | product and proposition development to | – 100% of cotton | | --- | --- | --- | --- | | pacewith customer | protein found in the | ensure we develop suitable low carbon | used in C&H | | trends and behaviours | Sustainability Report | products to maximise customer preferences. | products | | as we see an increase | (page47). | | frommore | - Current focus areas are alternative protein in inconsumer sustainable Food, and alternative raw materials in Clothing preferences towards sources by & Home. We are testing and trialling new more sustainable Medium Term – Revenue loss 25/26. business models such as clothing rental and product choices. if we do not keep pace with resale however we have identified this as a – 100% of customer trends and develop medium term opportunity and therefore polyester suitable low carbon product doesnot appear as a revenue stream. usedin offerings. See Sustainability Report pages 31 and 47. C&Hproducts from more sustainable sources by 25/26. – 100% of MMCFused in C&Hproducts from more sustainable sources by 25/26. 1 Quantification of financial impact will focus on short term risks and opportunities in line with our current financial planning process. 2 More information on specific programmes can be found in our Sustainability Report. 48 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS | Quantified | Short-term: <3 years | | --- | --- | | Immaterial | Medium-term: 3-10 years | | Not yet quantified | Long-term: > 10 years | TABLE 1: BUSINESS WIDE RISK AND OPPORTUNITY SUMMARY | RISK/OPPORTUNITY | SECTOR TIME | | POTENTIAL FINANCIAL | | BUSINESS RESPONSE | 2 | TARGETS | | --- | --- | --- | --- | --- | --- | --- | --- | | & CLASSIFICATION | | HORIZON | IMPACT ON THE BUSINESS | 1 | Icons relate to Net Zero Priorities – see page 51 | | | | TRANSITION RISK | Group wide | | Increase in capital and | | Group – mitigation | | – 2.1 million | | – Technology | | | operational expenditure | | - Short term rapid decarbonisation target for | | tonne | Property | | | required to source the | 2025/26, to focus on investigating the need | reduction | | --- | --- | --- | --- | --- | | 3. Availability of | Fleet | | | | | | | necessary low carbon | fornew low carbon technological solutions | incarbon | technological solutions technology and infrastructure andinfrastructure to support our journey emissions and infrastructure to to achieve our net zero goals. tonetzero. in2025/26. support low carbon Our operations – 55% reduction activities for example - Through our acquisition of Gist, we are able in absolute low and zero carbon towork more closely with the wider logistics Scope 1 & 2 fleet options. | industry and manufacturers to ensure we have | emissions | | --- | --- | | a transition plan for a net zero fleet. This year, | by2029/30 | | we have expanded our LNG fleet to 35 vehicles. | from 2016/17 | | See Sustainability Report page 34. | base year. | – 55% reduction in absolute Scope 3 emissions by2029/30 from 2016/17 base year. TRANSITION RISK Group wide Increase cost of fuel caused Supply chain – mitigation – 55% reduction – Market by climate-related market - Working with suppliers to reduce energy in absolute Property | | | disruption. Potential risk of | consumption and move to the use of renewable | Scope 1 & 2 | | --- | --- | --- | --- | --- | | OPPORTUNITY | Foods | | | | | | | blackouts and brownouts | energy. Examples of this include our | emissions | – Resource Efficiency Clothing which in turn impact trade participation in the Carbon Leadership by2029/30 and Energy Source &Home and waste. Programme and the use of the HIGG Facility from 2016/17 Environmental Module. base year. 4. Energy efficiency See Sustainability Report page 25. | and resilience in | | | – 55% reduction | | --- | --- | --- | --- | | our operations and | Reduction in operational | | in absolute | | supply chain. | costs if energy consumption | | Scope 3 | | | is effectively managed. | | emissions | | | Opportunity to reduce | | by2029/30 | | | reliance of grid electric by | Our operations | from 2016/17 | | | facilitating on-site renewable | - Continue to integrate energy efficiency | base year. | | | energy generation. | measures such as improved metering across | | property estate and investment in energy efficiency projects to lower energy consumption in lighting and fridges. See Sustainability Report page 33. | TRANSITION RISK | Group wide | Reputational impact due to | Group | – 2.1 million | | --- | --- | --- | --- | --- | | – Reputation | | failure to meet our net zero | - Net zero goal has been incorporated into the | tonne | | | | targets. Leads to lower sales | strategic pillars of our Business Transformation | reduction | 5. Failure to meet our and makes it harder to attract with a set of clear metrics for accountable incarbon public climate change and retain customers and business leaders. emissions commitments. colleagues. in2025/26. - Enhanced ESG governance process with | theintroduction of an ESG Business Forum. | – 55% reduction | | --- | --- | | SeeGovernance Structure on page 46 for more | in absolute | | information. | Scope 1 & 2 | emissions - Relaunch of our climate focused innovation by2029/30 fund, the ‘Plan A AcceleratorFund’ from 2016/17 base year. – 55% reduction in absolute Scope 3 emissions by2029/30 from 2016/17 base year. 1 Quantification of financial impact will focus on short term risks and opportunities in line with our current financial planning process. 2 More information on specific programmes can be found in our Sustainability Report. Annual Report & Financial Statements 2023 49 STRATEGIC REPORT Quantified Short-term: <3 years ## TCFD REPORT CONTINUED Immaterial Medium-term: 3-10 years Not yet quantified Long-term: > 10 years TABLE 1: BUSINESS WIDE RISK AND OPPORTUNITY SUMMARY CONTINUED | RISK/OPPORTUNITY | SECTOR TIME | | POTENTIAL FINANCIAL | | BUSINESS RESPONSE | 2 | TARGETS | | --- | --- | --- | --- | --- | --- | --- | --- | | & CLASSIFICATION | | HORIZON | IMPACT ON THE BUSINESS | 1 | Icons relate to Net Zero Priorities – see page 51 | | | | TRANSITION RISK | Group wide | | Increase capital and | | Group | | | | – Market | | | operational expenditure | | - Collaborate closely with the industry to ensure | | | | | | | required to meet our net | | we are working towards the same goals. As part | | | OPPORTUNITY zerogoals e.g. increased of this, we are on the Steering Committee of the – Policy costin renewable energy British Retail Consortium’s Climate Action procurement if grid Roadmap and lead on the Logistics Pathway. 6. Reliance on third decarbonisation is parties, local - Proactively engage with government to ensure notdelivered. government and that broader policy and infrastructure will broader infrastructure support us on our net zero journey. Examples to achieve our include input into the Independent Review of mitigation actions. Net Zero led by Chris Skidmore, and signatories on a letter to support the decarbonisation of the grid in line with our operational net zero target. | TRANSITION RISK | International | Reputational impact due | Our operations | | --- | --- | --- | --- | | – Reputation | | tofailure to meet the | - Apply learnings from both the COVID-19 | | | | requirements of our partners. | pandemic and the invasion in Ukraine as to how | PHYSICAL RISK Loss of revenue from not weare able to adapt our supply chain to ensure – Acute & Chronic being able the provide we are able to meet partner requirements, necessary stock to partners. irrelevant of the cause of the distribution. 7. Failure to meet the requirements of our franchise partners based on the impact ofclimate change on our supply chain. PHYSICAL Agriculture Increase in sourcing costs Supply chain – adaptation Maintain 100% – Acute & Chronic based on supply chain - Strengthened our focus on supporting fairtrade- Foods | | | disruption caused by | producers as they transition to net zero. We’re | certified tea | | --- | --- | --- | --- | --- | | 8. Volatility in the | Clothing | | | | | | | increased likelihood of | putting a greater emphasis on resilience in our | andcoffee. | | supply of raw materials | &Home | | | | | | | extreme weather. | standards and partnerships like Fairtrade. | | 100% of cotton caused by the impact Summary of relevant - Increased focus on regenerative agriculture, used in C&H of climate change. | quantitative scenario analysis | through our Farming with Nature programme | products from | | --- | --- | --- | | can be found in Strategy c). | and work with the Better Cotton Initiative. | more sustainable | | | See Sustainability Report pages 19 and 21 | sources by | 2025/26. Loss of revenue if we are notable to source specific products due to the impact ofphysical climate risks. PHYSICAL Group wide Loss of revenue from increased Our operations – Acute likelihood of extreme weather - To support with the management of extreme Property | | | events (e.g., flooding, extreme | weather events in stores, distribution centres | | --- | --- | --- | --- | | 9. Managing | Fleet | | | | | | temperatures) leading to | and key transport hubs such as Chittagong | infrastructure and closures of shops, distribution port, Bangladesh, we have in place robust operations (both owned centres and key transport hubs. business continuity procedures. and supply chain) in extreme weather. Summary of relevant quantitative scenario analysis can be found in Strategy c). | How climate-related issues serve as an | For example our capital investment in | For required spend in years subsequent | | --- | --- | --- | | input to our financial planning process | replacing fridges and freezers to become | to FY2023/24 to meet interim and | | Where required, the spend associated | compliant with the F gas Regulation, as | 2029/30 targets, this is currently | | with certain projects linked to climate- | well as other operational efficiencies | included within capital expenditure and | | related risks and opportunities is | included in our 3 year budget. | operating cost increase assumptions in | | incorporated into the FY2023/24 budget | This financial planning process form the | the three-year financial plan rather than | | and the three-year financial planning | cash flow projections within our going | being included specifically. This spend | | process, both approved by the Board. | concern and impairment assessments | will be built into future budget | | Wehave done so by including the capital | (see page 157 for more details). The | specifically each year. Thisis due to the | | expenditure required to manage the | financial framework will be developed | three-year financial plan being built from | | impact of our climate-related risks in our | during 2023/24 to align with the overall | the FY2023/24 budget as a base year | | operations and the profit impact from | climate strategy and net zero target. | with years 2 and 3 being built on | | climate-linked products and services. | | assumptions. | 50 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS | Our Transition Plan | This ambition is supported by a set of | Our roadmap towards net zero contains | | --- | --- | --- | | Since its launch in 2007, Plan A, | interim targets that align with climate | the key milestones which are reflected in | | oursustainability programme, has | science to limit global warming to 1.5°c | our group strategy and transformation | | underpinned the resilience of our | (see roadmap below). This year, to | priorities. This is supported by enhanced | | organisation’s strategy, ensuring | support us on our journey to net zero, | governance, improved tracking and | | thatweare proactively managing the | wehad our 2029/30 reduction target | measurement, collaboration and | | environmental and ethical risks and | validated by the Science Based | innovation funding. | | opportunities we face as a business, | Targetsinitiative. | | The 10 roadmap workstream icons can including climate-related issues. Our initial transition plan is focussed befound on Table 1 to highlight how In2021,we reinvigorated our approach onthe short term to mobilise the thespecific priority areas support the tosustainability and outlined our organisation, reduce emissions across impacts identified. ambition to become a net zero business key hotspots and start to build capability across our entire value chain by 2040. to address the opportunities identified. NET ZERO TRANSITION ROADMAP | | Short-term: <3 years | Medium-term: 3-10 years | Long-term: > 10 years | | | --- | --- | --- | --- | --- | | OUR BASELINE | 2025/26 TARGET | 2029/30 TARGET | 2034/35 TARGET | 2039/40 TARGET | | | 2.1m | 55% reduction | Net zero | Net zero | ## 6.2m tonnes (34%) reduction in carbon emissions versus across our own across entire tonnes of carbon emitted in carbon emissions our baseline business value chain 1 in 2016/17 2 SBTi APPROVED TEN IMMEDIATE PRIORITY AREAS FOR TRANSFORMATION PLANET HOW WE SOURCE HOW WE MAKE HOW WE ARE REDUCING DRIVING EFFICIENCY OUR PRODUCTS OUR PRODUCTS WASTE AND PROTECTING ACROSS OUR STORE RESOURCES ESTATE | Zero deforestation | Increasing the range of | Circular economy | Zero emissions property | | --- | --- | --- | --- | | – 100% of soy to be sourced | plant-based protein | Enhancing our clothes | Deliver a more efficient | | from verified deforestation | Double the sales of vegan | recycling scheme with new | storeestate. | | and conversion-free regions | and vegetarian products | incentives for Sparks | | | by 2025/26. | by 2024/25. | members. | | – 100% segregated responsibly sourced palm oil by 2025/26. Zero emissions transport Moving to low-carbon logistics with reduced Suppliers and business Reduce food waste dependency on diesel partners on net zero journey – 100% of edible surplus and increased use of new Looking beyond our own to be redistributed technologies and cleaner Sustainable sourcing operations to spark change by 2025/26. fuels. Contributing to | 100% verified recycled | and support decarbonising | | | | --- | --- | --- | --- | | | | – Food waste reduced | cross-industry action | | polyester by 2025/26. | across our full value chain. | | | | | | by 50% by 2029/30. | through collaboration. | | Low-impact farming | Reduce and recycle | | --- | --- | | We support our farmers to | packaging | | enable them to grow low | – 100% of packaging to be | | carbon, responsible food, use | recyclable by 2025/26. | fewer pesticides, enhance their – Remove 1bn units of plastic soil, protect natural resources packaging by 2027/28. and drive innovation. 1 Restated in line with methodological changes and Gist acquisition. 2 See Metrics and Targets C) for official science based target wording. Annual Report & Financial Statements 2023 51 STRATEGIC REPORT ## TCFD REPORT CONTINUED This year’s business-wide review of We ratified our scenario analysis for C) DESCRIBE THE RESILIENCE OF climate-related risks and opportunities cotton and protein and this year have THEORGANISATION’S STRATEGY, endorsed the selection of specific areas disclosed the potential financial impact TAKING INTO CONSIDERATION for quantitative scenario analysis, to the business if no actions were taken DIFFERENT CLIMATE-RELATED highlighting the policy and legislation to mitigate the risks. The results of the SCENARIOS, INCLUDING A 2°C risk of environmental compliance on both scenario analysis are included in Table 2. ORLOWER SCENARIO. | | our operations and our supply chain in a | We have aligned our financial impact | | --- | --- | --- | | Quantitative scenario analysis | transition scenario (Table 1 – Risk 1). In last | criteria to our group risk assessment | | Quantitative scenario analysis is a | year’s disclosure we identified carbon | criteria as follows: | | valuable tool to explore the potential | pricing mechanisms as the greatest | | | impact of risks and opportunities | environmental compliance risk we face in | | FINANCIAL IMPACT | identified by the business. Last year we | the medium term. The acquisition of Gist | | | | --- | --- | --- | --- | | | during the year resulted in us reviewing | Critical | | | undertook scenario analysis on three | | | >5% impact on sales | | areas of our business, Property, Protein | our Scope 1 and 2 emissions to include | | | >10% impact on PBT | and Cotton. These areas were selected | those previously excluded from M&S | | | | --- | --- | --- | --- | | | operational emissions. As this increased | Major | | | following a materiality assessment which | | | 3-5% impact on sales | | considered both the potential climate- | Scope 1 and 2 emissions by c.20%, we | | | 5-10% impact on PBT | related impact and the impact on | extended our existing quantitative | | | | --- | --- | --- | --- | | | scenario analysis of this transitional | Moderate | | | financial performance to M&S, whilst | | | 1-3% impact on sales | | ensuring fair and balanced reporting | riskfrom financial year 2021/22 to include | | | 1-5% impact on PBT | across the accountable businesses. | the non-dedicated elements of Gist | | | | --- | --- | --- | --- | | | (dedicated elements previously included), | Minor | | | Theanalysis looked at the impact of two | | | <1% on sale and PBT | | plausible future states – a low-carbon | and expanded our analysis to cover M&S | | | | transition scenario (average global | (including Gist) fleet. | | | temperature increases of 1.5˚C due to climate change by 2100) and a physical climate impact scenario (average global temperature increases of 4˚C due to climate change by 2100). TABLE 2: QUANTITATIVE SCENARIO ANALYSIS SUMMARY | AREA & SCOPE RISK/OPPORTUNITY | | RISK | IMPACT OF | QUANTIFICATION | TARGETS IN PLACE TO | | --- | --- | --- | --- | --- | --- | | | CATEGORY | MODELLED | CLIMATE RISK ON | OF IMPACT | MANAGE THESE RISKS | | | (AS IDENTIFIED | | OUR ORGANISATION’S | | | | | IN TABLE 1) | | FINANCIAL | | | PERFORMANCE IN 2030, ASSUMING NO MITIGATION ACTIONS | PROPERTY | TRANSITION RISK | Carbon tax on | Potential operating | 55% reduction in absolute | | --- | --- | --- | --- | --- | | (Updated | – Policy and | Scope 1 and 2 | profit impact of | Scope1and2emissions by 2029/30 | | following Gist | Legislation | emissions | £20m to £30m | from2016/17 base year. | acquisition) Current and new UK Property environmental Estate compliance including (including Gist legislation and tax. properties) PHYSICAL Flood risk Immaterial N/A – Acute Managing infrastructure and operations (both owned and supply chain) in extreme weather. | FLEET | TRANSITION RISK | Carbon tax on | Potential operating | 55% reduction in absolute | | --- | --- | --- | --- | --- | | (Added | – Policy and | Scope 1 and 2 | profit impact of | Scope1and2emissions by 2029/30 | | following Gist | Legislation | emissions | £15m to £25m | from2016/17 base year. | acquisition) UK fleet Current and new environmental compliance including legislation and tax. 52 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS TABLE 2: QUANTITATIVE SCENARIO ANALYSIS SUMMARY CONTINUED | AREA & SCOPE RISK/OPPORTUNITY | | RISK | IMPACT OF | QUANTIFICATION | TARGETS IN PLACE TO | | --- | --- | --- | --- | --- | --- | | | CATEGORY | MODELLED | CLIMATE RISK ON | OF IMPACT | MANAGE THESE RISKS | | | (AS IDENTIFIED | | OUR ORGANISATION’S | | | | | IN TABLE 1) | | FINANCIAL | | | PERFORMANCE IN 2030, ASSUMING NO MITIGATION ACTIONS | PROTEIN | TRANSITION RISK | Carbon tax on | Potential operating | 55% reduction in absolute | | --- | --- | --- | --- | --- | | UK and Ireland | – Policy and | agricultural | profit impact of | Scope3emissions by 2029/30 | | sourced beef, | Legislation | emissions (to the | £35m to £50m | from2016/17 base year. | | lamb, pork, | | farm-gate) | | | Increase sales of plant-based Current and new chicken and productsto £75m by 2024/25. environmental turkey products compliance including legislation and tax. PHYSICAL Extreme weather Immaterial N/A – Acute & Chronic events and chronic climate change Volatility in the impact on supply of raw agricultural materials caused production bythe impact of climate change. | COTTON | TRANSITION RISK | Carbon tax on | Potential operating | 55% reduction in absolute | | --- | --- | --- | --- | --- | | Globally | – Policy and | agricultural (seed | profit impact of | Scope3emissions by 2029/30 | | sourced raw | Legislation | tofarm-gate) and | £45m to £60m | from2016/17base year. | | material used in | | manufacturing | | | 100% of C&H Tier 1 & Tier 2 suppliers Current and new our clothing (allsteps in cotton withLevel 1 Higg FEM module result environmental production) bysecond annual audit. compliance including emissions legislation and tax. PHYSICAL Extreme weather Immaterial N/A – Acute & Chronic events and chronic climate change Volatility in the impact on supply of raw agricultural materials caused production bythe impact of climate change. | Resilience of our business | We have strengthened our governance | We also quantified the physical risks | | --- | --- | --- | | Our scenario analysis identified transition | approach and internal tracking as well as | outlined in the table above and the | | risks as material in 2030, with a potential | investing in a system to digitally capture | analysis has identified the financial | | operating profit impact across Property, | Scope 1 and 2 GHG data. Finally, to support | exposure to 2030 to be immaterial. | | Fleet, Protein and Cotton associated | the requirement for greater collaboration | Ourbusiness-wide review did highlight | | withthe introduction of a carbon tax of | and research and development we have | volatility in the supply of raw materials | | between £115m and £165m assuming | relaunched a climate focused innovation | caused by climate change and the | | nomitigation. | fund, the ‘Plan A Accelerator Fund’. | management of infrastructure and | | | Theseactions in the short term all play | operations (both owned and supply | Identification of such risks in the arole in strengthening the resilience chain) in extreme weather as key mediumterm highlights the continued ofour organisation’s strategy to the physicalrisks. Therefore we will consider importance of meeting our 2029/30 climate-related risks and opportunities focusing further quantitative scenario science-based target. As an own wehave identified. analysis on these areas next year to brandretailer with in excess of 94% better understand the implication of ofouremissions in our value chain it Moreover, even if there were to be thisbeyond the current risk of volatility isimportant we focus on supply chain significant issues that meant we were insupply chains that we have been emissions reduction. It is with this unable to deliver on our mitigations such managing for other issues e.g. Covid, focusthat we are ensuring that our as lack of technological solutions, given Brexit, the invasion in Ukraine. | 2029/2030 target is influencing our | the health of our balance sheet, we | | --- | --- | | strategic sourcing strategy to ensure | would be able to absorb the impact a | | weare working with suppliers who have | carbon tax as calculated in Table 2. | the capability to reduce emissions. Annual Report & Financial Statements 2023 53 STRATEGIC REPORT ## TCFD REPORT CONTINUED C) DESCRIBE HOW PROCESSES B) DISCLOSURE SCOPE 1, 2 AND, ### RISK MANAGEMENT | FORIDENTIFYING, ASSESSING | IF APPROPRIATE SCOPE 3 | | --- | --- | | ANDMANAGING CLIMATE-RELATED | GREENHOUSE GAS EMISSIONS | | RISKS ARE INTEGRATED INTO THE | AND THE RELATED RISKS. | A) DESCRIBE THE ORGANISATION’S ORGANISATION’S OVERALL RISK PROCESS FOR IDENTIFYING AND This year we have implemented Sphera, MANAGEMENT. ASSESSING CLIMATE RISK. a system that we are now using to collect, The process for managing climate- analyse and report data on Scope 1 and 2 We consider risks relating to climate related risks is integrated into our group GHG emissions. Our Scope 1 and 2 change as part of the group risk risk management process. Climate carbon emissions, reported in line with management process. To further change and environmental responsibility the Greenhouse Gas Protocol are on understand our business-wide climate- continues to be called out as a principal page 55 as part of response to the related risks at a more granular level, risk see page 64, as the Audit & Risk Streamlined Energy and Carbon wesupplemented our group risk Committee and accountable businesses/ Reporting requirements. management process by undertaking key functional areas have considered adetailed business-wide review of These are verified by DNV Business risks relating to climate change, and climate risks and opportunities with risk, Assurance Services UK Limited – more broadly the delivery of our net zero finance and sustainability leads across moreinformation can be found in the commitment, as part of the group risk the accountable businesses to identify Sustainability Report Independent management process. key risks and opportunities over the Assurance Statement. short, medium and long term as outlined on page 47. We utilised stakeholder insight to assess the potential size and scope of the climate risks. The summary ### METRICS AND TARGETS of these risks can be found in Table 1. SCOPE 3 EMISSIONS This year we have included our B) DESCRIBE THE ORGANISATIONS A) DISCLOSE THE METRICS USED FY2022/23 Scope 3 emissions data PROCESSES FOR MANAGING BYTHE ORGANISATION TO ASSESS (see page 55). More information CLIMATE-RELATED RISKS. CLIMATE-RELATED RISKS AND ontheevolution of our Scope 3 OPPORTUNITIES IN LINE WITH The business-wide reviews of climate emissions can be found on page 15 ITSSTRATEGY AND RISK risks and opportunities used the TCFD ofour Sustainability Report. In line MANAGEMENT PROCESS. | Guidance Table A1.1 and A1.2 to ensure | | with our transformation, growth in | | --- | --- | --- | | acomprehensive view of the issues | Our Sustainability Report outlines all | ourbusiness has increased the scope | | impacting our business. Prioritisation | ofour metrics used to assess our ESG | ofour emissions, which has been offset | | ofrisks was then assessed based on | performance. Those relevant to | by emissions reductions programmes | | materiality and time horizon. Due to the | assessing our climate-related risks and | we are able to quantify in our total | | recognised uncertainty of longer term | opportunities have been identified in | reported emissions. However, due to | | climate-related risks we prioritised our | thedata tables on pages 57 to 69 of | the modelling approach for supply | | scenario analysis on the short-term risks | theSustainability Report. | chain carbon emissions (which uses | | – details regarding the financial impact | | industry average benchmarks), | Having undertaken a review of the criteria and the outputs can be found on anumber ofprogrammes that we cross-industry, climate-related metrics, pages 52 and 53. have in placetodeliver emissions this year we have continued to focus our reductions cannot yet be seen in our The businesses have considered how metrics disclosure on our GHG emissions disclosed emissions. This is something climate-related issues may impact their which can be found in our data tables we arelooking to address through strategy both in the short term and referenced above. Tables include theimplementation of new systems beyond, and therefore will continue to performance across this year, last year andmeasurement processes to get design and implement the required and where appropriate our base year access to and manage primary data mitigating controls to manage these. (2016/17). We do not currently use collected from our supply base. Ongoing management of these climate aninternal carbon price but continue to Forour Foods business, we expect risks forms one of the accountabilities investigate its potential application to tohave these systems (Mondra and ofthe ESG Business Forum. Alignment our business. Manufacture 2030) fully operational with the group risk management process Details of the methodologies used to in the next Financial Year. For our ensures that each climate-related risk calculate performance against targets Clothing & Home business we atabusiness/function level, has a and metrics can be found in the 2023 arecurrently working with our Digital designated risk owner and oversight Basis of Reporting https://corporate. andTechnology Team to establish from the leadership team, as well as marksandspencer.com/basis-of- how we integrate data from the using the risk assessment criteria reporting-2023. HIGGIndex into our Clothing & Home (including parameters for risk scoring) footprint. Management is monitoring and actions tracking to ensure risks are Integrating sustainability metrics progress towards our carbon treated appropriately. More information in remuneration reduction targets via our ESG on our risk management process can Information on the current position Business Forum on a quarterly basis. befound on page 56, which includes the ofinclusion of sustainability metrics More information can be found on consideration of climate-related risks. inremuneration can be found in the page 52 of our Sustainability Report. Remuneration Committee Report onpage 100. 54 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS STREAMLINED ENERGY AND CARBON REPORTING | Energy consumption (GWh) | | Greenhouse gas emissions (000 tonnes CO2e) | | | --- | --- | --- | --- | | | 2022/23 2021/22^ % change | | 2022/23 2021/22^ % change | | UK Operations 1,402 1,382 1% | | Scope 1 emissions 226 234 -3% | | | International Operations 74 62 20% | | of which UK 218 228 -4% | | | Group 1,477 1,445 2% | | Scope 2 emissions | | (location-based) 137 142 -3% ^ Performance for last year has been re-stated, in line with the GHG Protocol and M&S’ emissions re-statement policy, to account for the acquisition of Gist in 2022 of which UK 113 120 -6% and data improvements identified through the implementation of a new digital ESG reporting platform. Previously, following the operational control reporting Total location-based scope 1&2 363 376 -3% boundary, Gist’s secondary logistics operations (which account for the majority of emissions energy use and reported emissions) were reported on, since these operations were of which UK 332 348 -5% dedicated to M&S. Gist’s primary logistics operations, which were previously not reported on, have now come into M&S’ reporting boundary, and figures have been GHG intensity per 1,000 sq ft re-stated accordingly. 17.3 18.2 -5% of salesfloor | ENERGY EFFICIENCY INITIATIVES IMPLEMENTED | Scope 2 emissions from procured | | | --- | --- | --- | | THISYEAR | renewable electricity (location- | 117 125 -6% | | – LED Lighting: Continued investment in installation of LED | based) | | | lighting, with 24 schemes implemented in UK stores in | Total market-based scope 1&2 | | 246 250 -2% 2022/23, and installations now complete across all Gist emissions retail distribution operations. of which UK 219 229 -4% – Automated Meter Readers: Now installed in 80% of UK stores (project started February 2022). – Initiatives implemented in Q4, with savings to be realised from next year, included trials of adding doors to fridges, moves to 100% electric stores using heat pumps to reduce gas usage, voltage optimisation projects and implementation of aerofoils. – Behaviour change: Energy efficiency has been a focus in our communications to colleagues this year, reminding colleagues to use night blinds, switch off lights, and review bakery schedules. At Gist, all drivers have completed SAFED training on fuel efficient driving. decarbonisation target to reduce C) DESCRIBE THE TARGETS USED BY emissions by 34% by 2025/26. Based on THE ORGANISATION TO MANAGE our revised baseline, management have CLIMATE-RELATED RISKS AND translated this into a 2.1 million tonne OPPORTUNITIES AND PERFORMANCE reduction target. We now have clear line AGAINST TARGETS. of sight, based on projects that are resourced and underway, to 62% of the This year, we had our 2030 corporate 2.1 million emissions reduction we are greenhouse gas emissions reduction committed to deliver in 25/26. target approved by the Science Based Targets initiative: 2025/26 target 6.1m tonnes CO e 2.1 million tonne (34%) reduction 2 Marks and Spencer PLC commits to in carbon emissions. reduce absolute Scope 1 and Scope 2 GHG emissions 55% by 2030 from a It is important to note that we will, on 2017 base year. Marks and Spencer anongoing basis, continue to review PLC also commits to reduce absolute ourexternally communicated carbon Scope 3 GHG emissions 55% within CURRENT SCOPE 3 EMISSIONS targets. This will allow us to reflect thesame time frame. ongoing business change (similar to the approach taken this year following the Sourcing Operations Our net zero ambition builds on acquisition of Gist), the evolution of Manufacturing Franchise ourabsolute science-based target, carbon measurement techniques and aligned to the UN ambition to limit guidance and the impact of emerging Investments | global warming to 1.5˚C: | technologies over the coming years. | | --- | --- | | 2034/35 target | Our Sustainability Report outlines all | | – Net zero across our own business. | ofour targets used to manage our | ESGperformance. Those relevant to | 2039/40 target | managing our climate-related risks and | | --- | --- | | – Net zero across our entire value | opportunities have been identified in | | supply chain. | thedata tables on pages 57 to 69 of | theSustainability Report. We have also mapped these targets to the risks and To support our net zero ambition opportunities identified in Tables 1 and 2. weincluded a short term rapid Annual Report & Financial Statements 2023 55 Packaging STRATEGIC REPORT ## RISK MANAGEMENT ### Maintaining a dynamic and effective risk management process ### isvital to support and strengthen business operations as we ### reshape the company and manage the impact of a challenging ### external environment. APPROACH TO RISK MANAGEMENT – identification, measurement and – a formal half-yearly review of all risk Our approach to risk management reporting of risks against a registers by the Group Risk team to remains consistent with previous years. consistently applied criteria provide independent challenge and The Audit & Risk Committee, under considering both the likelihood of support cross-business alignment; delegated authority from the Board, is occurrence and potential impact – direct reporting to the Audit & Risk accountable for overseeing the totheGroup, with clear ownership Committee by each of our business effectiveness of our risk management allocated to relevant members of and functional leadership teams on process. This includes identification of theleadership team; arolling, scheduled basis – flexed to the principal risks facing M&S, monitoring – maintenance of detailed risk registers respond to changes or potential compliance with the risk management and mitigation plans. These are emerging issues; and policy and periodically reviewing risk completed by each business and – the compilation of an overarching appetite. To support this, underlying function, approved by their leadership viewof group risks, combining both processes are in place which remain teams and the appropriate Executive top-down and bottom-up aligned to the M&S operating model, with Committee members. The output is perspectives which consider the each business and function responsible also incorporated into other related impact of changes in the external for the identification, tracking and governance processes. For example environment, our business strategy, management of specific risks. In addition, climate related risks are reported at transformation programme, core risk activities at our joint ventures are the Environmental, Social and operations and our engagement captured as part of the monitoring Governance (ESG) committee and fire, withexternal parties. processes in place. health and safety risks at the Group Safety Committee; The output from the above process is Our risk management process is subject to periodic review and challenge underpinned by the Group Risk – proactive monitoring of emerging with the executive directors as part of Management Policy which is subject risks by each business and function ourinterim and year-end reporting toperiodic review to ensure it remains where the full extent and implications processes. Following this, the principal appropriate for our business needs may not be fully understood but need risks and uncertainties are submitted to anddelivers against our governance to be tracked. This is an integrated the Audit & Risk Committee for review responsibilities. The Policy was last element of the processes outlined and approval prior to being reviewed and approved by the Audit above; recommended to the Board for approval. &Risk Committee in September 2022. – swift action to evaluate changes to therisk profile triggered by new or An overview of this process is presented The key activities captured by the unexpected events, working in in the diagrams on the following page. Policyinclude: | | conjunction with support functions | Details of how the principal risks and | | --- | --- | --- | | – the development and maintenance | such as the business continuity and | uncertainties interact with the strategic | | ofBoard approved risk appetite | legal teams; | priorities of the business are shown on | | statements which align with the | | page 59. | – ongoing assessment of the overall business strategy, three-year plan, risk profile to reflect changes in the The directors’ assessment of the long- core operating activities and the business operating model, term viability of M&S is also reviewed business purpose and values. Our risk accountabilities and reporting – for annually, mindful of the principal risks appetite statements include strategic example to incorporate the acquisition faced. The approach for assessing and transformational priorities, of our logistics business, Gist; long-term viability, incorporating operational activities and core policy scenarios based on the principal risks areas. The statements are used to and uncertainties is set out on pages 66 define and set appropriate risk-taking to 67 and on page 134. parameters for business activity; 56 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTINTRODUCTION ### RISK MANAGEMENT PROCESS AND GOVERNANCE OVERVIEW The diagrams below provide an overview of the risk management process and activities that allow the business tomaintain an appropriate risk culture to support operations and support the Board in complying with obligations under the Corporate Governance Code 2018. Monitoring, ## 5 1 Setting and reporting periodic review and escalation ofrisk appetite Ongoing communication Risk response and and feedback ## 4 2 Risk identification action tracking and ownership Risk assessment ## 3 EXTERNAL REPORTINGINTERNAL REPORTING TOP-DOWN GROUP-LEVEL RISKS – Consolidation of significant risks from Parties involved: underlying risk registers – M&S Board – Overlay of Group-level risks – Audit & Risk – Review and agreement of the principal Committee risksby the executive directors – Executive – Review and approval by the Audit & Risk Committee Committee – Group Risk team PRINCIPAL RISKS AND UNCERTAINTIES BUSINESS AND FUNCTIONAL RISK REGISTERS – Review and approval by the Board and – Development and ongoing maintenance of risk Audit & Risk registers, including consideration of emerging Committee risks, by business owners and leadershipteams – Full disclosure of – Review and challenge of risk content and the principal risks and quality of mitigation plans by the Group Risk team Parties involved: uncertainties – Monitoring of risks associated with our – Group Risk team jointventures – Business and – Review and challenge of risks at leadership forums functional leadership teams – Policy and process owners EMERGING RISKS AND ISSUES – Monitoring emerging areas of change or issues that may become significant at a Group level BOTTOM-UP MAINTAINING AN EFFECTIVE RISK FRAMEWORK In complying with the process and policy described above, examples ofhow risk management has kept pacewith change during the year include: – Evolving the Audit – Completing a review and – Refining the suite of – Integrating a new risk Committee to be formally refresh of risk appetite underlying business and management tool across designated as the statements, with full functional riskregisters to the business to enhance ‘Audit&Risk Committee’, Audit&Risk Committee mirror today’s operating riskreporting capabilities strengthening the profile andExecutive team model such as the and provide greater ofrisk management in our participation, to maintain acquisition of Gist. transparency and governance framework. alignment with strategy and consistency across the ongoing transformation businesslevel and activities, as well as meeting Group-wide risks. the core requirements of business operations. Annual Report & Financial Statements 2023 57 STRATEGIC REPORT ## PRINCIPAL RISKS AND UNCERTAINTIES Our principal risks and uncertainties have been assessed in accordance with the methodology outlined on the previous pageswhich allows the business to remain flexible and respond to a dynamic risk landscape. OVERALL RISK ENVIRONMENT KEY CHANGES TO OUR RISK PROFILE MONITORING EMERGING RISKS At an overarching level, a complex set The following key changes have been Our risk profile will continue to evolve ofexternal factors continue to have a made to our risk profile during the year: asa result of future events and pervasive impact across the business. uncertainties. The emerging risks arising – We acquired the food logistics These include the ongoing cost-of-living from these are monitored to understand business, Gist. The impact of the challenges, the continued consequences the potential impact on our business and acquisition has been reflected in a of Russia’s invasion of Ukraine, and whilst to allow timely decision-making. number of our existing principal risks. diminishing, the legacy of Covid-19. Most significantly this includes: Examples of emerging risks include: Inaddition, the associated economic uncertainties triggered by these – Business transformation; – The pace of change in relation to combined events add a further risk – Business continuity and resilience; environmental and other ESG matters dimension. as well as evolving consumer – Talent, culture & capability; expectations; and These factors form the basis of our first – Information security; principal risk, ‘An uncertain trading – The impact on our business from – Corporate compliance and environment’, which captures the changes to the legal and regulatory responsibility; and aggregated consequences of this landscape, for example the anticipated – Climate change and environmental government legislation on the Border suiteofevents, such as: responsibility. Target Operating Model setting out the – cost of goods inflation (including – The previous ‘Ocado Retail’ risk which basis for how the UK trades with Europe. theimpact of sterling’s value focused solely on our online food retail againstthe US dollar); investment with Ocado Group has – energy price volatility; been expanded to cover our wider joint – increasing interest rates; venture investments. This change recognises our ambition to expand – the impact of industrial action; global activities and, as part of this, – structural instability in the global thecontribution of our joint venture financialsystem; inIndia with Reliance Industries. The – a potential decline in consumer risks associated with our investment in spending; Ocado Retail and the relationship with Ocado Group remain consistent with – supplier resilience and viability; our previous disclosure. – labour constraints; – Our business transformation risk – supply chain pressures and disruption hasbeen expanded to reflect the to the supply of materials and importance of delivering a compelling products (including concerns from omni-channel experience and to animal disease); transition the business to a simpler – further global socio-political tensions andmore cost-effective structure. and fragility; Thefocus on the store transformation – the risk of recession; programme, investment in our technology capabilities and – changes in central government and/ improvements in supply chain remain orregional policies; and consistent with previous disclosures. – the threat of new Covid-19 variants and/or other widespread health events. Our principal risks and uncertainties are set out in more detail on pages 60 to 65. All of these factors, individually or in These are set out in the order of current aggregate, may negatively impact priority for the business, with futuretrading performance and have themovement in their ranking since anoverarching affect across our suite ourinterim disclosure also shown. ofprincipal risks and uncertainties. 58 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS LINKING RISKS WITH OUR STRATEGIC PRIORITIES The table below shows how our principal risks align with the strategic priorities described on pages 12 to 27. Deliver Improve Disciplined Drive profitable operating investment shareholder sales margins choices returns Leading in Exceptional Omni-channel Expanded Structurally High Accelerating Compelling Disciplined product, including global lower performance store Modernised customer capital trusted brand Ocado reach cost base culture rotation supply chain ecosystem allocation 1. An uncertain trading environment 2 . B u s i n e s s transformation 3. Joint venture investments 4. Business continuity andresilience 5. Product safety and integrity 6. Talent, culture and capability 7. Information security 8. Corporate compliance and responsibility 9. Climate change andenvironmental responsibility 10. Liquidity,funding and financial markets 11. EU border challenges Annual Report & Financial Statements 2023 59 STRATEGIC REPORT ## PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED ### 1. AN UNCERTAIN TRADING ENVIRONMENT The business continues to operate in an environment impacted by an increasingly complex set of external factors. The ongoing cost-of- living crisis, the invasion in Ukraine and continued consequences of the pandemic, along with the potential for further geopolitical andeconomic uncertainties have combined to create a difficult and unpredictable trading environment which could negatively impactperformance. Context Mitigations The broader context of this risk is detailed on page 58. While – A strong, varied and complementary senior leadership team. notrepeated in full, key aspects impacting this risk include: – An established operating model with a family of accountable businesses who share M&S brand values, support functions, – cost of goods inflation (including foreign exchange technology and customer data. movements); – A three-year plan maintained to remain relevant to the current – energy price volatility; challenges, including an effective budgeting process, – increasing interest rates; incorporating sensitivity analysis to anticipate the impact of – the impact of industrial action; external uncertainty. – structural instability in the global financialsystem; – Formal operating reviews enabling effective executive oversight, – a potential decline in consumer spending; and governance and alignment of each business. – supplier resilience and viability. – Prioritised focus and discipline across the business on cost, range, trusted value and availability. – Effective business continuity and crisis management processes to respond to issues as they arise. – A proactive, structured supplier engagement programme to anticipate and support management of escalating business- critical issues such as cost inflation. – Frequently reviewed policy and procedure framework aligned torisk appetite in key risk areas such as foreign exchange, energy and interest rate management. Oversight by the Board and Executive Committee ### 2. BUSINESS TRANSFORMATION Ongoing business transformation is dependent on our ability to prioritise capital spend and resources to accelerate and successfully implement the suite of critical strategic projects to deliver our medium- and longer-term growth ambitions. Context Mitigations The business continues to manage a number of significant – Transformation programmes aligned to the business strategy changeprogrammes that underpin our transformation objectives. and prioritised as part of our three-year planning process. These include: – Board approved risk appetite statements aligned toour keyinitiatives. – modernising our supply chain and logistics operations (including – Transformation programmes underpinned by bespoke delivery the integration of Gist); plans and leadership-led governance structures. – improving our IT infrastructure, underlying systems and digital – Dedicated strategy and transformation roles to support focus capabilities; and track delivery of the programmes. – reshaping and modernising our UK store estate; – Programme governance principles applied for core projects, – delivering a compelling omni-channel experience; and with clear accountabilities and milestones. – transitioning the business to a simpler and more cost-effective – The implementation of specific Strategy & Transformation structure. leadership reporting, including ongoing benefits tracking While each initiative is individually significant and has its own set of inlinewith spend targets and value outcomes. inherent risks, the aggregate impact of simultaneously delivering – Periodic reporting on key business and functional initiatives these challenging projects creates further risks to successful tothe Audit & Risk Committee. implementation. Oversight by Executive Committee and, where appropriate, supporting sub-committees Change inpriority No movement Increased Decreased 60 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ### 3. JOINT VENTURE INVESTMENTS Successful achievement of any joint venture’s long- term performance is inherently complex due to the ownership structure and the need to align different shareholder perspectives. Context Mitigations The value of our investment in Ocado Retail Limited (ORL), – M&S nominated directors form part of the JV boards at ORL and achievement of our multi-channel food strategy, protection of M&S Reliance (MSR), with collaborative sign-off on strategic and ourbrand and delivery of anticipated trading performance is investment plans directing the growth of the business such as: dependent on maintaining effective strategic and operational – expanding the M&S range at Ocado Retail and optimising relationships with both ORL and Ocado Group. thenational footprint of customer fulfilment centres; and Similarly, linked to the planned growth of global sales, business – to maintain store opening plans in India. performance in India will be shaped by the ability to maintain – Appropriately aligned operational and people structures, strategic alignment and harmonised ways of working with forexample: RelianceIndustries. – a dedicated M&S Ocado delivery team to coordinate sourcing,product development, ranging, customer data andmarketing; and – oversight from our International leadership team and/or secondments of UK resources to support activities at MSR inIndia. – Monitoring of internal audit and risk management processes atJVs bythe Audit & Risk Committee. Oversight by Ocado Retail Board and M&S Reliance Board ### 4. BUSINESS CONTINUITY AND RESILIENCE A major operational or resilience failure at a key business location, including any of our key global sourcing or supply locations (such asBangladesh and China), at Castle Donington (our primary online Clothing & Home distribution centre), in our food supply chain or logistics operations, or at a critical third party outsourced provider could result in business interruption. More broadly, an inability to effectively respond to large, disruptive global events (such as the pandemic, geopolitical tensions, trade sanctions or natural disasters) or national issues (such as industrial action) could also impact trading performance. Context Mitigations The business has continued to demonstrate resilience throughout – An experienced Business Continuity (BC) team with established the full range of recent externally driven events and economic Group crisis and incident management processes. uncertainties. However, risks to business continuity remain, such – Risk-based BC assessments for stores, sourcing offices and as: warehouses along with validation of key supplier arrangements – a sustained period offline or an inability to fulfil online orders and disaster recovery plans for technology infrastructure. due to a major incident at Castle Donington; – Up-to-date BC plans for key activities and scenarios across our – the loss of, or major disruption at dedicated warehouses in the operations, including offices, warehouses and IT sites that evolve UK or overseas, at primary supply countries, or at support in response to new threats. facilities (such as IT); – Proactive testing of plans for key scenarios, with support from – dependency on key third parties means that significant incidents critical third parties where needed. and long-term resilience issues for our suppliers could also – A digital platform to support the BC governance programme. impact our own operations; – Active engagement with external organisations including the – a major issue impacting one or more of our significant franchise Retail BC Association, government-led forums and membership partnerships, either domestically or internationally, couldimpact of the National Counter Terrorism Information Exchange. future performance and growth; – unexpected or unplanned shortage of ingredients or materials as a result of external events (such as animal disease or inclement weather) could affect the quantity and quality of ourproducts; – continued industrial action in the UK; and – future unknown/new Covid variants or similar widespread healthevents. Oversight by Executive Committee and Crisis Management Team Annual Report & Financial Statements 2023 61 STRATEGIC REPORT ## PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED ### 5. PRODUCT SAFETY AND INTEGRITY A failure to prevent and/or effectively respond to a major food or product safety incident, or to maintain product integrity, could impact customer confidence in our brand and business performance. Context Mitigations The safety of our products – food and all other product categories – Group-wide assessment of all safety risks, with allocated – remains vital for our business. We need to manage the potential Executive and business ownership. risks to customer health, safety and consumer confidence that – Safety Policy and Compliance Standards, Terms of Trade and face allretailers. product safety specifications with clear accountability, including for overseas requirements and within contracts with third party In doing this, along with maintaining effective internal processes brands. for managing product safety, the business remains focused on how – Established governance, assurance and risk management external pressures on the food, clothing and homeware industries processes to monitor and support the safety and integrity could impact the availability, quality, provenance and integrity of of our products, such as: our products. These include: – animal disease; – risk-based store, supplier and warehouse audit programmes, – inflationary pressure; including for our franchise operations; – the impact of the invasion of Ukraine; – monitoring of product quality and customer complaints – cross-border regulatory divergence; withcorrective action taken where required; and – climate related events; and – crisis management planning for safety incidents. – the related pressures in the supply chain. – Qualified Food and Product Technology teams with access toexternal experts where required. – Regular engagement with expert bodies to understand and Oversight by Executive Committee, Group Safety Committee and respond to changes in safety standards. Consumer Brand Protection Committee ### 6. TALENT, CULTURE AND CAPABILITY The ongoing success of the business is dependent upon an ability to: attract, retain and develop the right talent, skills and capabilities; achieve cultural change to support efficient and effective working; meet the financial and wellbeing expectations of our colleagues; respond to labour cost pressures; and work collaboratively with our Business Involvement Group and unions. Any shortfall in executing against these objectives could impact the delivery of core operational activities and longer-term strategy, including aspects of our transformation programme. Context Mitigations The business employs more than 64,000 talented and passionate – Continued investment in pay and wellbeing benefits, supported people and remains an attractive brand to future colleagues. by external benchmarking. However, key challenges exist due to ongoing pressures: – Investment in internal and external talent to strengthen capability in key roles, develop future leaders and drive internal – managing our investment in competitive pay for colleagues career progression, including: inaninflationary environment; – a tight labour market in specialist areas, including digital, – an established colleague skills framework to support technology and data science; performance, development and progression; – integrating the Gist workforce following acquisition of our – maintenance of succession plans for key roles; logistics partner; – delivery of improvements in core people management – adapting to a post-pandemic hybrid working model; systems and processes to drive consistency andimprove – demonstrating a cultural alignment in areas such as decision-making, such as performance management; and sustainability, diversity and ethical values; and – continued focus on driving digital literacy and – maintaining investment in modern technology capabilitybuilding. andunderpinning processes to support a high – A well-established Business Involvement Group which is actively performanceculture. involved in business-wide colleague engagement and representation at Board meetings. – Active monitoring of gender, ethnicity, disability and ageprofiles. Oversight by Executive Committee Change inpriority No movement Increased Decreased 62 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ### 7. INFORMATION SECURITY A significant or wide-reaching data breach or cyber-attack, directly or at a related third party, could adversely impact our reputation, result in legal exposure including significant fines, business disruption, loss of information for our customers, employees or business and/or loss of stakeholder and customer confidence. Context Mitigations The sophistication and frequency of cyber-attacks in the retail – Information security and data protection policies with industry continue to increase, highlighting an escalating mandatory training for colleagues. information security threat. This is further exacerbated by the – A dedicated information Security function, with multidisciplinary increased threat of cyber warfare linked to current global specialists, 24-hour security operations centre, active uncertainties. monitoring of our threat environment and mature incident management plan. The profile of information security and the overall threat – Dedicated Group Data Protection Officers team and a network landscape for our business is also changing as we use data more ofData Protection Managers in priority business areas. intelligently, introduce new technology and digital solutions, – Access to specialist third party resources, as required. transition to the cloud, enhance omni-channel experiences, – Prioritised investment in response to increased security events, adopthybrid working, andbuild a broader ecosystem. breaches and potential threat of cyber-attacks. Our reliance on key third parties for selected services and/or – Focused security assurance around our digital product lifecycle, hosting of data also exposes us to risks from vulnerabilities in their operations model and significant change activities, like omni- cyber and data controls. channel and new technologies. – Risk-based cyber security assurance programme, including assessment of controls in overseas locations. – Information security obligations included in third party contracts with a risk-based assurance programme. Oversight by Executive Committee and Data Leadership Committee ### 8. CORPORATE COMPLIANCE AND RESPONSIBILITY A failure to consistently deliver against our legal and regulatory obligations or broader corporate responsibility commitments would undermine our reputation as a responsible retailer, may result in legal exposure or regulatory sanctions, and could negatively impact ourability to operate and/or remain relevant and trusted by our customers and other stakeholders. Context Mitigations The increasingly broad and rigorous legal and regulatory – Code of Conduct in place and underpinned by policies and framework for retailers creates pressure on business performance procedures in core areas. and market sentiment, requiring frequent changes or – Group-wide mandatory training programme for higher-risk improvements inhow we operate. regulatory areas, like health and safety, anti-bribery and corruption, data privacy and information security. Changes in the external environment and challenging economic – Established in-house regulatory legal team, including specialist conditions also leave ethical and social responsibilities open to a solicitors and dedicated subject-area leaders embedded in the heightened risk of mismanagement or exploitation, particularly business. through our supply chains. – Mandatory sourcing principles set and communicated The business also continues to monitor and plan for new and to our supply base and other third parties. evolving regulatory requirements, including: – Risk-based assurance and monitoring systems covering – further restrictions on the promotion of goods high in fat, legaland regulatory compliance, and ethical and social sugarand salt; considerations, including for our overseas operations – anticipated changes in UK corporate governance requirements; andsuppliers. and – A confidential reporting line to allow colleagues and other – extended producer responsibility for plastic packaging stakeholders to report areas of concern. recyclingtargets. – Worker Voice programme in the Food business and Non-compliance may result in fines, criminal prosecution for M&S transparencyinitiatives within Clothing & Home. or colleagues, litigation, investment to rectify breaches, disruption – Active monitoring of customer feedback and public or cessation of business activity, as well as impact our reputation. sentimenton compliance and responsibility, including social media trends. – Proactive engagement with regulators, legislators, trade bodies Oversight by Executive Committee, Group Safety Committee, and policy makers. Consumer Brand Protection Committee, Compliance Monitoring Committee, Fraud and Loss Committee, ESG Committee and Data Leadership Committee Annual Report & Financial Statements 2023 63 STRATEGIC REPORT ## PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED ### 9. CLIMATE CHANGE AND ENVIRONMENTAL RESPONSIBILITY Our customers, colleagues, investors and other stakeholders have expectations for the business to operate in an environmentally conscious manner. This includes reducing the environmental impact of our business over time, progressing towards our net zero targets (including those linked to Gist and elsewhere within our supply chain) and effectively managing the consequences of climate-related risks (such as extreme weather events). Failure to achieve this could impact our brand, future trading performance and other business costs, including financing. Context Mitigations There is increasing pressure from carbon-conscious customers, – Established Plan A programme with clear accountabilities investors and government bodies for the business to operate in foreach area of the business relating to our environmental amore environmentally conscious manner where sustainability objectives. forms a core part of decision-making. This includes our response – Net zero targets agreed with the Board, with the our tothe growth in the circular economy, waste reduction, low-carbon 2030corporate greenhouse gas emissions reduction target products and use of recycled fabrics. approvedby the SBTi (Science BasedTargets Initiative.). – Established product and raw material standards and processes Future business performance will therefore be impacted by outlining environmental and sustainability considerations for ourability toeffectively manage the transition to a low-carbon own activities and the supply chain. economy while maintaining value for our customers, particularly – Clothing Quality Charter and Environmental & Chemical Policy as they navigate the pressure of the current economic in place for suppliers. environment. Key aspects of this include: – Business-led forums established to oversee the delivery – balancing commercial decisions with environmental ofourcarbon commitments and broader ESG risks. responsibility and regulatory requirements; – Early engagement and planning with partners and suppliers – managing changes in customer preferences; tosupport their decarbonising activities. – managing the potential increase in costs associated with – Business-wide climate risk and opportunity review undertaken sustainable materials, recycling and carbon pricing; and across all business areas, with risks and mitigations included – further technological and regulatory interventions like inbusiness and functional risk registers as appropriate. developments in Taskforce on Climate-related Financial Disclosures (TCFD) requirements and potential new reporting under Taskforce on Nature-related Financial Disclosures (TNFD). The physical impact of climate change on the availability of raw materials and food products, the geography of the locations from which we source and operate, and the condition of our buildings will need to be managed effectively toreduce the potential impact on trade and the income statement. Oversight by ESG Committee Change inpriority No movement Increased Decreased 64 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ### 10. LIQUIDITY, FUNDING AND FINANCIAL MARKETS Barriers to maintaining affordable short- and long-term funding to meet business needs or an inability to effectively manage associated risks (such as foreign exchange and/or interest rate changes) could impact our ability to transform at pace, as well as have an adverse impact on business performance and/or viability. Future fragility in the financial markets could also impact the business directly (such as heightening counterparty risk or restricting access to capital), or indirectly (such as triggering liquidity or funding support for the M&S Pension Scheme). Context Mitigations As the business continues to navigate a turbulent economic – A £850m undrawn, revolving credit facility and £1,067.9m ofcash climate, focus on our liquidity and funding requirements through and cash equivalents. active management of cash, liquidity and debt remains a priority. – Review and refinement of our three-year plan, linked to strategic priorities, with sensitivity analysis to assess the impact of the Availability of, and access to, appropriate sources and levels of changing economic environment. funding remain vital for the continued operation of business and – Board-approved Treasury Policy, including hedging policies transformation activities. toassist in mitigating future fluctuations in foreign exchange The business is exposed to a number of movements in the financial and energy price volatility. markets that require active management. They include: – Strong discipline over capital allocation decisions and scrutiny – foreign exchange volatility due to the significant volumes and challenge of discretionary spend. ofproduct sourced from overseas; – Focus on working capital to improve cash flow and reduce – energy cost fluctuations relating to the operation of our estate; reliance on bank facilities. and – Monitoring and stress testing of projected cash and debt – changes in interest rates, impacting the cost of debt. capability, covenants and other rating metrics. Our ability to repay debt and fund working capital, capital – Frequent engagement and dialogue with the market and expenditures and other expenses is dependent on our operating ratingagencies. performance, ability to generate cash and to refinance existing – Active monitoring and management of our pension fund debt, where necessary. commitments, including regular engagement with the Trustees. Oversight by the Board and Executive Committee ### 11. EU BORDER CHALLENGES The cost consequences and operational friction from the complexity of border arrangements between the UK and the European Union (EU) could impact trading performance generally and our Irish business specifically. Context Mitigations The business continues to manage the following challenges – Regular engagement with the Board to discuss the actions being asaresult of the UK’s exit from the EU: undertaken to manage evolving border challenges by our – adhering to labelling requirements for both imports and exports accountable businesses. to the UK and Ireland; – Broadening our local sourcing scheme in the Republic of Ireland – monitoring and implementing solutions for any long-term to expand product ranges and reduce cost. divergence of UK and EU rules that may add additional cost – Strengthening the management and accountabilities of Irish andcomplexity to the business, such as the Border Target operations to support targeted mitigation of costs, including OperatingModel; opportunities for local sourcing. – further increases in the cost base following the introduction of – Operation of a virtual customs warehouse environment and checks to inbound goods from the EU to UK and the consequent implementation of an EU hub to mitigate tariff costs. pressure on the supply chain including additional sourcing – Continued engagement with key government departments requirements and impacts on product availability; and andother external experts to represent M&S views and – managing the consequences of introducing more locally reviewour mitigation strategies. sourced products. Oversight by Executive Committee Annual Report & Financial Statements 2023 65 STRATEGIC REPORT ## OUR APPROACH TO ASSESSING ## LONG-TERM VIABILITY | The UK Corporate Governance Code | The Group continues to maintain a | The severe but plausible downside | | --- | --- | --- | | requires us to issue a “viability statement” | robust financial position with available | scenario includes the following | | declaring whether we believe the Group | liquidity of £1.9bn, including cash and | assumptions: | | can continue to operate and meet its | cash equivalents of £1.1bn and access to | | – There will be a period of economic liabilities, taking into account its current acommitted revolving credit facility recession in the UK in 2023/24, position and principal risks. The (“RCF”) of £850.0m. resulting in a decline in sales of 2.0 overriding aim is to encourage directors In December 2022, the Group – 2.5% and a decline in gross profit to focus on the longer term and be more successfully extended its RCF which now margin of 0.5 – 1.0% across both Food actively involved in risk management and expires in June 2026. The facility contains and Clothing & Home business units. internal controls. In assessing viability, a financial covenant, being the ratio of the Board considered a number of key – A delay on transformation benefits earnings before interest, tax, factors, including our business model results in incremental sales expected depreciation and amortisation; to net (see page 8), our strategy (see pages 12 from the transformation declining by interest and depreciation on right-of-use to27), approach to risk management 7.5%, 15% and 30% respectively across assets under IFRS 16. The covenant is (seepages 56 to 57) and our principal the three-year period across all three measured semi-annually. | risks and uncertainties (see pages 58 | | business units. | | --- | --- | --- | | to65). | For the purpose of assessing the Group’s | – In addition, Ocado Retail Limited | | | viability, the Board identified that, | experiences limited customer demand, | The Board is required to assess the although all of the principal risks with no volume growth in 2023/24 and Group’s viability over a period greater detailed on pages 58 to 65 could volumes remaining subdued in than 12 months, and in keeping with the haveanimpact on Group performance, 2024/25 and 2025/26. way that the Board views the the following risks pose the greatest development of our business over the The Board has also considered the threat to the business model, future long term, a period of three years is potential impact of changes to performance, solvency and liquidity of considered appropriate for business environmental factors which may affect the Group and are therefore the most planning, measuring performance and the business model and performance in important to the assessment of the remunerating at a senior level. This the future. As set out in the Taskforce on viability of the Group: | three-year period aligns to the Group’s | | Climate-related Financial Disclosures | | --- | --- | --- | | annual strategic review exercise | – An uncertain trading environment. | (“TCFD”) section on pages 44 to 55, no | | conducted within the business and | | material impact on the Group’s financial | – Business transformation. reviewed by the Board, and captures performance is considered to exist in the – Joint venture investments. alarge proportion of the Group’s short term. investment into its ongoing – Talent and capability. The impact of the severe but plausible transformation programme as well In assessing viability, the Board downside scenario has been reviewed as the maturity of its December 2023 considered the position presented in the against the Group’s projected cash flow andJune 2025 bonds. approved Budget and Three-Year Plan. position and financial covenant over the The process adopted to prepare the three-year viability period. In the event financial model for assessing the viability ofthis scenario materialising, mitigating of the Group involved collaborative input actions would be available, including, but from a number of functions across the not limited to, deferring or cancelling business to model a severe but plausible discretionary spend (including downside scenario. discretionary bonuses) and reducing capital expenditure. 66 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS | As a result, even under this scenario, | Having reviewed the current | | --- | --- | | which the Board considers to reflect | performance, forecasts, debt servicing | | aplausible, but remote, outcome, the | requirements, total facilities and current | | Group would continue to have sufficient | liquidity, the Board expects the Group to | | liquidity and headroom on its existing | have adequate resources to continue in | | facilities and meet the measurement | operation, meet its liabilities as they fall | | criteria against the revolving credit | due, retain sufficient available cash | | facility financial covenant. The Audit & | across all three years of the assessment | | Risk Committee reviews the output of | period and not breach the covenant | | the viability assessment in advance of | under the revolving credit facility. The | | final evaluation by the Board. The Board | Board therefore expects the Group will | | have also satisfied themselves that they | remain commercially viable and the | | have the evidence necessary to support | Viability Statement can be found on | | the statement in terms of the | page 134. | effectiveness of the internal control environment in place to mitigate risk. Reverse stress testing has also been applied to the model to determine the decline in sales that the Group could absorb before exhausting the Group’s total liquidity. Such a scenario, and the sequence of events which could lead to it, is considered to be extremely remote, as it requires sales reductions of more than 15% per annum over the three-year assessment period compared to the Budget and Three-Year Plan before total liquidity is exhausted. Further, it only includes very limited mitigations, comprising the removal of bonus, utilisation of centrally held contingency, removal of dividends and a modest reduction in growth capex. While the occurrence of one or more of the principal risks has the potential to affect future performance, none of them are considered likely either individually or collectively to give rise to a trading deterioration of the magnitude indicated by the reverse stress testing and to threaten the viability of the Group over the three-year assessment period. The Strategic Report, including pages 2 to 67, was approved by a duly authorised Committee of the Board of Directors on 23 May 2023 and signed on its behalf by Stuart Machin, Chief Executive 23 May 2023 Annual Report & Financial Statements 2023 67 GOVERNANCE ## CHAIRMAN’S GOVERNANCE OVERVIEW ### The Board’s focus during the year has been the ### acceleratedtransformation of the business, ensuring ### itissetup for long-term, sustainable success.” Archie Norman Chairman | As outlined in my Chairman’s letter on | stakeholders and on its long-term, | our talent and succession processes, can | | --- | --- | --- | | pages 2 to 3, this has been a pivotal year | sustainable success, in line with S.172(1) | be found in the Nomination Committee | | for the business; our new and energised | ofthe Companies Act 2006 (“S.172”). | Report on pages 85 to 89. Board and | | executive leadership team has | | Executive Committee biographies can | An overview of the range of matters that accelerated the pace of change in befound on pages 72 to 74. the Board discussed and debated at its reshaping M&S. My role, and that of the meetings during the year can be found DIVIDEND Board, has been to guide and support on pages 75 to 79. How we engaged with In this final phase of balance sheet management through this acceleration, our stakeholders and their priorities is strengthening, the Board and I believe, ensuring they are relentlessly focused on summarised on pages 8 to 11. The on balance, that non-payment of a delivering sustainable growth and return Company’s S.172 statement is available dividend continues to be appropriate for for our shareholders. on pages 80 to 82. the 2022/23 financial year. This continues The Board has been highly engaged this to be one of the proactive steps we are NEW LEADERSHIP year, being flexible with our time to taking to ensure the business is set up for With the appointments of Stuart Machin challenge a refreshed Executive success in the future. As our operating and Katie Bickerstaffe as Chief Executive Committee, but also remaining ready to performance improves, we will look to Officer and Co-Chief Executive Officer, respond to external factors. Given events restore a modest annual dividend respectively, at the start of the year, the in recent years, combatting turbulence in payment starting with an interim Board chose to promote internal talent our macro-environment is the new dividend at the results in November. to provide the stability, pace and normal, and the business has continued knowhow required to accelerate M&S’ DIGITAL ENGAGEMENT to demonstrate its ability to respond transformation. In the remainder of the There are countless examples effectively. This year, the Board’s year, the Board has been focused on throughout this Annual Report of activities have included a focus on our ensuring its composition is correct and thebusiness harnessing the power longer-term strategic objectives, and we able to support the new executive team. ofdigital to make a better M&S. held two separate strategy away days. Ourshareholder engagement is no Naturally, we continue to fulfil our other As reported in last year’s Annual Report, different. Shareholders will know how, core duties tooversee M&S’ governance, Andy Halford stood down as a non- inrecent years, our Annual General culture, financial controls, risk and executive director (“NED”) and our Meeting (“AGM”) has been held digitally. change management. SeniorIndependent Director (“SID”) in We continue to see how digital meetings December 2022, and we are grateful Further details on the Board, its are both more engaging and democratic, forhis continued service as SID during Committees and our governance with participation levels trebling since the initial transitionary period for our framework are available at our last physical meeting. As a result, new executive leaders. Recognising corporate.marksandspencer.com. our2023 AGM will be held in the same Andy’s skills and experience, we looked manner and Anita Anand will act once BOARD ACTIVITIES AND to make new NED appointments to again as your shareholder advocate, CONSIDERATION OF STAKEHOLDERS provide additional bench strength in sharing your views and questioning me The Board’s focus during the year has areas integral to our transformation; and the Board on your behalf. I look been the accelerated transformation weappointed Ronan Dunne in August forward to hearing from you all then. ofthe business, ensuring it is set up for 2022 and Cheryl Potter in March 2023. Fulldetails on how to participate long-term, sustainable success, while Wealso appointed Andrew Fisher as electronically, both in advance and on navigating through headwinds created ournew SID in December 2022. the day, can be found in our Notice of by the wider environment. A number of Also at the end of 2022, Jeremy Meeting on pages 218 to 229. key decisions have been made in pursuit Townsend joined the business as Chief of this: the acquisitions of Gist, our Food Digital transformation is not limited Finance Officer, taking up a position logistics supplier, and the intellectual toour AGMs; we want all our onour Executive Committee. The Board property of Thread, to help accelerate shareholders to benefit from closer, and I are pleased Jeremy will now our personalisation capability; the digital engagement with the Company. beremaining with the business until investment in store renewals and We are,however, constrained by May2025. rotations; the review and increase in outdated company law and a front-line colleague pay, to name a few. Full details of these Board and executive shareholding framework that is We remain mindful of the impact of changes, our assessment of the balance distancing our shareholders from us, decisions made on the business’ various of leadership skills and experience, and withnominee platforms who are not 68 Marks and Spencer Group plc STRATEGIC REPORT FINANCIAL STATEMENTS GOVERNANCE obliged to pass onour shareholder ### communications. Iwrote an open letter UK CORPORATE GOVERNANCE CODE to the Business Secretary in April, recommending we give all shareholders a voice by reforming company law and The UK Corporate Governance Code 2018 (the “Code”) which is available bringing it into the 21st century as part of to view on the Financial Reporting Council’s website is the standard against our “Share Your Voice” campaign. I would which we measured ourselves in 2022/23. urge all shareholders interested in having The Board confirms that we complied with all of the provisions set out in their voices heard to support our theCode for the period under review. Details on how we have applied the campaign bysigning our petition to principles set out in the Code and how governance operates at M&S have government, requesting changes to the beensummarised throughout this Governance section and elsewhere in this Companies Act 2006. Our campaign Annual Report as set out below. open letter and link to sign the petition are available on our corporate website. 1. Board Leadership and Company Purpose Pages A. Effective Board 72, 73 corporate.marksandspe n cer.com B. Purpose, values and culture 8, 9, 12, 13, 28-31 C. Governance framework 70, 71 D. Stakeholder engagement 10, 11, 80-82, 129 E. Workforce policies and practices 28-31 Archie Norman, 2. Division of Responsibilities Chairman F. Role of Chairman 71 G. Independence 84, 86 H. External commitments and conflicts of interest 72, 73 I. Board resources 70 3. Composition, Succession and Evaluation J. Appointment to the Board 86, 87 K. Board skills, experience and knowledge 72, 73, 86 L. Annual Board evaluation 83, 84 4. Audit, Risk and Internal Control M. External Auditor and Internal Auditor 95, 96, 99 N. Fair, balanced and understandable review 94 O. Internal financial controls and risk management 93, 95, 96 5. Remuneration P. Linking remuneration to purpose and strategy 103, 108-114 Q. Remuneration policy review 108-114 R. Performance outcomes in 2022/23 116-125 Our full Corporate Governance Statement outlining our compliance is available online at corporate.marksandspencer.com. Annual Report & Financial Statements 2023 69 GOVERNANCE ## OUR GOVERNANCE FRAMEWORK ### Our Governance Framework supports the development ### of good governance practices across the Group. ### THE BOARD OF DIRECTORS The Board is responsible for establishing a clear purpose and for setting the strategic direction of the To see the full M&S Group. They ensure our culture is aligned with our strategy, oversee our conduct and affairs, and breakdown of their promote the success of M&S for the benefit of our members and stakeholders. As at the date of this responsibilities Annual Report, the Board comprises the Chairman, CEO, Co-CEO and eight non-executive directors. please visit our website The effective working relationship between the Board The Board delegates certain matters and ExCo facilitates support and challenge through to its four main sub-committees. regular dialogue. The Board receives reports from the Ateach Board meeting, the Chairs ExCo at each ofits meetings. ofthe Committees provide an update on their Committee activities. ### EXECUTIVE COMMITTEE BOARD COMMITTEES The Executive Committee (“ExCo”), led by theCEO, is our internal leadership team AUDIT & RISK COMMITTEE REMUNERATION responsible for: Responsible for monitoring COMMITTEE the integrity of the financial Responsible for remuneration – day-to-day execution of strategy including statements, reviewing the policy, performance-related reviewing strategic opportunities and initiatives effectiveness of the internal pay schemes and share-based from the Group’s key businesses and audit function, assessing the incentive plans. centralised functions; Group’s risk framework, internal – management of M&S’ core business units controls and maintaining the ensuring strong executive alignment on auditor relationship. business priorities, investments and actions; – management of all colleague matters, Read more on Read more on including the structure and operation of pages 92-99 pages 100-129 theHRfunction throughout the business, thedevelopment and monitoring of culture and values, reviewing talent and leadership NOMINATION COMMITTEE ESG COMMITTEE development as well as succession plans Responsible for reviewing Responsible for ensuring the belowExColevel. Board and Committee Group’s ESG strategy remains composition including fit for purpose, and plans are More information on our ExCo can be diversity, proposing new Board in place and reported on. found on page 74. appointments and monitoring Advises the Audit & Risk the Board’s succession needs. Committee on ESG-related risks, including climate- related issues. Read more on Read more on pages 85-89 pages 90-91 Underlying this governance framework between the Board, its sub-committees and the ExCo, there are anumber of senior management forums strengthening our governance and improving Board oversight. ### SENIOR MANAGEMENT FORUMS These bodies support on specific projects, business needs, or strategic priorities, meeting as and when required. Decision-making is delegated to them by the Group Delegation of Authority or Board approved terms of reference. These include: PROPERTY DISCLOSURE & FRAUD & LOSS SHARES & COMPLIANCE ESG BUSINESS COMMITTEE OVERSIGHT COMMITTEE DEALING MONITORING FORUM COMMITTEE COMMITTEE COMMITTEE Each of the Group’s key business units also have regular meetings with a streamlined leadership and management team. For the upcoming financial year, these will take the form of Business Boards. Each Business Board will manage, monitor and provide executive input to support strategic and operational decisions, improving the speed and efficiency of decision- making and aiding the delivery of the transformation plan: CLOTHING & HOME FOOD INTERNATIONAL RETAIL & PROPERTY OMNI-CHANNEL & CONNECT PEOPLE 70 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## DIVISION OF RESPONSIBILITIES AND MEETING ## ATTENDANCE CEO and Co-CEO In May 2022, a new leadership team was appointed to accelerate progress with our transformation. This new structure consists ofaCEO, supported by a Co-CEO. Our CEO, Stuart Machin, is responsible for the overall performance and day-to-day management of the Group. This includes monitoring: the Group’s current trading; progress against strategic initiatives; the ever-changing competitive landscape; emerging risks; ExCo performance; and succession planning for key roles within the business. He is also responsible for overseeing the development of business strategies for Board approval and achieving timely and effective implementation. Our Co-CEO, Katie Bickerstaffe, reports into the CEO, and is accountable for specific business areas and the delivery of Board approved operating and capital plans. She has a particular focus on driving the global omni-channel and digital future of the business, alongside maintaining responsibility for the Clothing & Home, International and Financial Services businesses. Chairman The Chairman of our Board, Archie Norman, is responsible for leading the Board and for promoting the highest standards of corporate governance, assisted by the General Counsel & Company Secretary. Importantly, he is responsible for establishing effective shareholder engagement and building strong relationships with our wider stakeholders. Senior Independent Director (SID) The SID, Andrew Fisher, provides a sounding board for the Chairman, supporting on all governance issues including the annual Board Review and Chairman’s review. Additionally, the SID provides a communication channel between the Chairman and non-executive directors and, when required, principal shareholders including representative bodies. Non-executive directors (NEDs) Independent NEDs 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 financial information, consider ESG issues, recommend appropriate succession plans, and set the directors’ remuneration. A full breakdown of the roles and responsibilities of our Board is available on our corporate website, corporate.marksandspencer.com. BOARD MEETING ATTENDANCE IN 2022/23 During the 2022/23 financial year, the Board held 11 scheduled meetings for which individual attendance is set out below. Sufficient time is provided, periodically, for the Chairman to meet privately with the SID and NEDs to discuss any matters arising. For information on key board activities, see pages 75 to 79. CHAIRMAN Attended Maximum possible Independent Archie Norman* 11 11 EXECUTIVE DIRECTORS Stuart Machin 9 9 Katie Bickerstaffe 9 9 Eoin Tonge** 8 8 NON-EXECUTIVE DIRECTORS Full Year Evelyn Bourke 11 11 Fiona Dawson 11 11 Andrew Fisher 11 11 Andy Halford*** 8 8 Tamara Ingram 11 11 Justin King 11 11 Sapna Sood 11 11 Appointed in 2022/23 Ronan Dunne 7 7 Cheryl Potter 1 1 *Considered independent on appointment. **Attended all meetings until he stood down from the Board on 9 December 2022. ***Attended all meetings until he stood down from the Board on 31 December 2022. Annual Report & Financial Statements 2023 71 GOVERNANCE ## OUR BOARD ### CHAIR AND EXECUTIVE DIRECTORS | ARCHIE NORMAN | RN | STUART MACHIN | KATIE BICKERSTAFFE | | --- | --- | --- | --- | | CHAIRMAN | | CHIEF EXECUTIVE OFFICER | CO-CHIEF EXECUTIVE OFFICER | | Appointed: September 2017 | | Appointed: May 2022 | Appointed: May 2022 | | Archie is an experienced Chairman and | | Stuart took over as CEO in May 2022, | Katie has held a number of roles at M&S | | former Chief Executive having led major | | having joined M&S as Food MD in 2018. | including Non-Executive Director, Chief | | transformation programmes at ITV, | | Prior to his appointment as CEO, Stuart | Strategy and Transformation Director | | Lazard, Asda, Energis and Hobbycraft. | | was joint COO where in addition to leading | and most recently, joint COO. On 25 May | | Hewas previously Deputy Chairman of | | M&S Food he also took responsibility for | 2022, she rejoined the Board as Co-CEO. | | Coles Limited and was Lead Director at | | property and store development, store | Katie is currently a Non-Executive | | the Department for Business, Energy & | | operations, HR and IT. Prior to M&S, Stuart | Director of Barratt Developments PLC | | Industrial Strategy from 2016-2020. | | held senior roles across the UK and | and at the England and Wales Cricket | | Archie is also the Chairman of Signal AI, | | internationally, starting his career in | Board. She was previously Executive | | Non-Executive Vice Chairman of Global | | Sainsbury’s and British Home Stores, Tesco | Chair of SSE Energy Services and Chief | | Counsel and Senior Independent | | and then Asda. Stuart spent 10 years in | Executive, UK and Ireland of Dixons | | Director of Bridgepoint Group plc. | | Australia as part of Wesfarmers as COO | Carphone plc, with extensive experience | | | | and CEO of Coles supermarkets and | of digital, retail and operations and of | | | | Target department stores respectively | leading consumer-focused businesses. | before returning to the UK as CEO of Steinhof UK. Stuart attended the three- month residential Harvard AMP program in 2013 and CEO program in 2023. Stuart is also a director of Ocado Retail Limited. ### NON-EXECUTIVE DIRECTORS | ANDREW FISHER, OBE | RN | EVELYN BOURKE | NA | TAMARA INGRAM, OBE | NRE | | --- | --- | --- | --- | --- | --- | | SENIOR INDEPENDENT DIRECTOR | | NON-EXECUTIVE DIRECTOR | | NON-EXECUTIVE DIRECTOR | | | Appointed: December 2015 | | Appointed: February 2021 | | Appointed: June 2020 | | | Andrew was instrumental in establishing | | Evelyn retired from her role as CEO of | | Tamara had a longstanding leadership | | | mobile lifestyle app Shazam, where he | | Bupa Group in December 2020 where she | | career in advertising, marketing and | | | was Executive Chairman until October | | led transformative change during her | | digital communications, having held | | | 2018, as a leading mobile consumer | | near five-year tenure. She has extensive | | leadership roles at WPP since 2002 and | | | brand, and brings over 20 years’ | | experience in financial services having | | as Non-Executive Chair of Wunderman | | | experience leading and growing | | spent three and a half years as Bupa’s | | Thompson and CEO of J Walter | | | numerous technology-focused | | CFO and in leadership roles at Standard | | Thompson. Prior to this, she worked at | | | enterprises. He is Non-Executive Chair | | Life and Friends Provident. Evelyn has | | Saatchi and Saatchi where she held the | | | ofboth Rightmove plc and Epidemic | | been a Non-Executive Director of Bank | | roles of CEO and Chair. Tamara has led | | | Sound, and is also a trustee at the | | ofIreland since May 2018 and chairs the | | renowned marketing campaigns for | | | RoyalMarsden Cancer Charity. | | Audit Committee there. She joined the | | household brands around the world | | | | | Board of Admiral PLC as a Non-Executive | | anddelivered cultural and business | | | | | Director on 30 April 2021, and chairs the | | transformation at pace within her own | | | | | Remuneration Committee. Shejoined the | | businesses as well as on behalf of clients. | | | | | board of AJ Bell Plc on 1July 2021 and is | | She is also a Non-Executive Director of | | | | | also their Senior Independent Director. | | Reckitt Benckiser Group plc, Marsh | | MacLennan and Intertek Group. 72 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Committees key A Audit & Risk E ESG N Nomination R Remuneration Committee Chair ### NON-EXECUTIVE DIRECTORS CONTINUED | FIONA DAWSON, CBE | NR | JUSTIN KING, CBE | NA | SAPNA SOOD | NE | | --- | --- | --- | --- | --- | --- | | NON-EXECUTIVE DIRECTOR | | NON-EXECUTIVE DIRECTOR | | NON-EXECUTIVE DIRECTOR | | | Appointed: May 2021 | | Appointed: January 2019 | | Appointed: June 2020 | | | Fiona retired in July 2021 from Mars Inc., | | Justin has over 30 years of experience | | Sapna joined The Adecco Group in | | | after more than three decades. Her last | | inlarge retail operations and | | June2021 and on 1 May 2023, was | | | role was Global President Food, Multisales | | transformations, and now acts as | | appointed asPresident, Adecco APAC. | | | and Global Customers, and she was also a | | anadviser to a range of businesses. | | She was previously the Chief of Staff to | | | member of the Global Leadership Team. | | Heholds the Chair positions at Allwyn | | the GroupCEO. She has in-depth | | | Fiona has a strong track record in | | Entertainment, Dexters Group and, | | knowledge of running complex supply | | | sustainability, health and wellbeing, | | morerecently, Itsu Grocery. Between | | chains, including in food and clothing, | | | particularly women’s entrepreneurship | | 2004 and 2014, he was the CEO of | | aswellasexperience of leading large | | | and human rights and has always been a | | Sainsbury’s, leading the business | | transformation programmes and is | | | strong advocate for equality and diversity | | through a major turnaround. He has | | passionate about sustainability. More | | | in the workplace. In May 2021, Fiona was | | alsopreviously held senior positions | | recently, Sapna was a senior executive | | | awarded a CBE for services to women and | | atM&S, as Head of Food, as well as at | | atCompass Group and a Non-Executive | | | the economy. She is a Trustee of The Social | | Asda, Haagen-Dazs, PepsiCo and Mars. | | Director at Kering SA and is currently an | | | Mobility Foundation, Chair of the Women’s | | | | Advisory Board member of Imperial | | | Business Council and President elect of | | | | College Business School. | | the Chartered Management Institute. Fiona is also a Non-Executive Director ofLEGO and joined Kerry Group plc as a Non-Executive Director in January 2022. ### NON-EXECUTIVE DIRECTORS APPOINTED IN 2022/23 LEAVERS THIS YEAR On 25 May 2022, Steve Rowe, who was Chief Executive for six years from 2016-2022, stepped down from the Board, leaving after 40 years with M&S. Eoin Tonge stepped down from his position as Group CFO & Chief Strategy Officer on 9 December 2022 having joined M&S two years prior. CHERYL POTTER N RONAN DUNNE NA NON-EXECUTIVE DIRECTOR NON-EXECUTIVE DIRECTOR Andy Halford, Senior Independent Director and Audit Committee Chair, Appointed: March 2023 Appointed: August 2022 stood down from the Board with effect from 31 December 2022, As the former head of the global A commercial leader with extensive having been appointed in 2013. | consumer team at private equity firm, | international experience in the digital | | --- | --- | | Permira, Cheryl brings a strong | telecoms industry, Ronan also has | | shareholder value focus to the Board. | financial expertise having held Chief | | Cheryl currently serves as a Non- | Financial Officer roles previously. He has | | Executive Director on the Board of | led businesses through technological | | German company, Best Secret, and has | and people transformation both as CEO | | done since April 2017. Cheryl is also a | of Verizon Consumer Group and CEO of | | passionate advocate for women in | Telefónica UK (O2). Ronan is currently | | leadership, as both a founding Patron | Non-Executive Chairman of Six Nations | | ofThe Prince’s Trust Women Supporting | Rugby as well as a Trustee of the John | | Women scheme and as the current Chair | King Brain Tumour Foundation. | of Level 20, a not-for-profit organisation focused on getting more women into Read more on the Board’s skillset senior investing roles in the Private onpage 86 Equityindustry. Annual Report & Financial Statements 2023 73 GOVERNANCE ## OUR EXECUTIVE COMMITTEE ### The Executive Committee is established and led by the CEO, and is responsible for executing ### strategy and the day-to-day management of the business. Alongside Stuart and Katie, Richard, Sacha and Nick were members throughout the year. Jeremy, Alex, Victoria and Sarah joined the Committee part-way through the year. | JEREMY TOWNSEND | RICHARD PRICE | ALEX FREUDMANN | | --- | --- | --- | | CHIEF FINANCE OFFICER | MANAGING DIRECTOR | MANAGING DIRECTOR | | | OFCLOTHING & HOME | OFFOOD | | Jeremy joined M&S on 22 | Richard spent three years as | Alex joined the team at M&S | | November 2022 and brings a | MDof BHS before becoming | asManaging Director of Food | | wealth of financial leadership | CEO of F&F Clothing at Tesco | on 7 November 2022 from | | experience. Jeremy has held | PLC in 2015. Prior to this, | Australian beer, wine and | | senior financial and non- | Richard was at M&S from 2005 | spirits retailer, Dan Murphy’s. | | executive roles across several | to 2012, first as Head of | Alex has a wealth of experience | | public companies and was the | Merchandise and then as | having worked in food retailing | | Group CFO of Rentokil Initial | Menswear Trading Director. | for nearly two decades, | | Plc. Jeremy is currently a | Richard’s career spanning | previously leading both | | Non-Executive Director of PZ | some of the UK’s top clothing | Grocery and Fresh Foods at | | Cussons plc, parkrun Global | brands demonstrates his | Coles, one of Australia’s largest | | Limited and at NHS England, | proven track record of | retailers. Prior to Coles, Alex | | where he is the Chair of the | delivering growth through | worked for Tesco in the UK. | | Audit & Risk Assurance | stylish, great value product. | | Committee. | SACHA BERENDJI | VICTORIA MCKENZIE-GOULD | SARAH FINDLATER | NICK FOLLAND | | --- | --- | --- | --- | | OPERATIONS DIRECTOR | COPORATE AFFAIRS | GROUP HR DIRECTOR | GENERAL COUNSEL & | | | DIRECTOR | | COMPANY SECRETARY | | Sacha joined M&S in 1994 | Victoria has been a part | Sarah has been Group HR | Nick has 30 years of legal and | | through the Graduate training | oftheleadership team as | Director since March 2022. | governance experience, and | | programme. He undertook | Corporate Affairs Director | She joined M&S in 1998 | has been General Counsel & | | various appointments | since 2019, heading-up | through the HR Graduate | Company Secretary in FTSE | | including General Manager of | colleague communications, | programme and undertook | 100 businesses since 2001. He | | Marble Arch Store, Regional | external communications, | HR Business Partner roles in | has held positions as Chief | | Manager for London, Head of | public affairs and, since 2022, | stores and regions across the | Executive of the Crown | | Property Planning & Store | sustainability. Victoria is also | country, before joining our | Prosecution Service and Chief | | Development, Executive | the Executive Sponsor for | Support Centre in 2010 | External Affairs Officer and | | Assistant to the Chief | Inclusion & Diversity across | leading various functions | Chief of Staff to the CEO of | | Executive, and Director of | the business. Victoria is a | including Organisational | the Co-op. Nick joined HMPPS | | Merchandising. Sacha is | Non-Executive Director on | Development and Talent. | as a non-executive member of | | currently Operations Director, | the Board of Allwyn UK and | Sarah sits on the Prince’s Trust | its Audit and Risk Assurance | | looking after stores and store | amember of the Advisory | Retail Leadership Group and | Committee in May 2021, and in | | operations, property and | Board for her alma mater, | is G20 EMPOWER alliance | April 2023, joined the Board of | | store development for UK and | University of Liverpool | advocate, a Private Sector | Defence Equipment and | | Ireland. On 1 February 2023, | Management School. | Alliance for the | Support as a Non-Executive | | Sacha was appointed to the | | Empowerment and | Director and Chair of the | | Board at Adnams plc as a | | Progression of Women’s | Audit and Risk Assurance | | Non-Executive Director, | | Economic Representation. | Committee. | where he is also a member of the Remuneration and Audit Committees. 74 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## BOARD ACTIVITIES ### The following pages outline the key topics the Board has ### been engaged on, in support of Reshaping M&S. BREAKDOWN OF BOARD ACTIVITIES ## KEY MILESTONES 2022 Meeting agendas, agreed in advance by the Chairman, CEO and Company Secretary, combine a balance of regular standing items as outlined below: Board approves preliminary 25 May results statement 2021/22, announcing new CEO and Strategy Co-CEO leadership team. 22-24 June Board attends strategy Deep dives away days to consider Executive updates and finalise the Governance strategic priorities for Board attends the 5 July upcoming months. digitalAnnual General Meeting (“AGM”), listening andresponding to 21 July Plans to acquire Gist shareholderviews. STRATEGY areannounced. The Board considers key areas of strategy during these updates, | Ronan Dunne joins the | 1 August | advising on strategic direction and | | --- | --- | --- | | Boardas a non-executive | | focus. This year, these sessions were | | director. | | also used for refining our strategic | priorities. 21 September Our £15m investment incolleague pay is announced, to support DEEP DIVES colleagues through the Deep dive sessions are presented on Completion of Gist 30 September cost-of-living crisis. areas of importance and focus from acquisition. Business Unit heads. Over the year, these have included updates on | 12 October | Board members speak | omni-channel, the People Plan and | | --- | --- | --- | | | to institutional investors | culture, and the role of health in our | | | on the Group’s | Food business. | investment case at our Board approves Half Year 8 November Capital Markets Day. Results trading statement. EXECUTIVE UPDATES Executive directors provide high-level operational and financial updates, 31 December Andy Halford steps presenting the key challenges and down from the Board. actions taken during the reportable Andrew Fisher is month, as well as a look forward at appointed as the new priorities for the next month. Senior Independent Director. GOVERNANCE AND ## 2023 COMMITTEE REPORTS The General Counsel & Company Secretary provides an update, Board attends strategy away 1-2 February summarising the legal activities from days to discuss strategic the period alongside upcoming events priorities for 2023/24. or regulatory changes. Contracts for | | 28 February | | A further £57m | approval outside the Board-approved | | --- | --- | --- | --- | --- | | | | | investment in | delegated authorities are presented | | | | | ourcolleague pay is | for consideration, as well as year-end | | | | | announced, increasing | statutory reporting for publication. | | | | | itfor a second time in | Committee Chairs also provide | | | | | response to the ongoing | regular updates on their recent | | Cheryl Potter joins the Board | | 1 March | | | | | | | cost-of-living crisis. | Committee meetings, highlighting | as a non-executive director, any decisions and key issues for the making the Board a 55% Board’s attention. female majority. 44% 23% 12% Annual Report & Financial Statements 2023 75 21% GOVERNANCE ## BOARD ACTIVITIES CONTINUED STRATEGY AND TRANSFORMATION Agenda items for discussion correspond to the Group’s strategic priorities, and have taken into Modernised supply chain Acquisition of Thread consideration the impact on 2 3 5 1 3 stakeholders; these are highlighted | inthe key below. | | | | Over the year, the Board heard updates | The Board received regular updates | | --- | --- | --- | --- | --- | --- | | | | | | on the end-to-end transformation of | onthe acquisition of intellectual | | | | | | theClothing & Home operating model. | property developed by the personalised | | STAKEHOLDER GROUPS | | | | The Board debated and approved | fashion marketplace, Thread, enabling us | | | | | | elements of the new model, enabling | to advance in our personalisation | | | | | | thebusiness to improve global | strategy. The Board considered and | | | | | | operations and deliver an efficient | approved the approach, recognising the | | | 6 | 1 | | | | | | | | | omni-channel customer proposition. | benefit of buying, not building key | | | | | | Additionally, the Board provided | technology developments. | | 5 | | | 2 | guidance on the further implementation | | | | | | | of Vangarde, leading to the business | Store of the future | successfully executing the principles for 1 2 3 4 ## 34 the first time through peak trading, with The Board considered and approved the improved stock flow to stores. rotation and renewal of legacy stores, 1 Shareholders 4 Communities including approving trials for new café Acquisition of Gist and Beauty concept offers; all driving 2 Colleagues 5 Suppliers 1 2 3 5 either sales or operating efficiency. The | 3 Customers | 6 Partners | | | | --- | --- | --- | --- | | | | The Board considered, debated and | Board debated and approved a longer- | | | | ultimately approved the acquisition of | term plan to reduce the number of full | | | | Gist, enabling the business to take full | line stores from 247 to 180 and open | Read more on pages 10-11 | control of our food supply chain for the | another 100 Food stores (to 420) by | | --- | --- | | first time in M&S history and invest in a “fit | FY25/26. The associated £480m | | for the future” logistics network. They | investment will generate over 3,400 new | | received regular updates from the | jobs across the country and aims to | | Project Delivery team, steering | create a fit for the future M&S store | STRATEGIC PRIORITIES | | | management on acceptable transaction | estate with a seamless experience for | | --- | --- | --- | --- | | Deliver | Improve | parameters and risk appetite, as well as | customers every time they shop. The | | profitable | operating | discussing the benefits and challenges | Board also monitored progress towards | | sales growth | margins | the acquisition would bring to the | net zero emissions from stores by 2035 | | | | business. This included the benefits | due to the store renewal scheme. | | Disciplined | Drive | arising from elimination of contractual | | | investment | shareholder | fees and costs, allowing for investment | Sustainability | | choices | returns | elsewhere to drive shareholder returns | | 1 3 4 and keep prices low for customers. The Sustainability and net zero targets Board continues to receive updates on remain at the forefront of the Board’s the integration of the Gist business and Read more on pages 12-27 decision-making considerations and this its colleagues into M&S. year included maintaining an overall Read more on page 26 focus on ensuring stores are carbon efficient. Alongside store rotation plans, the Board approved the implementation of high-speed electric vehicle charging Ocado points at 70 M&S stores. The Board also 1 3 6 considered management’s plans on how This year, the Board has assessed and to map and reduce the Group’s carbon debated the ways in which we can footprint and received updates from the maximise the value of our joint venture ESG Committee on workstreams across (“JV”) with Ocado Retail and foster the the business and progress against relationships between both leadership corresponding sustainability metrics. teams. Ocado Retail CEO, Hannah Read more on page 32-33 Gibson, was introduced to each NED personally following her appointment, and the Board heard her plans for her first 100 days in post and discussed the future of the JV. Hannah was also invited to present at the Board’s strategy away day in February 2023, where the Board advised that Ocado Retail’s senior management talent plan needed strengthening to improve organisational processes. 76 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS STRATEGY AND TRANSFORMATION OPERATIONAL AND FINANCIAL UPDATES Budget and financial Introduction of Sparks globally performance monitoring 3 6 ## HOW THE BOARD IS 1 2 5 The Board discussed the potential ## MAKING STRATEGIC The Board monitored financial positive impact of globalising the ## DECISIONS TO BUILD performance versus budget on a regular already successful Sparks loyalty basis throughout the year, alongside scheme. They received updates and ## A RESHAPED M&S | | reviewing and approving the budget | supported the launch of the scheme | | --- | --- | --- | | | forFY2023. The Board highlighted the | throughout FY22/23: in Republic of | | | importance of preparedness for | Ireland in May, France in September | | Strategy Days | potential decline from future headwinds. | and in October, India, Australia and | across 25 M&S international flagship Disciplined capital allocation websites serving target markets. WHEN 1 2 3 The Board attended dedicated Third-party brands strategy away days in June 2022 The Board agreed to prioritise 1 3 5 | andFebruary 2023, discussing short- | strengthening the balance sheet and | | | --- | --- | --- | | and long-term strategic goals, and | investing in colleagues by not paying | The Board reviewed third-party | | determining the choices the business | afinal dividend for the year, but continue | brand proposals and received | | needs to make to achieve them. | to monitor and discuss the resumption of | updates on performance of existing | | | dividend payments in thenear future. | third-party brands online and in | DISCUSSION THEMES The Board emphasised to management stores such as Nobody’s Child and The main discussion themes over both the importance of disciplined capital Ted Baker. The Board provided sessions were: allocation, including prioritising spend guidance on the benefit of third- – Identifying the appropriate that providesgreater shareholder party brands, advising that brands strategic priorities and short-term returns inthe long term. that complement our own label can choices required to steer the provide broader appeal and business towards these; Marketing the M&S brand improved growth, and should be considered when developing the – Structurally shifting M&S’ cost 1 2 3 4 5 6 refresh of our home and furniture baseto improve efficiency; The Board discussed and highlighted the offering. – Using data and metrics to drive need for improvement in the way we amore granular and fact-based communicate the M&S brand to potential understanding of business consumers, noting the production of the performance; and ITV show “Inside M&S at Christmas” to improve value and quality perception. – Making cultural change and innovation the key to growth. Supplier agreements OUTCOMES 3 5 The Board’s key conclusions included: The Board was involved in assessing – A more compelling investor keysupplier agreements, including narrative to be developed, with a approving a renewed agreement with laser focus on communicating how Greencore as supplier of sandwiches, we will deliver consistent returns wraps, rolls and sushi in stores and forshareholders; M&SCafés. – Growth should be a key focus; byinvesting in projects that guarantee future returns whilst working to achieve growth in our BAU activities; and – Our costs should be restructured, toensure efficient treatment across our operating costs, investments and working capital. FUTURE Regular strategy away days will continue to be arranged. The Board and management agreed the sessions were extremely productive and will be beneficial as the business continues totransform. Annual Report & Financial Statements 2023 77 GOVERNANCE ## BOARD ACTIVITIES CONTINUED RISK MANAGEMENT AND MACRO IMPACTS ORGANISATIONAL CULTURE AND COLLEAGUES Energy price increase Russia Supporting colleagues through 1 3 4 2 3 4 6 thecost-of-living crisis 2 4 | The Board has been working to address | The Board directed a full withdrawal | | | --- | --- | --- | | this macro challenge, both to minimise | ofallM&S business from Russia | The Board discussed and agreed ways to | | the cost impact as well as to support the | includingapproving the closure of | help colleagues with the cost-of-living | | delivery of our net-zero commitments. | 48stores and the online proposition. | crisis, including reviewing benefits | | The Board agreed a short-term goal to | | packages. The Board received regular | | reduce consumption, targeting an | Principal and emerging risks | updates from management and the | | initial5-10% reduction in 2023/24 | | Remuneration Committee, ultimately | 1 2 3 4 5 6 through a variety of tactical movesin approving the recommendation for The Board heard updates from the store, including a temperature reduction out-of-cycle inflationary pay rises for Audit& Risk Committee Chair on andareview of bakery operational times. colleagues in both September and principal and emerging risks, in TheBoard also discussed the importance February, as well asa £250 voucher to particularhighlighting the threat of of investment in refrigeration help lower paidcolleagues with the costs cyber security attacks and the need for replacement and energy efficiency, of the Christmas period. They also investment to prevent these. The Board highlighting the need to begin a debated howto communicate these reviewed and approved the Group’s programme to remove natural gas from increases tocolleagues and externally. refreshed risk appetite statements, our store estate as soon as possible. asrecommended by the Audit & Risk Read more on page 81 Committee. FX hedging | | 1 5 | Read more on pages 58-65 | Structured talent plan | | | --- | --- | --- | --- | --- | | The decline of sterling against the US | | | | 1 2 | | dollar, among other factors, caused an | | | The Board received detailed talent | | | increase in the underlying cost of | | | succession plans for all leadership roles | | | Clothing & Home product. The Board | | | and senior management, with an | | | discussed and agreed to hedge forward | | | emphasis on the importance of retaining | | | volumes through the year to mitigate | | | top talent. The Board considered ways in | | | purchasing exposures. | | | which individuals could progress through | | the organisation, proposing increased Inflation investment into growing talent internally. 3 4 5 As the level of inflation increased, theBoard recognised the need for priceinvestment into a high quality, corevalue range for customers. TheBoard supported the “Remarksable Range” and “Price Lock” initiatives, noting the importance of value perception to the strategy, and debated how to communicate this to consumers. Themarketing team were engaged in order to align the expectations of the Board to their campaigns. Additionally, our inflation mitigation activity has formed a central part of the Investor Relations narrative, especially in Food. 78 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS GOVERNANCE AND OVERSIGHTORGANISATIONAL CULTURE AND COLLEAGUES Embedding the Closer to AGM Board Committee updates Customers programme 1 1 2 2 3 | | The Board continued to support the | The Board reviewed changes to the | | --- | --- | --- | | The Board supported the new initiative | evolution of our digital AGM format. | AuditCommittee terms of reference, | | for Support Centre colleagues to spend | Following our 2022 AGM, the directors | agreeing to it becoming the Audit & Risk | | seven days a year working in stores, | provided post-meeting feedback that | Committee. The Board also reviewed | | assisting colleagues during peak trading | the event had been a positive one and | andapproved changes to the Disclosure | | as well as reflecting on learnings and | was clearly asuccessful demonstration | Committee’s terms of reference to | | innovations required to improve | of using digital tools to increase | detailexplicitly the Committee’s | | customer experience and store | shareholder engagement. | oversight of non-financial information | | operations. During September 2022, | | aswell as financial data, and agreeing | | executive directors managed our | Share Your Voice Campaign | toits renaming to the Disclosure & | | Bluewater store alongside the leadership | | Oversight Committee. | 1 team, to be closer to colleagues and The Board received updates on digital closer to customers; using the HFSS regulation shareholder engagement during the experiences in store to gain feedback, 2 3 4 5 year, culminating in the launch of the insight and data and to drive visible “Share Your Voice” campaign. The Executive members of the Board improvements in store. campaign calls for updates to the wereproactive in reacting to The Food Companies Act 2006 torevitalise (Promotion and Placement) (England) Your Voice survey shareholder democracy. Regulations 2021 brought in this year, 1 2 engaging with several members of Read more on pages 68-69 The Board carefully considered the parliament to discuss the legislation results of the colleague “Your Voice” which is aimed at reducing the survey, aimed at understanding the availability of products high in fat, Shareholder engagement areasin which the organisation’s culture saltand sugar in high footfall areas 1 can be improved. The Board agreed andbought through promotions. thatlistening to colleagues is critical to The Board was kept up to date with TheBoard discussed the important role delivering M&S’ strategic transformation. institutional investor engagement that health plays in the business and Based on feedback from the survey, the throughout the year on topics including regularly discussed how to best adhere Board highlighted the need for increased strategic direction and director with, and anticipate, further regulation. empowerment across the organisation to remuneration. Members of the Board drive faster decision-making. attended a Capital Markets Day held Board Review atour Waterside Support Centre, 1 2 whereinvestors heard from executive Business Involvement Group The Board were involved in an internal directors on our longer-term strategic 1 2 priorities. Feedback on these priorities review, in which the Chairman held subsequently contributed to the Board’s structured interviews with each of the The elected Chair of BIG continues to discussions during their February non-executive directors and sought engage regularly with the Board and strategy away days. feedback from executive directors. attended the April 2022 Board meeting Thepurpose of the review was to to feedback key messages from assessoverall performance including colleagues for the Board to discuss. NED recruitment and succession balance of board expertise and quality of Thetwo key topics considered were the 1 2 constructive and transparent dialogue. cost-of-living crisis and how this affects The Board carefully considered and colleagues, as well as how Covid-19 Read more on pages 83-84 approved the appointment of two new impacts are now part of everyday life non-executive directors and the inthe retail sector and the challenges succession of the Senior Independent faced by vulnerable colleagues. This Director and the Audit Committee Chair, feedback contributed to the decision to on recommendations from the invest in colleague pay twice this year, Nomination Committee. inboth September and February. Read more on pages 85-87 Read more on page 29 Financial Reporting 1 2 3 4 5 6 The Board reviewed and approved the 2021/22 Annual Report and Accounts andthe 2022/23 Half Year results, on recommendation from the Audit & Risk ## SHARE Committee that these were a fair, balanced and understandable ## YOUR representation of the Group’s performance and financialposition. ## VOICE Annual Report & Financial Statements 2023 79 GOVERNANCE ## S.172 STATEMENT ### Decisions made by the Board must balance the sometimes ### conflicting needs and priorities of our stakeholders, whilst ### also ensuring they promote the long-term success of M&S ### and protect our reputation. This duty is enshrined in Section ### 172(1) (a) to (f) of the Companies Act 2006 (“S.172”). Engagement therefore plays a key role inensuring directors fully understand HOW THE DIRECTORS FULFIL THEIR S.172 stakeholder needs and can make well DUTY UNDER THE COMPANIES ACT 2006: informed decisions that have addressed | differing priorities. Our overview of | Diverse set of skills, knowledge and | – Further information on the Board’s | | --- | --- | --- | | stakeholder engagement that has taken | experience | activities can be found on pages | | place during the year can be found | – The Board has a diverse set of skills, | 75 to 79. | | onpages 10 to 11. | knowledge and experience which | | Board discussion assists it in making informed The following pages comprise our – All directors are expected to decisions promoting the long-term S.172statement and detail how the Board constructively challenge and success of the Company whilst has fulfilled its duty this year to have contribute to discussions, as well as considering the needs of our regard to the matters set out in S.172. offer additional perspectives, advice stakeholders. Examples of three key decisions taken and strategic guidance. bythe Board during the year on pages – Further information on our Board – Further information can be found 81to 82 detail how the Board considers composition, including the skills within the Division of Responsibilities stakeholder needs in practice and how and experience of our directors, can and Meeting Attendance section on this impacted decisions. be found in Our Board on pages 72 to page 71, and the Board Review on 73 and in the Nomination Committee pages 83 to 84. Report on pages 85 to89. Strategic direction and culture Board information and monitoring – The Board is responsible for – The Board receives detailed papers settingthe strategic direction, and in-person updates from valuesand culture of the Company. management, including stakeholder Itsets the tone of how business is priority and outcome analysis, which done throughout M&S and has they query, challenge, and debate, to embedded expectations that ensure conflicting views are carefully stakeholder considerations are considered. central to decision-making at all – Updates on the progress of actions levels of the organisation. and decision implementation are – Further information on culture can alsoprovided, to allow the Board to befound on pages 28 to 31, and review and alter where appropriate as further information on our strategy situations (and stakeholder priorities) The below table outlines other areas of can be found on pages 12 to 27. inevitably evolve. this report which detail how the directors have had regard to the S.172 factors. | S.172 FACTOR S.172 FACTOR FURTHER INFORMATION | | | FURTHER INFORMATION | | --- | --- | --- | --- | | | CAN BE FOUND: | | CAN BE FOUND: | | (a) The likely | Our Business Model: pages 8-9 | (d) Impact of | Our Business Model: pages 8-9 | | consequence of | Our Strategic Priorities: pages 12-27 | operations on the | Stakeholder Engagement: page 11 | | any decisions in | Stakeholder Considerations: pages 81-82 | community and | Our Strategic Priorities: page 15 and 18 | | the long term | | environment | TCFD Report: pages 44-55 | Stakeholder Considerations: pages 81-82 ESG Committee Report: page 91 | (b) Interest of | CEO & Co-CEO Q&A: page 6 | | | --- | --- | --- | | employees | Our Business Model: pages 8-9 | marksandspencer.com/ | | | Stakeholder Engagement: page 10 | sustainabilityreport2023 | People & Culture: pages 28-31 Stakeholder Considerations: pages 81-82 (e) Maintaining a Our Business Model: pages 8-9 Remuneration Committee Report: page 106 | | | reputation for | TCFD: pages 45 and 54 | | --- | --- | --- | --- | | | | highstandards of | Risk Management: pages 56-57 | | (c) Fostering | CEO & Co-CEO Q&A: pages 6-7 | | | | | | business conduct | Stakeholder Considerations: pages 81-82 | | the Company’s | Our Business Model: pages 8-9 | | | Audit Committee Report: page 95 | business | Stakeholder Engagement: pages 10-11 | | | | --- | --- | --- | --- | | relationships | Our Strategic Priorities: pages 14, 18-21, | | | | | | (f) Acting fairly | Our Business Model: pages 8-9 | and 25 with suppliers, between members Stakeholder Engagement: page 10 Stakeholder Considerations: pages 81-82 customers of the company Our Strategic Priorities: page 27 andothers Stakeholder Considerations: pages 81-82 Remuneration Committee Report: page 106 80 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## STAKEHOLDER CONSIDERATIONS “Cost-of-living is the most “Everyone across the country ## SUPPORTING talked about issue amongst isfeeling the pressure ofrising ## STAKEHOLDERS our colleagues … We are costs. We want to do whatwe can pleased our leadership team tohelp ease some ofthat strain; ## THROUGH THE has listened to colleagues that’s why we have invested in and responded.” priceto deliver better value for ## cost-of- ourcustomers and why we are Graham Bennett investing in our colleague base pay Chair, National Business ## living crisis for the second time thisyear.” Involvement Group Stuart Machin 1 2 3 5 CEO MACRO EVENTS M&S DECISION 2022 24 February Conflict in Ukraine begins, exacerbating inflationary 11 April pressures, particularly for food and energy, which are M&S Food invests in delivering trusted value for two key sectors driving much of the high inflation. customers, introducing lower prices on the “Remarksable Value” range. 15 September The Bank of England’s Monetary Policy Committee 21 September gives its latest update on interest rates. Having already pushed them up to 1.75% in August, they M&S sets out £15m investment to support colleagues raisethem again to 2.25%. inresponse to the cost-of-living crisis. 23 September The “Mini Budget” is unveiled and causes turmoil 2 November onfinancial markets. M&S announces price lock extension and guarantees trusted value for customers. 17 November The government releases its Autumn Statement totackle the cost-of-living crisis and rebuild the economy; a plan to raise taxes and cut spending in 2023 abid to fill what they call a £50bn “fiscal black hole”. 28 February M&S announces a further £57m investment in store 15 March colleague pay; this new commitment means hourly rate Spring Budget is announced. of pay has increased 20% over the last two years. 11 April M&S extends price lock until summer as part of trusted value promise. The cost-of-living crisis has been felt Following extensive consideration of the – The Board worked closely with across the business and by all our issues faced by each stakeholder group, colleague representatives in our stakeholders. The topic has frequently the Board carefully balanced these Business Involvement Group (“BIG”) featured on Board agendas and directors conflicting priorities and made the toensure our benefits package have discussed in detail how best to following decisions: accurately reflected the changing strike the balance between supporting needs of colleagues. The Chair – At a time when family budgets were those impacted, whilst delivering on M&S’ ofNational BIG attended the under stress, it was deemed a priority growth ambitions to promote the Remuneration Committee (“RemCo”) to sustain our “trusted value” status long-term success of the business. meeting in September 2022 to amongst customers. In April 2022, communicate the key issues facing The central theme of Board discussions ourRemarksable Value range was colleagues. As a result, RemCo has been managing the increasing costs relaunched, focusing investment on agreeda £15m inflationary pay rise for caused by inflation. The Board and senior everyday lines. The decision was made colleagues, as well as a £250 voucher management have noted the progress to price lock 100 family favourites. to help lower paid colleagues with made in recent years to build value TheBoard kept this approach under thecosts of the upcoming Christmas credentials with customers, while constant review, agreeing that period. The RemCo has since carefully upholding quality and sustainable investing in products highly valued by monitored inflation and the consequent practices with suppliers. Passing too customers was the right approach. ongoing challenges being experienced much cost on to customers and suppliers Thisdecision to support and preserve by colleagues. Recognising that for could jeopardise these relationships and our standing with customers has since M&S to succeed in the longer term our reputation. However, investing too proven to drive volume growth, which ourcolleagues must feel supported much in price for customers and should create long-term benefit for and appreciated, in February 2023, suppliers could come at the expense of shareholders. The investment made theRemCo agreed to a further shareholders and colleagues; by failing inRemarksable Value resulted in a 40% investment of £57m in store colleague to sustain sufficient margin to drive increase in sales, with products now pay, meaning hourly rates of pay have valuefor shareholders, or jeopardising featuring in c.20% of customer baskets. increased 20% over the last two years. potential pay adjustments for front-line colleagues. Annual Report & Financial Statements 2023 81 GOVERNANCE ## STAKEHOLDER CONSIDERATIONS CONTINUED | | In September 2022, the Board approved | – The agreement further enhances and | | --- | --- | --- | | | an exclusive agreement with bp pulse to | cements our relationship with bp as | | EV Charging | expand its national charging network with | afranchise partner. | high-speed electric vehicle (“EV”) charge ## CONTRACT WITH BP – The installation of charging points points at 70 M&S stores. The Board’s view adds a new revenue stream for the in making this decision was that the 631 4 business. This will not only offset the agreement would benefit our key cost of installation and maintenance; stakeholders and the business in the itwill increase footfall in M&S stores longer term as the UK converts to EV and provide us with a competitive edge ownership in the coming years. over other retailers who do not have such facilities. Ultimately the Board believes this will benefit shareholders and the long-term success of the ## 70 business. M&S stores to have EV chargers installed – EV charge points provide a better experience for our customers who ownelectric vehicles as they can charge while they shop. – Providing EV charging facilities demonstrates our commitment to the environment as well as our willingness to support sustainable transportation, which helps improve our reputation. ## Acquisition ## OF GIST 1 2 3 5 The acquisition of Gist was a key agenda The reduction in costs would provide item in Board meetings this year. Having M&S with flexibility to maintain product restored M&S Food to an industry- prices, while the increased network leading position on volume growth in control could create colleague recent years, the Board’s discussions efficiencies through more joined up centred on vertical integration in Food as waysof working, and improvements to a means of creating a more effective and forecasting, ordering and allocation. efficient supply chain. Gist was identified The Board unanimously agreed the as an acquisition target, having worked acquisition would be a critical enabler with M&S as its principal Food logistics ofour end-to-end supply chain supplier, and the Board considered the transformation, helping to drive long- potential supply chain benefits: the term returns for shareholders, as well as ability to invest in the network and providing benefits to a number of other reduce the cost to serve, and the ability key stakeholders. The Board noted, to update legacy systems and improve following completion, it would be automation. The Board recognised the important to manage the integration potential the acquisition had to generate process carefully, ensuring Gist immediate benefits to M&S through colleagues felt part of the M&S family. these operational synergies, including Asa result, a comprehensive integration the ability to build on the successful plan is underway and is being closely implementation of the “Vangarde” monitored by the Board to ensure supplychain optimisation programme. ## £145m successful delivery of the transaction’s Alongside these cost savings and strategic objectives, particularly the initial consideration paid operational benefits, the Board realisation of stakeholder benefits. considered the needs of other key stakeholders, and the benefits the acquisition might create for them. Havingadditional control of the networkhad potential benefits for customers and colleagues. 82 Marks and Spencer Group plc STRATEGIC REPORT FINANCIAL STATEMENTS GOVERNANCE ## BOARD REVIEW The Board reflects on its performance and effectiveness annually. This year, our IMPACT OF THE 2022/23 ACTION PLAN evaluation was facilitated internally by the Chairman, with support from the The outcomes and actions agreed following last year’s review were a focus for General Counsel & Company Secretary. the Board throughout the year, and progress was assessed in the review. Our last externally facilitated Board 2022/23 Action Examples of action taken in the year Review took place in 2021. In accordance with the principles of the UK Corporate Review the Board’s – The directors have connected frequently in informal Governance Code, we intend to externally informal engagement settings such as breakfasts and dinners. facilitate next year’s Board Review. opportunities, as well as – Each of the NEDs met individually with Hannah the Board’s Involvement Gibson, CEO Ocado Retail, and Hannah also One-to-one discussions were held with Programme, to be closer attended the Board’s strategy away day in each of the directors, covering a broad to stakeholders February2023. range of topics relating to the Board, its – The executive directors ran the Bluewater store for committees and the directors’ individual aweek in September 2022 to get closer to both contributions. The Senior Independent customers and store colleagues. Director met with each of the directors to review the Chairman’s performance and More information on stakeholder engagement the feedback was subsequently shared can be found on pages 10-11. with the Chairman. Focus on strategic issues – The Board attended two strategy away days in June The review focused on: and consider future trends 2022 and February 2023. – The Board considered, debated, and approved – Board: composition, diversity theacquisitions of Gist and the intellectual property andexpertise, dynamics, time of Thread. management, stakeholder focus – The Board assessed and debated ways in which andstrategic oversight. thevalue of our joint venture with Ocado Retail – Committees: effectiveness of the could be maximised and how best to foster committee chairs and the committees relationships between both leadership teams. themselves, focus of agendas, composition and time management. More information on the Board’s strategic discussions and decisions can be found on – Chairman: relationships and pages75-82. communication, meeting management, as well as managing Review the Board’s – The Chair of the Nomination Committee consulted relationships with shareholders. composition and identify with all members of the Committee, and it was – Individuals: preparation for and Andy Halford’s successor unanimously agreed Andrew Fisher should attendance at meetings, time asSID succeedAndy Halford as SID. commitment, director relationships, – Ronan Dunne was appointed as a NED to increase knowledge, experience andoverall financial, international and commercial focus. – Cheryl Potter was appointed as a NED to bring contribution. additional shareholder-value focus to the Board. More information on the Nomination Committee’s discussions can be found on pages85-89. Annual Report & Financial Statements 2023 83 GOVERNANCE ## BOARD REVIEW CONTINUED BOARD REVIEW INSIGHTS Board Performance Committee Performance MONITORING NON-EXECUTIVE – The overall sentiment following As part of the 2022/23 review, each of the DIRECTOR INDEPENDENCE thereview was generally positive in committees’ performance was assessed ANDTENURE terms of how the Board operates. following the same informal discussion Thedirectors believed there was a format. The appraisals found each of the As part of the annual review, the good variety of expertise around the committees were performing effectively, Boardmonitors the independence table and the dynamics between each with strong leadership from the andtenure of each of the directors. of them were positive. committee chairs. Each committee was Following each of his discussions, considered to be operating within the theChairman and General Counsel – The directors thought the new scope of their terms of reference. &Company Secretary concluded each executive directors had transitioned of the non-executive directors remain totheir roles successfully. – Feedback from ESG Committee independent. Communication between Stuart, members recognised meetings Katieand the rest of the Board was werefrequent, but agreed this was Neither the Chairman, nor any of the clear and transparent. useful indriving the importance of current non-executive directors, have – All directors were considered to sustainability with management. exceeded the maximum nine-year beworking effectively and had recommended term of appointment, – Nomination Committee members sufficient time to commit to their role. as set out in the UK Corporate agreed they had worked in an agile The newest members of the Board Governance Code. Andy Halford’s manner and with pace to successfully were settling in and building strong tenure had exceeded nine years when lead the recruitment and appointment relationships with the other directors he stepped down from the Board in of two new non-executive directors. December 2022. As we reported in last and the business. – The Audit & Risk Committee was year’s Annual Report, the Nomination Chairman and Senior considered to be functioning Committee agreed Andy remained IndependentDirector effectively under its expanded terms independent in both character and – Feedback from the directors of reference, which recognised the judgement, and would provide the emphasised the Chairman continued Committee’s increased focus on risk Board with a key point of stability to demonstrate strong leadership and management. Committee members during the executive transition. his performance and contribution agreed the transition to a new The Board therefore concluded the remained impactful. Committee Chair was handled well and non-executive directors have the Evelyn had shown strong leadership in – The Board noted Andy Halford ability, through their independence, her first few months as Chair. provided a suitable handover of tosufficiently challenge management, responsibilities to his successor, – Matters discussed by the balanced against a need to ensure Andrew Fisher. Andrew had taken on Remuneration Committee during continuity. the additional duties and remained theyear continued to fulfil the atrusted and valued colleague among Committee’s remit, with members More information on the Board’s directors. agreeing agenda items were composition can be found on thoughtfully debated in the context pages 72-73. ofinternal and external factors. More information on director tenures can be found on page 86. 2023/24 ACTION PLAN – Continue to build on and develop the relationships between the Board andExComembers. – Maintain focus on ensuring the customer is at the heart of activity across thebusiness. – Continue to guide the business towards a strengthened and sustainable balance sheet, including reintroduction of dividends and an improved credit rating. 84 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # NOMINATION COMMITTEE REPORT ![img-2.jpeg](img-2.jpeg) “ This year, we continued our work to embed the new executive leadership structure and appraise the senior talent pipeline.” Archie Norman, Chair of the Nomination Committee ## COMMITTEE MEMBERSHIP AND MEETING ATTENDANCE The Committee comprises the non-executive directors and is chaired by Archie Norman. Individual meeting attendance and changes to membership are detailed below. | Committee members | Member since | Resigned | Number of meetings attended | | --- | --- | --- | --- | | Archie Norman | 1 Sep 2017 | | 6/6 | | Evelyn Bourke | 1 Feb 2021 | | 6/6 | | Fiona Dawson | 25 May 2021 | | 6/6 | | Andrew Fisher | 1 Dec 2015 | | 5*/6 | | Tamara Ingram | 1 Jun 2020 | | 6/6 | | Justin King | 1 Jan 2019 | | 6/6 | | Sapna Sood | 1 Jun 2020 | | 6/6 | | Andy Halford | 1 Jan 2013 | 31 Dec 2022 | 4/4 | | Ronan Dunne | 1 Aug 2022 | | 4/4 | | Cheryl Potter | 1 Mar 2023 | | 1/1 | * Unable to join due to prior business commitments. ## ROLE AND RESPONSIBILITIES - Regularly reviewing the composition, structure and diversity of the Board and its committees; while considering the longer-term leadership and succession needs of the business in light of challenges and opportunities facing the Group. - Assessing the range of skills, attributes and experience on the Board, ensuring it remains effective, balanced and suited to the Group's strategic and transformation priorities. - Overseeing a formal, rigorous and transparent procedure for the nomination, induction, evaluation and orderly succession of directors. - Keeping under review other directorships held by the Board, taking account of demands on directors' time. The full Terms of Reference for the Committee can be found at corporate.marksandspencer.com. ## NOMINATION COMMITTEE EFFECTIVENESS REVIEW The Committee's performance was reviewed as part of the 2022/23 internal Board Review, details of which can be found on pages 83 to 84. The review established the Committee functions well in terms of supporting the orderly succession to Board roles and other senior leadership positions. ## REVIEW OF THE YEAR The Committee had a busy year continuing its focus on succession planning, and overseeing a number of Board changes. We also continued our work on firmly embedding the new executive leadership structure and appraising the Group's senior management and talent pipeline. Following Steve Rowe's departure from the Board on 25 May 2022, we started the year with the comprehensive induction of Stuart Machin and Katie Bickerstaffe as they began their new roles as CEO and Co-CEO. The induction's focus was to provide a robust understanding of their additional responsibilities as leaders of the business and as statutory directors of a premium listed company. We selected appropriate successors for Andy Halford as Audit Chair and as Senior Independent Director ("SID"). Andy stepped down as Audit Committee Chair in June 2022, the Committee having identified Evelyn Bourke as his successor. Recognising Andy's deep financial knowledge and experience, we oversaw the selection and appointment process for a new non-executive director with recent and relevant financial experience. This led to the Committee identifying and recommending Ronan Dunne as a valuable addition to the Board. A successor was also required for Andy's role as SID. I consulted with all members of the Committee and, given his position as a trusted and valued colleague, it was unanimously agreed Andrew Fisher should succeed Andy as SID. As announced on 21 July 2022, Eoin Tonge stepped down as Group CFO and Chief Strategy Officer on 9 December 2022. The process to appoint and induct a new CFO involved reviewing both the internal talent pipeline and working with an independent executive search firm which is a signatory to the Voluntary Code of Conduct for Executive Search Firms. The search culminated in Jeremy Townsend being welcomed to the business as Interim CFO in November 2022, taking up a position on the Executive Committee. Jeremy will now remain with the business until May 2025. Most recently in March 2023, we welcomed Cheryl Potter to the Board as our newest independent non-executive director. With her background in private equity, she brings experience in commercial operating improvement and a clear focus on shareholder value delivery. Cheryl's appointment brings us to a female majority Board, with representation up to 55% as at 1 April 2023. Annual Report & Financial Statements 2023 85 GOVERNANCE ## NOMINATION COMMITTEE REPORT CONTINUED ### BOARD COMPOSITION AND SUCCESSION PLANNING RESHAPING FOR GROWTH The Committee monitors the internal was givento additive knowledge which We believe that Board members should and external pipeline of talent to ensure culminated in a revised internal and bring a blend of expertise and skills with it meets current and future business external pipeline being developed by a variety of perspectives, to facilitate needs, and its focus this year was theCommittee. The revised pipeline constructive discussions and effective, forward-looking in line with shifting informed this year’s CFO succession balanced decision-making. This Board priorities. After an intense period andNED appointment process and has underpins the FTSE Women Leaders of Board involvement and concentration ensured the Board is fully equipped to Review (formerly the Hampton- on operational issues, this year the Board continue reshaping M&S. Alexander Review) and the Parker Review, was focused on longer-term strategic which emphasise the importance of issues. As such, consideration was given ensuring Boards are diverse in gender, to the competencies highlighted in the aswell as ethnic and social background. below skills matrix which we believe The Committee endorses this view and enable the Boardto deliver against our ensures diversity factors strongly in strategic priorities. Particular emphasis itswork on succession planning. SKILLS AND EXPERIENCE OF THE BOARD Organisational Corporate Trans- Property design and transactions, Retail and Food and Supply Marketing Data and formation Risk and real corporate legal and consumer beverage chains and media digital and strategy Finance management estate culture Sustainability regulatory Stuart Machin ● ● ● ● ● ● ● ● ● Katie Bickerstaffe ● ● ● ● ● ● ● ● ● Archie Norman ● ● ● ● ● ● ● ● ● ● Evelyn Bourke ● ● ● ● ● Fiona Dawson ● ● ● ● ● ● ● Ronan Dunne ● ● ● ● ● ● ● ● ● Andrew Fisher ● ● ● ● ● ● ● Tamara Ingram ● ● ● ● ● ● Justin King ● ● ● ● ● ● ● ● Cheryl Potter ● ● ● ● ● ● ● Sapna Sood ● ● ● ● ● Eoin Tonge ● ● ● ● ● ● ● ● Andy Halford ● ● ● ● ● ● ● Existing ●  Newly appointed ●  Outgoing | DIRECTOR TENURE AND | NON-EXECUTIVE DIRECTOR | In making these appointments the | | --- | --- | --- | | INDEPENDENCE | APPOINTMENT PROCESS | Committee worked with independent | | Director tenure and independence was | During the year, the Committee led the | executive search firms Russell Reynolds, | | reviewed as part of the annual Board | recruitment andappointment process | MBS and MWM. In line with our Board | | Review. No current directors’ tenure | for two new non-executive directors, | Diversity Policy, these firms are | | exceeded nine years and it was concluded | Ronan Dunne and Cheryl Potter. The | signatories to the Voluntary Code | | that each NED remained independent | process isdesigned to ensure the search | ofConduct for Executive Search | | andcontinues to make asignificant | for, andappointment of, our NEDs is | Firmsand,other than the provision | | contribution to the Board. More | thorough and inclusive with a focus | ofsearch services, do nothave any | | information can be found on page84. | oncharacter, merit and chemistry with | otherconnections to the Company | | | the Board. TheCommittee focuses on | oritsdirectors. | additive knowledge to ensure the Board has a balance of skills supporting the Company’s strategic priorities now andinto the future. Inductions aim to provide an effective introduction to M&S; | 0-3 years | 67 | both to the business as a whole and to | | --- | --- | --- | | 4-6 years | 22 | the boardroom. | | 7-9 years | 11 | | DIRECTOR TENURE % % 86 Marks and Spencer Group plc % FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE ### OUR NED APPOINTMENT PROCESS 1. SEARCH CRITERIA PROCESS IN ACTION - RONAN DUNNE The Chairman, working with the General Counsel & Company SEPTEMBER 2021 Secretary, determines the search criteria using a skills matrix Search criteria developed for Andy Halford’s successor, reflective of the one on page 86, considering the long-term whichincluded: strategic priorities of the business. This is provided to an – Recent and relevant financial experience executive search firm who is asked to ensure the search includes – Additive knowledge (in areas including data and digital) a diverse range of candidates from various backgrounds and JANUARY 2022 industries, including individuals with little or no FTSE board Executive search firm engaged experience. 2. REVIEW AND IDENTIFY FEBRUARY 2022 Committee received a long list of candidates. The executive search firms review the specification and MARCH 2022 producealong list of candidates for the Committee to review. Shortlisted candidates contacted, including Ronan Dunne. The Chairman identifies a shortlist of candidates, following Ronan’s experience: feedback from the SID and other members of the Committee. – Chartered Accountant These candidates are contacted to establish interest. – International experience in the digital telecoms industry – Leading technological and people transformation 3. ASSESS APRIL – MAY 2022 Interviews and meetings. Candidates are interviewed by the Chairman and assessed in linewith the candidate specification. Informal meetings with other Committee members, the CEO and Co-CEO are also conducted with preferred candidates to determine chemistry and interpersonal dynamics and assess whether their skills andexperience would be additive to the Board as a whole. 4. APPOINT JUNE 2022 Committee meeting to discuss the proposal toappoint Ronan The Committee reconvenes to consider and discuss feedback Dunne, with subsequent recommendation to the Board and received. Once a decision has been made, the successful approval ofhis appointment. Ronan is offered and accepts candidate is recommended for appointment to the Board theappointment as NED to commence from 1 August 2022. andtheGeneral Counsel & Company Secretary is tasked with theformalities. 5. INDUCTION JUNE 2022 ONWARDS The below provides a snapshot of the activitiesand introductions The final step is to provide our new directors with a robust arranged for Ronan’s induction, bringing him closer to decision- induction, tailored to suit their individual needs. This is an makers and those tasked with running the day-to-day invaluable step to not only support directors in meeting their management of the business: statutory duties, but also give them a comprehensive introduction to the business and its strategic priorities. | Before arrival: | Within the first month: | Within the first three months: | Within the first year: | | --- | --- | --- | --- | | – Attended June Board | – Introduced to business | – Visited store, including a | – Will attend a National BIG | | strategy away days | unitleadership teams | morning working in store | meeting and colleague | | – Met with our General | andcentralised functions | – Introduced to key partners | services and HR overview | | Counsel & Company | including introductions | and external auditor | – Will visit customer | | Secretary on UK listed | toInvestor Relations, | | servicescentre and | | company requirements | Corporate Communications | | M&SCompany Archive | | andcorporate governance | and Plan A | | – Will attend management | | – Provided with | | | meetings and product | | comprehensive pre-read | | | previews | | ofBoard and relevant | | | – Will visit supply chain | | Committee papers from | | | depot,Castle Donington | | theprevious 12 months | | | distribution centre | Annual Report & Financial Statements 2023 87 GOVERNANCE ## NOMINATION COMMITTEE REPORT CONTINUED ### EXECUTIVE COMMITTEE COMPOSITION We seek to foster and develop internal Read more on pages 23 and 29-30. The balance of skills and experience on talent across the business. Last year’s our ExCo is set out below. The Committee supported the expansion promotion of two senior leaders to the of the ExCo to include additional Members of the Committee continued Board as CEO and Co-CEO was the members of the senior leadership team, toact as mentors to the ExCo, available outcome of a long planned process. ensuring the ExCo comprises a wider toadvise the ExCo in its review of senior Widertalent andsuccession programmes range of specialist skills and improving the leadership and succession planning. remained a key focus of the Board and efficiency and effectiveness of decision- TheCommittee has emphasised in its Committee during the year. This was making. The expansion also supports M&S’ advice the importance of identifying reflected in the Committee’s support ambition to improve gender diversity candidates for critical roles that would forthe organisation’s cultural reset, within the leadership talent pipeline, with support the reshaping business and withthe Executive Committee (“ExCo”) an additional two women now included continue to make progress against M&S’ introducing high-performance culture inthe ExCo’s membership. diversity ambitions. asa strategic priority to support talent management across the business. SKILLS AND EXPERIENCE OF THE EXECUTIVE COMMITTEE Corporate Trans- Property Organisational transactions, Retail and Food and Supply Marketing Digital formation Risk and real design and legal and consumer beverage chains and media andData and strategy Finance management estate corporate culture Sustainability regulatory Stuart Machin ● ● ● ● ● ● ● ● ● Katie Bickerstaffe ● ● ● ● ● ● ● ● ● Jeremy Townsend ● ● ● ● ● ● ● ● Sacha Berendji ● ● ● ● ● ● ● ● Sarah Findlater ● ● Nick Folland ● ● ● ● ● ● Alex Freudmann ● ● ● ● ● ● ● ● Victoria McKenzie- ● ● ● ● ● Gould Richard Price ● ● ● ● ● ### OUR COMMITMENT TO DEVELOPING ADIVERSE WORKFORCE DIVERSE LEADERSHIP Throughout the year, and in line with our Board Diversity Policy, the Committee ensured appointments to our Board and its sub-committees contributed to the Group-wide inclusion and diversity ambitions. The Board met each of the FCA Listing Rules and FTSE Women Leaders Review targets of maintaining a minimum of 40% female representation on the Board, ahead of the 2025 deadline. With Female 55 Female 33 the appointment of Katie Bickerstaffe as Co-CEO we made progress towards the Male 45 Male 67 additional target of having at least one senior Board position held by a female. Wealso achieved the Parker Review and FCA Listing Rules targets of ensuring at least one Board member is from an ethnic BOARD ETHNICITY EXCO ETHNICITY minority background. Nonetheless, the Committee recognises these are the BOARD GENDER IDENTITY EXCO GENDER IDENTITY beginnings of a journey to increase all forms of diversity. The Board and senior leadership’s gender identity and ethnicity data presented in accordance with Listing Rule 9.8.6R(10) Ethnic minority 9 Ethnic minority 11 can be found on page 131. | | | | White | 82 | White | 78 | | --- | --- | --- | --- | --- | --- | --- | | Our Board Diversity Policy is | | % % | | | | | | | 21/22: 14% 21/22: 9% | | | | | | availableonour corporate website at | | | | Not specified/ | 9 | Not specified/ | 11 | | --- | --- | --- | --- | --- | --- | --- | | corporate.marksandspencer.com | | % % % % | | | | | | | | | prefer not to say | | prefer not to say | | | | 21/22: 86% 21/22: 45% 21/22: 91% 21/22: 14% | | | | | | 88 Marks and Spencer Group plc % % % % 21/22: N/A 21/22: 55% 21/22: 86% 21/22: N/A FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE DIVERSE WORKFORCE – Continued active involvement in The balance of individuals reporting keycampaigns including LGBTQ+ intoExCo members who identify as Pridecelebrations, International female has once again seen improvement Women’s Day, Black History Month, this year, whilst ethnic diversity in this National Inclusion Week, Mental population has seen a decrease. HealthAwareness Week and World Weacknowledge there is still work International Day of Disability, tobedone and remain committed to raisingawareness and our profile enhancing the ethnic diversity of our asaninclusive place to work. talent pipeline. The Committee believes – Continued to support a range of progress should be led by example and diverse charity partnerships through the Board’s ethnic diversity, as well as the Sparks, including Albert Kennedy Committee’s focus on this, is evidence of Trust, Blue Print for All, The Black this commitment. Curriculum and Scope. In addition to our commitments to – Continued to drive and improve promote gender and ethnic diversity in mandatory Inclusion & Diversity succession planning, our Board Diversity training across the business, with a Policy covers inclusion initiatives taking particular focus on linemanagers. place across the business which are sponsored and endorsed by the Board. Read more on inclusion and diversityinthe wider organisation During the year, these have included: onpages 28 to 31, and in ourSustainabilityReport. – A reset for the seven employee-led networks and surrounding framework to maximise the potential of these networks to the members and the business – Gender Equality, Menopause, Culture and Heritage, LGBTQ+, Family and Carers, Armed Forces Community, and Ability and Health conditions. – Continued involvement in the 30% Club, an organisation committed to increasing female representation on UK boards through developing our junior leaders. This year, opportunity tojoin was extended to all under- represented groups. – The Marks & Start programme, which continues to support young people, the homeless, lone parents and those with disabilities in finding work at M&S. – The Kickstart Scheme, through which M&S provides six-month employment contracts and helps to develop skills in 16 to 24 year olds on Universal Credit who are at risk of long-term unemployment. – Launched our Diversity Insights Programme targeted at students in theearly stages of their degrees who are from black heritage and/or low socio-economic backgrounds. Successful students are offered internships which may lead to graduaterole opportunities in 2024. Annual Report & Financial Statements 2023 89 GOVERNANCE ## ESG COMMITTEE REPORT REVIEW OF THE YEAR Our priority last year was the deeper integration of Plan A to drive performance against newly agreed targets, including our goals for a 2.1m ### Plan A is core to M&S reduction in carbon emissions by ### delivering exceptional 2025/26, and to be a net zero business by 2040. Throughout the course of 2022/23, ### products and upholding our focus has turned to developing ### our trusted brand.” milestones and monitoring progress along our net zero roadmap; ensuring Tamara Ingram, there is adequate governance and Chair of the Environmental, reportable metrics in place. Social & Governance Committee TheCommittee has also continued to highlight the importance of ensuring ourESG activities, including Plan A, are understood and are able to demonstrate COMMITTEE MEMBERSHIP AND MEETING ATTENDANCE visible, meaningful change to our The Committee comprises Tamara Ingram as Chair and Sapna Sood. Regular stakeholders. The progress made on attendees include the Company Chairman and the CEO, with business leaders reducing food waste, plastic packaging, and relevant subject matter experts attending when required. Individual and raising the bar in animal welfare meeting attendance is detailed in the table below. More information on the skills standards are particularly encouraging, and experience of Committee members can be found on page 86. as we know these issues really matter to our customers and colleagues. Number of Member since meetings attended To see our Clothing & Home supply chain Tamara Ingram 16 Dec 2020 7/7 and sourcing in action, I visited Turkey and Bangladesh in July. I was impressed Sapna Sood 16 Dec 2020 7/ 7 by the extensive knowledge the local By standing invite teams and suppliers possessed. This Archie Norman N/A 6/7 solidified my belief that building, Stuart Machin N/A 3/3 maintaining and valuing long-term supplier relationships is vital as we seek Steve Rowe* N/A 2/2 to maintain our high-quality credentials, Eoin Tonge* N/A 4/4 drive improvements across our supply chain and tackle the challenges * Meetings attended before leaving the business. presented by climate change. Management has been pursuing this strategic approach, recognising that ROLE AND RESPONSIBILITIES without an engaged and strategically – Ensuring the Company has an Environmental, Social, and Governance aligned supplier base, we will not achieve strategy that is both inspiring and differentiates M&S, while also remaining fit our net zero ambition. for the future, anticipating and responding to changing consumer and wider societal needs and expectations. There have, of course, been external factors to contend with, which has – Reviewing the effectiveness of the strategy, including the governance widened the range of social issues our arrangements for ensuring the successful delivery of targets and monitoring stakeholders expect us to act on: the overall performance. devastating earthquakes in Turkey and Syria; the ongoing war in Ukraine; the – Approving and recommending all ESG reporting for the Board’s approval, cost-of-living crisis and how this including the Company’s Sustainability Report and Task Force on Climate- continues to impact our colleagues, related Financial Disclosures (“TCFD”) Report. customers and communities alike. In – Advising the Audit & Risk Committee on ESG-related risks, including climate- considering cost-of-living impacts, we related issues. remained alert to conflicting pressures, ensuring that short-term cost pressures The full Terms of Reference for the Committee can be found at do not negatively impact the progress marksandspencer.com/thecompany. made so far in plans to source more recycled polyester, reduce plastic packaging, or increase animal welfare ESG COMMITTEE EFFECTIVENESS REVIEW standards. The Committee’s performance was reviewed as part of the 2022/23 internal Board Review, which is covered on pages 83 to 84. The review found the We closed the year’s activities with a Committee was operating well to maintain momentum and galvanise the review of our approach to sustainability, business to embed sustainability more deeply. being one-year post reset of Plan A. As a Committee, we agreed that our Plan A ambitions are the right ones; for us as a business, for our community, customers, and for the planet. 90 Marks and Spencer Group plc FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE ### WHAT WAS ON THE COMMITTEE’S AGENDA 2022/23 Delivery of Strategy and ESG Reporting sustainability research and trials – A scientific adviser providing The Committee received progress underway on new trailers, vehicles insightonthe UK government’s updates from members of the Executive andalternative fuels, and discussed expectations of businesses to Committee (“ExCo”) and senior the reputational and emissions delivernew environmental targets, leadership against delivery of our ESG implications of acquiring Gist. andtheframework under programme and key sustainability development fornature-related Delivery of sustainability objectives was initiatives. Key updates included: financial disclosures(Taskforce on also monitored via centrally compiled Nature-related Financial Disclosures). targets and metrics spanning all ESG – Progress against Clothing & Home’s activities, including ethical trade and – Chief Commercial Officer of a key net zero roadmap, highlighting human rights. This collated ESG supplier, on the importance of engaging suppliers in garment and reporting was tracked, reviewed and embedding sustainability strategy fabric manufacturing and chemistry challenged by the ESG Business Forum, intothe culture of a business, asareas where good progress has been chaired by a member of ExCo, to highlighting how investing inlong- made. Fabric traceability, particularly enhance accountability and provide the term relationships with suppliers the need to build stronger strategic Committee with assurance that progress cancontribute to achievingour partnerships with fewer suppliers, was is consistently monitored. The Scope3targets, byhelping suppliers identified as a priority area for Committee discussed the importance toprioritise theirown sustainability improvement. ofimproving controls for non-financial initiatives. – A deep-dive into the end-to-end metrics, particularly relating to – Chief Sustainability Officer for a journey of clothing hangers and plans assurance of metrics linked to the multinational technology company, to prevent hangers ending in landfill. Company’s Revolving Credit Facility. providing insight on how their Including consideration of how these increased focus on sustainability plans might impact productivity at Stakeholder Communications hasproduced strategic commercial Castle Donington. Alongside monitoring delivery of opportunities. As well as how an ourESG programme, the Committee – An overview of Food’s sustainability internal carbon charge helped to drive hasbeen focused on how we best strategy and the solid progress made sustainability focused culture change. communicate our sustainability to date. The Committee agreed with programme of activities to stakeholders. Throughout the year, the Committee management that, given cost It has heard updates on: hasalso requested updates on external pressures, a priority for the strategy is ESG issues: finding ways to reduce waste in our – Development of a quarterly customer operations and to also help customers insights survey, to better understand – Following the Myanmar coup in reduce food waste while saving money. customer perspectives on ESG issues February 2021, due diligence in The Food team have also been working and track how that changes over factories increased to ensure ethical collaboratively with suppliers on their time.The intention is to use these sourcing, and the Committee roadmaps for carbon reduction, noting insights toensure our messaging on discussed the balance between their substantial contribution to our sustainability resonates in our product tryingto be a force for good for Scope 3 carbon emissions. and marketing plans, and in doing so, workers depending on the garment – Progress with the ethical audit equip our customers to make better industry and responding to the compliance programme and human choices on issues that matter to them. ongoing situation. Ultimately, the rights due diligence in supply chains. Committee has supported and – 2021/22 ESG reporting, to review and The Committee discussed increasing advisedmanagement in its decision verify the processes behind proposed risks arising from labour shortages in toexit the region, ensuring this exit disclosures, as well as recommend the UK, the changes to the Seasonal isresponsibly managed to minimise forAudit & Risk Committee or Board Agricultural Workers Scheme and how impact on workers. approval: Energy & Carbon reporting, the Food business acted together with TCFD report, Modern Slavery – In response to the war in Ukraine suppliers, the wider industry and Statement, Sustainability Report. andearthquakes in Turkey and Syria, government, to tackle the issue of cashand inventory contributions – Integration of ESG messaging into modern slavery. weremade to UNHCR and UNICEF. product marketing and plans that – Progress and challenges across the demonstrate visible change to Finally, the Committee has property estate to deliver our net zero customers and colleagues on ESG discussedandassessed ESG risks ambitions and the need to invest in focus points, such as plastic packaging andopportunities, for onward improved energy efficiency data on removal and charity partnerships. advisement tothe Audit & Risk astore-by-store basis. Committee in their half year and full “Outside In” and Risks – Plans to overhaul the Community yearreview of principal risks. As part of its horizon scanning of strategy, with the Committee providing sustainability issues and stakeholder constructive feedback to reshape and Read more on our climate-related expectations, the Committee has been embed this into the Group’s business risks and opportunities in our full keen to hear from diverse voices and model and ways of working. TCFD Report on pages 44-55. perspectives on sustainability matters. – Gist’s integration into the Group, Ithas heard from a host of external Read more in our adopting our net zero ambition and speakers and will continue this practice Sustainability Report aligning to our ESG programme. The inthe coming year: marksandspencer.com/ Committee heard about the sustainabilityreport2023 Annual Report & Financial Statements 2023 91 GOVERNANCE # AUDIT & RISK COMMITTEE REPORT ![img-3.jpeg](img-3.jpeg) “ The Committee provides independent challenge and oversight; ensuring our transformation is supported.” Evelyn Bourke, Chair of the Audit & Risk Committee ## COMMITTEE MEMBERSHIP AND MEETING ATTENDANCE The Committee solely comprises independent non-executive directors. In its 2022/23 internal Review, the Board confirmed it is satisfied all Committee members possess an appropriate level of independence and relevant financial and commercial experience across various industries, including the retail sector. More information on the skills and experience of all Committee members can be found on page 86. Regular attendees include the Company Chairman, CEO and CFO, with members of senior management invited to attend and present as and when specialist technical knowledge is required. The Committee meets without management present where required before meetings. It also meets privately with the lead external audit partner, and separately with the Head of Internal Audit & Risk, as and when necessary after meetings. | Committee members | Member since | Resigned | Number of meetings attended | | --- | --- | --- | --- | | Evelyn Bourke | 1 Feb 2021 | | 5/5 | | Andy Halford | 1 Jan 2013 | 31 Dec 2022 | 3/3 | | Justin King | 4 Nov 2019 | | 5/5 | | Ronan Dunne | 1 Aug 2022 | | 4/4 | ## ROLE AND RESPONSIBILITIES - Monitoring the integrity of the annual and interim financial statements as well as any formal announcements relating to the Group's financial performance, reviewing the significant financial reporting judgements within them. - Maintaining an appropriate relationship with the external auditor and reviewing the independence, objectivity, and effectiveness of the audit process, taking account of the relevant professional and regulatory requirements. - Reviewing the internal audit programme and any significant findings, as well as the effectiveness and independence of the Internal Audit & Risk function. - Considering and advising the Board on risk management activities, including the identification and mitigation of principal and emerging risks and the risk appetite statements. - Reviewing and assessing the effectiveness of systems of internal control, including financial, operational and compliance controls, in addition to the framework for fraud risk management. The full Terms of Reference for the Committee can be found at corporate.marksandspencer.com. ## AUDIT & RISK COMMITTEE EFFECTIVENESS REVIEW The Committee's performance was reviewed as part of the 2022/23 internal Board Review, which is covered on pages 83 to 84. The review found that the Committee functions effectively, with significant issues and risk discussions dealt with in a thoughtful, clear and rigorous manner. The review noted that the transition to a new Committee Chair was handled professionally and without disruption. ## REVIEW OF THE YEAR During the year, the Committee's core duties remained largely unchanged and our usual cadence of activities relating to financial reporting, risk, assurance and internal controls remained in place. However, in recognition of the Committee's increased focus on risk management we reviewed and updated our Terms of Reference, formalising our Board advisory role and updating our Committee name to include "Risk". As such, navigating risks remained a key component of Committee activities, with handling macroeconomic factors a recurring discussion topic. Detail on our risk management activities can be found on pages 56 to 65. The Committee plays an important role in the Group's governance framework, providing valuable independent challenge and oversight across all financial reporting and internal control procedures. Ultimately, it ensures shareholders' interests are protected, our accelerated transformation is supported and long-term value is created. This year, our oversight has been focused particularly on the accounting judgements being made in support of M&S' Reshaping: the fair value treatment of the Ocado contingent consideration payment; the business combination accounting for the Cist acquisition; and the treatment of charges and reversals associated with our store rotation programme. More detail on these is provided in our Significant Issues section on pages 97 and 98. A final challenge for the Committee this year was the management of our external auditor tender process. While we invited firms to participate, only one participant, our incumbent auditor, responded positively. I met with representatives from the Financial Reporting Council (FRC) alongside management to discuss our situation and potential next steps. This culminated in our successful application to the FRC to extend the maximum duration of our existing audit engagement. Read more on page 99. 92 Marks and Spencer Group plc FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE ### WHAT WAS ON THE COMMITTEE’S AGENDA 2022/23 FINANCIAL REPORTING Food – Discussed risk appetite and ethics Being responsible for the integrity – Reviewed the practices and risk around data use. offinancial reporting, the Committee mitigations in place to monitor value – Reviewed the outcome of the monitors the Group’s financial and inflationary pressures, supplier Technology Disaster Recovery internal information and key accounting resilience and quality perception. audit, including actions required to treatments. This year, this has included: – Monitored progress and risks address immediate risks, and associated with implementing the discussed the growth in cyber-attacks – Review of regular trading and replacement Food forecasting and across the retail industry. performance updates, including allocation system. scrutiny of the statutory financial People statements and interim results ahead – Considered the changing regulatory – Monitored compliance with HR-related of recommendation to the Board. landscape and action plans in relation requirements, including national to HFSS, Deposit Return Scheme, and – Consideration of key accounting and minimum wage, right to work and Extended Producer Responsibility. reporting judgements, including the GDPR. appropriateness of the business GSCOP – Considered findings from the project combination accounting method for – Reviewed progress against the implementation review of the MyHR the Gist acquisition, recognition of Groceries Supply Code of Practice system, noting the need for a cultural store impairments and the accounting (“GSCOP”) improvement plan, noting reset amongst line managers to unlock impact of the store rotation the significant improvement to be the system’s benefits. programme. ranked third in 2022 (11th of 13 – Reviewed progress against actions to – Discussion of the accounting regulated retailers in 2020 and 2021). address colleague discount misuse. treatment for the Ocado contingent Gist consideration, particularly the fair INTERNAL CONTROLS – Discussed risks relating to integrating value assessment and probability The Committee received regular updates Gist into the Group, and how to manage weightings applied to the consideration on internal control matters from the business stability during peak trading. trigger scenario analysis. Internal Audit team and the Finance – Considered the impact of the Gist Change & Control team, as part of its key RISK MANAGEMENT acquisition on the Group’s risk duty to review the Company’s internal The Committee received detailed risk landscape. control processes. This regular andcontrol updates from one or more monitoring of the internal control business areas at each of its meetings. Group Asset Protection framework ensured timely identification Each update included a review of the – Monitored improvements to reduce of issues and formal tracking of riskregister, noting progress made to stock loss and discussed loss remediation plans. implement key mitigating activities, prevention methods. emerging risks being monitored and Instances where the effectiveness of Bank & Services outstanding actions from Internal Audit internal controls were deemed to be – Following a reset to the M&S Bank reviews completed. Management also insufficient were discussed during the strategy, considered the resulting confirmed their key control and year, either by the Committee or the increased regulatory responsibilities assurance activities. These presentations Board, and the resulting improvement alongside the reduced reputational are scheduled on a rolling 12-month plans were monitored by the Committee. and financial risks. Received assurance basis, with additional matters identified from the Financial Services Management updates by the Committee or by recommendation Compliance Monitoring Committee on In line with the Group Risk Management from Internal Audit added throughout the controls and oversight in place to Policy, ouraccountable businesses and the year as they arise. address the increased regulatory key functions remain responsible for Clothing & Home responsibilities. managing and reporting their risks, – Evaluated the risks and management aswell as maintaining their internal – Discussed the increasing risks and of the sourcing strategy, particularly control environment. The output of uncertainty resulting from the war in inareas of over-reliance on specific theseactivities is reviewed by the Ukraine, including the volatility of suppliers and locations. Committee through annual updates energy markets and the impact on provided directly by management, – Discussed ongoing uncertainties M&SEnergy. assummarised on this page. frominflationary pressures in raw Digital & Technology materials, labour and freight, as well as External audit – Following an organisational the record high US dollar to Sterling The Committee also noted the internal restructure combining the Digital exchange rate. control findings highlighted in the andTechnology teams, discussed external auditor’s report and confirmed risksassociated with talent and that it is satisfied there is no material capabilities, including third-party misstatement and that relevant actions provider capability. are being taken to resolve any control matters raised. Annual Report & Financial Statements 2023 93 GOVERNANCE ## AUDIT & RISK COMMITTEE REPORT CONTINUED ### FAIR, BALANCED AND UNDERSTANDABLE At the request of the Board, the Committee has considered whether, in its opinion, the 2023 Annual Report & 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 Annual Report focuses strongly on the key strategic messages in the Strategic Report. It is therefore essential that the Committee ensures these messages are fairly summarised and are both clear and reflective of the Group asawhole, to provide stakeholders with transparent disclosures. The Committee received a full draft of the report and provided feedback on it, highlighting the areas that would benefit from further clarity. The draft report was then amended to incorporate this feedback ahead of final approval. When forming its opinion, the Committee reflected 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 narrative in the reporting on the business performance in the front of the report consistent with that used for the financial reporting in the financial statements? – Are the key messages in the narrative reflected in the financial reporting? – Are the KPIs disclosed at an appropriate level based on the financial reporting? IS THE REPORT BALANCED? – Is there a good level of consistency between the narrative reported in the front and the financial reporting in the back of the report, and does the messaging presented within each part remain consistent when one is read independently of the other? – Is the Annual Report properly considered 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 significant issues reported in this Audit & Risk Committee Report consistent with the disclosures of key estimation uncertainties and critical judgements set out in the financial statements? – How do the significant issues identified compare with the risks that the external auditor 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 reflects the whole story? CONCLUSION Following its review, the Committee was of the opinion that the 2023 Annual Report & Financial Statements are representative of the year and present a fair, balanced and understandable overview, providing shareholders with the necessary information to assess the Group’s position, performance, business model and strategy. 94 Marks and Spencer Group plc FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE ### ASSURANCE AND INTERNAL CONTROL ENVIRONMENT The Board, through delegated authority Key risks underpinning the internal audit assigned to the Audit & Risk Committee, plan during the year included corporate ANTI-BRIBERY & CORRUPTION assumes ultimate responsibility for the compliance and responsibility, business A key element of our control effective management of risk across the transformation, information security, and framework is our Anti-Bribery & Group, determining its risk appetite and risks linked to our joint ventures (Ocado Corruption Policy (“ABC”) and monitoring how each business area Retail and M&S Reliance India). programme of controls. Our ABC implements appropriate internal 2. Management updates and risk Policy outlines the expected controls. The Group’s risk management deepdives standards of conduct that colleagues, systems are designed to support the As part of the Committee’s annual contractors, suppliers, business business in actively managing risk to calendar, it receives updates on the partners and any other third parties achieve business objectives, and can maturity of control and assurance who act for or on behalf of M&S are onlyprovide reasonable but not absolute activities and risk management from obliged to follow. assurance against material misstatement individual business areas and functions, or loss. These systems are also designed Our programme includes detailed and on whistleblowing and fraud. These to be sufficiently agile to respond to procedures and controls around updates are complemented by Internal changes in circumstances, such as the giving and receiving gifts, hospitality Audit’s independent audit work. | consequences of acquisitions like Gist, | | | and entertainment; procedures for | | --- | --- | --- | --- | | changes triggered by new law or | | 3. Functional assurance | engaging new suppliers and partners, | | regulation like HFSS, and the array of | | A broad range of assurance activity has | specifically those who are based in | | significant external events seen over | | been designed and established across | higher-risk jurisdictions; standard | | thepast few years. | | the business to target key risk areas, such | contract clauses; and clear reporting | | | | as ethical sourcing responsibilities, food | channels, including confidential | | | See pages 58 to 65 of the Strategic | safety and fire, health and safety. While | reporting. | | | Report for more information on our | reporting lines for these activities are | | All colleagues are required to principal risks and uncertainties. directly to business areas, the processes undertake mandatory ABC e-learning. and controls of these functions are The key features of the Group’s internal The Company will consider taking periodically tested by Internal Audit and control and risk management systems disciplinary action against anyone discussed with the Audit & Risk that underpin the accuracy and reliability who fails to comply with its ABC Committee. | of financial reporting include clearly | | Policy, up to and including dismissal. | | --- | --- | --- | | defined lines of accountability and | 4. Operational oversight | Any potential incidents reported | | delegation of authority, the Group’s | Senior management forums and | internally or to the external | | Code of Conduct, policies and | committees provide oversight and | confidential reporting channels are | | procedures that cover financial planning | challenge on key risk areas within | followed up and full investigations | | and reporting, preparing consolidated | individual business areas, cross-business | launched where such action is | | accounts, capital expenditure, project | programmes or activities, such as | deemed appropriate after preliminary | | governance and information security | business continuity, fire, health and | enquiries. All investigations are | | and a dedicated Financial Controls team. | safety, ESG responsibilities, anti-bribery | subsequently reported to the | | | and corruption, fraud risk management, | Audit & Risk Committee. | SOURCES OF ASSURANCE property, technology, data governance The Board has delegated responsibility Bribery Risk Assessments are and other areas of change. The output forreviewing the effectiveness of the conducted on an annual basis from these discussions form part of the Group’s systems of internal control to withoutcomes reported to the cyclical updates provided to the Audit & theAudit & Risk Committee, which Audit & Risk Committee. Risk Committee. includes financial, operational and compliance controls and risk management A summary of the above activities is systems. The Committee issupported provided in the table on page 96. bya number of sources of internal assurance from within the Group to complete these reviews: 1. Internal Audit The Group’s primary source of internal assurance is through 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. The plan is reviewed periodically throughout the year to confirm it remains relevant for new and emerging circumstances, both internal and external. The findings and actions from Internal Audit reviews are agreed with the relevant business area, communicated to the Audit & Risk Committee and tracked through to completion. Annual Report & Financial Statements 2023 95 GOVERNANCE ## AUDIT & RISK COMMITTEE REPORT CONTINUED GOVERNANCE The Group was compliant throughout the year with the provisions of the UK Corporate Governance Code relating to internal controls and the Financial Reporting Council’s revised Guidance on Audit Committees and Guidance on Risk Management, Internal Control and Related Financial and Business Reporting. The Committee has considered the controls findings raised in the independent auditor’s report on pages 135 to 143. No other significant failings or weaknesses were identified during the Committee’s review in respect of the year ended 1 April 2023 and up to the date of this Annual Report. Where the Committee has identified 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 full disclosure of compliance with the UK Corporate Governance Code at corporate.marksandspencer.com. Source of information Frequency/nature of reporting Internal Audit – Internal Audit Plan Formal updates presented to the Committee at each meeting. – Regular reports against Plan – Follow-up of remediation Plus updates to the Audit & Risk – Updates on fraud, whistleblowing and other irregularity Committee Chair as required. – Ad hoc engagement with the business in response to new/ emerging risks or major incidents – e.g. the acquisition of our logistics business Management Papers submitted on a range of issues including: Formal updates presented to the updates and risk Committee annually and as needed. – Information security deep dates – Anti-Bribery and Corruption – Code of Conduct – GSCOP – Financial control – Business continuity – Risk deep dives from individual business areas and functions Functional Functional audit activities undertaken, including: Updates provided to the Committee assurance aspart of annual business updates – Food safety and integrity where appropriate and as requested. – Ethical audits – Trading safely and legally Operational – Compliance Monitoring Committee Updates presented to the Committee oversight annually and as needed. – ESG Committee – Group Safety Committee – Customer & Brand Protection Committee – Business Continuity Committee – Business Unit Operating Reviews 96 Marks and Spencer Group plc FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE ### SIGNIFICANT ISSUES | The Audit & Risk Committee has | UK STORE ESTATE PROGRAMME | ACQUISITION ACCOUNTING – | | --- | --- | --- | | assessed whether suitable accounting | (INCLUDING ASSET WRITE-OFFS, | VALUATION OF ACQUIRED ASSETS | | policies have been adopted and whether | ONEROUS LEASE CHARGES AND | AND SETTLEMENT OF EXISTING | | management has made appropriate | USEFUL ECONOMIC LIVES) | RELATIONSHIP | | judgements and estimates. | The Committee has considered the | In September 2022 the Group | | Throughout the year, the Finance team | assessments made in relation to the | completedits acquisition of Gist from | | has worked to ensure the business is | accounting associated with the Group’s | Linde. The Committee has considered | | transparent and provides the required | UK store estate strategy. The Committee | the judgements and assessments made | | level of disclosure regarding significant | received detailed reports from | in completing the acquisition accounting. | | issues considered by the Committee in | management outlining the accounting | This has included understanding the | | relation to the financial statements, as | treatment of the relevant charges and | assumptions used in fair valuing the | | well as how these issues were addressed, | reversals, including impairment, | assets and liabilities acquired, as well as | | while being mindful of matters that may | accelerated depreciation, dilapidations, | those included in the calculation of | | be business-sensitive. | redundancy and onerous lease costs | settlement of the Group’s pre-existing | | | (including void periods). The Committee | relationship with Gist. The Committee is | This section outlines the main areas of has reviewed the basis for the key comfortable with the accounting for the judgement that have been considered assumptions used in the estimation of transactions and judgements applied. bythe Committee to ensure that charges/reversals (most notably in appropriate rigour has been applied. See note 31 on page 201. relation to the costs associated with Allaccounting policies can be found property exit/sublet costs, the sale FAIR VALUATION OF CONTINGENT in note 1 to the financial statements. proceeds expected to be recovered on CONSIDERATION PAYMENTS Wherefurther information is provided exit, where relevant, and the cash flows to The Committee has considered the inthe notes to the financial statements, be generated by each cash-generating impact of developments during the year we have included the note reference. unit in the period to closure). The on the future probability of the final Each of the areas of judgement has Committee has challenged management contingent consideration payment due beenidentified as an area of focus and is satisfied that the assumptions to Ocado Group plc being met. This andtherefore the Committee has also made are appropriate. The Committee is included understanding and challenging received detailed reporting on these also satisfied that appropriate costs and management’s probability weighted matters from Deloitte. associated provisions have been scenarios used in fair valuing the recognised in the current financial year. contingent consideration liability PRESENTATION OF THE FINANCIAL recognised on the balance sheet. Having STATEMENTS See notes 1, 5, 15 and 22 on pages 150, 161, reviewed management’s calculations and The Committee gave consideration to 178 and 194 respectively. challenged the judgements made, the the presentation of the financial IMPAIRMENT OF TANGIBLE ASSETS Committee is comfortable with the fair statements and, in particular, the use of The Committee has considered the value of the liability recognised. alternative performance measures and assessments made in relation to the the presentation of adjusting items in See notes 5 and 21 on pages 161 and 193 impairment and impairment reversals of accordance with the Group accounting respectively. tangible fixed assets, including land and policy. This policy states that buildings, and store assets. The adjustments are only made to reported Committee received detailed reports profit before tax where income and from management outlining the charges are significant in value and/or treatment of impairments and reversals, nature. The Committee received detailed valuation methodology, the basis for key reports from management outlining the assumptions (e.g. discount rate and judgements applied in relation to the long-term growth rate) and the key disclosure of adjusting items. In the drivers of the cash flow forecasts. The current year, management has included Committee has challenged management in this category: the implementation and and is satisfied that these are execution of strategic programmes; net appropriate. charges associated with the acquisition of Gist; impairment reversals and The Committee has also understood the write-offs of the carrying value of stores sensitivity analysis used by management and other property charges; in its review of impairments and remeasurement of Ocado Retail Limited reversals, including consideration of the contingent consideration; and, the specific sensitivity disclosures in the reduction in M&S Bank charges incurred relevant notes. In addition, the business in relation to the insurance mis-selling plans detailing management’s provision. expectations of future performance of the business are Board-approved. The See note 5 on page 161. Committee is satisfied that appropriate impairments and reversals of tangible assets have been recognised. See notes 1, 5 and 15 on pages 150, 161 and 178-180 respectively. Annual Report & Financial Statements 2023 97 GOVERNANCE ## AUDIT & RISK COMMITTEE REPORT CONTINUED | GOING CONCERN AND VIABILITY | SUPPLIER INCOME | | --- | --- | | STATEMENT | The Committee is satisfied that this | | The Committee has reviewed the Group’s | continues to be monitored closely by | | assessment of viability over a period | management and controls are in place | | greater than 12 months. In assessing | toensure appropriate recognition in the | | viability, the Committee has considered | correct period. The financial statements | | the Group’s position presented in the | include specific disclosures in relation | | approved budget and three-year plan. | tothe accounting policy and of the effect | | Inthe context of the current challenging | of supplier income on certain balance | | environment as a result of the ongoing | sheet accounts. | cost-of-living crisis and continued See note 1 on page 150. inflationary pressures on the business, asevere but plausible downside scenario VALUATION OF MARKS AND SPENCER was applied to the plan. This included GROUP PLC COMPANY ONLY assumptions such as a sustained INVESTMENT economic recession, increased costs and Marks and Spencer Group plc holds an inability for the Group to execute the investments in Group companies transformation plan. The Committee has whichare reviewed annually for concluded that these assumptions are impairment. Management has appropriate. preparedan impairment review based onestimated value in use of the Group. The Committee has also reviewed the An impairment charge has been Group’s reverse stress test that was recorded (see note C6 Investments applied to the model. The Committee onpage 206). The Committee has has reviewed this with management and reviewed management papers outlining is satisfied that this is appropriate in the key assumptions used in calculating supporting the Group as a Going the value in use and issatisfied that these Concern. are appropriate. In addition, the Committee received regular updates on the steps taken by management regarding liquidity, including the successful extension of its revolving credit facility, which is now set to run until June 2026. The Committee is satisfied that these measures have reduced liquidity risk. See note 1 on page 150. RETIREMENT BENEFITS Following the decrease in the pension surplus during the year, the Committee has reviewed the actuarial assumptions, such as discount rate, inflation rate, expected return of scheme assets and mortality, which determine the pension cost and the UK defined benefit scheme valuation, and has concluded that they are appropriate. The assumptions have been disclosed in the Financial Statements. See note 11 on page 168. 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 the analysis of historical returns and redemption rates and has agreed with the judgements reached by management. See note 19 on page 182. 98 Marks and Spencer Group plc FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE ### EXTERNAL AUDITOR | TENURE | Early engagement throughout the year | | --- | --- | | Deloitte was appointed by shareholders | on key accounting judgements continues | | as the Group’s statutory auditor in 2014 | to be appreciated and allows a number of | | following a formal tender process. The | items to be addressed in advance of the | | lead audit partner, Richard Muschamp, | year end. | has been in post since the start of the A continued common theme reflected 2019/20 audit. adesire for more focus on planning and | On 10 May 2023 the FRC approved | communication during certain aspects | | --- | --- | | atwo-year extension to Deloitte’s | ofthe audit cycle with opportunities for | | appointment as external auditor due to | improvement available particularly on | | exceptional circumstances relating to | areas of the audit that can be brought | | the possibility of a competitive tender. | forward outside of the peak year-end. | | The Committee recommends that | NON-AUDIT FEES | | Deloitte be reappointed as the | To safeguard the independence | | Company’s statutory auditor for the | andobjectivity of the external auditor, | | 2023/24 financial year. It believes the | the Committee has put in place a | | independence and objectivity of the | robustAuditor Engagement Policy | | external auditor and the effectiveness | whichit reviews annually. The policy | | ofthe audit process are safeguarded | isdisclosed on our website at | | andremain strong. The Company is | corporate.marksandspencer.com. | incompliance with the requirements The Committee is satisfied that the oftheStatutory Audit Services for Company was compliant during the year LargeCompanies Market Investigation with both the UK Corporate Governance (Mandatory Use of Competitive Code and the Financial Reporting TenderProcesses and Audit Committee Council’s Ethical and Auditing Standards Responsibilities) Order 2014 and the in respect of the scope and maximum Corporate Governance Code. There permitted level of fees incurred for areno contractual obligations that non-audit services provided by Deloitte. restrict the Committee’s choice of Where non-audit work is performed by external auditor. Deloitte, both the Company and Deloitte EFFECTIVENESS ensure adherence to robust processes to The effectiveness of our external auditor prevent the objectivity and independence is assessed in accordance with a process of the auditor from being compromised. agreed by the Audit & Risk Committee, All non-audit work performed by which involves the solicitation of the Deloitte, with fees in excess of £50,000, Committee’s views, as well as providing was put to the Audit & Risk Committee opportunity to comment, via completion for prior consideration and approval. For of a questionnaire, from a targeted group non-audit work where fees were below that have regular interactions with the £50,000, approval was obtained from the external auditor. The targeted group Chief Financial Officer and the Audit & include Chief Financial Officer, Director Risk Committee notified of all work of Group Finance, Director of Finance for falling within this threshold. Further Clothing & Home and International and details on non-audit services provided by Director of Finance for Food, Property & Deloitte can be found in note 4 to the Retail, Head of Investor Relations, Group financial statements on page 160. Financial Controller and Head of Finance Business Services and Transformation. The non-audit fees to audit fees ratio forthe financial year ended 1 April 2023 The Committee was provided with a was 0.11:1, compared with the previous summary of the responses received from year’s ratio of 0.09:1. The total non-audit management to assist with its own fees paid to Deloitte for the year was considerations. £225,000. The majority of these fees Feedback from the target group relate to assurance services provided waspositive overall. It was agreed during the year. thatthe audit partners have a good No additional recurring or one-off understanding of our business, as well non-audit services were provided during asthe wider industry in which we the year. operateand the challenges we face. Thiswas especially felt in relation to In addition, the Committee reviewed and thechallenges faced by the business approved the audit fee for the year, inrelation to inflationary pressures, making sure any fee increase was aswell as the accounting treatment understood and reasonable. forthe acquisition of Gist and the fairvalue judgements in relation to theOcado Retail contingent consideration payment. Annual Report & Financial Statements 2023 99 GOVERNANCE # REMUNERATION COMMITTEE REPORT ![img-4.jpeg](img-4.jpeg) The Board is committed to ensuring that our remuneration framework supports our strategy and provides a balance between motivating and challenging our senior leaders.” Andrew Fisher, Chair of the Remuneration Committee ## COMMITTEE MEMBERSHIP AND MEETING ATTENDANCE ### Remuneration Committee remit During the year, the Remuneration Committee reviewed the Terms of Reference to ensure that they reflected the Government’s latest recommendations and the revised principles of the Remuneration Policy, as set out in the UK Corporate Governance Code 2018. In particular, the Committee, in its support of the Nomination Committee, expanded its remit to specifically discuss the talent and succession in the senior leadership group and associated pay arrangements. The Terms of Reference can be found on the Company’s website at corporate.marksandspencer.com/investors/corporate-governance/governance-framework. | Committee members | Member since | Maximum possible meetings | Number of meetings attended | % of meetings attended | | --- | --- | --- | --- | --- | | **Andrew Fisher** (Committee Chair) | 1 October 2018 | 8 | 8 | 100% | | **Archie Norman** | 3 November 2017 | 8 | 8 | 100% | | **Tamara Ingram** | 11 September 2020 | 8 | 8 | 100% | | **Fiona Dawson** | 16 January 2023 | 2 | 2 | 100% | ## EFFECTIVENESS OF THE REMUNERATION COMMITTEE During the year, the Board Chairman led an internal review of the Board’s effectiveness. All non-executive directors independently provided their views, which were then reviewed and discussed collectively. The Remuneration Committee, under the leadership of Andrew Fisher, continues to operate efficiently, ensuring an independent review of remuneration policies across the business; matters discussed during the year fulfil the Committee’s remit and are thoughtfully debated in the context of internal and external factors. An external review of the Committee will be conducted in 2023/24. ### 2023/24 ACTION PLAN - Continued review of the implementation of the M&S Remuneration Policy to ensure the Policy continues to accelerate the transformation and support the long-term success of M&S; and is aligned with investor and other external governance requirements, and emerging good practice. - Continued review of the Annual Bonus Scheme (ABS) and Performance Share Plan (PSP) incentive measures to ensure these remain aligned to the delivery of our KPIs and strategic priorities. - Continue to support the work of the Nomination Committee through the assessment of senior leadership talent, succession planning and associated pay arrangements, together with talent plans and colleague engagement across the entire organisation. ## ROLE AND RESPONSIBILITIES The Committee continues to have a strong focus on ensuring an appropriate alignment between the remuneration of executive directors, the Executive Committee and colleagues across M&S, ensuring that the senior remuneration framework is strategically aligned with the business but that it also attracts and recognises the talent required to drive transformation and cultural change within M&S. The responsibilities are broadly as follows: - Setting remuneration policy and practices that are designed to support strategy and promote the long-term success of M&S while following the principles: - **Clarity:** Remuneration arrangements are transparent and promote effective engagement with shareholders and the workforce. - **Simplicity:** Remuneration structures are uncomplicated, and their rationale and operation are easy to understand. - **Risk:** Ensure that reputational and other risks from excessive rewards, and behavioural risks that can arise from target-based incentive plans, are identified and mitigated. - **Predictability:** The range of possible values of rewards to executive directors is identified and explained at the time of approving the policy. - **Proportionality:** The link between individual awards, the delivery of strategy and the long-term performance of the Company is clear. Outcomes should not reward poor performance. - **Alignment with culture:** Incentive schemes that drive behaviours consistent with M&S’ purpose, values and strategy. - Determining the terms of employment and remuneration for the executive directors and the Executive Committee, including recruitment and termination arrangements. 100 Marks and Spencer Group plc STRATEGIC REPORT FINANCIAL STATEMENTS GOVERNANCE – Considering the appropriateness ### ofthesenior remuneration framework WHAT WAS ON THE COMMITTEE’S AGENDA 2022/23 and exercising independent | judgement and discretion when | REGULAR ITEMS | Governance and external market | | --- | --- | --- | | authorising remuneration outcomes, | Pay arrangements | – Full review of the M&S Remuneration | | taking Company and individual | – Within the terms of the M&S | Policy in anticipation of the binding | | performance, and the context of the | Remuneration Policy, approval of the | shareholder vote at the 2023 AGM, | | wider workforce, into account. | remuneration packages for the | ensuring the policy continues to | | – Noting the total pay budgets, | executive directors, theExecutive | accelerate the transformation and | | including salary, bonus and share | Committee, and any termination | support long-term success of M&S | | scheme allocations, across all of | payments where applicable. | andis aligned with the 2018 UK | | M&S,together with the principles | | Corporate Governance Code, other | – Consideration of the appropriateness ofallocation to ensure appropriate external governance and emerging of the senior remuneration framework consistency with the senior pay best practice. in the context of the rest of the frameworks. organisation and external governance. – Review the appropriateness of the – Approving the design, targets and senior remuneration framework in the – Noting of the total budgeted salary total payments for all performance- context of the rest of the organisation expenditure across M&S, ensuring related pay schemes operated by and externalgovernance. principles for reward allocation are M&S,seeking shareholder approval aligned across M&S. – Approval of the Directors’ where necessary. Remuneration Report for 2022/23 Annual Bonus Scheme – Assessing the appropriateness and andreview of the AGM voting – Review of achievements against subsequent achievement of outcomefor the 2021/22 report. 2022/23 performance objectives for performance targets relating to any – Review of the Committee’s executive directors and the Executive share-based incentive plan for the performance in 2022/23, including Committee. executive directors and Executive assurance that the principles of the – Approval of targets for the 2023/24 Committee. revised Terms of Reference and ABS ensuring that the performance – Receiving direct feedback from BIG, broader remit of the Committee conditions are transparent, stretching the Group’s colleague representative areembedded. and rigorouslyapplied. body, colleague voice surveys and – Continue discussions on – Approval of the 2023/24 individual management reports to ensure appropriateness of an environmental, performance objectives for executive colleague views on Group culture, social and governance (ESG) measure directors and the Executive including remuneration strategy and in Board pay arrangements. Committee. I&D are considered. – Assessment of the external market – Noting of the total budgeted when considering remuneration The full Terms of Reference for expenditure for the ABS across M&S. arrangements for executive directors theCommittee can be found at Long-term incentives and the Executive Committee. marksandspencer.com/thecompany. | – Approval of 2023 PSP awards for the | – Review the effectiveness and | | --- | --- | | executive directors and the Executive | transparency of remuneration | | Committee. | reporting. | | – Approve the 2023 PSP targets ensuring | – Noting of direct feedback from the | | appropriate alignment between | Business Involvement Group (BIG), | | driving exceptional performance and | M&S’colleague representative body, | | motivating andretaining top talent. | toensure that all colleague views are | | – Approval of the vesting level of the | received andconsidered by the | | 2020 PSP awards across M&S. | Boardwhen making remuneration | andreward decisions. – Regular review of all in-flight PSPs against targets. Talent planning – Consideration of long-term share – Noting the performance management awards granted to colleagues below process across the business. Executive Committee level. – Discussing senior leadership talent andsuccession planning. Annual Report & Financial Statements 2023 101 GOVERNANCE ## REMUNERATION COMMITTEE REPORT CONTINUED INTRODUCTION Whilst at face value the PBT outcome their personal objectives. On behalf of the Board, I am pleased to was7.8% below last year’s outturn of The Committee carefully reviewed the present our 2022/23 Remuneration £522.9m, prior year results included achievement of the individual objectives Report. We also present our proposed £59.8m of UK business rates relief and set at the beginning of the year to align Remuneration Policy (Policy) for which, anet rates charge of £139.7m compared with the strategic priorities to fulfil its inline with regulations, we are seeking with a net rates charge of £186.6m in remit and enable transparent disclosure shareholder support and approval at the 2022/23. In the year we saw an toshareholders. Full disclosure can be 2023 AGM. A summary of the proposed increasingly positive reaction to M&S seen on pages 118 and 119, but the changes to the approved Remuneration products. Customer ratings for style, Committee particularly noted the Policy is set out below and highlighted in quality and value in clothing has significant progress in the transformation bold on pages 108 and 114 of this report. improved and, in Food, value perception and development ofboth the Clothing is the highest it’s been in six years. The vote on the 2021/22 Remuneration &Home and Food supply chains; Theemerging power of our omni- Report at last year’s AGM highlighted redesigning of the M&S operating channel model has been demonstrated some shareholder concerns. As Chair of model,simplifying activity andreducing by an uplift in sales in store and online, the Remuneration Committee, I have central costs across Clothing & Home supported by growth in Click & Collect proactively engaged our top 40 and Food; and ongoing work to develop sales, active App users and Sparks shareholders - covering 65% of our total and embed a high performing and loyalty membership. As explained later issued share capital - on this matter, to engaged culture across the whole in this Remuneration Report (see pages discuss and understand these concerns. ofM&S, including the successful 118, 119 and 121), the Committee was As a result, I am clear that the majority of establishment of effective ways of mindful of this performance when those who voted against the Report did workingwithin the new executive team. discussing and approving incentive so because of specific circumstances at outcomes. Along with the impact of business the time relating to the outgoing CEO decisions as described above, when (Steve Rowe). The Board has reflected on SINGLE FIGURE AND INCENTIVE considering bonus outcomes the the feedback received, which was largely SCHEME OUTCOMES INCLUDING Committee also took into account the supportive of the Company’s approach, APPLICATION OF DISCRETION experience of wider stakeholders, and continues to believe that it acted in Throughout the year, the Committee has including our colleagues, customers and shareholders’ interests and in line with carefully considered pay arrangements shareholders. It was determined that the the values and integrity of the business. and where it may, or may not, be outcome is reflective of a strong in-year Having explained the rationale for last appropriate to apply discretion in the business performance together with year and reassured investors on our context of business performance and individual outstanding contributions overall approach, I am confident that wider stakeholder experience. and, in this context, it is important that they are supportive of our remuneration As in previous years, the key priority of colleagues including our executive principles and operations. | | the2022/23 Annual Bonus Scheme (ABS) | directors are recognised for this | | --- | --- | --- | | The Remuneration Report provides | remained on restoring the business to | performance. TheCommittee was in | | acomprehensive picture of the | profitable growth with performance | agreement that it was appropriate to | | structureand scale of our remuneration | focused on Group Profit Before Tax before | award 27 out of 30 for individual | | framework, its alignment with the | adjusting items (PBT) (70%) and individual | objectives for the CEO and 25 out of 30 | | business strategy and operation across | measures set against key areas of delivery | for the Co-CEO, resulting in total bonus | | the workforce. It also details decisions | of the transformation (30%). Individual | awards of 81.1% and 79.1% of total | | made by the Committee as a result of | performance was measured | opportunity (being 200% of salary) | | business performance for this year and | independently of PBT performance and | respectively. | | the intended arrangements for 2023/24. | no individual element could be earned | | Half of any bonus awarded tothe until a threshold level of PBT was achieved. | CONTEXT OF BUSINESS | | executive directors will be deferred into | | --- | --- | --- | | PERFORMANCE | Together with the individual objectives, | M&S shares and will be released after a | | Of central interest and importance to | both throughout the year and at year- | three-year holding period; this treatment | | theCommittee is ensuring the pay | end the Committee reviewed the PBT | ensures a long-term alignment with | | frameworks and practices support M&S’ | targets to ensure they remained relevant | shareholders’ interests along with | | fundamental values of fairness where | and appropriately stretching. As | supporting our Director Shareholding | | colleagues across the business are | announced on 21 July 2022, and | Policy, on which more information can | | appropriately recognised and rewarded | discussed in more detail on page 26, | befound on pages 109 and 123. | | for hard work and financial results. Such | M&Sacquired Gist, the principal | | Turning to the PSP, the Committee values became ever more important in contractlogistics provider to M&S Food. considered the question of windfall gains 2022/23 as the business and our The 2022/23 ABS Group PBT targets arising from the PSP awards that were colleagues faced significant cost wereset prior to the acquisition of Gist granted in 2020. At the time ofgrant, challenges. therefore it was determined by the M&S had experienced a material fall in Committee that, for the purpose of the It was with this backdrop in mind that all share price since awards were made in ABS, the PBT outturn should be reduced decisions around remuneration in 2019 and so the Committee took decisive by £20.5m, equivalent to the 2022/23 net 2022/23 were made. Our colleague action to significantly reduce profit contribution for Gist. Taking this response to such challenges is discussed thequantum of the 2020 PSP award for adjustment into consideration, the later in this letter and on page 106. executive directors from 250% to 175% Committee was satisfied that the targets ofsalary. To provide clarity and certainty As detailed earlier in the Annual Report, set required stretching PBT performance. to participants and shareholders alike, this year saw strong results in almost 77.3% of the financial element of the the Committee felt it appropriate to allthe main business areas with profit bonus was achieved and the individual make an upfront adjustment rather than before tax and adjusting items at measures could pay out to the extent rely on a ‘wait-and-see’ approach. £482.0m and overall market share in that executive directors achieved between both Clothing & Home and Food growing. target and stretch performance against 102 Marks and Spencer Group plc STRATEGIC REPORT FINANCIAL STATEMENTS GOVERNANCE | This reduction in grant value was | shareholders. Shareholders approved | Following this review and the feedback | | --- | --- | --- | | appliedto all recipients of PSP awards. | the current Policy at the AGM in 2020. | received, the Committee concluded | | Given their roles at the time of grant, | Assuch, the Company is required to seek | thatoverall the current Policy remains | | Stuart Machin and Katie Bickerstaffe’s | approval for the new Policy at the AGM | relevant, appropriate, and suitably | | 2020 PSP awards were proportionally | tobe held on 4 July 2023. The Board | flexible to meet the needs of the | | reduced from 200% of salary to 140% | iscommitted to ensuring that our | business whilst providing clarity, | | ofsalary. | remuneration framework supports | simplicity and predictability for both | | | ourstrategy, and provides a balance | participants and investors alike. | Notwithstanding the proactive approach between motivating and challenging Therefore, only two minor adjustments at the time of grant, at the end of the oursenior leaders to deliver our business tothe existing Policy are being proposed. performance period the Committee priorities and the long-term sustainable thoroughly reviewed vesting outcomes First, the proposed Policy allows success of M&S. | taking into consideration factors such | | executive directors to receive a 5% cash | | --- | --- | --- | | asoverall business performance, share | At the beginning of the year, | payment in lieu of pension contributions, | | price movements over the period and | considerable time was spent reviewing | subject to the Company’s agreement. | | impact of external factors, such as high | the current Policy including the incentive | This provides alignment with the policy | | food inflation. The Committee was | structures, measures and targets. | for our wider colleague population, as | | satisfied that vesting achievements | TheCommittee consulted with our | per the guidance from the Investment | | wereappropriate in the light of such | majorshareholders (representing nearly | Association. | | considerations and determined that | 60% of our total shares in issue) and, | | Secondly, the proposed Policy includes noadditional application of discretion given many of our stakeholders engage the ability to make payments of was required. The 2020 PSP award vested their services, a number of shareholder Committee membership fees for at 51.0%. representative bodies. The Committee non-executive directors to align our reviewed and discussed all the REMUNERATION POLICY Policy with theMemorandum and feedbackand responses provided by In line with corporate governance Articles of Association. ourshareholders and I would like to requirements, our Policy is reviewed There are no current plans to pay thank them for their highly valued time. every three years and approved by BONUS PAYMENT TIMINGS (£000) 2026July 2023 £540.7 £540.7 £494.4 £494.4 One-year performance period Three-year deferral period STRATEGIC ALIGNMENT OF REMUNERATION FRAMEWORK WITH KPIS Performance Annual Bonus KPI/Strategic priority As measured by Share Plan (PSP) Scheme (ABS) KPI Adjusted earnings per share (EPS) See KPIs on Financial Return on capital employed (ROCE) page 34 results Group PBT before adjusting items (PBT) Strategic Deliver Profitable Sales Growth priority Improve Operating Margins Achievement See Strategic against priorities on Drive Shareholder Returns objectives pages 12 and13 Disciplined Investment Choices 2022/23 PERFORMANCE ADJUSTED EARNINGS PER SHARE RETURN ON CAPITAL EMPLOYED GROUP PBT BEFORE ADJUSTING ITEMS | 17.2p | 10.4% | £482m | | --- | --- | --- | | Adjusted EPS in 2022/23 was 17.2p. This | Final year ROCE performance was 10.4%. | For the purpose of the ABS, reduced to | | was above the 13.0p threshold required | This was above the 9% threshold required | £461.5m reflecting net Gist profit | | for vesting under this element of the | for vesting under this element of the 2020 | contribution. PBT of between ‘target’ | | 2020 PSP award. | PSP award. | and ‘maximum’ achieved for bonus | 2022/23 awards under the 2022/23 ABS. Stuart Machin Katie Bickerstaffe Annual Report & Financial Statements 2023 103 GOVERNANCE ## REMUNERATION COMMITTEE REPORT CONTINUED | additional membership fees, however we | To demonstrate the importance the | appropriateness of the introduction of an | | --- | --- | --- | | would like flexibility in the Policy in case | Committee gives to the alignment of | environmental, social and governance | | it is considered appropriate in the future. | executive pay with the wider workforce, | (ESG) measure. M&S was an early pioneer | | Pages 108 to 115 provide the full details | this year’s Remuneration Report | of championing sustainability and | | ofthe proposed Policy. | continues to provide expanded | continues to hold a leading position in | | | disclosures on such pay arrangements. | this field. We take our ESG responsibility | WIDER WORKFORCE PAY Please see pages 106 and 107. very seriously and the Committee is ARRANGEMENTS confident that such considerations are The Committee received regular updates PAY ARRANGEMENTS FOR 2023/24 embedded within the behaviours of our during the year relating to M&S’ pay The Committee carefully considered the executive directors, as well as our arrangements. Of key importance this executive director pay review, operations across the length and year was the response of the business to particularly in the context of the breadth of our business. As further the cost-of-living crisis. As a Committee decisions for the wider workforce pay detailed on pages 32, 33 and 55 this we were proud of the decision taken by arrangements, and approved an increase includes our clear roadmap to reduce the business to announce a targeted of 3%. Whilst this is significantly below absolute Scope one, two and three mid-year cost-of-living intervention, theaverage pay increase within the wider Greenhouse Gas emissions by 55% by representing a £15m investment. This workforce, the Committee feel it is 2030. Such examples demonstrate that focused on our lowest-paid colleagues, appropriate when considering overall our sustainability commitments sit at the recognising that, in the main, these executive director remuneration. This heart of our business operations and colleagues were more likely to be willbe effective 1 July 2023. inform decisions at all levels and across affected by the pressures of increasing Reflecting on the existing variable all departments. Therefore, on balance, inflation and higher prices in key remuneration framework, it was agreed the Committee determined that it would household items such as energy, food that in 2022/23 the structures of the ABS not be appropriate to introduce an ESG and fuel. Key aspects of the investment and PSP continue to effectively align pay measureat this time. included an out-of-cycle pay increase for and strategy. As a result, no changes UK Customer Assistants and, for our Mindful of the need to incentivise have been proposed for 2023/24. | lower-paid salaried colleagues both in | | executives and ensure that they remain | | --- | --- | --- | | store and support centres, an M&S gift | Performance under the ABS will be | aligned with the long-term interests of | | voucher of £250 which could be used in | measured against corporate financial | shareholders, we intend to once again | | conjunction with their M&S Colleague | targets (70%) and individual objectives | grant PSP awards of 250% of salary in | | Discount. These sat alongside non- | (30%). The Committee believes it remains | July 2023. The Committee retains the | | financial initiatives already in place to | appropriate for PBT to continue to | right to review award levels in the event | | support our colleagues. | represent the largest element of bonus | of significant share price movement prior | | | potential as M&S seeks to return to | to the date of grant. Furthermore, it | The Committee welcomes continued significant levels of profitability. should be noted that when this award collaboration with BIG. At Committee reaches the point of vesting, careful meetings we receive direct feedback on The maximum opportunity will remain consideration will not only be applied to colleagues’ views from the National Chair at200% of base salary. achievement against the relevant of BIG and in turn the Head of Reward performance conditions, but also to The Committee continues to ensure that attends National BIG Committee ensure the vesting values are reflective the remuneration framework for meetings to share and discuss the of the shareholder experience across the executives is aligned with shareholder executive pay framework and its term of the plan. Should the Committee interests. Following careful debate, it has relationship with that of the wider believe this not to be the case, it retains been agreed that the 2023 PSP will workforce. Such dialogue forms the basis its right to apply discretion to the final maintain the financial measures applied of a trusted and valued collaborative outturn. to the 2022 PSP awards, being 30% working partnership and ensures a close adjusted EPS, 30% ROCE and 20% relative link between the pay philosophies at the STRATEGIC ALIGNMENT OF PAY total shareholder return (TSR). The most senior levels and those for the As detailed above, the measures and remaining 20% will continue to be subject wider population. targets used in M&S’ incentive schemes, to the basket of three strategic measures. namely those of the ABS and PSP, were Given the inflationary pressures being This ensures all targets have been set to reviewed to ensure alignment with the felt by both M&S as a business and by our be stretching yet motivating and are key performance indicators (KPIs) and colleagues, it was to be expected that a detailed further on page 122. identified strategic priorities across the significant amount of time was taken to business. The illustration on page 103 Within the strategic measures, the discuss the appropriate approach to the demonstrates the strong link between Committee has decided to replace the annual pay review. the KPIs and strategic priorities with ‘store staff cost to sales ratio’ measure with Recognising the need to balance financial executive remuneration at M&S. This a broader ‘operating costs to sales ratio’. restraint with support for our colleagues, strength of alignment enables the Thisrevised measure provides greater the topic generated a robust debate. For Committee to ensure pay arrangements focus on our simplification agenda and our hourly-paid colleagues, afurther support the delivery of transformation better measures efficiency across the investment in pay of £57m was agreed and fulfil M&S’ potential for long-term whole of the business. Itbrings together representing an increase in the M&S sustainable growth. The Committee will all aspects of our strategy, focusing not national rate for Customer Assistants of continue to review thoroughly the pay only on our stores and their renewal, but 9% when compared to the equivalent rate structures and incentive arrangements also our supply chain, exceptional in April 2022. For salaried colleagues, a for the senior leadership team to ensure products, omni-channel operations and tailored approach was agreed with salary strong alignment between the delivery expanding global reach. increases ranging from 7-8% for our of business performance and the As part of the review of the PSP associated remuneration arrangements, lower-paid salaried colleagues and 3-6.5% performance measures, the Committee as the business continues on its for management roles. spent significant time debating the transformation journey. 104 Marks and Spencer Group plc STRATEGIC REPORT FINANCIAL STATEMENTS GOVERNANCE | BOARD CHANGES | AGM | | --- | --- | | As disclosed last year, Steve Rowe | I would like to thank our shareholders | | stepped down from his role as CEO of | fortheir continued support and | | thebusiness in May 2022 after almost | engagement during the year. I hope | | 40years of loyal service. Final pay | youwill join the Board in supporting | | arrangements for Steve were fully | ourRemuneration Policy and Annual | | disclosed in the 2021/22 Remuneration | Report on Remuneration at the AGM | | Report. Any payment made in 2022/23 | on4July 2023. I will be available at the | | linked to his exit arrangements can be | AGM to answer any questions in relation | | found on page 126. Steve did not | to this Remuneration Report. | participate in the 2022/23 ABS. Andrew Fisher As announced at the time, in May 2022 wewarmly welcomed to the Board StuartMachin and Katie Bickerstaffe asCEO and Co-CEO respectively. Pay arrangements upon appointment were disclosed in the 2021/22 Remuneration Report and details on remuneration for 2022/23 are detailed in this year’s Report. It was announced in July 2022 that EoinTonge had resigned. Following theappointment of Jeremy Townsend asCFO, Eoin stepped down from the Boardon 9 December 2022 and left M&Son 19 January 2023. In line with the Remuneration Policy, upon leaving through resignation, all outstanding share awards lapsed and no award underthe 2022/23 ABS was made. On behalf of the Committee, I would liketo extend my very best wishes to both Steve and Eoin in all their future endeavours. Annual Report & Financial Statements 2023 105 GOVERNANCE ## REMUNERATION IN CONTEXT | COLLEAGUE ENGAGEMENT | CONSIDERATION OF COLLEAGUE PAY | CONSIDERATION OF | | --- | --- | --- | | Share ownership across our colleagues | The Committee monitors and reviews the | STAKEHOLDER VIEWS | | M&S is a proud advocate of employee | effectiveness of the executive reward | The Committee is dedicated to an open | | share ownership. The Board believes this | policy and its impact and compatibility | and transparent dialogue with | | supports colleagues not only to share in | with remuneration policies in the wider | shareholders on the issue of executive | | M&S’ success but also to behave as | workforce. Throughout the year, the | remuneration. Where appropriate, the | | owners of our business, aligned with our | Committee reviews the frameworks and | Committee will actively engage with | | shareholders’ interests. Across our UK | budgets for key components of | shareholders and shareholder | | and Irish colleagues, M&S has a | colleague pay arrangements, together | representative bodies, seeking views | | significant number of participants in all | with the broader structure of Group | which are considered when making any | | employee share schemes; colleagues | bonus provisions, which ensures | decisions about changes to the directors’ | | hold over 101m save as you earn options | appropriate alignment with senior pay | Remuneration Policy. | | in our ShareSave scheme and over 2,000 | arrangements. | | The Committee seeks the views of the colleagues hold shares in our share Throughout the year, the Committee is largest shareholders individually, and incentive plan ShareBuy. | | provided with information detailing pay | others through shareholder | | --- | --- | --- | | Direct engagement with our colleagues | in the wider workforce, which gives it the | representative bodies, when considering | | Since 2018, the Chair of BIG, our colleague | additional context needed to make | making any significant changes to the | | representative body, has been invited to | informed decisions. The Head of Reward | Remuneration Policy. This may be done | | attend a Remuneration Committee | advises the Committee on the approach | annually or on an ad hoc basis, | | meeting each year to engage and | to be adopted in the forthcoming UK | dependent upon the issue. This year, the | | contribute on a full range of topics and | payreview, and the Committee then | Committee consulted on the proposed | | activities. During the year, representatives | considers the executive directors’ pay | changes to the Remuneration Policy as | | from BIG have been engaged on a | inline with these arrangements. | well as the strategic measures and | | number of pay-related topics, beyond | | targets to be applied to the PSP. The | This year the Committee also considered the executive level, including providing feedback was shared with the the impact of rising inflation and the feedback on, and agreeing with, the Committee, discussed and incorporated cost-of-living crisis. Focus was placed on ShareSave communication materials and into the Policy as necessary. supporting lower paid colleagues who funding options of our share schemes. were more likely to feel additional The Committee, led by the Chair, They also discussed and gave input into pressure. As a result the basic hourly rate annually engages in a process of investor the approaches being taken to support was increase from £10 per hour to £10.20 consultation, which is typically in written colleagues with the cost-of-living and from 1 October 2022. In addition, salaried format, but has included face-to-face eligibility for incentive schemes. The non-bonus eligible colleagues were given meetings, telephone and video calls. collaborative relationship we have with £250 M&S gift vouchers and support was TheCommittee Chair is available to BIG strongly reflects our belief in the key put in place for colleagues who “forgot answer questions at the AGM, and the role that colleague voice plays in their lunch”, period products were also answers to specific questions are posted ensuring the Committee has greater available for all colleagues. on our website. visibility of the things that really matter to our colleagues. This also gives the In approving the budget for the annual As part of our reporting approach, an Committee the opportunity to explain bonus, the Committee reviews all bonus annual shareholder meeting is held and and discuss our pay practices and how costs for the Company against the views on a variety of topics, including executive pay aligns with pay across the operating plan. The Committee also executive pay, are taken into account. wider workforce. In addition, the Head of reviews and approves any PSP awards Reward provides updates to the made to executive directors and directors Committee as appropriate on pay and below the Board prior to their grant. people-related issues during the year. Colleagues are encouraged to raise Pay budgets questions throughout the year to the Under the remit of the Remuneration CEO through the ‘Straight to Stuart’ Committee, total budgeted salary programme and at live events. expenditure across M&S for salary review Allquestions raised are answered, is noted, as are bonus and share scheme andcomments made during the year budgets, ensuring principles for reward through surveys or via BIG our network allocation are aligned across the full of elected colleague representatives are workforce, inclusive of senior leaders. considered. The Head of Reward typically provides an annual update to these The pay increases for our UK Store colleague representatives with an Customer Assistants in October 2022 and explanation of the executive directors’ April 2023 have totalled 9%. Effective pay arrangements during the year, and July 2023, salary increases ranging from these representatives in turn are able to 3% for our senior population and between ask questions on the arrangements and 4.5% and 10% for the wider salaried their fit with the other reward policies at workforce have been awarded. this time. 106 Marks and Spencer Group plc STRATEGIC REPORT FINANCIAL STATEMENTS GOVERNANCE CEO PAY RATIO Year Methodology 25th percentile ratio 50th percentile ratio 75th percentile ratio 2023 Option A 123:1 113:1 95:1 2022 Option A 128 : 1 117 : 1 99 : 1 2021 Option A 55 : 1 50 : 1 42 : 1 2020 Option A 64 : 1 59 : 1 51 : 1 As reported last year, the Committee approved the use of Methodology A, as set out in the regulations, as we believe it to be the simplest and most appropriate and robust way to calculate the ratio. Option A requires the pay and benefits of all UK colleagues to be calculated to identify the three colleagues at the 25th, 50th and 75th percentiles as at 1 April 2023. This is calculated on the same basis as the CEO total single figure of remuneration except in that the individual performance element of the ABS that is applicable to the relevant colleagues (when operating) is the estimated actual value. This requires: – starting with colleague pay that was calculated based on actual base pay, benefits, bonus and long-term incentives for the 12 monthly payrolls within the full financial year. Earnings for part-time colleagues are annualised on a full-time equivalent basis to allow equal comparisons; – adjusting the value of any bonus so that it only reflects the amount earned in respect of the 2022/23 financial year and does not include the value of any deferred shares vesting in the year; – adding in the employer pension contribution from the Your M&S Pension Saving Plan. Joiners and leavers in the year have been excluded from the calculations. The percentile figures are therefore representative of the whole colleague population but do not include all colleagues as at 1 April 2023. The table above shows the ratio of CEO pay in 2022/23, using the sum of the single total figure remuneration as disclosed in Figure 8 (page 116) for Steve Rowe and Stuart Machin, to the comparable equivalent total reward of those colleagues whose pay is ranked at the relevant percentiles in our UK workforce. We believe the median pay ratio this year is consistent with pay, reward and progression policies for UK colleagues, as it reflects the consistent approach to pay along with M&S’ policy to pay for performance. The decrease in pay ratio this year is the combined result of the reduced remuneration package for the new CEO and, in response to the cost-of-living crisis, the focus on pay for lower paid colleagues. | | Total pay and | | Total pay and | | Total pay and | | | --- | --- | --- | --- | --- | --- | --- | | | | benefits | | benefits | | benefits | | Pay data Salary (£000) | | (£000) Salary (£000) | | (£000) Salary (£000) | | (£000) | 2020/21 2020/21 2021/22 2021/22 2022/23 2022/23 CEO remuneration 834 1,068 841 2,630 809 2,690 UK colleague 25th percentile 18 20 19 21 21 22 UK colleague 50th percentile 20 21 21 22 22 24 UK colleague 75th percentile 24 25 25 26 27 28 GENDER PAY GAP The M&S median gender pay gap for the year to April 2022 is 6.5%, compared with 7.6% for the Retail sector. TheM&S mean gap for the same period is 12.5%. Our Inclusion and Diversity strategy is built on two pillars, driving diverse representation at all levels of our business, and developing a continually evolving inclusive culture. Our colleagues have been central to the design of all our plans and our Inclusion and Diversity networks have been at the heart of bringing our communities together, providing a voice for the colleagues they represent and guiding the business. Our Gender Equality, Menopause and Family & Carers networks are the fastest growing with over 4,500 members to date. We’ve developed tools and resources to support business unit leadership teams to drive plans in the respective areas. Teams have access to a live dashboard which help them identify opportunities to increase representation and address barriers within resourcing and talent mapping. We’ve also launched a twice-yearly review process with each business unit to track progress, provide support and share best practice from internal and external sources. Our future leaders’ programmes have been redesigned using the principles that our women value most, with flexibility and bite-size content imbedded throughout. We aim to build on the 60% female representation that we had on all our development programmes last year and will continue to drive a diversity lens through all of our performance and talent management forums. Providing a safe space for colleagues is a fundamental principle, we are very clear that any forms of discrimination, harassment, bullying or victimisation are not tolerated here. We have processes in place to ensure allegations are handled effectively and provide mandatory inclusion training for all colleagues to ensure expectations are clear. As part of our ambition to be the leading employer for women in retail, we remain committed to promoting flexible working options, supporting those taking and returning from family leave and providing support for women’s health and life changes, particularly those approaching, going through and coming out of the menopause. Annual Report & Financial Statements 2023 107 GOVERNANCE ## REMUNERATION POLICY Shareholders approved the FIGURE 1: EXECUTIVE DIRECTORS’ REMUNERATION POLICY TABLE Remuneration Policy at the Base salary Benefits Pension benefits AGM in 2020. As such, the Company is required to seek PURPOSE AND LINK PURPOSE AND LINK PURPOSE AND LINK approval for the new Policy at TO STRATEGY TO STRATEGY TOSTRATEGY the AGM to be held on 4 July | | To attract, retain and motivate | To provide market-competitive | To attract and retain | | --- | --- | --- | --- | | 2023, from which date the | high-calibre executives needed to | benefits which drive employee | high-calibre executives | | updated Policy will apply. | deliver our strategy anddrive business | engagement and commitment | through a commitment | | TheCommittee reviewed | performance. | inourbusiness. | toresponsible, secure | retirement funding inline thesenior remuneration with our Company values. framework during the year toensure that it remains fit OPERATION OPERATION OPERATION forpurpose, providing an Payable in cash. Directors are eligible to receive Current directors may appropriate framework to benefits in line with our policies participate in the Your Reviewed annually by the Committee whichmay include: M&SPension Saving Plan fulfil M&S’ reward philosophy considering a number offactors, – A car or cash allowance. (adefined contribution which is, in turn, designed to including: – A driver. arrangement) or an support and drive the – Salary increases awarded to – Life assurance. alternative pension saving othercolleagues in thewider business strategy. vehicle that the Company workforcewhich are typically Where appropriate, our Global/ may offer, on the same The Policy remains largely reviewed annually on a Domestic Mobility Policy may apply. terms as all other | | similarbasis. | This may include, but not be limited to, | | | --- | --- | --- | --- | | unchanged from the one | | | colleagues or receive a cash | | | – Comparable salaries in appropriate | travel, relocation and tax equalisation | | | approved by shareholders in | | | supplement inlieu | | | comparator groups. | allowances. | | | 2020; for transparency, where | | | ofpension contributions | – Salaries reflect the experience, Directors are offered a number of into this scheme. amendments have been made responsibility andcontribution other benefits in line with all other these are highlighted. Once ofthe individual and role within colleagues, such as colleague discount approved, this Policy may theGroup. and salary sacrifice schemessuch as operate for up to three years. Cycle2Work. Directors may participate in a Save The Policy is designed to AsYou Earn Scheme and a Share attract, retain and motivate Incentive Plan and any other all- our leaders within a employee share schemes on framework designed to thesameterms as other colleagues. promote the long-term MAXIMUM OPPORTUNITY MAXIMUM OPPORTUNITY MAXIMUM OPPORTUNITY success of M&S and aligned While there is no set maximum, any While there is no set maximum, any A maximum employer with our shareholders’ increases are normally in line with benefits will be provided at a rate contribution currently interests. those inthe wider workforce. commensurate with the market. of12% of salary where the employee contributes Individual adjustments in excess of this Maximum participation in all- 6%ofsalary. maybe madeoutside of this cycle at employee share schemes is in line the discretion of the Committee, where withlocal statutorylimits. Change for 2023 appropriate. To align with the wider | Such circumstances can include: | workforce, analternative | | --- | --- | | – Where the role scope has | cash payment capped at | | changed; | 5% ofsalary will be | | – Where comparable salaries | available forexecutive | | intheexternal markethave | directors and any | | changed; or | futuredirectors. | – To apply salary progression fornewly appointeddirectors. PERFORMANCE PERFORMANCE PERFORMANCE CONDITIONS CONDITIONS CONDITIONS N/A N/A N/A 108 Marks and Spencer Group plc STRATEGIC REPORT FINANCIAL STATEMENTS GOVERNANCE Annual Bonus Scheme including Deferred Share Bonus Plan (DSBP) Performance Share Plan (PSP) Shareholding Requirement PURPOSE AND LINK TO STRATEGY PURPOSE AND LINK TO STRATEGY PURPOSE AND LINK TO STRATEGY To drive annual profitability, strategic change and individual Measured against the key financial drivers performance in line with the business plan. of the business plan to deliver sustainable To drive long-term, value creation. sustainable decision-making To recognise and reward individual contributions to the way for the benefit ofthe Company wedobusiness. To encourage long-term shareholding to and our shareholders. retain directors, and provide greater The deferral into shares provides alignment with shareholders’ alignment with shareholders’ interests. long-term interests following the successful delivery of short- termtargets. | OPERATION | OPERATION | OPERATION | | --- | --- | --- | | Directors are eligible to participate in this non-contractual, | The Company’s principal long-term | Directors are required to | | discretionary scheme. | incentive scheme, approved by | holdshares equivalent | | | shareholders in 2020. | invalue to aminimum | Payments are made subject to the satisfaction of predetermined percentage of their salary targets set at the start of the year, asapproved by the Committee. Directors are eligible to participate inthis within a five-year period from non-contractual, discretionary plan. Not less than 50% of any bonus earned is paid in deferred shares their appointment date. underthe DSBP, with the remainder payable in cash. Directors may receive an annual award which vests after three years subject to Deferred shares vest after a period of three years subject to continued predetermined performance conditions. service, but no further performance conditions. Clawback and malus rules apply toawards Clawback and malus rules apply to cash and DSBP awards respectively; (see explanatory notes). see explanatory notes (pages 110 to 111) for moreinformation. Good leaver and change of control Good leaver and change of control provisions apply tothe deferred provisions apply (see explanatory notes). shares (see explanatory notes). The value of any dividends during The value of any dividends during the deferred period may be thevesting period may be payable (see payable(see explanatory notes). explanatory notes). The Committee retains the right to exercise discretion, both upwards Awards are subject to a further two-year and downwards, to ensure that the level of award payable is appropriate holding period after the vesting date. and fair in the context of the director’s individual performance and the Directors may sell sufficient shares to Company’s overall performance. Where exercised, the rationale for this satisfy the respective tax liability but must discretion will be fully disclosed to shareholders in the subsequent retainthe net number of shares untilthe Annual Report. end of this two-year period. As with the bonus scheme, the Committee retains the right to exercise discretion in the same mannerto ensure appropriateness ofoutcomes. | MAXIMUM OPPORTUNITY | MAXIMUM OPPORTUNITY | MINIMUM REQUIREMENT | | --- | --- | --- | | A maximum annual potential of up to 200% of salary. | The maximum value of shares (atgrant) | For the CEO and Co-CEO, | | | which can be made under anaward to an | thisrequirement is 250% of | | | individual in respect ofa financial year is | salary. For all other executive | | | 300% of salary. | directors the requirement | is200%. Post-cessation holding requirement Directors are required to continue to hold their shareholding requirement, or, if their level of shareholding is below the requirement, their actual shareholding for two years after leaving M&S. PERFORMANCE CONDITIONS PERFORMANCE CONDITIONS PERFORMANCE CONDITIONS Quantifiable one-year performance measures and targets are set by Performance is measured over a N/A theCommittee around financial and individual objectives linked with three-year period against a balanced the sustainable delivery of the business plan. scorecard of appropriate measures as determined by the Committee each year. Financial performance measures compriseat least 50% of awards and This currently includes EPS, ROCE, TSR mayinclude, but not be limited to GroupPBT. andstrategic measures. These are chosen Typically, no payment for individual objectives can be earned unless a as those measures which support and drive ‘threshold’ level of Group PBT has been achieved. This threshold level is top-line and bottom-line performance in set by the Committee taking into account the previous year’s line with business strategy. performance and the business operating plan for the current year. Financial measures comprise at least For achievement of individual objectives nomore than 40% (currently 50%of awards. 30%) of the maximum bonus potential is paid for threshold The threshold level of vesting is 20% performance, and no more than 60% for target performance. However, ofthemaximum. the Committee retains the flexibility to amend the pay-out level at different levels of performance for future bonus cycles. Thisisbased on For performance between threshold its assessment of the levelof stretch inherent in the set targets, and the andmaximum, awards vest on a straight- Committee will disclose any suchdeterminations appropriately. line basis. Annual Report & Financial Statements 2023 109 GOVERNANCE ## 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 page 109; 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. Restricted Share Plan (RSP) ELEMENT PURPOSE AND LINK To enable the recruitment of key directors who are necessary to the delivery of business strategy. TO STRATEGY OPERATION 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 explanatory notes below). The value of any dividends during the restricted period may be payable (see explanatory notes below). MAXIMUM While there is no maximum set in the rules, the Committee considers the scale and structure of awards OPPORTUNITY onanindividual basis. PERFORMANCE The Committee may choose to apply no formal performance conditions save for continued service. CONDITIONS Executive Share Option Scheme (ESOS) ELEMENT PURPOSE AND LINK Measured against the key drivers of our business plan to deliver sustainable value creation. TO STRATEGY To encourage long-term shareholding to retain directors, and provide greater alignment with shareholders’interests. OPERATION 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 explanatory notes below). Options are normally exercised between the third and tenth anniversaries of grant, subject to the achievementof any performance conditions set by the Committee. MAXIMUM Awards are capped at 250% of salary in respect of any financial year of the Company but in recruitment OPPORTUNITY circumstances awards may be granted up to a higher limit of 400% of salary. PERFORMANCE Awards vest subject to at least three-year predetermined performance conditions. CONDITIONS EXPLANATORY NOTES economic effect. In addition, awards Any performance conditions applicable The Committee reserves the right to maybe settled in cash. Awards may to PSP, RSP and ESOS awards may be make any remuneration payments incorporate the right to receive (in cash amended by the Committee if an event notwithstanding that they are not in line and/or shares) the value of dividends, occurs which causes it to consider with the Policy set out above, where the including any dividend tax credit where thatthe performance condition would terms of the payment were agreed at a applicable, between grant and vesting not achieve its original purpose and time when the relevant individual was onthe shares that vest. This amount theamended performance condition nota director of the Company, or under maybe calculated on a cumulative basis, is,inthe opinion of the Committee, aprior approved policy and, in the assuming the reinvestment of dividends noless difficult to satisfy but for the opinion of the Committee, the payment into shares. event in question. was not in consideration of the individual In the event of a variation of the Our long-term incentive plans provide becoming a director of the Company. Company’s share capital or a demerger, the Committee with discretion with For these purposes, payments include special dividend or other event which in respect of vesting outcomes that affect the Committee satisfying awards of the Committee’s opinion may affect the the actual level of reward payable to variable remuneration and, in relation price of shares, the Committee may alter individuals, such discretion would only toan award over shares, the terms of the terms of awards and the number of be used in exceptional circumstances thepayment are agreed at the time shares subject to them. The terms of and, if exercised, the rationale for this theaward is granted. awards may be amended in accordance discretion will be fully disclosed to with the relevant plan rules (which were shareholders in the subsequent Awards granted under the PSP, DSBP, formally approved by shareholders on AnnualReport. andRSP can be made in the form of 3 July 2020). conditional share awards, forfeitable shares, options or rights with the same 110 Marks and Spencer Group plc STRATEGIC REPORT FINANCIAL STATEMENTS GOVERNANCE | CLAWBACK AND MALUS | PERFORMANCE CONDITIONS | Targets are set against the respective | | --- | --- | --- | | M&S is committed to ensuring its | ANDTARGET SETTING | annual and long-term operating | | remuneration arrangements motivate | The Committee reviews annually the | planstaking into account analysts’ | | participants to strive for exceptional | measures, weightings and targets for the | forecasts, M&S’ strategic plans, prior | | performance while also protecting | incentive arrangements for the executive | yearperformance, estimated vesting | | shareholder value from the Company | directors. In doing so, the Committee | levels and the affordability of pay | | taking unnecessary risks. As such, | considers a number of factors which | arrangements. Targets are set to provide | | clawback and malus provisions apply | assist in forming a view. These include, | a sustainable balance of risk and reward | | tothe executive directors’ incentive | but are not limited to, the strategic | to ensure that, while being motivational | | arrangements. All share awards granted | priorities for M&S over the short to long | for participants, maximum payments are | | from 2013 onwards are subject to malus | term, shareholder feedback, the risk | only made for exceptional performance. | | provisions. These provisions allow the | profile of the business and the | | REMUNERATION FRAMEWORK FOR Committee, in its absolute discretion, macroeconomic climate. THE REST OF THE ORGANISATION todetermine at any time prior to the The Annual Bonus Scheme is measured M&S’ philosophy is to provide a fair vesting of an award to reduce the against a balance of profitability andconsistent approach to pay. number of shares, cancel an award or andthedelivery of key strategic Remuneration is determined by level impose further conditions on an award in areasofimportance for the business. andis broadly aligned with those of circumstances for which the Committee Theprofitability measure used is Group theexecutive directors. considers such action to be appropriate. PBT before adjusting items as this is used Such circumstances may include, but not Base salaries are reviewed annually internally to report and assess business be limited to, a material misstatement of andreflect the local labour market. performance by the Board and Executive the Company’s audited results. | | Committee. Refer to the glossary on | All UK colleagues are eligible to | | --- | --- | --- | | In addition, clawback provisions were | pages 213 to 217 for the definition | participate in the Your M&S Pension | | introduced in 2015 and apply to cash | ofGroup PBT before adjusting items, | Saving Plan on the same terms as the | | payments made under the Annual Bonus | andto note 5 of the financial statements | executive directors. In addition, all UK | | Scheme. Awards made under any of the | for a description of adjusting items. | colleagues are provided with life | | Company’s other executive share plans | | insurance and colleague discount, | The PSP is assessed against a balance (including the PSP) in 2015 and onwards andmay choose to participate in the ofmeasures identified as those most will similarly be subject to clawback Company’s all-employee share schemes relevant to driving both sustainable provisions. These provisions enable the and salary sacrifice arrangements. top-line and bottom-line business Committee, in its absolute discretion, to performance, as well as providing A significant number of colleagues are reclaim awards paid to individuals for up valuefor shareholders, and strategic eligible to be considered to participate to three years after the respective alignment with the business. inan annual bonus, the outcome of vesting or payment date (or up to two which is partially determined by Group years in the case of PSP awards) where This is reflected in the EPS and ROCE PBT performance. For all participants, specified events occur. The specified measures which focus on a balance part of the bonus is deferred into shares events that would trigger clawback ofprofitability, cost control and the for three years. include the discovery of a material efficient use of capital investment. misstatement resulting in an adjustment Around 140 of M&S’ top senior executives The value delivered to shareholders in the audited consolidated accounts of may be invited to participate in the PSP, isreflected by Relative TSR which is the Company, the assessment of any measured against the same performance measured against a bespoke group of performance condition, terms or conditions as executive directors. Award retail companies which are believed to conditions in respect of an award or levels granted are determined to be provide a balanced portfolio of those payment that were based on error, or aligned with market practice and reflect most likely to be alternative investment inaccurate or misleading information, the an individual’s level of seniority as well as choices for M&S shareholders. discovery that any information used to their performance and potential within determine the number of shares subject the business. to an award or amount payable was based on an error, or inaccurate or misleading information, the action or conduct of a participant which, in the reasonable opinion of the Committee, amounts to gross misconduct or a material breach of the participant’s service contract that falls short of gross misconduct, and events or behaviour of a participant that have had a significant detrimental impact on the reputation of any member of the Group, provided that the Committee is satisfied that the relevant participant was responsible for the reputational damage and that the reputational damage is attributable to the participant. Clawback may be effected, among other means, by requiring the transfer of shares, payment of cash or reduction of awards. Annual Report & Financial Statements 2023 111 GOVERNANCE ## REMUNERATION POLICY CONTINUED FIGURE 3: RECRUITMENT POLICY & SERVICE CONTRACTS 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 to 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 108 to 110. ELEMENT APPROACH SERVICE CONTRACT – All executive directors have rolling contracts for service which may be terminated by M&S giving 12months’notice and the individual giving six months’ notice. – There are no further obligations which could give rise to a remuneration or loss of office payment otherthan those set out in the Remuneration Policy and the Termination Policy. – The directors’ service contracts are available for shareholder inspection at the Company’s registeredoffice. BASE SALARY – Salaries are set by the Committee, taking into consideration a number of factors including the current pay for other executive directors, the experience, skill and current pay level of the individual and external market forces. – For new appointments to the Board, the Committee may set the rate of pay at the lower end of the range forother directors and/or other comparable roles within the market with the intention of applying stagedincreases. BENEFITS – The Committee will offer a benefits package in line with our benefits policy for executive directors. PENSION BENEFITS – Maximum contribution in line with our policy for future executive directors (currently up to 12% of salary). An alternative cash in lieu of pension capped at 5% of salary is also offered. ANNUAL BONUS – Eligible to take part in the Annual Bonus Scheme with a maximum bonus of 200% of salary in line with our SCHEME policy for executive directors. PSP – A maximum award of up to 300% of salary in line with our policy. BUY-OUT AWARDS – Where an individual forfeits outstanding variable pay opportunities or contractual rights at a previous employer as a result of their appointment with M&S, the Committee may offer 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. 112 Marks and Spencer Group plc STRATEGIC REPORT FINANCIAL STATEMENTS GOVERNANCE | FIGURE 4: TERMINATION POLICY | Such a decision would be made to ensure | shareholders at that time, and reflect | | --- | --- | --- | | The Company may choose to terminate | the protection of the Company’s and | the director’s contractual and other | | the contract of any executive director | shareholders’ interests where the | legalrights. | | summarily in accordance with the terms | individual has had access to | | CORPORATE EVENTS of their service agreement, on payment commercially sensitive information. In the event of a change of control or in lieu of notice of a sum equal to salary, The table below sets out key provisions winding up of the Company, unvested benefits and pension as per their for directors leaving the Company under share awards will normally vest on the contractual notice entitlement (see their service contracts and the incentive date that the Board notifies participants page126). plan rules. of such an event. The number of shares The Company can make a series of which may vest under awards in these The Company’s policy towards exit phased payments which are paid in circumstances will be subject to any payments allows for a variety of monthly instalments, subject to relevant performance conditions and, circumstances whereby a director may mitigation. This mechanism allows for inthe case of PSP awards, unless the leave the business. In some cases, where theamount of any phased payments Committee determines otherwise, time deemed suitable, the Committee tobe reduced by the income from any pro-rating. In the event of a demerger, reserves the right to determine exit alternative position secured by the special dividend or other event which, payments, where the director leaves by former director during the phased inthe opinion of the Committee affects mutual agreement. In all circumstances, payments period. the price of shares, the Committee may the Committee does not intend to allow some or all of an award to vest. Service agreements may be terminated ‘reward failure’ and will make decisions without notice and without any payments based on the individual circumstances. in certain circumstances, such as gross The Committee’s objective is that any misconduct. The Company may require such agreements are determined on the individual to work during their notice anindividual basis and are in the period, or may choose to place the bestinterests of the Company and individual on garden leave. ELEMENT APPROACH BASE SALARY, – Payment made up to the termination date in line with contractual notice periods. BENEFITS AND PENSION BENEFITS ANNUAL BONUS – There is no contractual entitlement to payments under the Annual Bonus Scheme. If the director is under SCHEME 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 above to make a bonus award, which is normally pro-rated for time worked during the relevant financial year and based on performance assessed at the end of the bonus period. LONG-TERM – Where a director ceases to be an officer or employee of the Group before the end of the relevant vesting INCENTIVE AWARDS 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. RSP awards are considered on an individual basis but would typically be pro-rated for the time held and vest on cessation. 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. REPATRIATION – M&S may pay for repatriation where a director has been recruited from overseas. LEGAL EXPENSES AND – Where a director leaves by mutual consent, M&S may reimburse for reasonable legal fees and pay for OUTPLACEMENT professional outplacement services. Annual Report & Financial Statements 2023 113 GOVERNANCE ## REMUNERATION POLICY CONTINUED FIGURE 5: NON-EXECUTIVE DIRECTORS’ REMUNERATION POLICY (TO BE APPROVED ON 4 JULY 2023) The table below sets out our Policy for the operation of non-executive director fees and benefits at the Company. Changes are highlighted below. Once approved, this Policy may operate for up to three years. 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 and take into account the time commitment, role responsibility and market practice in our comparator groups when doing so. The Company may offer benefits to the Chairman and non-executive directors as detailed in the non-executive director policy table below. All non-executive directors have letters of appointment for an initial three-year term, these are available for inspection at the Company’s registered office. The Chairman’s agreement requires six months’ notice by either party. The non-executive directors’ appointments may be terminated by either party giving three months’ notice. ELEMENT PURPOSE AND LINK TO STRATEGY OPERATION AND OPPORTUNITY CHAIRMAN’S FEES To provide a fair fee at a level that – Fees are determined by the Remuneration Committee. attracts and retains a high-calibre – Total fee comprises the non-executive director basic fee and the Chairman. additional fee for undertaking the role. – Paid in equal monthly instalments; may be made in cash and/ orshares. – 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, similar-sized listed companies. – The maximum aggregate fees for the non-executive directors’ basic fees, including the Chairman’s basic fee, is £750,000 p.a. as set out inour Articles of Association. NON-EXECUTIVE To provide a fair basic fee at a rate – Fees are determined by the Chairman and executive directors. DIRECTOR’S that attracts and retains high- – Paid in equal monthly instalments; may be made in cash and/ BASIC FEE calibre non-executive directors. orshares. – 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, similar-sized listed companies. – The maximum aggregate non-executive director basic fees, includingthe Chairman, is £750,000 p.a. as set out in our Articles ofAssociation. ADDITIONAL FEES To provide compensation to – Additional fees may be paid for undertaking the extra non-executive directors taking on responsibilitiesof: additional Board responsibilities. – Board Chairman. – Senior Independent Director. – Committee Chairman. – Committee Member. – Change for 2023 – Committee membership fees included in the policy butnotcurrently implemented. BENEFITS To facilitate the execution of – In line with our other colleagues, the Chairman and non-executive responsibilities and duties required directors are entitled to receive colleague discount. by the role. – The Company may reimburse the Chairman and non-executive directors for reasonable expenses in performing their duties and may settle any tax incurred in relation to these. – The Chairman may also be entitled to the use of a car and driver. – The Chairman and non-executive directors do not participate in pension or performance-related schemes. 114 Marks and Spencer Group plc STRATEGIC REPORT FINANCIAL STATEMENTS GOVERNANCE FIGURE 6: SUMMARY OF REMUNERATION POLICY The diagram below illustrates the balance of pay and time period of each element of the Remuneration Policy for executive directors. The Committee believes this mixture of short- and long-term incentives and fixed to performance-related pay is currently appropriate for M&S’ strategy and risk profile. Year 1 Year 2 Year 3 Year 4 Year 5 FIXED PAY – Base salary – Benefits – Pension benefits | ANNUAL | – Up to 100% salary | – Up to 100% salary | | --- | --- | --- | | BONUS | (cash) | (deferred shares) | | SCHEME | – One-year performance | – Three-year deferral | | | – Clawback provisions apply | period | – No further performance conditions – Malus provisions apply | PSP – Maximum 300% of salary | | – Two-year holding period | | --- | --- | --- | | | – Three-year performance | post-vesting | | | – Malus provisions apply | – No further performance conditions | – Clawback provisions apply APPLICATION OF REMUNERATION POLICY The charts below provide an illustration of what could be received by each of the executive directors in 2023/24 under the Policy. These charts are illustrative as the actual value which will ultimately be received will depend on business performance in the year 2023/24 (for the cash element of the Annual Bonus Scheme) and in the three-year period to 2025/26 (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 2026. DIRECTORS Stuart Machin Katie Bickerstaffe £5,660 £5,253 £4,630 £4,287 55% £2,158 44% 55% £1,969 45% 19% 20% 36% 29% 36% 29% £922 38% £811 39% | 100% 43% | | | 20% | | 16% | 100% 41% | | | 19% | | 16% | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Fixed | Target | Maximum | | Maximum | | Fixed | Target | Maximum | | Maximum | | | | | | | | +50% | | | | | | +50% | BASIS OF CALCULATIONS AND KEY 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, assumes no share price growth. – PSP: 20% of 250% of salary, assumes no share price growth. Maximum – Includes the following assumptions for the vesting of the incentive components of the package: – ABS: 100% of maximum, assumes no share price growth. – PSP: 100% of 250% of salary, assumes no share price growth. Maximum – Includes the following assumptions for the vesting of the incentive components of the package: +50% – ABS: 100% of maximum, assumes no share price growth. shareprice – PSP: 100% of 250% of salary with 50% share price growth. growth – Grant share price for the purpose of demonstrating the 50% growth taken as closing share price at 2022/23 year end. FIXED REMUNERATION Includes all elements of fixed remuneration: – Base salary (effective 1 July 2023, as shown in the table on page 117). – Pension benefits as detailed on page 117. – Benefits (using the value for 2022/23 included in the single figure table on page 116). For Katie Bickerstaffe, her travel expenses have been excluded as these do not form part of her “normal” remuneration arrangements. £000 £000 ANNUAL BONUS SCHEME (ABS) Represents the potential value of the annual bonus for 2023/24. Half of any bonus would be deferred into shares for three years and this is included in the value shown. PSP PSP represents the potential value of the PSP to be awarded in 2023, which would vest in 2026 subject to the relevant performance targets. Awards would then be held for a further two years. Annual Report & Financial Statements 2023 115 GOVERNANCE ## REMUNERATION REPORT EXECUTIVE DIRECTORS’ REMUNERATION Each year, the Remuneration Committee assesses the current senior remuneration framework to determine whether the existingincentive arrangements remain appropriately challenging in the context of the business strategy, fulfil current external guidelines and are aligned with 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 not only that the framework is strategically aligned to the delivery of business priorities, but also that awards made during the year fairly reflect the performance of the business and individuals. Asignificant proportion of the performance measures used in the incentive schemes are integrated with M&S’ KPIs and strategic priorities detailed in the Strategic Report, as illustrated on pages 34 and 12 and 13 respectively. The diagram below (Figure 7) details the achievement of each executive director under the Company’s incentive schemes as a result of short- and long-term performance to the end of the reported financial year and summarises the main elements of the senior remuneration framework. Further details of payments made during the year are set out in the table below (Figure 8) and later in this report. FIGURE 7: REMUNERATION STRUCTURE 2022/23 ## FIXED PAY + ANNUAL BONUS + PSP = TOTAL PAY FOR 2022/23 200% of salary maximum 175% of salary awarded BASE SALARY bonus opportunity in2020 (with50% deferral) BENEFITS Measured against a balance Measured against adjusted of Group PBT before EPS, average ROCE , TSR Total payments adjusting items and and Strategic measures are c.71% of PENSION BENEFITS individual performance maximumpotential | Salaries were determined | Awards made are between | | 51% of award vested | | | --- | --- | --- | --- | --- | | onappointment to Board | 79.1% -81.1% ofmaximum | | | | | inMay 2022. | bonus opportunity | | | | | | | Read more on | | Read more on | | | | pages 118-119 | | page 121 | Bonus awards are prorated for the 10 months Stuart and Katie were CEO and Co-CEO respectively. The quantum of the 2020 PSP Awards was reduced by 30% of maximum for all PSP recipients recognising the material fall in share price in the year prior to grant. The awards for Stuart Machin and Katie Bickerstaffe were made prior to Board appointment at a level of 140% (typically 200%) of salary. FIGURE 8: TOTAL SINGLE FIGURE REMUNERATION (AUDITED) | | | | Total | Total PSP | | Pensions | | Total | | Total | | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Salary | Benefits | | bonus | | vested | benefits | | pay | fixed pay | | variable pay | | | £000 | | £000 | £000 | | £000 | | £000 | £000 | | £000 | | £000 | Director Year Stuart Machin 2022/23 669 0 1,081 704 80 2,534 749 1,785 (from 25 May 2022) 2021/22 – – – – – – – – 1 Katie Bickerstaffe 2022/23 626 16 989 563 31 2,225 673 1,552 (from 25 May 2022) 2021/22 – – – – – – – – 2 Steve Rowe 2022/23 140 5 0 0 11 156 156 0 (until 25 May 2022) 2021/22 841 53 1,601 0 135 2,630 1,029 1,601 3 Eoin Tonge 2022/23 487 3 0 0 58 548 548 0 (until 19 January 2023) 2021/22 605 24 1,151 0 73 1,853 701 1,151 1. Katie Bickerstaffe’s salary also reflects a more flexible four day working pattern. 2. Steve Rowe stepped down from the Board on 25 May 2022 and ceased full-time employment with M&S at the conclusion of the AGM on 5 July 2022. Steve agreed to remain as anadviser to the new leadership team for up to 12 months. Details of his remuneration for the period 26 May 2022 to 1 April 2023 are disclosed on page 126 under the section “Payment for loss of office”. 3. Following Eoin Tonge’s resignation, he stepped down from the Board on 9 December 2022 and left M&S on 19 January 2023. No payments were made to Eoin for loss of office. 116 Marks and Spencer Group plc STRATEGIC REPORT FINANCIAL STATEMENTS GOVERNANCE SALARIES 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, historic increases made to the individual and, to ensure a consistent approach, the salary review principles applied to the rest of the organisation. As detailed in last year’s report, on 25 May 2022 Stuart Machin was appointed CEO on a salary of £800,000. On the same day, Katie Bickerstaffe was appointed Co-CEO on a salary of £750,000, reflecting her different working pattern. For salaries effective July 2023, the Committee has awarded an increase of 3% to both Stuart Machin and Katie Bickerstaffe. Thisincreases their salaries to £824,000 and £772,500 respectively. Across the wider population, salary increases ranged from 3% to 10% for the wider salaried population and 9% for Customer Assistants. The next annual salary review for the executive directors will be effective in July 2024. The table below details the executive directors’ salaries as at 25 May 2022 and salaries which will take effect from 1 July 2023. | | Annual salary | | Annual salary | | | | | --- | --- | --- | --- | --- | --- | --- | | as of 25 May 2022 | | | as of 1 July 2023 | | Change in salary | | | | | £000 | | £000 | | % increase | Stuart Machin 800.0 824.0 3% Katie Bickerstaffe 750.0 772.5 3% BENEFITS (AUDITED) The Remuneration Policy permits that each executive director may receive a car or cash allowance as well as being offered thebenefit of a driver. Neither Stuart Machin or Katie Bickerstaffe receive a car or cash allowance. As agreed in March 2020 to facilitate Katie Bickerstaffe’s recruitment to Chief Strategy and Transformation Director, and prior to her appointment to the Board, she is permitted to claim travel and accommodation costs between home and her normal work location until 25 May 2024. The taxable value of these benefits in kind was detailed in Figure 8 on the previous page. In line with all other colleagues, executive directors receive life assurance, colleague discount and are eligible to participate in salary sacrifice schemes such as Cycle2Work. PENSION BENEFITS (AUDITED) Stuart Machin is a member of the Your M&S Pension Savings Plan, as described on page 108. Stuart contributes 6% of his salary into the scheme, and the Company matches this with a 12% contribution. This is the maximum level of contribution offered by M&S and is consistent with the terms available to all other colleagues. During the year, Katie Bickerstaffe received a 5% of salary cash payment in lieu of participation in an M&S pension scheme, thisarrangement was in place prior to her appointment to the Board on 25 May 2022 and is consistent with the terms available toother colleagues. Prior to his exit on 19 January 2023, Eoin Tonge contributed 6% of his salary into the Your M&S Pension Savings Plan, and the Company matched this with a 12% contribution. The value of the Company’s contribution in the year for Stuart, Katie and Eoin is shown in the single figure table in Figure 8 onpage 116. During the year, Steve Rowe received a cash payment in lieu of participation in an M&S pension scheme. For 2022/23, the CEO’s total annual cash supplement was reduced to £67,500 until Steve Rowe ceased employment with the business at the AGM on 5July 2022. Details of these payments are reflected in the single figure table in Figure 8 on page 116. Steve Rowe is a deferred member of the Marks & Spencer UK Pension Scheme. Details of the pension accrued are shown inFigure9 below. FIGURE 9: PENSION BENEFITS (AUDITED) | | | | | Accrued | | | | | | | | | Increase in | | | Transfer | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | pension | | | Additional | | | | | accrued value | | | value of total | | | | | Normal | | entitlement | | | value on early | | | | Increase in | | | | (net of | | accrued | | | retirement | | | as at year end | | | | retirement | | accrued value | | | | inflation) | | | pension | | | | | age | | | £000 | | | £000 | | | £000 | | | £000 | | | £000 | Steve Rowe 60 181.2 0 16.6 0 3,516 The accrued pension entitlement is the deferred pension amount that Steve Rowe would receive at age 60. 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 benefits. It does not represent sums payable to a director and therefore cannot be added meaningfully to annual remuneration. Annual Report & Financial Statements 2023 117 GOVERNANCE # REMUNERATION REPORT CONTINUED ## ANNUAL BONUS SCHEME 2022/23 (AUDITED) Annual performance for the year was measured against pre-determined Group PBT before adjusting items (PBT) (70%) and individual performance (30%) targets. PBT is used as a core bonus measure as it is an important measure of overall performance and is consistent with how business performance is assessed internally by the Board and Executive Committee. Individual performance was measured against a scorecard of individual measures set against the areas of delivery of the transformation plan that were deemed most critical to the future success of M&S. Individual performance was measured independently of PBT performance; no individual element could be earned until a threshold level of PBT was achieved. ## ANNUAL BONUS SCHEME PBT outturn for the year was £482.0m. However, as the 2022/23 ABS Group PBT targets were set prior to the acquisition of Gist it was determined by the Committee that, for the purposes of the ABS, the PBT outturn should be reduced by £20.5m, equivalent to the 2022/23 net profit contribution by Gist. This resulted in a PBT outturn for the purpose of the ABS of £461.5m which was above the target set to trigger awards under both the corporate and individual elements of the scheme. As shown in Figure 11 below, executive directors were awarded 77.3% of maximum opportunity under the corporate element of the scheme and 83% – 90% of the maximum for individual performance. Overall bonus achievement was 81.1% of opportunity for the CEO and 79.1% for the Co-CEO. The Committee reviewed achievement to ensure that total awards were appropriate in the context of several factors. These included M&S' overall financial performance, the outturn of individual objectives, and the level of bonus payable elsewhere in the business. Figures 10 and 11 set out the extent to which each director achieved their six individual objectives, worth a total of 30% of maximum bonus opportunity, along with the achievement against Group PBT targets comprising 70% of awards. Total awards shown directly correspond to the figure included in the single figure table on page 116. ## FIGURE 10: INDIVIDUAL OBJECTIVES (AUDITED) | Director | Individual | | --- | --- | | Stuart Machin | **Lead and develop a successful rhythm and effective ways of working with new executive team. Leadership and governance of Executive Committee.** Established regular cadence with Co-CEO, CFO and Executive Committee to review, discuss, and agree topical business items. New Executive Committee formed, meeting monthly to discuss key topics including performance, talent, and strategy. Managed relationships and ways of working under the new Executive structure. Led the recruitment of Jeremy Townsend as CFO following Eoin Tonge's resignation. | | | **Implement a simplified and effective organisational structure.** Redesigned the operating model to remove people costs and create a simpler business across the two accountable businesses (Food and Clothing & Home) with Support teams operating as a service function to the two accountable businesses. Identified and delivered savings across the business through organisational design changes aligning to the strategic direction of M&S. | | | **Evolve the Ocado Retail joint venture and strategic plan.** Endorsed the appointment of Ocado Retail CEO Hannah Gibson. Reset working relationship and strategic plans with Ocado Retail management. Continued to play an active role on the Ocado Retail Board and recommended the appointment of two further M&S non-executive directors. | | | **Deliver the Food supply chain transformation.** Successfully acquired Gist Limited, the principal logistics provider to M&S Food, allowing full end-to-end visibility and control of the Food logistics cost base. Since completion, savings have materialised through productivity efficiencies and the removal of Gist management fees. | | | **Deliver the Property store rotation and renewal programme.** Significant advances in the year across new store openings, renewals and closures. Plans in place to further accelerate store rotation in the forthcoming financial year including the opening of five brand defining full line stores in major cities. | | | **Create a high performing and engaged culture across the whole of M&S.** Led the people and talent agenda with a hands-on approach. Top 150 and fast track colleagues discussed on a regular basis at Executive Committee and Board. Played an active role in all senior hires. Developed the 'Closer to Customers and Closer to Colleagues' programme, requiring support centre colleagues to complete seven days working in stores to develop a customer-first mindset. Launched 'Straight to Stuart' scheme allowing colleagues to share views and ideas directly to the CEO to improve M&S. | 118 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS | Director | Individual | | --- | --- | | Katie Bickerstalle | **Deliver the MS2 and omni-channel strategy and performance.** Online sales performance supported by growth in click & collect sales, active App users and Sparks loyalty membership. Roll out of digital click & collect and frictionless returns in stores. **Improvement in Sparks active members, engagement, personalisation and payment.** Use of the M&S App and associated Sparks memberships continued to grow with average active App users increasing supported by sign-up campaigns where users can gain access to exclusive offers and rewards. Sparks Pay launched during the year. M&S Connect created, putting M&S Bank & Services and Sparks under one leadership. **Achieve International growth and strategy for India expansion.** International performance driven by Clothing & Home sales from continued robust demand from partners in the Middle East and new store opening in India, partly offset by the closure of the Russia business. Online international sales growth led by India and via European marketplaces in H2. **Deliver end to end clothing supply chain (phase 1).** Warehouse rationalisation and investment in automation at the Bradford warehouse in Clothing & Home, alongside changes to returns processing. Donington capacity and throughput increased and operations stabilised. Growth in in-store fulfilment. **Deliver digital and data capability and put at the heart of the delivery of the next phase of growth transformation.** Product led operating model in place across channels and now being rolled out across the organisation. The technology, digital product and data teams brought together as one function. **Clothing category management and effective ways of working.** End-to-end planning platform in-flight post completing the planning phase and now entered the mobilisation phase. Refreshed leadership team and key appointments in the Clothing & Home leadership team. | **FIGURE 11: ANNUAL BONUS SCHEME 2022/23 (AUDITED)** | Director | CORPORATE GROUP PBT (70%) | | INDIVIDUAL (30%) | | TOTAL AWARD | | | --- | --- | --- | --- | --- | --- | --- | | | Target/performance Min £400m | Max £480m | Performance | Achievement | % of salary | £000 | | Stuart Machin | 77.3% of max opportunity | £461.5m | 90.0% of max opportunity | | 162% | £1,081 | | Katie Bickerstalle | 77.3% of max opportunity | £461.5m | 83.3% of max opportunity | | 158% | £989 | The information in the table above represents the bonus earned for the period that they served as an executive director following their appointment on 25 May 2022. The actual PBT of £482.0m was adjusted for the gain from Gist (£20.5m) to result in the outcome of £461.5m. **FIGURE 12: DSBP AWARDS IN RESPECT OF 2022/23** #### DEFERRED SHARE BONUS PLAN (AUDITED) Currently 50% of any bonus award is compulsorily deferred into a conditional share award. These awards vest after three years, subject to continued employment as well as status provisions. Consistent with the reporting requirements, the value shown in the table above for the 2022/23 bonus awards and in the single figure table on page 116 represents the bonus earned for the period that they served as executive directors following their appointment on 25 May 2022. #### ANNUAL BONUS SCHEME FOR 2023/24 During the year, the Committee reviewed the 2023/24 scheme, considering the next phase of transformation together with bonus arrangements elsewhere in the business. The Committee was satisfied that the structure of the ABS, as detailed on page 109 in the Policy table and unchanged from 2022/23, remains appropriate. Subject to the achievement of stretching targets, set in line with the 2023/24 financial plan, the scheme provides for a competitive bonus opportunity with a strong focus on stretching PBT performance. Executive directors are eligible to receive a bonus award of up to 200% of salary. Performance will be focused on Group PBT before adjusting items (PBT) (70%) with individual measures set against key areas of delivery of the transformation plan. Individual performance will again be measured independently of PBT performance; no individual element may be earned until a threshold level of PBT is achieved. The remaining 30% of the bonus will be measured against a scorecard of individual objectives, identified as the measurable key priorities required to drive the continued transformation of M&S. Annual Report & Financial Statements 2023 119 GOVERNANCE ## REMUNERATION REPORT CONTINUED The performance targets for the 2023/24 scheme are deemed by the Board to be too commercially sensitive to disclose at this time. Where possible, they will be disclosed in next year's report. The Committee, at its absolute discretion, may use its judgement to adjust outcomes to ensure that any awards made reflect overall business and individual performance during the year. Any discretion applied will be clearly disclosed and justified. **FIGURE 13: EXECUTIVE DIRECTOR OBJECTIVES FOR 2023/24 ANNUAL BONUS SCHEME** | Director | CORPORATE TARGETS | | Measures | INDIVIDUAL OBJECTIVES | | --- | --- | --- | --- | --- | | | Group PBT before adjusting items PBT | Scorecard of individual measures | | | | | % bonus | % bonus | | | | Stuart Machin | 70% | 30% | - Continued leadership and governance of the Executive Committee and developing a high performing leadership team. - Embed simplified organisational structure changes and realise financial benefits. - Solidify ways of working with Ocado to recover and grow online presence as identified through three-year plan. - Delivery of the next phase of the end-to-end supply chain across Foods and Clothing & Home. - Accelerate the property store rotation programme targeting 5 years into 3. Continued rollout of renewal programme with an omni-channel focus. - Step change digital plans to benefit customer engagement and experience through efficient use of capital investment which delivers financial efficiencies. | | | Katie Bickerstalle | 70% | 30% | - Increase online sales penetration and improve operating margin to ensure we can make channel agnostic decisions. - Drive customer engagement through M&S Connect. - Deliver step-change in omni-channel experience. - Drive growth in Clothing & Home market share. - Commence restructure of the international business operating model for growth. - Integrate the initial phase of Clothing & Home to reset category management and end-to-end forecasting technology solution. - Deliver digital and technology return on investment. | | ### PERFORMANCE SHARE PLAN (PSP) #### PSP AWARDS MADE IN 2022/23 (AUDITED) Ahead of grants being made, the Committee reviewed the long-term incentive framework at M&S, assessing the extent to which it remained suitable. After consideration, it was decided that the current structural arrangements remained appropriate, 20% of the 2022 PSP award would be based upon strategic transformation goals relevant to the achievement of the business strategy over the next three years and the remaining 80% of the award would be based on EPS (30%), ROCE (30%) and relative TSR (20%). TSR is measured against a bespoke group of 12 companies taken from the FTSE 350 General and Food & Drug Retailers indices, reviewed prior to grant to ensure the constituents remained appropriately aligned to M&S' business operations and best reflected the value of shareholders' investment in M&S over the respective performance period. These companies are listed in Figure 15. For the 2022 PSP a grant of 250% of salary was approved by the Committee, the grant was made on 5 July 2022. The strategic targets are deemed too commercially sensitive to disclose but will be reported at the time of vesting. In line with policy, awards will vest three years after the date of grant, to the extent that the performance conditions are met, and must then be held for a further two years. Clawback provisions apply during this holding period. For financial measures, 20% of awards will vest for threshold performance, increasing to 100% on a straight-line basis between threshold and maximum performance. For strategic measures, no element of this award shall vest if the targets are not achieved. This supports the Committee's view that delivery of these strategic measures is critical; payment for achievement below the target is not appropriate. Detailed targets can be seen in Figure 14. 120 Marks and Spencer Group plc STRATEGIC REPORT FINANCIAL STATEMENTS GOVERNANCE FIGURE 14: PERFORMANCE CONDITIONS FOR PSP AWARDS MADE IN 2022/23 (AUDITED) DETAILS 2022/23 award measures WEIGHTING THRESHOLD MAXIMUM Adjusted EPS in 2024/25 (p) 30% 18p 27p ROCE in 2024/25 (%) 30% 11.5% 14.0% Relative TSR 20% Median Upper quartile M&S.com growth Food like-for-like sales Strategic measures 20% Store staff cost to sales ratio FIGURE 15: TSR COMPARATOR GROUP 2022/23 AWARDS ASOS Dunelm Group J Sainsbury Next B&M European Frasers Kingfisher Tesco Dixons Carphone JD Sports Fashion N Brown Group WHSmith FIGURE 16: PSP AWARDS MADE IN 2022/23 (AUDITED) | | | Threshold | | | | End of | | --- | --- | --- | --- | --- | --- | --- | | Basis of award | | | level of | Face value of | performance | | | | % of salary | | vesting | award £000 | | period Vesting date | Stuart Machin 250% 20% 2,000 29/03/2025 05/07/2025 Katie Bickerstaffe 250% 20% 1,875 29/03/2025 05/07/2025 PSP grants were made as a conditional share award. When calculating the face value of awards to be granted, the number of shares awarded was multiplied by the average mid-market share price on the five dealing days prior to the date of grant. For the 2022 award, theshare price was calculated as £1.39, being the average share price between 28 June 2022 and 4 July 2022. FIGURE 17: PSP AWARDS VESTING IN 2022/23 (AUDITED) For directors in receipt of PSP awards granted in 2020, the awards will vest in July 2023 based on three-year performance over theperiod to 1 April 2023. Performance has been assessed and it has been determined that 51.0% of the total award will vest. TheCommittee reviewed this level of vesting against the wider business performance of the period and determined this level ofpayment was appropriate; no discretion was applied for either share price movements or formulaic vesting outcomes. Details of performance against the specific targets set are shown in the table below. The total vesting values shown in Figure 18 directly correspond to the figure included in the single figure table on page 116. Final Year Final Year TSR Adjusted EPS EPS (Relative (%) (%) Ranking) Strategic Measures M&S.com Food like- Store staff growth for-like cost: Sales Overall vesting Target and weighting 30% 30% 20% 20% Threshold performance 13.0p 9.0% Median n/a n/a n/a | Maximum performance | | Upper | | --- | --- | --- | | | 22.0p 12.0% | quartile 15.0% 1.5% 10.8% | | Actual performance achieved | | Below | | | 17.2p 10.4% | median 22.2% 5.1% 10.0% | Percentage of maximum achieved 17.2% 17.1% 0% 6.7% 6.7% 3.3% 51.0% Despite achieving the store staff cost to sales ratio target, this measure is also underpinned by no significant increase in central headcount over the period. Therefore, the Committee considered the impact of additional central costs and determined that the vesting outcome of this strategic measure should be reduced by 50%. For threshold performance 20% of the 2020/21 award would have vested, increasing to 100% on a straight-line basis between threshold and maximum performance. FIGURE 18: VESTING VALUE OF AWARDS VESTING IN 2022/23 (AUDITED) On grant At the end of performance period (1 April 2023) Dividend equivalents accrued during | Number | | | | | the | Number | Number | | Impact of | Total vesting | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | of shares | % of salary | | performance | | | of shares | of shares | | share price | | of award | | | granted | | granted | | period | | vesting | lapsing | performance | | | | £000 | Stuart Machin 909,599 140% – 463,895 445,704 51.7% £704 Katie Bickerstaffe 727,679 140% – 371,116 356,563 51.7% £563 Total vesting values are based on a share price of £1.52 (the average share price from 3 January 2023 to 31 March 2023). No dividends werepaid during the performance period, dividend equivalents accrued during the performance period is therefore zero as shown in thetable above. Annual Report & Financial Statements 2023 121 GOVERNANCE ## REMUNERATION REPORT CONTINUED ### PSP AWARDS TO BE MADE IN 2023/24 During the year, the Committee reviewed the long-term incentive framework at M&S, assessing the extent to which it remained suitable. While the 2023 PSP will maintain the measures used for the 2022 PSP awards (30% adjusted EPS, 30% ROCE, 20% relative TSR and 20% strategic measures), a small amendment has been made to one of the strategic measures. In 2020, to support the business transformation and to focus our senior leaders on truly making M&S great again, three core strategic measures were introduced; M&S.com growth, Food like-for-like sales and store staff cost to sales ratio. Since then, the business has faced unprecedented external pressures resulting from rising costs, increasing rates of inflation, escalating energy prices and other global events. For the 2023 PSP the store staff costs to sales efficiency measure will be replaced with a broader metric monitoring overall business cost as a percentage of sales. In making this decision, the Committee was mindful of the need to ensure a strong focus on reducing overall costs to protect M&S' financial performance in these challenging times. Overall, the Committee believes that these PSP targets are appropriately stretching in the context of the business and analyst expectations and remain equally challenging as those set at the start of the performance period for previous awards. The strategic targets are deemed too commercially sensitive to disclose but will be reported at the time of vesting. TSR will once again be measured against a bespoke group of companies taken from the FTSE 350 General and Food & Drug Retailers indices. The existing group of 12 companies, as detailed in Figure 15, was thoroughly reviewed to ensure the constituents remained appropriate and aligned to M&S' business operations. The TSR comparator group of 12 companies can be found in Figure 20. Following a review of M&S' share price performance since the 2022/23 PSP was awarded in July 2022, a grant of 250% of salary was approved for the 2023 PSP. The Committee will review and reconfirm this decision immediately prior to grant to ensure this remains appropriate. Performance will be measured as shown in Figure 19 below, with 20% of awards vesting for threshold performance and 100% for maximum. **FIGURE 19: PERFORMANCE CONDITIONS FOR PSP AWARDS TO BE MADE IN 2023/24** | 2023/24 award measures | WEIGHTING | DETAILS | | | --- | --- | --- | --- | | | | THRESHOLD | MAXIMUM | | Adjusted EPS in 2025/26 (p) | 30% | 16.7p | 25.7p | | ROCE in 2025/26 (%) | 30% | 11.5% | 14.0% | | Relative TSR | 20% | Median | Upper quartile | | Strategic measures | 20% | | M&S.com growth Food like-for-like sales Operating cost to sales ratio | **FIGURE 20: TSR COMPARATOR GROUP 2023/24 AWARD** | ASOS | Dunelm Group | J Sainsbury | Next | | --- | --- | --- | --- | | B&M European | Frasers | Kingfisher | Tesco | | Currys | JD Sports Fashion | N Brown Group | WHSmith | ### EXECUTIVE DIRECTORS' REMUNERATION **FIGURE 21: DIRECTORS' SHAREHOLDINGS (AUDITED)** The table below sets out the total number of shares held by each executive director serving on the Board during the period to 1 April 2023. 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 or the date they ceased to be an employee and 23 May 2023. No director had an interest in any of the Company's subsidiaries at the statutory end of the year. | | Shares owned outright | Unvested | Vested unexercised options | | --- | --- | --- | --- | | With performance conditions | Without performance conditions | | Performance Share Plan | Deferred Share Bonus Plan | Restricted Share Plan | | Stuart Machin | 230,867 | 3,336,953 | 401,900 | 450,000 | Nil | | Katie Bickerstalle | 28,009 | 3,065,498 | 393,439 | 700,000 | Nil | | Steve Rowe (until 5 July 2022) | 556,983 | 1,428,657 | 573,528 | Nil | Nil | | Eoin Tonge (until 19 January 2023) | 277,999 | Nil | Nil | Nil | Nil | 122 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # FIGURE 22: SHAREHOLDING REQUIREMENTS INCLUDING POST-CESSATION (AUDITED) All executive directors are required to build shares equivalent in value to a minimum percentage of their salary within a five-year period from their appointment date. For the CEO and Co-CEO, this requirement is 250% of salary. A similar requirement of 100% of salary currently applies to members of the Executive Committee below Board level. The chart below shows the extent to which each executive director has met their target shareholding as at 1 April 2023. For Stuart Machin and Katie Bickerstaffe, their shareholding requirement is measured from their date of appointment to CEO and Co-CEO. For the purposes of the requirements, the net number of unvested share awards not subject to performance conditions is included and is reflected in the chart below. The Committee continues to keep shareholding requirement guidelines and actual director shareholdings under review and will take appropriate action should it feel this is necessary. To support the Committee's intention to drive long-term, sustainable decision-making for the benefit of M&S and our shareholders and in line with the 2018 UK Corporate Governance Code changes and the Investment Association's updated guidelines, in 2020 the Committee approved the extension of shareholding guidelines to beyond the time at which an executive director leaves M&S. Directors are required to maintain their minimum shareholding requirement, or, if their level of shareholding is below this, their actual shareholding, for two years after leaving M&S. For the avoidance of doubt, the Committee has approved all vesting awards from 2020 grants onwards to be held in a nominee vehicle to ensure the successful operation of this policy. For the purposes of this calculation, an average share price is used to reduce the impact of share price volatility on the results. The average share price for the year was £1.34, with resultant shareholdings illustrated in the chart below. ![img-5.jpeg](img-5.jpeg) Shares owned outright Unvested DSBP/RSP shares # EMPLOYEE SHARE SCHEMES # ALL-EMPLOYEE SHARE SCHEMES (AUDITED) Executive directors may participate in ShareSave, the Company's save as you earn (SAYE) scheme, and ShareBuy, the Company's share incentive plan, on the same basis as all other eligible colleagues. Further details of the schemes are set out in note 13 of the financial statements on pages 173 to 175. # DILUTION OF SHARE CAPITAL BY EMPLOYEE SHARE PLANS Awards granted under the Company's SAYE scheme and discretionary share plan can be met by the issue of new shares when the options are exercised or through 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 with the dilution limits set by the Investment Association in respect of all share plans (10% in any rolling 10-year period) and executive share plans (5% in any rolling 10-year period) as at 1 April 2023 is shown in Figure 23 and 24: FIGURE 23: ALL SHARE PLANS ![img-6.jpeg](img-6.jpeg) FIGURE 24: EXECUTIVE SHARE PLANS ![img-7.jpeg](img-7.jpeg) Annual Report & Financial Statements 2023 123 GOVERNANCE ## REMUNERATION REPORT CONTINUED FIGURE 25: EXECUTIVE DIRECTORS’ INTERESTS IN THE COMPANY’S SHARE SCHEMES (AUDITED) | | Maximum | Awarded | Exercised | | | | Dividend | | Maximum | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | receivable at | | during | | during | Lapsed during | | equivalents | receivable at | | | 3 April 2022 | | the year | | the year | | the year | accrued | 1 April 2023 | | Stuart Machin Performance Share Plan 2,519,703 1,432,562 – 615,312 – 3,336,953 Deferred Share Bonus Plan – 401,900 – – – 401,900 Restricted Share Plan 703,120 – 253,120 – – 450,000 SAYE 21,951 – – – – 21,951 Total 3,244,774 1,834,462 253,120 615,312 – 4,210,804 Katie Bickerstaffe Performance Share Plan 1,722,471 1,343,027 – – – 3,065,498 Deferred Share Bonus Plan – 393,439 – – – 393,439 Restricted Share Plan 700,000 – – – – 700,000 SAYE 21,951 – – – – 21,951 Total 2,444,422 1,736,466 – – – 4,180,888 Steve Rowe Performance Share Plan 3,861,479 – – 2,432,822 – 1,428,657 Deferred Share Bonus Plan – 573,528 – – – 573,528 SAYE 21,951 – – 21,951 – – Total 3,883,430 573,528 – 2,454,773 – 2,002,185 Eoin Tonge Performance Share Plan 2,032,049 1,181,863 – 3,213,912 – – Deferred Share Bonus Plan – 412,363 – 412,363 – – Restricted Share Plan 789,252 – 526,168 263,084 – – SAYE 21,951 – – 21,951 – – Total 2,843,252 1,594,226 526,168 3,911,310 – – The market price of the shares at the end of the financial year was £1.67; the highest and lowest share prices during the financial year were £0.93 and £1.67 respectively. Figure 26 shows the time horizons of outstanding discretionary share awards (including dividend equivalent shares accrued during the performance period) for all directors serving on the Board during the year. FIGURE 26: VESTING SCHEDULE OF EXECUTIVE DIRECTORS’ OUTSTANDING DISCRETIONARY SHARE AWARDS Maximum receivable at 2023/24 2024/25 2025/26 1 April 2023 (all discretionary Maximum Maximum Maximum schemes) receivable Lapsed receivable Lapsed receivable Lapsed Stuart Machin Performance Share Plan 3,336,953 463,895 445,704 994,792 – 1,432,562 – Deferred Share Bonus Plan 401,900 – – 401,900 – – – Restricted Share Plan 450,000 50,000 – 400,000 – – – Katie Bickerstaffe Performance Share Plan 3,065,498 371,116 356,563 994,792 – 1,343,027 – Deferred Share Bonus Plan 393,439 – – 393,439 – – – Restricted Share Plan 700,000 200,000 – 500,000 – – – Steve Rowe Performance Share Plan 1,428,657 496,308 476,846 455,503 – – – Deferred Share Bonus Plan 573,528 – – 573,528 – – As reported on page 121, the 2020 PSP awards included within the totals shown in Figure 25 will vest at 51.0% in July 2023. This has been reflected above in the 2023/24 Maximum receivable / Lapsed columns. 124 Marks and Spencer Group plc STRATEGIC REPORT FINANCIAL STATEMENTS GOVERNANCE FIGURE 27: PERFORMANCE AND CEO REMUNERATION COMPARISON This graph illustrates the Company’s performance against the FTSE 100 over the past 10 years. While M&S is not currently a constituent of the FTSE 100 Index, the Committee feels that this remains the most appropriate comparator. 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 10 financial years. 2022/232021/222020/212019/202018/192017/182016/172015/162014/152013/142012/13 Marks and Spencer Group plc FTSE 100 index 50 0 01/04/2302/04/2203/04/2128/03/2030/03/1931/03/1801/04/1702/04/1628/03/1529/03/1430/03/13 CEO Stuart Machin – – – – – – – – – 2,534 Steve Rowe – – – 1,642 1,123 1,517 1,205 1,068 2,630 156 CEO single figure (£000) Marc Bolland 1,568 2,095 2,015 – – – – – – – Stuart Machin – – – – – – – – – 81.1% Annual bonus Steve Rowe – – – 36.98% 0.00% 0.00% 0.00% 0.00% 95.0% – payment (% of maximum) Marc Bolland 0.00% 30.55% 31.90% – – – – – – – Stuart Machin – – – – – – – – – 51.0% Steve Rowe – – – 0.00% 8.20% 34.0% 11.20% 0.00% 0.00% 51.0% PSP vesting (% of maximum) Marc Bolland 7.60% 4.70% 4.80% – – – – – – – FIGURE 28: PERCENTAGE CHANGE IN DIRECTORS’ REMUNERATION 2022/23 2021/22 2020/21 % change 2021/22-2022/23 % change 2020/21-2021/22 % change 2019/2020-2020/21 | 2021/22 | | | 2020/21 | | | 2019/20 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Base | | | Base | | | Base | | | salary/ | | Annual | salary/ | | Annual | salary/ | | Annual | | | fees Benefits | bonus | | fees Benefits | bonus | | fees Benefits | bonus | Stuart Machin – – – – – – – – – Katie Bickerstaffe – – – – – – – – – Steve Rowe (until 25 May 2022) 0% 15% – 1% -20% – 0% -37% – Eoin Tonge (until 19 January 2023) 9% 61% – 1% -33% – 0% – – Archie Norman 3% -100% – 1% 100% – 0% –74% – Andy Halford 3% – – 1% – – 0% – – Andrew Fisher 3% -100% – 1% – – 0% – – Justin King 3% – – 1% – – 0% – – Tamara Ingram 3% – – 1% – – 0% – – TSR Sapna Sood 3% – – 1% – – 0% – – Evelyn Bourke 3% -100% – 1% – – – – – Fiona Dawson 3% – – 1% – – – – – Ronan Dunne – – – – – – – – – £ Cheryl Potter – – – – – – – – – 200 UK colleagues (average FTE) 6% 0% -6% 2% – 100% 0% 0% – 150 1. The table is blank for Stuart Machin and Katie Bickerstaffe as there is no prior year single figure to compare to as they were not executive directors in 2021/22. 2. Steve Rowe and Eoin Tonge left M&S in 2022/23, no bonus was paid in respect of 2022/23, however it is not possible to display a percentage increase due to no bonus being paid in 2020/21. 100 3. Eoin Tonge only received salary and benefits to his departure on 19 January 2023, the arrangements for Steve Rowe are fully disclosed in the paymentsfor the loss of office section on page 126. 4. See figure 31 on page 127 for details of Non-Executive Director Remuneration which support the percentage changes above. Annual Report & Financial Statements 2023 125 GOVERNANCE ## REMUNERATION REPORT CONTINUED ### FIGURE 29: RELATIVE IMPORTANCE OF SPEND ON PAY The table below illustrates the Company's expenditure on pay in comparison with profits before tax and distributions to shareholders by way of dividend payments and share buyback. Total colleague pay is the total pay for all Group colleagues. Group PBT before adjusting items has been used as a comparison, as this is the key financial metric that the Board considers when assessing Company performance. | | 2021/22 £m | 2022/23 £m | % change | | --- | --- | --- | --- | | Total colleague pay | 1,487.5 | 1,586.2 | 6.6% | | Total returns to shareholders | Nil | Nil | – | | Group PBT before adjusting items | 522.9 | 482.0 | -7.8% | Group PBT before adjusting items as disclosed on page 103. ### FIGURE 30: 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. | | Date of appointment | Notice period | | --- | --- | --- | | Stuart Machin | 25/05/2022 | 12 months/6 months | | Katie Bickerstaffe | 25/05/2022 | 12 months/6 months | ### CHANGES TO EXECUTIVE MEMBERSHIP OF THE BOARD DURING 2022/23 DIRECTORS APPOINTED TO THE BOARD As reported in the 2021/22 report, on 25 May 2022 Stuart Machin and Katie Bickerstaffe were appointed to the Board as CEO and Co-CEO, respectively. Remuneration arrangements upon appointment were fully disclosed in the 2021/2022 report. ### PAYMENTS FOR THE LOSS OF OFFICE (audited) As reported in the 2021/22 report, Steve Rowe stepped down as CEO after the preliminary results on 25 May 2022 and ceased full-time employment with M&S on 5 July 2022. As reported in the single figure table on page 116 he was paid £156,012 for the period that he served as a director in the 2022/23 financial year. For the period 26 May to 5 July where Steve was employed but no longer a director he received salary and benefits (car and pension) of £75,862. Steve did not participate in the 2022/23 ABS. Remuneration terms on leaving were in line with the approved Termination Policy. Steve was contractually entitled to receive salary, and benefits (car and pension), by way of phased monthly payments from 6 July 2022 for a maximum of 12 months, subject to mitigation. In respect of 2022/23 Steve received £695,358 comprising nine months phased payments. In line with his contractual arrangements, Steve also received a payment of £173,758 in respect of accrued but untaken holiday as per the Company's standard holiday policy for leavers. The Committee determined good leaver treatment in line with the plan rules, and therefore his unvested conditional shares awarded under the 2020 and 2021 PSP were time pro-rated to 5 July 2022. As reported last year, the PSP awards granted in 2019 vested in June 2022 at 0%, resulting in the award lapsing in full. As detailed earlier in the report on page 121, 51.0% of PSP awards granted in 2020 will vest in July 2023. For Steve Rowe, the award is pro-rated so 496,308 shares will vest at an estimated value of c.£753,147 based on the average share price of £1.52 between 3 January 2023 and 31 March 2023. Steve has one further unvested PSP award (455,503 shares), granted in 2021. To the extent that performance conditions are met, the subsequent vesting of this award will be reported in next year's report. As announced in July 2022, Eoin Tonge resigned from his position of CFO, he stepped down from the Board on 9 December 2022 and ceased full-time employment with M&S on 19 January 2023. As reported in the single figure table on page 116 he received £548,154 in fixed pay up to the date of his departure and for the purposes of his share awards was treated as a bad leaver so all awards lapsed on leaving. No payment was made in respect of the of 2022/23 ABS. ### PAYMENTS TO PAST DIRECTORS (audited) There were no payments made to past directors during the period. ### 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. Katie Bickerstaffe is a non-executive director of the England and Wales Cricket Board (ECB) and Barratt Developments plc. Katie received fees of £20,000 from the ECB and £92,974 from Barratt Developments in 2022/23 in respect of these external appointments. 126 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # **FIGURE 31: NON-EXECUTIVE DIRECTORS' TOTAL SINGLE FIGURE REMUNERATION (AUDITED)** Non-executive directors receive fees reflecting the time commitment, demands and responsibilities of the role. Fees paid to the non-executive directors and Board Chairman for 2022/23 and 2021/22 are detailed in the table below. Benefits include expense reimbursements relating to travel, accommodation and subsistence in connection with the attendance at Board and Committee meetings during the year, which are deemed by HMRC to be taxable. The amounts in the table below include the grossed-up cost of UK tax paid by the Company on behalf of the non-executive directors. Non-taxable expense reimbursements have not been included in the table. As reported last year, the basic non-executive fee increased by 3% to £74,380 with effect from 1 July 2022. The Board Chairman was similarly awarded an increase of 3% with effect from 1 July 2022. The total aggregate fee for the Board Chairman increased to £636,540. In line with pay increases across the business, non-executive director fees will increase by 3% to £76,611 with effect from 1 July 2023. The Board Chairman was also awarded an increase of 3% bringing the total aggregate fee to £655,636. Fee levels will again be reviewed in the year, ahead of any changes which would be effective 1 July 2024. | Director | Year | Basic fees £000 | Additional fees £000 | Benefits £000 | Total £000 | | --- | --- | --- | --- | --- | --- | | Archie Norman | 2022/23 | 74 | 558 | 0 | 632 | | | 2021/22 | 72 | 544 | 10 | 626 | | Andy Halford (until 31 December 2022) | 2022/23 | 55 | 23 | 0 | 78 | | | 2021/22 | 72 | 31 | 0 | 103 | | Andrew Fisher | 2022/23 | 74 | 28 | 0 | 102 | | | 2021/22 | 72 | 17 | 1 | 90 | | Justin King | 2022/23 | 74 | 0 | 0 | 74 | | | 2021/22 | 72 | 0 | 0 | 72 | | Tamara Ingram | 2022/23 | 74 | 20 | 0 | 94 | | | 2021/22 | 72 | 17 | 0 | 89 | | Sapna Sood | 2022/23 | 74 | 0 | 0 | 74 | | | 2021/22 | 72 | 0 | 0 | 72 | | Evelyn Bourke | 2022/23 | 74 | 16 | 0 | 90 | | | 2021/22 | 72 | 0 | 1 | 73 | | Fiona Dawson | 2022/23 | 74 | 0 | 0 | 74 | | | 2021/22 | 62 | 0 | 0 | 62 | | Ronan Dunne (from 1 August 2022) | 2022/23 | 50 | 0 | 0 | 50 | | | 2021/22 | 0 | 0 | 0 | 0 | | Cheryl Potter (from 1 March 2023) | 2022/23 | 6 | 0 | 0 | 6 | | | 2021/22 | 0 | 0 | 0 | 0 | Annual Report & Financial Statements 2023 127 GOVERNANCE ## REMUNERATION REPORT CONTINUED ### FIGURE 32: 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 upon joining M&S. The table below details the shareholding of the non-executive directors who served on the Board during the year as at 1 April 2023 (or upon their date of retiring from the Board), including those held by connected persons. 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 2023 (or upon their date of retiring from the Board) are shown in the table below. | Director | Number of shares held as at 1 April 2023 | Number of shares held as at 23 May 2023 | | --- | --- | --- | | Archie Norman | 148,600 | No change | | Andy Halford | 25,200 | No change | | Andrew Fisher | 4,243 | No change | | Justin King | 64,000 | No change | | Tamara Ingram | 2,000 | No change | | Sapna Sood | 2,000 | No change | | Evelyn Bourke | 50,000 | No change | | Fiona Dawson | 12,352 | No change | | Ronan Dunne | 25,000 | No change | | Cheryl Potter | – | No change | ### FIGURE 33: 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 (or six months' notice for the Chairman). The table below sets out these terms for all current members of the Board. | Director | Date of appointment | Notice period | | --- | --- | --- | | Archie Norman | 01/09/2017 | 6 months/6 months | | Andrew Fisher | 01/12/2015 | 3 months/3 months | | Justin King | 01/01/2019 | 3 months/3 months | | Tamara Ingram | 01/06/2020 | 3 months/3 months | | Sapna Sood | 01/06/2020 | 3 months/3 months | | Evelyn Bourke | 01/02/2021 | 3 months/3 months | | Fiona Dawson | 25/05/2021 | 3 months/3 months | | Ronan Dunne | 01/08/2022 | 3 months/3 months | | Cheryl Potter | 01/03/2023 | 3 months/3 months | ### NON-EXECUTIVE DIRECTOR CHANGES TO THE BOARD DURING 2022/23 ROLE CHANGES WITHIN THE BOARD As reported in the 2021/22 report Andy Halford retired as the Chair of the Audit Committee on 7 June 2022; and on 31 December 2022 he retired from the role of Senior Independent Director and stepped down from the Board. Andrew Fisher became Senior Independent Director with effect 31 December 2022, he continues in his role of Chair of the Remuneration Committee. His fee increased from £94,380 to £125,380 (£127,611 from 1 July 2023). Fiona Dawson became a member of the Remuneration Committee with effect 16 January 2023. No additional fees were payable on joining the Committee. During the year Ronan Dunne joined the Board on 1 August 2022 and Cheryl Potter on 1 March 2023. 128 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## REMUNERATION COMMITTEE 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 reflects on the quality and objectivity of this advice. The Committee is satisfied that any conflicts are appropriately managed. PwC was appointed by the Committee as its independent adviser 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. During the year, PwC charged £62,000 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 financial year. PwC's advisory team has no connection with any individual director of the Group. The Committee also seeks internal support from the CEO, Co-CEO, CFO, General Counsel & Company Secretary, Group HR Director, Head of Organisational Effectiveness and the Head of 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 Aon Hewitt Limited, KPMG, PwC, FIT Remuneration Consultants, Korn Ferry and Willis Towers Watson. ## REMUNERATION COMMITTEE STAKEHOLDER AND SHAREHOLDER ENGAGEMENT The Committee is dedicated to ensuring that executive pay remains competitive, appropriate and fair in the contexts of the external market, Company performance and the pay arrangements of the wider workforce. In collaboration with the Head of Reward, the Committee gives colleagues, through colleague representatives, the opportunity to raise questions or concerns regarding the remuneration of the executive directors. During the year, colleague representatives were given the opportunity to raise their views with the Remuneration Committee via the BIG Chair. 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 either during these discussions or subsequently. The Committee is dedicated to a continuous, open and transparent dialogue with shareholders on the issue of executive remuneration. As described in the Committee Chair's letter, dialogue on the proposed measures and weightings of the PSP continued during the year. Shareholders were positive in their feedback and confirmed that the targets set aligned with their expectations. ## SHAREHOLDER SUPPORT FOR THE REMUNERATION POLICY AND 2021/22 DIRECTORS' REMUNERATION REPORT At the Annual General Meeting on 5 July 2022, 70.89% of shareholders voted in favour of the advisory resolution to approve the Directors' Remuneration Report for 2021/22. The Committee noted the number of votes cast against the resolution, and proactively engaged with the top 40 shareholders to understand the reasons why some shareholders voted against the resolution. An update on the engagement was published to our corporate website in January 2023, and for the purposes of Provision 4 of the UK Corporate Governance Code, this is the final summary on the vote. The feedback received from shareholders was largely supportive of the Company's approach, and the concerns raised by a minority of shareholders related to the specific leaving arrangements for outgoing CEO, Steve Rowe. The Board believes strongly that it acted in shareholders' interests and consistent with the values and integrity of the business. There is no expectation that this set of circumstances will be repeated, and therefore the Board believes this 29% vote against an AGM resolution to be an isolated occurrence. ## FIGURE 34: VOTING OUTCOMES FOR THE REMUNERATION POLICY AND 2021/22 REMUNERATION REPORT | Member | % Votes for | % Votes for | Votes against | % Votes against | Votes withheld | | --- | --- | --- | --- | --- | --- | | Remuneration Policy (at the 2020 AGM) | 1,125,697,134 | 97.14% | 33,187,602 | 2.86% | 942,792 | | 2021/22 Remuneration Report (at the 2022 AGM) | 930,901,466 | 70.89% | 382,304,226 | 29.11% | 27,809,219 | ## APPROVED BY THE BOARD Andrew Fisher Chair of the Remuneration Committee London, 23 May 2023 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. Annual Report & Financial Statements 2023 129 GOVERNANCE # OTHER DISCLOSURES ## DIRECTORS' REPORT Marks and Spencer Group plc (the "Company") is the holding company of the Marks & Spencer Group of companies (the "Group"). The Directors' Report for the year ended 1 April 2023 comprises pages 68 to 134 and pages 230 to 231 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 67, as the Board considers them to be of strategic importance. Specifically, these are: - Future business developments (throughout the Strategic Report). - Risk management on pages 56 to 57. - Details of branches operated by the Company on pages 8 to 9. - Information on how the directors have had regard for the Company's stakeholders, and the effect of that regard, on pages 10 to 11. The Strategic Report and the Directors' Report together form the Management Report for the purposes of the Disclosure Guidance and Transparency Rules ("DTR") 4.1.8R. Information relating to financial instruments can be found on pages 184 to 194 and is incorporated by reference. For information on our approach to social, environmental and ethical matters, please see our ESG Committee report on pages 90 to 91, our TCFD Report on pages 44 to 55, and our Sustainability Report available on the dedicated sustainability section of our website: corporate.marksandspencer.com/sustainability. Other information to be disclosed in the Directors' Report is given in this section. The Directors' Report fulfils the requirements of the Corporate Governance Statement for the purposes of DTR 7.2.3R. Further information is available online at corporate.marksandspencer.com. 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 | Page reference | | --- | --- | --- | | 9.8.4R (1) (2) (5-14) (A) (B) | Not applicable | N/A | | 9.8.4R (4) | Long-term incentive schemes | 102-104, 115-116, 120-126 | ## BOARD OF DIRECTORS The membership of the Board and biographical details of the directors are provided on pages 72 and 73. Changes to the directors during the year and up to the date of this report are set out below. Details of directors' beneficial and non-beneficial interests in the shares of the Company are shown on pages 121 to 124 and 128. Options granted to directors under the Save As You Earn ("SAYE") and Executive Share Option Schemes are shown on page 124. Further information regarding employee share option schemes is provided in note 13 to the financial statements on pages 173 to 175. | Name | Role | Effective date of departure/ appointment | | --- | --- | --- | | **Departures** | | | | Steve Rowe | Executive Director | 25 May 2022 | | Eoin Tonge | Executive Director | 9 December 2022 | | Andy Halford | Non-Executive Director | 31 December 2022 | | **Appointments** | | | | Stuart Machin | Executive Director | 25 May 2022 | | Katie Bickerstaffe | Executive Director | 25 May 2022 | | Ronan Dunne | Non-Executive Director | 1 August 2022 | | Cheryl Potter | Non-Executive Director | 1 March 2023 | The appointment and replacement of directors is governed by the Company's Articles of Association (the "Articles"), the UK Corporate Governance Code, the Companies Act 2006 and related legislation. The Articles may be amended by a special resolution of the shareholders. Subject to the Articles, the Companies Act 2006 and any directions given by special resolution, the business of the Company will be managed by the Board who may exercise all the powers of the Company. The Company may, by ordinary resolution, declare dividends not exceeding the amount recommended by the Board. Subject to the Companies Act 2006, the Board may pay interim dividends and also any fixed rate dividend, whenever the financial position of the Company, in the opinion of the Board, justifies its payment. 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 office only until the next Annual General Meeting ("AGM") where they will stand for annual election. 130 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS NUMERICAL DIVERSITY DATA AS AT 1 APRIL 2023 During the financial year, 258,244 ordinary Our gender identity and ethnicity data in accordance with Listing Rule 9.8.6R(10) in shares in the Company were issued under the format set out in LR 9 Annex 2.1. At year end, Board and ExCo members are asked the terms of the United Kingdom to complete a diversity disclosure to confirm which of the categories set out in the Employees’ SAYE Share Option Scheme. below they identify with: 16,106 shares were issued at a price of 151p, 113,379 shares at a price of 82p, and a Number of senior further 128,759 ordinary shares were Number of positions on the board issued at their nominal value of 1p. Board % of the (CEO, CFO, SID and Number in Gender identity members Board Chair) ExCo % of ExCo In addition, during the period, 5,770,343 Women 6 55 1 3 33 ordinary shares were issued at their Men 5 45 3* 6 67 nominal value of 1p to satisfy employee share awards under the Company’s Non-binary – – – – – Restricted Share Plan. Not specified/prefer not tosay – – – – – Details of movements in the Company’s issued share capital can be found in note *The CFO is a member of ExCo but not a member of the Board 24 to the financial statements on page 196. Number of Number of senior RESTRICTIONS ON TRANSFER Board % of the positions on the board Number in OF SECURITIES Ethnic background members Board (CEO, CFO, SID and Chair) ExCo % of ExCo There are no specific restrictions on the | White British or other | transfer of securities in the Company, | | --- | --- | | White (including | which are governed by its Articles and | | minority-White | prevailing legislation. The Company is not | | groups) 9 82% 3 7 78% | aware of any agreements between holders | | Mixed/Multiple | of securities that may result in restrictions | | Ethnic Groups – – – 1 11% | on the transfer of securities or that might | result in restrictions on voting rights. Asian/Asian British 1 9% – – – Black/African/ VARIATION OF RIGHTS Caribbean/Black Subject to applicable statutes, rights British – – – – – attached to any class of share may be varied with the written consent of the Other ethnic group, including Arab – – – – – holders of at least three-quarters in nominal value of the issued shares of that Not specified/prefer class, or by a special resolution passed at not to say 1 9% 1 1 11% a separate general meeting of the shareholders. | DIRECTORS’ CONFLICTS OF INTEREST | directors (or Company Secretary) may | | | --- | --- | --- | | The Company has procedures in place for | incur to third parties in the course of | RIGHTS AND OBLIGATIONS | | managing conflicts of interest. All | acting as directors or Company Secretary | ATTACHING TO SHARES | | directors are required to avoid situations in | or employees of the Company or of any | Subject to the provisions of the | | which they have, or could have, a direct or | associated company. Qualifying pension | Companies Act 2006, any resolution | | indirect interest that conflicts, or possibly | scheme indemnity provisions (as defined | passed by the Company under the | | may conflict, with the interests of the | by Section 235 of the Companies Act | Companies Act 2006 and other | | Company. Should a director become | 2006) were in force during the course of | shareholders’ rights, shares may be issued | | aware that they, or any of their connected | the financial year ended 1 April 2023 for | with such rights and restrictions as the | | parties, have an interest in an existing or | the benefit of the Trustees of the Marks & | Company may by ordinary resolution | | proposed transaction with the Company | Spencer UK Pension Scheme, both in the | decide, or (if there is no such resolution | | or its subsidiaries, they should notify the | UK and the Republic of Ireland. | orso far as it does not make specific | | Board in writing or at the next Board | | provision) as the Board may decide. | PROFIT AND DIVIDENDS meeting. Internal controls are in place to The profit for the financial year, after POWERS FOR THE COMPANY ISSUING ensure that any related party transactions taxation, amounts to £364.5m (last year OR BUYING BACK ITS OWN SHARES involving directors, or their connected £309.0m). The directors have not declared The Company was authorised by parties, are conducted on an arm’s length dividends as follows: shareholders at the 2022 AGM to purchase basis. Directors have a continuing duty to in the market up to 10% of the Company’s update any changes to these conflicts. Ordinary shares £m issued share capital, as permitted under | DIRECTORS’ INDEMNITIES | No proposed interim dividend (last | the Company’s Articles. No shares were | | --- | --- | --- | | The Company maintains directors’ and | year no proposed interim dividend) – | bought back under this authority during | | officers’ liability insurance which provides | | the year ended 1 April 2023 and up to the | No proposed final dividend (last year appropriate cover for legal action date of this report. no proposed final dividend) – brought against its directors and officers. No dividend proposed for 2022/23 This standard authority is renewable TheCompany has also granted (last year no proposed dividend) – annually; the directors will seek to renew indemnities to each of its directors and itat the 2023 AGM. the Company Secretary to the extent SHARE CAPITAL permitted by law. Qualifying third-party The directors were granted authority at The Company’s issued ordinary share indemnity provisions (as defined by the 2022 AGM to allot relevant securities capital as at 1 April 2023 comprised a Section 234 of the Companies Act 2006) up to a nominal amount of £6,529,881.95. single class of ordinary share. Each share were in force during the year ended 1 April This authority will apply until the carries the right to one vote at general 2023 and remain in force in relation to conclusion of the 2023 AGM. At this year’s meetings of the Company. certain losses and liabilities which the Annual Report & Financial Statements 2023 131 GOVERNANCE ## OTHER DISCLOSURES CONTINUED | AGM, shareholders will be asked to grant | under the allotment, asenvisaged | of control of the Company following a | | --- | --- | --- | | an authority to allot relevant securities (i) | byparagraph 3 of Section 2B of the | takeover bid. Details of the significant | | up to a nominal amount of £6,550,886.24 | Statement of Principles onDisapplying | agreements of this kind are as follows: | | and (ii) comprising equity securities up to a | Pre-Emption Rights issued by the | | – The $300m US Notes issued by the nominal amount of £13,101,772.49 (after Pre-Emption Group in November 2022. Company to various institutions on deducting from such limit any relevant A special resolution will also be 6December 2007 under Section 144a securities allotted under (i)), in connection proposedto renew the directors’ of the US Securities Act contain an with a pre-emptive offer (the Section 551 authority to repurchase the Company’s option such that, upon a change of amount), such Section 551 amount to ordinary shares in the market. control event, combined with a credit apply until the conclusion of the AGM to Theauthority will be limited to a ratings downgrade, any holder of such be held in 2024 or on 1 October 2024, maximum of 196,526,587 ordinary shares a US Note may require the Company to whichever is sooner. and sets the minimum and maximum prepay the principal amount of that At the 2022 AGM, two separate special prices which would be paid. USNote. resolutions were passed empowering – The £850m Credit Agreement dated DEADLINES FOR EXERCISING thedirectors to allot equity securities 13December 2021 between the VOTINGRIGHTS forcash without first offering them to Company andvarious banks contains Votes are exercisable at a general existing shareholders in proportion aprovision such that, upon a change meeting of the Company in respect of totheir existing holdings. A special ofcontrol event, unless new terms which the business being voted upon is resolution will be proposed at the 2023 areagreed within 60 days, the facility being heard. Votes may be exercised in AGM to renew and enhance the directors’ under this agreement willbe cancelled person, by proxy or, in relation to powers – in line with the latest with all outstanding amounts corporate members, by corporate institutional shareholder guidelines – becoming immediately payable representatives. The Articles provide a tomake non-pre-emptive issues for withinterest. deadline for submission of proxy forms cashonly and otherwise up to a nominal of not less than 48 hours before the time – The amended and restated Relationship amount of £1,965,265.87. In addition, appointed for the holding of the meeting Agreement dated 6 October 2014 aseparate special resolution will be or adjourned meeting. However, when (originally dated 9 November 2004 and proposed to authorise directors to calculating the 48-hour period, the amended and restated on 1 March 2005 makenon-pre-emptive issues for cash in directors can, and have, decided not to and 1 February 2012), between HSBC UK connection with acquisitions or specified take account of any part of a day that is Bank plc, Marks and Spencer Financial capital investments, up to a further not a working day. Services plc (“M&S Bank”) and the nominal amount of £1,965,265.87. Inboth Company’s wholly owned subsidiary, cases an additional follow-on offer, up to SIGNIFICANT AGREEMENTS – Marks and Spencer plc (“M&S plc”) and a nominal amount equal to 20% of any CHANGEOF CONTROL relating to M&S Bank, contains certain allotment made under either special There are a number of agreements to provisions which address a change of resolution can be made to existing which the Company is party that take control of the Company. Upon a change holders of securities not allocated shares effect, alter or terminate upon a change of control, the existing rights and obligations of the parties in respect of M&S Bank continue and HSBC gains INTERESTS IN VOTING RIGHTS certain limited additional rights in Information provided to the Company The information provided below was respect of existing customers of the pursuant to the Financial Conduct correct at the date of notification; however, new controller of M&S plc. Where a Authority’s DTRs is published on a the date it was received may not have been third-party arrangement is in place Regulatory Information Service and on within the current financial year. It should forthe supply of financial services the Company’s website. As at 1 April 2023, be noted that these holdings are likely to products to existing customers of the the following information has been have changed since the Company was new controller, M&S plc is required to received, in accordance with DTR 5, from notified. However, notification of any procure the termination of such holders of notifiable interests in the change is not required until the next Company’s issued share capital. notifiable threshold is crossed. arrangement as soon as practicable (while not being required to do anything that would breach such a third-party Notifiable interests Voting rights % of capital disclosed Nature of holding as per disclosure arrangement). Where a third-party Indirect interest (5.547%), arrangement is so terminated, or does Schroders plc 90,153,730 5.549* CFD (0.001%) not exist, HSBC hasthe exclusive right Citadel LLC and to negotiate proposed terms for the its group 97, 679,549 5.00052** Equity swap offer and sale offinancial services | | Indirect interest (4.77%), securities | products to the existing customers of | | --- | --- | --- | | Blackrock, Inc. 106,621018 5.42*** | lending (0.48%), CFD (0.17%) | the new controller by HSBC on an | | Redwheel (formerly | | exclusive basis. Where M&S plc | | RWC Asset | | undertakes a re-branding exercise with | Management LLP) 104,965,660 5.38 Indirect interest the new controller following a change of Norges Bank 57,796,956 2.95168 Direct interest control (which includes using any M&S brand in respect of the new controller’s * Disclosures made prior to the 2019 rights issue. business or vice versa), HSBC may, ** Disclosed on 15 September 2020. A further disclosure was made on the same day notifying the Company that Citadel’s holding had decreased below the 5% notifiable threshold, which did not state the new position. depending on the nature of the re-branding exercise, have the right *** Disclosed on 16 January 2023. A further disclosure was made on 20 March 2023 notifying the Company that Blackrock’s holding had decreased below the 5% notifiable threshold which did not state the new position. (exercisable at HSBC’s election) to terminate the Relationship Agreement. 132 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS | The Company does not have agreements | M&S is an organisation which uses | GROCERIES SUPPLY CODE | | --- | --- | --- | | with any director or employee that would | everyone’s talents and abilities and | OFPRACTICE | | provide compensation for loss of | where inclusion and diversity are valued. | The Groceries (Supply Chain Practices) | | officeor employment resulting from a | M&S has a business-wide inclusion and | Market Investigation Order 2009 (the | | takeover except that provisions of the | diversity strategy, sponsored by a | “Order”) and The Groceries Supply Code | | Company’s share schemes and plans | member of the Executive Committee | of Practice (the “Code”) impose | | may cause options and awards granted | and championed by our Inclusion | obligations on M&S regarding its | | to employees under such schemes and | Activation Group of senior leaders. | relationships with its suppliers of | | plans to vest on a takeover. | | groceries. Under the Order and Code, | Our seven employee-led diversity M&S is required to submit an annual COLLEAGUE INVOLVEMENT networks are supported by a central compliance report to the Audit & Risk We remain committed to colleague Inclusion and Diversity team, who work Committee for approval and then to the involvement throughout the business. toembed a culture of inclusion across Competition and Markets Authority and Colleagues are kept well informed of the the organisation. Last year, as part of Groceries Code Adjudicator (“GCA”). | performance and strategy of the Group. | thereset of our inclusion and diversity | | | --- | --- | --- | | Examples of colleague involvement and | strategy we set the aim to reach 50% | M&S submitted its report, covering the | | engagement, and information on our | female representation and 15% ethnic | period from 3 April 2022 to 1 April 2023 | | approach to our workforce, are | minority representation on the M&S | tothe Audit & Risk Committee on 11 May | | highlighted throughout this Annual | senior management team by 2025. | 2023. It was approved on 18 May 2023. | Report and specifically on pages 8 to 10, We have made great progress in driving In accordance with the Order, 28 to 31, and 80 to 82. female representation at this level and asummaryof that compliance Share schemes are a long-established throughout our talent pipelines, and we reportissetout below. and successful part of colleagues’ total are continuing to address the barriers M&S believes that it has materially reward packages, encouraging and and identify opportunities to attract and complied with the Code and the Order supporting employee share ownership. develop ethnic minority talent. We know during the relevant period. No formal The Company operates both an all- we have a lot more to do, but we are disputes under the Code have arisen employee SAYE Scheme and a Share facing into this and want to show our during the reporting period. There have Incentive Plan. As at 1 April 2023, 14,934 colleagues, customers and communities been nine instances during the reporting colleagues were participating in the that we continue to be committed to period in which suppliers have either Company’s SAYE Scheme. Full details making M&S an inclusive organisation. alleged a breach or made a reference to ofall schemes are given on pages 173 Further information on our inclusion and potential non-compliance with the Code. to175. | | diversity initiatives can be found on | M&S has worked with the suppliers to | | --- | --- | --- | | There are websites for both pension | pages 28 to 31, and page 89. | address the issues raised and seven of | | schemes – the defined contribution | | them have been resolved or closed, | EMPLOYEES WITH DISABILITIES scheme (Your M&S UK Pension Saving withtwo issues remaining open. One The Company is clear in its policy that Plan) and the defined benefit scheme additional Code reference made by a people with health conditions, both (the Marks & Spencer UK Pension supplier before 3 April 2022 was also visible and non-visible, should have full Scheme) – which are fully accessible to closed during the reporting period. and fair consideration for all vacancies. employees and former employees who M&S has continued to demonstrate its A detailed summary of the compliance have retained benefits in either scheme. commitment to interviewing those report is available on our website. Employees are updated as needed with applicants with disabilities who fulfil the any pertinent information on their POLITICAL DONATIONS minimum criteria, and endeavouring to pension savings. The Company did not make any political retain employees in the workforce if they donations or incur any political expenditure EQUAL OPPORTUNITIES become disabled during employment. during the year ended 1 April 2023. M&S has The Group is committed to an active M&S will actively retrain and adjust a policy of not making donations to inclusion, diversity and equal employees’ environments where possible political organisations or independent opportunities policy: from recruitment to allow them to maximise their potential election candidates or incurring political and selection, through training and and will continue to work with external expenditure anywhere in the world as development, performance reviews organisations to provide workplace defined in the Political Parties, Elections andpromotion, to retirement. opportunities through our innovative and Referendums Act2000. Marks & Start scheme, working closely The Company’s policy is to promote an with The Prince’s Trust and Jobcentre GOING CONCERN environment free from discrimination, Plus, most recently via the Kickstart In adopting the going concern basis for harassment and victimisation, where programme. preparing the financial statements, the everyone will receive equal treatment directors have considered the business regardless of gender, colour, ethnic or RESEARCH & DEVELOPMENT activities as set out on pages 12 to 27, the national origin, health condition, age, Research and innovation remain key to financial position of the Group, its cash marital or civil partner status, sexual ourFood and Clothing & Home offers, flows, liquidity position and borrowing orientation, gender identity or faith. All enabling the development of better facilities as set out in the Financial Review decisions relating to employment products. Further information is on pages 35 to 41, theGroup’s financial practices will be objective, free from bias availableon our corporate website: risk management objectives and and based solely upon work criteria and corporate.marksandspencer.com exposures to liquidity and financial risks individual merit. The Company is andour Sustainability Report 2023. as set out in note 21 to the financial responsive to the needs of its employees, statements, as well as the Group’s customers and the community at large. principal risks and uncertainties as set out on pages 58 to 65. Annual Report & Financial Statements 2023 133 GOVERNANCE ## OTHER DISCLOSURES CONTINUED | Based on the Group’s cash flow | The directors are also responsible for | Each of the current directors, whose | | --- | --- | --- | | forecasts, the Board expects the Group | preparing the Annual Report, the | names and functions are listed on pages | | to have adequate resources to continue | Remuneration Report and Policy and the | 72 to 73, confirms that, to the best of | | in operation, meet its liabilities as they | financial statements in accordance with | their knowledge: | | fall due, retain sufficient available cash | applicable law and regulations. Company | | – The Group financial statements, and not breach the covenant under its law requires the directors to prepare prepared in accordance with the revolving credit facility for the financial statements for each financial applicable set of accounting foreseeable future, being a period of year. Under that law the directors are standards, give a true and fair view atleast 12 months from the approval required to prepare the Group financial ofthe assets, liabilities, financial ofthe financial statements. The Board statements in accordance with position and profit or loss of the therefore considers it appropriate for international accounting standards in Company and the undertakings the Group to adopt the going concern conformity with the requirements of the included in the consolidation taken basis in preparing its financial Companies Act 2006 and International asa whole. statements. Financial Reporting Standards (“IFRS”) as adopted by the UK. Under company law, – The Management Report includes See note 20 to the financial statements the directors must not approve the afair review of the development for more information on our facilities. financial statements unless they are andperformance of the business satisfied that they give a true and fair andthe position of the Company LONG-TERM VIABILITY STATEMENT view of the state of affairs of the Group andthe undertakings included in The directors have assessed the and the Company and of the profit or theconsolidation taken as a whole, prospects of the Company over a loss of the Group and the Company for together with a description of the three-year period to March 2026. This has that period. principal risks and uncertainties that taken into account the business model, they face. strategic aims, risk appetite, and In preparing these financial statements, principal risks and uncertainties, along the directors are required to: – The Annual Report, taken as with the Company’s current financial awhole,isfair, balanced and position. Based on this assessment, – Select suitable accounting policies understandable, and provides thedirectors have a reasonable andthen apply them consistently. thenecessary information for expectation that the Company will be – Make judgements and accounting shareholders to assess the Group’s able to continue in operation and meet estimates that are reasonable and position, performance, business its liabilities as they fall due over the prudent. modeland strategy. three-year period under review. – State whether applicable IFRS (as DISCLOSURE OF INFORMATION See our approach to assessing long-term adopted by the UK) have been TO AUDITOR viability on pages 66 to 67. followed, subject to any material Each of the persons who are directors departures disclosed and explained atthe time when this Directors’ Report AUDITOR inthe financial statements. isapproved confirms that, so far as they Resolutions to reappoint Deloitte LLP as are aware, there is no relevant audit auditor of the Company and to authorise – Prepare the financial statements information of which the Company’s the Audit & Risk Committee to determine onagoing concern basis unless it is auditor is unaware and that they have its remuneration will be proposed at the inappropriate to presume that the taken all the steps that they ought 2023 AGM. Company will continue in business. tohave taken as a director to make | ANNUAL GENERAL MEETING | The directors are responsible for | themselves aware of any relevant audit | | --- | --- | --- | | The AGM of Marks and Spencer Group plc | keepingadequate accounting records | information and to establish that the | | will be broadcast online from M&S’ | that are sufficient to show and explain | Company’s auditor is aware of that | | Waterside House support centre on | the Company’s transactions and disclose | information. | | 4 July 2023 at 11am. Shareholders are | with reasonable accuracy at any time | | The Directors’ Report was approved advised not to travel to the venue on thefinancial position of the Company byaduly authorised committee of the theday. The Notice of Meeting is given, and enable them to ensure the financial Board of Directors on 23 May 2023 together with explanatory notes and statements comply with the Companies andsigned on its behalf by | guidance on how to access the meeting | Act 2006. They are also responsible for | | --- | --- | | and vote electronically, on pages 218 | safeguarding the assets of the Group | | to229. | andthe Company and hence for taking | reasonable steps for the prevention DIRECTORS’ RESPONSIBILITIES anddetection of fraud and other The Board is of the view that the Annual irregularities. Nick Folland Report should be truly representative of General Counsel & Company Secretary | the year and provide shareholders with | The directors are responsible for | | | --- | --- | --- | | the information necessary to assess the | themaintenance and integrity of the | London, 23 May 2023 | | Group’s position, performance, business | Company’s website. Legislation in | | | model and strategy. | theUKgoverning the preparation and | | dissemination of financial statements The Board requested that the Audit & may differ from legislation in other Risk Committee review the Annual jurisdictions. Report and provide its opinion on whether the report is fair, balanced and understandable. The Audit & Risk Committee’s opinion is on page 94. 134 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF MARKS AND SPENCER GROUP PLC ## Report on the audit of the financial statements ### 1. OPINION In our opinion: - the financial statements of Marks and Spencer Group plc (the 'Parent Company') and its subsidiaries (the 'Group') give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 1 April 2023 and of the Group's profit for the 52 weeks then ended; - the Group financial statements have been properly prepared in accordance with United Kingdom adopted international accounting standards - the Parent Company financial statements have been properly prepared in accordance with United Kingdom adopted international accounting standards and as applied - in accordance with the provisions of the Companies Act 2006; and - the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements which comprise: - the Consolidated Income Statement; - the Consolidated Statement of Comprehensive Income; - the Consolidated and Parent Company Statements of Financial Position; - the Consolidated and Parent Company Statements of Changes in Equity; - the Consolidated and Parent Company Statements of Cash Flows; and - the related notes 1 to 33 and C1 to C7. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom adopted international accounting standards and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. ### 2. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council's (the 'FRC's') Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services provided to the Group and Parent Company for the period are disclosed in note 4 to the financial statements. We confirm that we have not provided any non-audit services prohibited by the FRC's Ethical Standard to the Group or the Parent Company. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. ### 3. SUMMARY OF OUR AUDIT APPROACH | Key audit matters | Materiality | Significant changes in our approach | | --- | --- | --- | | The key audit matters that we identified in the current year were: - impairment and impairment reversal of UK store assets; - accounting for the UK store estate programme; - inventory provisions within UK Clothing & Home; and - disclosure of adjusting items as part of alternative performance measures. These are all consistent with, and represent a similar level of risk as, last year. | The materiality that we used for the Group financial statements was £24.0m which was determined by considering a number of different metrics used by investors and other readers of the financial statements. These included: - profit before tax; - profit before tax & adjusting items; - earnings before interest, tax, depreciation and amortisation ('EBITDA'); and - revenue. **Scoping** We have performed a full-scope audit on the UK component of the business. Balances subject to full scope audit represents 93% (2022: 95%) of the group revenue, 90% (2022: 88%) of profit before tax and adjusting items, 81% (2022: 93%) of profit before tax, 78% (2022: 80%) of total assets and 84% (2022: 88%) of total liabilities. We perform specified audit procedures in relation to the India business and analytical procedures on residual balances. | No significant changes apply for the current period. | Annual Report & Financial Statements 2023 135 FINANCIAL STATEMENTS ## INDEPENDENT AUDITOR’S REPORT CONTINUED | 4. CONCLUSIONS RELATING TO GOING | – comparing forecast sales with recent | In relation to the reporting on how the | | --- | --- | --- | | CONCERN | historical financial information to | Group has applied the UK Corporate | | In auditing the financial statements, we | consider accuracy of forecasting; | Governance Code, we have nothing | | have concluded that the directors’ use of | | material to add or draw attention to in | – testing the underlying data generated the going concern basis of accounting in relation to the directors’ statement in the to prepare the forecast scenarios the preparation of the financial financial statements about whether the andto determine whether there statements is appropriate. directors considered it appropriate to wasadequate support for the adopt the going concern basis of assumptions underlying the forecast; Our evaluation of the directors’ accounting. assessment of the Group’s and Parent – reviewing correspondence relating Company’s ability to continue to adopt tothe availability of the Group’s Our responsibilities and the the going concern basis of accounting financing arrangements; responsibilities of the directors with included: respect to going concern are described – assessing the impact of macro- inthe relevant sections of this report. economic conditions on the business; – obtaining an understanding of relevant and | controls relating to the assessment of | | 5. KEY AUDIT MATTERS | | --- | --- | --- | | going concern models, including the | – considering the results of the | Key audit matters are those matters that, | | review of the inputs and assumptions | sensitivity analyses performed; and | in our professional judgement, were of | | used in those models; | | most significance in our audit of the | – evaluating the Group’s disclosures on financial statements of the current period – obtaining management’s board- going concern in the financial and include the most significant assessed approved three-year cash flow forecasts statements against the requirements risks of material misstatement (whether or and covenant compliance forecasts, of IAS 1. not due to fraud) that we identified. These including the sensitivity analysis; Based on the work we have performed, we matters included those which had the – reviewing management’s assessment have not identified any material greatest effect on: the overall audit ofgoing concern and viability, including uncertainties relating to events or strategy, the allocation of resources in the three-year plan, as set out in their conditions that, individually or collectively, theaudit; and directing the efforts of the paper to the Audit & Risk Committee; may cast significant doubt on the Group’s engagement team. – assessing the appropriateness of and Parent Company’s ability to continue These matters were addressed in the forecast assumptions by: as a going concern for a period of at least context of our audit of the financial – reading analyst reports, industry twelve months from when the financial statements as a whole, and in forming our data and other external information statements are authorised for issue. opinion thereon, and we do not provide a and comparing these with separate opinion on these matters. management’s estimates; 5.1. Impairment and impairment reversal of UK store assets Key audit matter description | As at 1 April 2023 the Group held | As described in note 15 to the financial | degree of estimation uncertainty | | --- | --- | --- | | £3,452.5million (2022: £3,379.4 million) | statements, the Group has estimated the | (asdisclosed in notes 1 and 15). | | ofUK store assets in respect of stores | recoverable amount of store assets | | The key assumptions applied by notconsidered for closure within the UK based on their value in use, derived from management in the impairment store estate programme. In accordance a discounted cash flow model prepared reviewsperformed are: with IAS 36 Impairment of Assets, the by management. The model relies on – future revenue growth and changes Group has undertaken an annual certain assumptions and estimates of ingross margin; assessment of indicators of impairment. future trading performance, – long term growth rates; and An impairment charge of £17.3 million incorporating committed strategic – discount rates. | (2022: £6.9 million) and a reversal of | changes to the UK Clothing & Home and | | | --- | --- | --- | | previously recognised impairment | Food businesses and the performance of | The Audit & Risk Committee considers | | charges of £33.1 million (2022: | new stores operating within their shelter | this to be a significant matter. Their | | £63.4million) have been recognised as | period (which takes into account the time | consideration is on page 97. | | set out in notes 5 and 15 to the financial | new stores take to establish themselves | | | statements. | in the market), all of which involve a high | | How the scope of our auditresponded to the keyaudit matter | In responding to the identified key audit | for consistency with the requirements | – evaluated the appropriateness and | | --- | --- | --- | | matter, we completed the following audit | ofIAS 36; | completeness of information included | | procedures: | – assessed the impact of macro- | in the impairment model based on our | | | economic conditions on the store assets | cumulative knowledge of the business | – obtained an understanding of relevant and future forecast assumptions; driven by our review of trading plans, controls relating to the impairment – assessed the appropriateness of strategic initiatives, minutes of property review process; forecast revenue and gross margin and investment committee meetings, – evaluated and challenged growth rates through comparison with and meetings with regional store management’s range of impairment external economic benchmarking data managers and senior trading managers indicators with due consideration given and with reference to historical from key product categories, together to the profitability impact of committed forecastingaccuracy; with our wider retail industry knowledge; strategic changes to the UK Clothing & – assessed the appropriateness of the and Home and Food businesses and the discount rates applied with the – assessed the completeness and performance of new stores; involvement of our valuations accuracy of disclosures within the – assessed the mechanical accuracy of specialists and compared the rates financial statements in accordance the impairment models and the applied with our benchmarking data; withIFRS. methodology applied by management 136 Marks and Spencer Group plc STRATEGIC REPORT FINANCIAL STATEMENTS GOVERNAN CE 5.1. Impairment and impairment reversal of UK store assets continued Key observations We are satisfied that the judgements applied, impairment charges and reversals recorded and disclosures within the financial statements are appropriate. 5.2. Accounting for the UK store estate programme Key audit matter description | In February 2018, the Board approved a | – depreciation of store assets where | rate, store closure costs, freehold sale | | --- | --- | --- | | list of stores marked for closure as part of | previously identified for closure, as | proceeds, leasehold surrender costs and | | its UK store estate programme. The total | they approach their planned closure | expected sublet income, lease incentives | | charge recognised in connection with this | dates; and | and void periods. | | closure programme in previous periods | – accelerated depreciation and | | The Audit & Risk Committee considers was £819.0 million. A further net charge impairment of buildings and fixtures this to be a significant matter. Their of £51.3 million has been recognised in and fittings in respect of additional consideration is on page 97. | the current period as a result of: | | stores added to the programme. | | --- | --- | --- | | – an increase in the number of stores | Further information is set out in notes 1,5 | | | assessed as probable for closure and | and 15 to the financial statements and | | | the update of estimates made in light | page 24 of the strategic report. | | of known developments in the exit Our key audit matter was focused on the strategy, including current trading specific assumptions applied in the performance, negotiations with discounted cash flow analysis prepared landlords and changes in the retail by management including the discount property market; How the scope of our auditresponded to the keyaudit matter In responding to the identified key audit – with the involvement of our real estate – recalculated the closing provision for a matter, we completed the following audit specialists, we evaluated the representative sample of stores; procedures: appropriateness of management’s – evaluated the accuracy and judgements for a representative completeness of provisions recorded – obtained an understanding of relevant sample of properties and in light of the status of the Group’s controls relating to the review and benchmarked with reference to UK store estate plan; and approval of the Group’s UK store exit external data; – assessed the completeness and model; – assessed the mechanical accuracy of accuracy of disclosures within the – performed enquiries of management discounted cash flow models and other financial statements in accordance and inspected the latest strategic key provision calculations; with IFRS. plans, Board and relevant sub- – assessed the integrity of key inputs to committee minutes of meetings; the discounted cash flow models – understood and challenged the basis including the discount rate, store of management’s judgement where closure costs, freehold sale proceeds, stores previously marked for closure leasehold surrender costs, expected are no longer expected to close and sublet income, sublet lease incentives additional stores have been identified and void periods with reference to for closure; available evidence; Key observations We are satisfied that the Group’s estimate of the store exit charges and the associated disclosures are appropriate. Annual Report & Financial Statements 2023 137 FINANCIAL STATEMENTS ## INDEPENDENT AUDITOR’S REPORT CONTINUED 5.3. Inventory provisions within UK Clothing & Home Key audit matter description | As at 1 April 2023, the Group held UK | obsolete inventory and inventory | Management has determined the level | | --- | --- | --- | | Clothing & Home inventories of £470.7 | expected to be sold below cost based | ofprovision using judgement and with | | million (2022: £458.6 million), inclusive | upon a detailed analysis of old season | reference to forecast future sales | | ofa provision of £53.1 million (2022: | inventory and forecast net realisable | utilising available data from past periods | | £48.3million). | value based upon plans for inventory to | on the saleability of stock. | go into sale. We consider the assessment As described in the Accounting Policies of inventory provisions within UK innote 1 to the financial statements, Clothing & Home to require the most inventories are carried at the lower of judgement due to historical trading cost and net realisable value. As a result, performance and the quantum of judgement is applied in determining the grossinventory. appropriate provisions required for How the scope of our auditresponded to the keyaudit matter In responding to the identified key audit – assessed the mechanical accuracy and – tested the accuracy of the process matter, we completed the following audit logic of the models underpinning the used by management to identify procedures: provisions; potentially impaired inventory across – understood the changes in the arepresentative sample of individual – obtained an understanding of relevant provisioning methodology and product lines; and controls relating to inventory challenged the appropriateness – assessed the completeness and management and the review and thereof; accuracy of disclosures within the approval of the inventory provisions; – challenged and validated the key financial statements in accordance – assessed the validity, accuracy and assumptions applied by management with IFRS. completeness of the information used in estimating the provisions, by by management in computing the performing enquiries of buyers and provisions; merchandisers, considering the current purchasing strategy and ranging plans, assessed the historical accuracy of forecasting stock to be subject to a future discount; Key observations We are satisfied with the judgements taken by management and that the resulting inventory provisions for UK Clothing & Home is appropriate. 138 Marks and Spencer Group plc STRATEGIC REPORT FINANCIAL STATEMENTS GOVERNAN CE 5.4. Disclosure of adjusting items as part of alternative performance measures Key audit matter description The Group has presented an alternative | performance measure being profit | | | |  | EF | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | |  | |  | | | EF |  | | | | | before tax and adjusting items of | |  | | | | | | EF | | | | £482.0million (2022: £522.9 million), |  | | | | | | | | | | | which is derived from profit before tax of |  | | | | | | | |  |  |   | £475.7 million (2022: profit before tax of | |  | | --- | --- | --- | | £391.7 million) adjusted for a number of | %{wzzw}\| |  | | items totalling £6.3 million (2022: £131.2 | |  | million) which the Group considers meet their definition of an ‘adjusting item’. [w Judgement is exercised by management a@gVo|y gqoz i_z}uwwq EssozF pst}so in determining the classification of such cuo|wow}| i_}ssos cqor}szosr Urxsr~} d}pst}so gw{~zwqow}| items in accordance with guidance issued g}sw{~ow{s|G Zo|qvwssqs by the FRC and ESMA. We consider there to be a risk of fraud in the reporting of adjusting items within the alternative – the clarity and detail of disclosures in performance measures. In determining profit before tax and respect of adjusting items as part of adjusting items, we identified the Explanations of each adjusting item alternative performance measures following risks: areset out in note 5 to the financial may be insufficient, preventing statements and are summarised in – the identification and classification investors from obtaining a clear thegraphic to the right. ofitems as ‘adjusting’ as part of understanding of the Group’s results thepresentation of alternative and performance. performance measures may be The Group’s policy regarding adjusting inappropriate, distorting the items is set out in note 1. This is a reportedresults; significant matter considered by the – the omission of items which are Audit & Risk Committee on page 97. considered material, one-off orsignificant in nature, distorting thealternative performance measures;and How the scope of our auditresponded to the keyaudit matter In responding to the identified key – assessed the identification and – considered the impact of adjusting audit matter we completed the consistency of items reported items on the directors’ remuneration following audit procedures: asadjusting period on period, targets to determine whether any withreference to guidance published increased fraud risk factor existed – obtained an understanding of relevant by ESMA and the FRC; based on actual results for the controls, relating to the identification – performed tests over a representative period;and and disclosure of adjusting items within sample of adjusting items through – assessed the completeness and alternative performance measures; agreement to supportingevidence; accuracy of disclosures within the – performed enquiries of management – used our cumulative audit knowledge financial statements in accordance to understand the rationale applied in and applied data analytics to identify with IFRSs. identifying items as adjusting and other transactions outside of the completed an independent normal course of business, or which assessment as to the selection and display characteristics of being material, presentation of adjusting items based significant or one-off in nature; on their nature; Key observations We are satisfied that the items included in adjusting items within the alternative performance measures are in line with the Group’s policy and that they are appropriately disclosed. Annual Report & Financial Statements 2023 139 FINANCIAL STATEMENTS ## INDEPENDENT AUDITOR’S REPORT CONTINUED 6. OUR APPLICATION OF MATERIALITY Group financial statements Parent Company financial statements 6.1. Materiality | We define materiality as the magnitude of | Materiality £24.0 million (2022: £25.0 million) £21.6 million (2022: £22.5 million) | | | | --- | --- | --- | --- | | misstatement in the financial statements | Basis for | We consider the following | We have used 3% of net assets in | | that makes it probable that the economic | determining | metrics in the currentand | both the current and the prior | | decisions of a reasonably knowledgeable | materiality | priorperiod: | period, capped at 90% of Group | | person would be changed or influenced. | | | materiality, as the basis for | – profit before tax and We use materiality both in planning the materiality. adjustingitems; scope of our audit work and in evaluating – earnings before interest, tax, the results of our work. depreciation andamortisation (‘EBITDA’); and Based on our professional judgement, we – revenue. determined materiality for the financial In the current period we also statements as a whole as follows: considered profit before tax. Using professional judgement, we determined materiality to be £24.0m. Rationale In determining our benchmark Net assets is used as the forthe for materiality, weconsidered a benchmark as the Parent benchmark number of different metrics Company operates primarily as a applied usedby investors and other holding company for the Group readers of the and we therefore consider this as financialstatements. the key metric for the Parent Company. Metric % We capped materiality at 90% of Profit before tax 5.0 Group materiality to reduce the risk of a material error arising as a Profit before tax 5.0 result of the consolidation of the and Parent Company’s result in the adjustingitems Group financial statements. EBITDA 2.3 Revenue 0.2 6.2. Performance materiality Group financial statements Parent Company financial statements We set performance materiality at a | levellower than materiality to reduce | Performance | 65% (2022: 65%) of | 65% (2022: 65%) of Parent | | --- | --- | --- | --- | | theprobability that, in aggregate, | materiality | Groupmateriality | Company materiality | | uncorrected and undetected | Basis and | In determining performance materiality, we considered the | | | misstatements exceed the materiality | rationale for | followingfactors: | | | forthe financial statements as a whole. | determining | | | – our cumulative knowledge of the Group and its environment, performance including industry specific trends; materiality – the change in the level of judgement required in key accountingestimates; – reliability on internal control over financial reporting; – the level of change to the business in the period; – the stability in key management personnel; – the level of centralisation in the Group’s financial reporting controls and processes; and – the level of misstatements identified in prior periods. | 6.3. Error reporting threshold | 7. AN OVERVIEW OF THE SCOPE | misstatement identified. Based on our | | --- | --- | --- | | We agreed with the Audit & Risk | OFOUR AUDIT | assessment we have focused our audit | | Committee that we would report to the | 7.1. Identification and scoping | on the UK and India businesses which | | Committee all audit differences in excess | ofcomponents | were subject to full audit procedures and | | of £1.2 million (2022: £1.3 million), as well | Our audit was scoped by obtaining | specified audit procedures on individual | | as differences below that threshold that, | anunderstanding of the Group and | balance sheet accounts respectively. We | | inour view, warranted reporting on | itsenvironment, including group-wide | have performed our full audit scope of | | qualitative grounds. We also report to | controls, and assessing the risks | the UK component using a materiality of | | theAudit & Risk Committee on disclosure | ofmaterial misstatement at the | £21.6 million (or 90% of Group materiality) | | matters that we identified when | Grouplevel. | (2022: £22.5 million), and our specified | | assessing the overall presentation | | audit procedures in India using a | Components were selected to provide an ofthefinancial statements. materiality of £3.5 million (or 14.6% of appropriate basis for undertaking audit Group materiality (2022: specified audit work to address the risks of material procedures were not performed). 140 Marks and Spencer Group plc STRATEGIC REPORT FINANCIAL STATEMENTS GOVERNAN CE | The Group holds 50% of the ordinary | 7.2. Our consideration of the control | assessment of the potential impact of | | --- | --- | --- | | shares of Ocado Retail Ltd (‘ORL’). | environment | climate change on the Group’s account | | Thisinterest is accounted for as an | Our audit strategy is to rely on controls | balances and classes of transaction and | | investment in associate in accordance | over certain processes within a number | did not identify any reasonably possible | | with IAS 28 on the basis that the | of business cycles. These included | risks of material misstatement. Our | | shareholders’ agreement gives control | procurement within UK Clothing & Home | procedures were performed with the | | over ORL to Ocado Group plc. In the | and Food, inventory, and fixed assets | involvement of our climate-change | | current period the Group recorded a | including IFRS 16 Leases. As part of | specialists and included reading | | share of loss of associate from ORL of | ourcontrols testing, we obtained an | disclosures included in the Strategic | | £43.5 million (2022: £18.6 million) and | understanding of the Group’s processes | Report to consider whether they are | | wassubject to specified audit procedures. | and tested controls through a combination | materially consistent with the financial | | | of tests of inquiry, observation, | statements and our knowledge obtained | At a Group level, we tested the inspection and re-performance. in the audit. consolidation and performed analytical review procedures over components not On certain business cycles, we obtained We did not identify climate-related risk in scope. an understanding of, but did not rely on, asa separate Key Audit Matter in our controls. These included inventory audit given the nature of the Group’s provisions, food rebates and financial operations and knowledge gained of its close and reporting. impact on critical accounting estimates and judgements during our risk Given the importance of information assessment procedures and audit technology (“IT”) to the recording of procedures. Full audit scope 93% financial information and transactions, | Specified audit | we have tested General IT controls | We have not been engaged to provide | | --- | --- | --- | | procedures 0% | relating to certain of the Group’s IT | assurance over the accuracy of these | | | systems where relevant to our audit work. | disclosures. | Review at group level We have been able to place IT controls 7.4. Working with other auditors reliance across these systems to support We have two component audit teams: the audit of a number of business cycles, ORL; and Deloitte India. We have issued such as payables, procurement, lease detailed instructions to both component accounting, property plant and audit teams to perform specified audit equipment and inventory. procedures. Due to the non-co-terminus Full audit scope 90% 7.3. Our consideration of climate- year-end of ORL, we have performed a related risks review of the component auditor’s files Specified audit The Group continues to develop its for the period ended 27 November 2022 procedures 0% assessment of the potential impacts of and the reporting received from the Review at climate change and set targets which component auditor for the period management considers to be aligned subsequent to 27 November 2022. with the Paris Agreement. Management We have engaged regularly with the has identified a number of milestones, component auditors throughout the including the target of net zero carbon audit process, determining the nature, emissions by 2040, as discussed in the timing and extent of the specified audit Task Force on Climate-Related Financial procedures to be performed and to Full audit scope 81% Disclosures report on pages 44 to 55. review their component reporting. This assessment focused on property, Specified audit Adedicated member of the Group audit fleet and two of the Group’s key procedures 0% team is assigned to facilitate an effective resources: protein; and cotton. Review at and consistent approach to component group level Management considers that the most oversight. likely impact on the financial statements 8. OTHER INFORMATION will be in relation to its three-year cash The other information comprises the flow forecasts, including those described information included in the annual report as part of our key audit matters in section other than the financial statements and 5, and has included the impact within our auditor’s report thereon. The directors these forecasts where appropriate. are responsible for the other information Full audit scope 78% Whilstat this stage there is significant contained within the annual report. uncertainty regarding what the long- Specified audit term impact of climate change initiatives Our opinion on the financial statements procedures <1% may be, the forecasts reflect does not cover the other information and, Review at | | | management’s best estimate of the | except to the extent otherwise explicitly | | --- | --- | --- | --- | | | | impact on the financial statements as | stated in our report, we do not express any | | | | explained in note 1. | form of assurance conclusion thereon. | | | | As a part of our audit procedures, we | Our responsibility is to read the other | | | | have obtained management’s climate- | information and, in doing so, consider | | | | related risk assessment and held | whether the other information is | | | Full audit scope 84% | discussions with management to | materially inconsistent with the financial | | REVENUE TOTAL ASSETS TOTAL LIABILITIES ADJUSTED PROFIT BEFORE TAX PROFIT BEFORE TAX | | | | | | | understand the process of identifying | statements or our knowledge obtained in | Specified audit procedures 0% climate-related risks, the determination the course of the audit, or otherwise of mitigating actions and the impact on appears to be materially misstated. Review at the Group’s financial statements. We group level performed our own qualitative risk Annual Report & Financial Statements 2023 141 group level 22% group level 10% 16% 19% 7% FINANCIAL STATEMENTS ## INDEPENDENT AUDITOR’S REPORT CONTINUED | If we identify such material inconsistencies | 11. EXTENT TO WHICH THE AUDIT | As a result of these procedures, we | | --- | --- | --- | | or apparent material misstatements, we | WASCONSIDERED CAPABLE OF | considered the opportunities and | | are required to determine whether this | DETECTING IRREGULARITIES, | incentives that may exist within the | | gives rise to a material misstatement in the | INCLUDING FRAUD | organisation for fraud and identified | | financial statements themselves. If, based | Irregularities, including fraud, are | thegreatest potential for fraud in the | | on the work we have performed, we | instances of non-compliance with laws | areas inwhich management is required | | conclude that there is a material | and regulations. We design procedures in | toexercise significant judgement, such | | misstatement of this other information, | line with our responsibilities, outlined | asdisclosure of adjusting items within | | weare required to report that fact. | above, to detect material misstatements | alternative performance measures. | | | in respect of irregularities, including | Incommon with all audits under ISAs | | We have nothing to report | fraud. The extent to which our procedures | (UK),we are also required to perform | | inthisregard. | are capable of detecting irregularities, | specific procedures to respond to the | | | including fraud is detailed below. | riskof management override. | 9. RESPONSIBILITIES OF DIRECTORS 11.1. Identifying and assessing potential We also obtained an understanding of As explained more fully in the directors’ risks related to irregularities thelegal and regulatory framework responsibilities statement, the directors In identifying and assessing risks of thatthe Group operates in, focusing are responsible for the preparation of the material misstatement in respect of onprovisions of those laws and financial statements and for being irregularities, including fraud and non- regulations that had a direct effect satisfied that they give a true and fair view, compliance with laws and regulations, onthedetermination of material and for such internal control as the weconsidered the following: amountsand disclosures in the financial directors determine is necessary to enable statements. The key laws and regulations the preparation of financial statements – the nature of the industry and sector, we considered in this context included that are free from material misstatement, control environment and business UKCompanies Act, Financial Conduct whether due to fraud or error. performance including the design of Authority regulations including the Listing theGroup’s remuneration policies, key In preparing the financial statements, the Rules, pensions and tax legislation. drivers for directors’ remuneration, directors are responsible for assessing bonus levels and performance targets; In addition, we considered provisions of the Group’s and the Parent Company’s other laws and regulations that do not – the Group’s own assessment of the risks ability tocontinue as a going concern, have a direct effect on the financial that irregularities may occur either as a disclosing as applicable, matters related statements but compliance with which result of fraud or error that was to going concern and using the going may be fundamental to the Group’s ability approved by the board; concern basis of accounting unless the to operate or to avoid a material penalty. directors either intend to liquidate the – results of our enquiries of the directors, These included the competition and Group or the Parent Company or to management, internal audit and the anti-bribery laws, data protection, cease operations, or have no realistic Audit & Risk Committee about their own Groceries Supply Code of Practice, and alternative but to do so. identification and assessment of the employment, environmental and health risks of irregularities; 10. AUDITOR’S RESPONSIBILITIES FOR and safety regulations. – any matters we identified having THE AUDIT OF THE FINANCIAL 11.2. Audit response to risks identified obtained and reviewed the Group’s STATEMENTS As a result of performing the above, we documentation of their policies and Our objectives are to obtain reasonable identified the disclosure of adjusting items procedures relating to: assurance about whether the financial within alternative performance measures statements as a whole are free from – identifying, evaluating and complying as akey audit matter related to the material misstatement, whether due to with laws and regulations and whether potential risk of fraud. The key audit fraud or error, and to issue an auditor’s they were aware of any instances of matters section of our report explains the report that includes our opinion. non-compliance; matter in more detail and also describes Reasonable assurance is ahigh level of – detecting and responding to the risks the specific procedures we performed in assurance, but is not a guarantee that an of fraud and whether they have response to that key audit matter. audit conducted in accordance with ISAs knowledge of any actual, suspected (UK) will always detect a material In addition to the above, our procedures or alleged fraud; misstatement when it exists. torespond to risks identified included – the internal controls established Misstatements can arise from fraud or thefollowing: tomitigate risks of fraud or error and are considered material if, non-compliance with laws and – reviewing the financial statement individually or in the aggregate, they could regulations; and disclosures and testing to supporting reasonably be expected to influence the documentation to assess compliance – the matters discussed among the audit economic decisions of users taken on the with provisionsofrelevant laws and engagement team and relevant internal basis of these financial statements. regulations described as having a direct specialists, including tax, valuations, A further description of our effect on the financial statements; pensions, IT and industry specialists responsibilities for the audit of the regarding how and where fraud might – enquiring of management, the Audit & financial statements is located on occur in the financial statements and Risk Committee and in-house legal theFRC’s website at: any potential indicators of fraud. counsel concerning actual and potential www.frc.org.uk/auditorsresponsibilities. litigation andclaims; This description forms part of our – performing analytical procedures to auditor’s report. identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud; – reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with HMRC; and 142 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS - in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business. We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal specialists and component team and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. ## Report on other legal and regulatory requirements ### 12. OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: - the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and - the strategic report and the directors' report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in the course of the audit, we have not identified any material misstatements in the strategic report or the directors' report. ### 13. CORPORATE GOVERNANCE STATEMENT The Listing Rules require us to review the directors' statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Group's compliance with the provisions of the UK Corporate Governance Code specified for our review. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit: - the directors' statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on pages 133 to 134; - the directors' explanation as to its assessment of the Group's prospects, the period this assessment covers and why the period is appropriate set out on pages 66 to 67; - the directors' statement on fair, balanced and understandable set out on page 134; - the board's confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 134; - the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on pages 56 to 65; and - the section describing the work of the Audit & Risk Committee set out on pages 92 to 99. ### 14. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION #### 14.1. 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 financial statements are not in agreement with the accounting records and returns. We have nothing to report in respect of these matters. #### 14.2. 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 respect of these matters. ### 15. OTHER MATTERS WHICH WE ARE REQUIRED TO ADDRESS #### 15.1 Auditor tenure Following the recommendation of the Audit & Risk Committee, we were appointed by the shareholders on 8 July 2014 to audit the financial statements for the period ending 28 March 2015 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 9 periods, covering the periods ending 28 March 2015 to 1 April 2023. #### Consistency of the audit report with the additional report to the Audit & Risk Committee Our audit opinion is consistent with the additional report to the Audit & Risk Committee we are required to provide in accordance with ISAs (UK). ### 16. USE OF OUR REPORT This report is made solely to the Parent 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 Parent 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 Parent Company and the Parent Company's members as a body, for our audit work, for this report, or for the opinions we have formed. As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial statements will form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National Storage Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard ('ESEF RTS'). This auditor's report provides no assurance over whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS. #### Richard Muschamp FCA (Senior statutory auditor) For and on behalf of Deloitte LLP Statutory Auditor London 23 May 2023 Annual Report & Financial Statements 2023 143 FINANCIAL STATEMENTS ## CONSOLIDATED INCOME STATEMENT | | | 52 weeks | | 52 weeks | | | --- | --- | --- | --- | --- | --- | | | | | ended | | ended | | | 1 April 2023 | | | 2 April 2022 | | | | | | Total | | Total | | Notes | | | £m | | £m | Revenue 2, 3 11 , 9 31 . 3 10,885. 1 Share of result in associate – Ocado Retail Limited 3, 29 (43 . 5) (18 .6) Operating profit 2, 3, 5 515.1 572. 2 Finance income 5, 6 166 .1 33.9 Finance costs 5, 6 (205 .5) (214 . 4) Profit before tax 4, 5 475 . 7 391 .7 Income tax expense 7 (111 . 2) (82.7) Profit for the year 364 . 5 309. 0 Attributable to: Owners of the parent 363 . 4 306. 6 Non-controlling interests 1.1 2.4 364 . 5 309. 0 Earnings per share Basic earnings per share 8 18. 5p 15 .7p Diluted earnings per share 8 17. 9p 15 .1p Reconciliation of profit before tax & adjusting items: Profit before tax 475 . 7 391 . 7 Adjusting items 5 6.3 131 . 2 Profit before tax & adjusting items – non-GAAP measure 482 . 0 52 2 .9 Adjusted earnings per share – non-GAAP measure Adjusted basic earnings per share 8 18 .1p 21 . 7p Adjusted diluted earnings per share 8 1 7. 5p 20.9p 144 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## CONSOLIDATED STATEMENT ## OF COMPREHENSIVE INCOME | 52 weeks | 52 weeks | | --- | --- | | ended | ended | | 1 April 2023 | 2 April 2022 | Notes £m £m Profit for the year 364 . 5 309. 0 Other comprehensive (expense)/income: Items that will not be reclassified subsequently to profit or loss Remeasurements of retirement benefit schemes 11 (622 . 8) 3 5 7. 0 Tax credit/(charge) on retirement benefit schemes 158 .0 (1 2 7. 6) Loss on disposal of investment held at fair value through other comprehensive income (“FVOCI”) – (3 .7) (46 4 . 8) 225 .7 Items that may be reclassified subsequently to profit or loss Foreign currency translation differences – movements recognised in other comprehensive income 4.3 (13 . 5) – reclassified and reported in profit or loss – (0 .5) Cash flow hedges – fair value movements recognised in other comprehensive income 21 7 7. 0 91. 3 – reclassified and reported in profit or loss 21 (14 . 4) (10. 5) Tax charge on cash flow hedges (18 . 6) (14 .7) 48. 3 52 .1 Other comprehensive (expense)/income for the year, net of tax (416 . 5) 2 7 7. 8 Total comprehensive (expense)/income for the year (52 .0) 586.8 Attributable to: Owners of the parent (53 .1) 58 4. 4 Non-controlling interests 1.1 2.4 (52 .0) 586.8 Annual Report & Financial Statements 2023 145 FINANCIAL STATEMENTS # CONSOLIDATED STATEMENT OF FINANCIAL POSITION | | Notes | As at 1 April 2023 £m | As at 2 April 2022 £m | | --- | --- | --- | --- | | **Assets** | | | | | **Non-current assets** | | | | | Intangible assets | 14 | 163.1 | 192.5 | | Property, plant and equipment | 15 | 5,203.7 | 4,902.3 | | Investment property | | 11.8 | 15.0 | | Investments in joint ventures and associates | 29 | 767.9 | 810.9 | | Other financial assets | 16 | 7.9 | 4.5 | | Retirement benefit assets | 11 | 482.0 | 1,043.9 | | Trade and other receivables | 17 | 298.7 | 270.6 | | Derivative financial instruments | 21 | 0.1 | 21.4 | | Deferred tax assets | 23 | 7.6 | – | | | | **6,942.8** | **7,261.1** | | **Current assets** | | | | | Inventories | | 764.4 | 706.1 | | Other financial assets | 16 | 13.0 | 17.6 | | Trade and other receivables | 17 | 280.6 | 217.1 | | Derivative financial instruments | 21 | 22.6 | 43.6 | | Current tax assets | | 6.5 | – | | Cash and cash equivalents | 18 | 1,067.9 | 1,197.9 | | | | **2,155.0** | **2,182.3** | | **Total assets** | | **9,097.8** | **9,443.4** | | **Liabilities** | | | | | **Current liabilities** | | | | | Trade and other payables | 19 | 2,048.8 | 1,960.9 | | Partnership liability to the Marks & Spencer UK Pension Scheme | 12 | 73.0 | 71.9 | | Borrowings and other financial liabilities | 20 | 444.0 | 247.2 | | Derivative financial instruments | 21 | 58.1 | 3.2 | | Provisions | 22 | 44.0 | 53.6 | | Current tax liabilities | | 38.5 | 34.0 | | | | **2,706.4** | **2,370.8** | | **Non-current liabilities** | | | | | Retirement benefit deficit | 11 | 4.6 | 5.7 | | Trade and other payables | 19 | 181.3 | 188.2 | | Partnership liability to the Marks & Spencer UK Pension Scheme | 12 | 51.8 | 120.4 | | Borrowings and other financial liabilities | 20 | 3,184.0 | 3,561.0 | | Derivative financial instruments | 21 | 7.1 | 0.4 | | Provisions | 22 | 75.4 | 91.8 | | Deferred tax liabilities | 23 | 72.3 | 187.2 | | | | **3,576.5** | **4,154.7** | | **Total liabilities** | | **6,282.9** | **6,525.5** | | **Net assets** | | **2,814.9** | **2,917.9** | | **Equity** | | | | | Issued share capital | 24 | 19.8 | 19.7 | | Share premium account | | 910.7 | 910.6 | | Capital redemption reserve | | 2,680.4 | 2,680.4 | | Hedging reserve | 21 | (31.9) | 17.6 | | Cost of hedging reserve | 21 | 4.2 | 3.6 | | Other reserve | | (6,542.2) | (6,542.2) | | Foreign exchange reserve | | (69.6) | (73.9) | | Retained earnings | | 5,839.1 | 5,897.9 | | **Equity attributable to owners of the parent** | | **2,810.5** | **2,913.7** | | Non-controlling interests | | 4.4 | 4.2 | | **Total equity** | | **2,814.9** | **2,917.9** | The financial statements were approved by the Board and authorised for issue on 23 May 2023. The financial statements also comprise notes 1 to 33. Stuart Machin, Chief Executive Officer Katie Bickerstaffe, Co-Chief Executive Officer 146 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## CONSOLIDATED STATEMENT ## OF CHANGES IN EQUITY | Ordinary | | | Share | | Capital | | | | | | | Foreign | | | | | | Non- | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | share | premium | | redemption | | | Hedging | | Cost of | | Other | exchange | | Retained | | | controlling | | | | | capital | account | | | reserve | | reserve | | hedging | | reserve¹ | reserve | | earnings | 2 | Total | | interest | Total | | | £m | | £m | | | £m | | £m | | £m | £m | | £m | | £m | £m | | £m | £m | As at 4 April 2021 489. 2 910. 4 2 , 210 . 5 (5 4 .8) 4.6 (6 , 542 . 2) (59.9) 5 , 325 . 2 2,28 3.0 2.8 2,2 85.8 Profit for the year – – – – – – – 306.6 306.6 2. 4 309.0 Other comprehensive income/(expense): Foreign currency translation – movements recognised in other comprehensive income – – – – – – (13 . 5) – (13 . 5) – (13 . 5) – reclassified and reported in profit or loss – – – – – – (0. 5) – (0. 5) – (0. 5) Remeasurements of retirement benefit schemes – – – – – – – 3 5 7. 0 3 5 7. 0 – 3 5 7. 0 Tax charge on retirement benefit schemes – – – – – – – (1 2 7. 6) (1 2 7. 6) – (1 2 7. 6) Loss on disposal of investments held at FVOCI – – – – – – – (3.7) (3.7) – (3.7) Cash flow hedges – fair value movement in other comprehensive income – – – 92 .1 (0 .8) – – – 91 . 3 – 91 . 3 – reclassified and reported in profit or loss – – – (10.5) – – – – (10 .5) – (10.5) Tax on cash flow hedges - - - (14 . 5) (0. 2) – – – (14 .7) – (14 .7) Other comprehensive income/(expense) – – – 6 7. 1 (1 .0) – (14 . 0) 225 .7 2 7 7. 8 – 2 7 7. 8 Total comprehensive income/(expense) – – – 6 7. 1 (1 .0) – (14 . 0) 532 . 3 58 4. 4 2.4 586 . 8 Cash flow hedges recognised in inventories – – – 6.5 – – – – 6.5 – 6.5 Tax on cash flow hedges recognised in inventories – – – (1. 2) – – – – (1. 2) – (1 . 2) Transactions with owners: Transactions with non- controlling shareholders – – – – – – – (1.7) (1.7) (1.0) (2.7) Shares issued in respect of employee share options 0.4 0.2 – – – – – (0 . 3) 0. 3 – 0.3 Buy back and cancellation of 3 own shares (4 69 . 9) – 469. 9 – – – – – – – – Credit for share-based payments – – – – – – – 38 .8 38.8 – 38 .8 Deferred tax on share schemes – – – – – – – 3.6 3.6 – 3.6 As at 2 April 2022 19. 7 910. 6 2 ,680. 4 1 7. 6 3.6 (6, 542 . 2) (73. 9) 5 , 8 97. 9 2 , 913 . 7 4. 2 2 , 9 1 7. 9 Annual Report & Financial Statements 2023 147 FINANCIAL STATEMENTS ## CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONTINUED | Ordinary | | | Share | | | Capital | | | | | | | | Foreign | | | | | | Non- | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | share | premium | | | redemption | | | Hedging | | Cost of | | Other | | exchange | | Retained | | | controlling | | | | | capital | account | | | | reserve | | reserve | | hedging | | reserve¹ | | reserve | | earnings | 2 | Total | | interest | Total | | | £m | | | £m | | | £m | | £m | | £m | | £m | | £m | | £m | £m | | £m | £m | As at 3 April 2022 19.7 91 0. 6 2 ,680. 4 17. 6 3.6 (6 , 542 . 2) (73 .9) 5 , 8 9 7. 9 2 , 913 . 7 4.2 2 , 9 1 7. 9 Profit for the year – – – – – – – 363 . 4 363 . 4 1 .1 364 .5 Other comprehensive (expense)/income: Foreign currency translation – movements – – – – – – 4. 3 – 4. 3 – 4.3 recognised in other comprehensive income Remeasurements of – – – – – – – (622 . 8) (622 . 8) – (62 2 . 8) retirement benefit schemes Tax charge on retirement – – – – – – – 15 8 . 0 15 8 . 0 – 15 8 . 0 benefit schemes Cash flow hedges – fair value – – – 76 . 2 0. 8 – – – 7 7. 0 – 7 7. 0 movement in other comprehensive income – reclassified and reported – – – (14 . 4) – – – – (14 . 4) – (14 . 4) in profit or loss Tax on cash flow hedges – – – (18 . 4) (0. 2) – – – (18 . 6) – (18 . 6) Other comprehensive – – – 43 . 4 0.6 – 4. 3 (46 4 . 8) (41 6 . 5) – (41 6 . 5) (expense)/income Total comprehensive – – – 43 . 4 0.6 – 4. 3 (101 . 4) (53 .1) 1.1 (52 .0) (expense)/income Cash flow hedges – – – (1 23.9) – – – – (1 23.9) – (1 23.9) recognised in inventories Tax on cash flow hedges – – – 31 .0 – – – – 31.0 – 31. 0 recognised in inventories Transactions with owners: Transactions with non- – – – – – – – – – (0 .9) (0 .9) controlling shareholders Shares issued in respect of 0.1 0 .1 – – – – – (0 .1) 0 .1 – 0 .1 employee share options Purchase of shares held by – – – – – – – (0.1) (0. 1) – (0. 1) employee trusts Credit for share- – – – – – – – 38. 0 38.0 – 38 .0 based payments Deferred tax on – – – – – – – 4.8 4.8 – 4. 8 share schemes As at 1 April 2023 19. 8 910 .7 2 ,680. 4 (31 .9) 4.2 (6 , 5 42 . 2) (69 .6) 5,839.1 2 , 8 10. 5 4.4 2 , 8 14 . 9 1. The “Other reserve” was originally created as part of the capital restructuring that took place in 2002. It represents the difference between the nominal value of the shares issued prior to the capital reduction by the Company (being the carrying value of the investment in Marks and Spencer plc) and the share capital, share premium and capital redemption reserve of Marks and Spencer plc at the date of the transaction. 2. Included within Retained earnings is the fair value through other comprehensive income reserve. 3. On 8 July 2021, the Company reduced the nominal value of its 1,957,779,626 ordinary shares in issue at that date from £0.25 to £0.01. The reduction was completed by subdividing each £0.25 ordinary share in issue into 1 ordinary share of £0.01 and 1 deferred share of £0.24. All deferred shares were then bought back for a total aggregate consideration of £0.01 and cancelled. The Company’s issued share capital remains unchanged and each shareholder’s proportionate interest in the share capital of the Company remains unchanged. Aside from the change in nominal value, the rights attaching to the ordinary shares (including voting and dividend rights and rights on a return of capital) remain unchanged. 148 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## CONSOLIDATED STATEMENT OF CASH FLOWS | | 52 weeks | | 52 weeks | | | --- | --- | --- | --- | --- | | | ended | | ended | | | | 1 April 2023 | | 2 April 2022 | | | Notes | | £m | | £m | Cash flows from operating activities Cash generated from operations 26 1,100.5 1, 385 .7 Income tax paid (70 . 6) ( 7. 7) Net cash inflow from operating activities 1,029.9 1 , 378 .0 Cash flows from investing activities Proceeds on property disposals 1.1 43 .9 Purchase of property, plant and equipment (325 . 8) (192 . 8) Purchase of intangible assets (8 4 . 5) (64.6) Sale of current financial assets 5.3 0.8 Purchase of non-current financial assets (4 . 2) (3 . 3) Proceeds on disposal of non-current financial assets 0.2 5. 2 1 Purchase of investments in associates and joint ventures – (3 7. 8) 2 Acquisition of subsidiary, net of cash acquired 31 (102 . 8) (4 . 5) Loans to related parties 28 (30.0) (1. 0) Interest received 24 .1 8.4 Net cash used in investing activities (516 . 6) (245 .7) Cash flows from financing activities 3 Interest paid (2 12 . 5) (216 . 6) Redemption of Medium Term Notes (1 89.9) (163 .6) Repayment of lease liabilities (2 31. 8) (216 . 0) Payment of liability to the Marks & Spencer UK Pension Scheme (66 . 0) – Shares issued on exercise of employee share options 24 – 0. 3 Purchase of own shares by employee trust (0 .1) – Cash received from settlement of derivatives 56. 5 – Net cash used in financing activities (643 . 8) (59 5 .9) Net cash (outflow)/inflow from activities (130 . 5) 53 6. 4 Effects of exchange rate changes 0.5 (8 . 2) Opening net cash 1 , 1 9 7. 9 669.7 Closing net cash 27 1 , 0 6 7. 9 1 , 1 9 7. 9 1 Last year includes £33 . 8m outflow in relation to contingent consideration settled with Ocado Retail Limited and £4.0m outflow on the acquisition of 27% of the issued share capital of Nobody’s Child Limited. 2 Current year includes £1 02. 8m on the acquisition of Gist Limited, being consideration of £170. 6m net of cash acquired of £67.8m. Last year includes £4. 5m outflow on the acquisition of 77.7% of the issued share capital of The Sports Edit Limited. 3 Includes interest paid on the Partnership liability to the Marks & Spencer UK Pension Scheme of £5.9m (last year: £nil), interest paid on lease liabilities of £121. 9m (last year: £128 . 3m), and interest paid of £2. 2m (last year: £nil) in relation to deferred consideration for the acquisition of Gist Limited. Annual Report & Financial Statements 2023 149 FINANCIAL STATEMENTS # NOTES TO THE FINANCIAL STATEMENTS ## 1 ACCOUNTING POLICIES ### General information Marks and Spencer Group plc (the "Company") is a public limited company domiciled and incorporated in England and Wales under the Companies Act 2006. The address of the Company's registered office is Waterside House, 35 North Wharf Road, London W2 1NW, United Kingdom. The principal activities of the Company and its subsidiaries (the "Group") and the nature of the Group's operations are as a Clothing & Home and Food retailer. These financial statements are presented in sterling, which is also the Company's functional currency, and are rounded to the nearest hundred thousand. Foreign operations are included in accordance with the policies set out within this note. ### Basis of preparation The financial statements have been prepared for the 52 weeks ended 1 April 2023 (last year: 52 weeks ended 2 April 2022) in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. The Marks and Spencer Scottish Limited Partnership has taken an exemption under paragraph 7 of the Partnership (Accounts) Regulations 2008 from the requirement to prepare and deliver financial statements, in accordance with the Companies Act. The financial statements have been prepared on a going concern basis. In adopting the going concern basis, the Board has considered the business activities as set out on pages 12 to 27, the financial position of the Group, its cash flows, liquidity position and borrowing facilities as set out in the Financial Review on pages 35 to 41, the Group's financial risk management objectives and exposures to liquidity and other financial risks as set out in note 21 and the principal risks and uncertainties as set out on pages 58 to 65. The Group continues to maintain a robust financial position providing it with sufficient access to liquidity, through a combination of cash and committed facilities, to meet its needs in the short and medium term. At 1 April 2023, the Group had available liquidity of £1,942.9m (last year: £2,072.9m), comprising cash and cash equivalents of £1,067.9m, an undrawn committed syndicated bank revolving credit facility ("RCF") of £850.0m (set to mature in June 2026), and undrawn uncommitted facilities amounting to £25.0m. In December 2022, the Group successfully extended its RCF, which now expires in June 2026. The facility contains a financial covenant, being the ratio of earnings before interest, tax, depreciation and amortisation, to net interest and depreciation on right-of-use assets under IFRS 16. The covenant is measured biannually. In adopting the going concern basis of preparation, the Board has assessed the Group's cash flow forecasts which incorporate a latest estimate of the ongoing impact of current market conditions on the Group and include a number of assumptions, including sales growth and customer behaviour. While trading continues to be strong, in forming its outlook on the future financial performance, the Board considered a variety of downsides that the Group might experience, such as a sustained economic recession and an inability for the Group to execute the transformation plan. Under these latest forecasts, the Group is able to operate without the need to draw on its available facilities and without taking any supplementary mitigating actions, such as reducing capital expenditure and other discretionary spend. The forecast cash flows also indicate that the Group will comply with all relevant banking covenants during the forecast period, being at least 12 months from the approval of the financial statements. The Board has modelled a severe, but plausible, downside scenario. This downside scenario assumes that: - There will be a period of economic recession in the UK in 2023/24, resulting in a decline in sales of 2.0 – 2.5% and a decline in gross profit margin of 0.5 – 1.0% across both Food and Clothing & Home business units. - A delay in transformation benefits results in incremental sales expected from the transformation declining by 7.5%, 15% and 30% respectively across the three-year period across all three business units. - In addition, Ocado Retail Limited experiences limited customer demand, with no volume growth in 2023/24 and volumes remaining subdued in 2024/25 and 2025/26. Even under this severe, but plausible, downside scenario, the Group would continue to have sufficient liquidity and headroom on its existing facilities and against the RCF financial covenant for the forecast period. Although, should such a scenario arise, there is a range of mitigating actions that could be taken to reduce the impact. Given current trading and expectations for the business, the Board considers that this downside scenario reflects a plausible, but remote, outcome for the Group. In addition, reverse stress testing has been applied to the model to determine the decline in sales that the Group could absorb before exhausting the Group's total liquidity. Such a scenario, and the sequence of events which could lead to it, are considered to be extremely remote. As a result, the Board expects the Group to have adequate resources to continue in operation, meet its liabilities as they fall due, retain sufficient available cash and not breach the covenant under the revolving credit facility for the foreseeable future, being a period of at least 12 months from the approval of the financial statements. The Board therefore considers it appropriate for the Group to adopt the going concern basis in preparing its financial statements. ### New accounting standards adopted by the Group The Group has applied the following new standards and interpretations for the first time for the annual reporting period commencing 3 April 2022: - Amendments to IAS 37: Onerous Contracts – Cost of Fulfilling a Contract. - Amendments to IFRS 3: Reference to the Conceptual Framework. - Amendments to IAS 16: Property, Plant and Equipment – Proceeds before Intended Use. - Annual Improvements to IFRS Standards 2018-2020 Cycle: Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, IFRS 16 Leases and IAS 41 Agriculture. The adoption of the standards and interpretations listed above has not led to any changes to the Group's accounting policies or had any other material impact on the financial position or performance of the Group. ### New accounting standards in issue but not yet effective New standards and interpretations that are in issue, but not yet effective, are listed below: - IFRS 17 Insurance Contracts. - Amendments to IAS 1: Classification of Liabilities as Current or Non-Current. - Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies. - Amendments to IAS 8: Definition of Accounting Estimates. - Amendments to IAS 12: Deferred Tax Related to Assets and Liabilities arising from a Single Transaction. 150 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS – Remeasurement of Ocado Retail Limited contingentcingent consideration. – Directly attributable gains and expenses resulting from theCthe Covid-19 pandemic. 1 – Significant costs relating to the acquisition of Gist Limited. – Net finance costs incurred in relation to Gist Limited deferred 1 and contingent consideration. Alternative performance measures 1 As a result of the acquisition of Gist Limited during the year, these items have been In reporting financial information, the Group presents alternative included within adjusting items for the first time. performance measures (“APMs”), which are not defined or specified under the requirements of IFRS. Refer to note 5 for a summary of the adjusting items. The Group believes that these APMs, which are not considered to A summary of the Company’s and the Group’s accounting policies be a substitute for, or superior to, IFRS measures, provide is given below. stakeholders with additional helpful information on the performance of the business. These APMs are consistent with how Accounting convention the business performance is planned and reported within the The financial statements are drawn up on the historical cost basis internal management reporting to the Board and Executive of accounting, except for certain financial instruments (including Committee. Some of these measures are also used for the purpose derivative instruments) and plan assets of defined benefit pension of setting remuneration targets. schemes which are measured at fair value at the end of each reporting period, as explained in the accounting policies below. The key APMs that the Group uses include: sales; like-for-like sales growth; adjusted operating profit; adjusted operating margin; Basis of consolidation profit before tax and adjusting items; adjusted basic earnings per share; net debt; net debt excluding lease liabilities; free cash flow; The Group financial statements incorporate the financial free cash flow from operations; capital expenditure; and return on statements of Marks and Spencer Group plc and all its subsidiaries capital employed. Each of these APMs, and others used by the made up to the period end date. Where necessary, adjustments are Group, is set out in the Glossary, including explanations of how made to the financial statements of subsidiaries to bring the they are calculated and how they can be reconciled to a statutory accounting policies used in line with those used by the Group. measure where relevant. Subsidiaries The Group reports some financial measures, primarily International Subsidiary undertakings are all entities (including special purpose sales, on both a reported and constant currency basis. The entities) over which the Company has control. Control is achieved constant currency basis, which is an APM, retranslates the previous when the Company has the power over the entity; is exposed, or year revenues at the average actual periodic exchange rates used has rights to, variable returns from its involvement with the entity; in the current financial year. This measure is presented as a means and has the ability to use its power to affect its returns. The of eliminating the effects of exchange rate fluctuations on the Company reassesses whether or not it controls an entity if facts year-on-year reported results. and circumstances indicate that there are changes to one or more of these three elements of control. Consolidation of a subsidiary The Group makes certain adjustments to the statutory profit begins when the Company obtains control over the subsidiary and measures in order to derive many of these APMs. The Group’s ceases when the Company loses control of the subsidiary. policy is to exclude items that are considered significant in nature Subsidiary undertakings acquired during the year are recorded and/or quantum over the total expected life of the programme or using the acquisition method of accounting and their results are are consistent with items that were treated as adjusting in prior included from the date of acquisition. periods. The Group’s definition of adjusting items is consistent with prior periods. Adjusted results are consistent with how business The separable net assets, including property, plant and equipment performance is measured internally and presented to aid and intangible assets, of the newly acquired subsidiary comparability of performance. On this basis, the following items undertakings are incorporated into the consolidated financial were included within adjusting items for the 52-week period ended statements on the basis of the fair value as at the effective date 1 April 2023: ofcontrof control. – Net charges associated with the strategic programme in relation Intercompany transactions, balances, and unrealised gains to the review of the UK store estate. ontron transactions between Group companies are eliminated – Significant restructuring costs and other associated costs onon consolidation. arisingfng from strategy or operational changes that are not considered by the Group to be part of the normal operating costs of the business. – Impairment charges and provisions that are considered to be significant in nature and/or value to the trading performance ofthof the business. – Charges and reversals of previous impairments arising from thewthe write-off of assets and other property charges that are significant in nature and/or value. Impairment charges are recognised in adjusted operating profit where they relate to stores not previously impaired or do not otherwise meet the Group’s adjusting items policy. – 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 financial products. – Amortisation of the identified intangible assets arising as part ofthof the investment in Ocado Retail Limited. Annual Report & Financial Statements 2023 151 – Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture. The adoption of the above standards and interpretations is not expected to lead to any changes to the Group’s accounting policies nor have any other material impact on the financial position or performance of the Group. Associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control nor joint control over those policies. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, an investment in an associate is recognised initially in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associate. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the FINANCIAL STATEMENTS ## NOTES TO THE FINANCIAL STATEMENTS CONTINUED 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that the end of the promotional period based on actual sales or according to fixed contribution arrangements. Contributions earned, but not invoiced, are accrued at the end of the relevantpet period. B. Volume-based rebates Includes annual growth incentives, seasonal contributions and contributions to share economies ofscof scale resulting from moving product supply. Annual growth incentives are calculated and invoiced at the end of the financial year, once earned, based on fixed 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 classified within the financial statements as follows: M&S Bank The Group has an economic interest in M&S Bank which entitles the Group to a 50% share of the profits of M&S Bank after appropriate contractual deductions. Supplier income In line with industry practice, the Group enters into agreements with suppliers to share the costs and benefits of promotional activity and volume growth. The Group receives income from its suppliers based on specific agreements in place. 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-judgmental, fixed rate supplier charges are not included in the Group’s definition of supplier income. 152 Marks and Spencer Group plc Group has incurred legal or constructive obligations or made payments on behalf of the associate. Dividends received or receivable from an associate are recognised as a reduction in the carrying amount of the investment. Associated undertakings acquired during the year are recorded using the equity method of accounting and their results are included from the date of acquisition. On acquisition of the investment in an associate, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value ofthof the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profitor loss in the pet or loss in the period in which the investment is acquired. The Group’s share of the net fair value of identified intangible assets isamis amortised over the expected useful economic life of the assets. The requirements of IAS 36 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount. When a Group company transacts with an associate of the Group, profits and losses resulting from the transactions with the associate are recognised only to the extent of interests in the associate that are not related to the Group. 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 performance obligations are satisfied and goods are delivered to our franchise partners or the customer and the control of goods istris transferred to the buyer. Online sales are recognised when items are delivered, as this is when the performance obligation is deemed to have been satisfied. Where third-party branded goods are sold on a consignment basis, only the commission receivable isinis included in statutory revenue. A right of return is not a separate performance obligation and the Group is required to recognise revenue net of estimated returns. ArefA refund liability and a corresponding asset in inventory representing the right to recover products from the customer arereare recognised. The Group enters into agreements which entitle other parties to operate under the Marks & Spencer brand name for certain activities and operations, such as M&S Bank and M&S Energy. Thesecoese contracts give rise to performance-based variable consideration. Income dependent on the performance of the third-party operations is recognised when it is highly probable thata sithat a significant reversal in the amount of income recognised will not occur, and presented as other operating income. Revenue from the rendering of supply chain services is recognised when a performance obligation is satisfied. A. Trade and other payables The majority of income due from suppliers is net against amounts owed to that supplier as the Group has the legal right and intention to offset these balances. 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 financial statements. Dividends Final dividends are recorded in the financial statements in the period in which they are approved by the Company’s shareholders. Interim dividends are recorded in the period in which they are approved and paid. Government grants Government grants are recognised where there is reasonable assurance that the grants will be received and that the Group will comply with the conditions attached to them. Government grants that compensate the Group for expenses incurred are recognised in profit or loss, as a deduction against the related expense, over the periods necessary to match them with the related costs. Government grant income is disclosed in note 30. Pensions Funded pension plans are in place for the Group’s UK employees and some overseas employees. For defined benefit (“DB”) pension schemes, the difference between the fair value of the assets and the present value of the DB obligation is recognised as an asset or liability in the statement of financial position. The DB obligation is actuarially calculated STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Annual Report & Financial Statements 2023 153 using the projected unit credit method. An asset can be recognised as, in the event of a plan wind-up, the pension scheme rules provide the Group with an unconditional right to a refund of surplus assets, assuming a full settlement of plan liabilities. In the ordinary course of business, the Trustees have no rights to wind-up or change, the benefits due to the members of the scheme. As a result, any net surplus in the UK DB scheme is recognised in full. The service cost of providing retirement benefits to employees during the year, together with the cost of any curtailment, is charged to operating profit in the year. The Group no longer incurs any service cost or curtailment costs related to the UK DB Pension Scheme as the scheme is closed to future accrual. The net interest cost on the net retirement benefit asset/liability is calculated by applying the discount rate, measured at the beginning of the year, to the net defined benefit asset/liability and is included as a single net amount in finance income. Remeasurements, being actuarial gains and losses, together with the difference between actual investment returns and the return implied by the net interest cost, are recognised immediately in other comprehensive income. Payments to defined contribution retirement benefit schemes are charged as an expense on an accruals basis. For further details on pension schemes and the partnership liability to the Marks & Spencer UK Pension scheme, see notes 11and 12.11 and 12. 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 identifiable assets and liabilities (including intangible assets) ofthof theacque acquired entity at the date of the acquisition. Goodwill is recognised as an asset and assessed for impairment annually or astras triggering events occur. Any impairment in value is recognised within the income statement. B. Acquired intangible assets Acquired intangible assets include trademarks or brands. These assets are capitalised on acquisition at cost and amortised on a straight-line basis over their estimated useful lives. Acquired intangible assets are tested for impairment 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. When the Group incurs configuration and customisation costs as part of a cloud-based software-as-a- service agreement, and where this does not result in the creation ofan assof an asset which the Group has control over, then these costs areeare expensed. Capitalised software development costs are amortised on a straight-line basis over their expected economic lives, normally between three and five years. Computer software under development is held at cost less any recognised impairment loss.As. Any impairment in value is recognised within the incomestatemen statement. Property, plant and equipment The Group’s policy is to state property, plant and equipment atcost lesat 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. Costs include professional fees and, for qualifying assets, borrowing costs. Leasehold buildings with lease premiums and ongoing peppercorn lease payments are considered in-substance purchases and are therefore included within the buildings category of property, plant and equipment. 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. – Buildings – depreciated to their residual value over their estimated remaining economic lives of 10-50 years. – Fixtures, fittings and equipment – three to 25 years, according tothe estto 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, or reversal of an impairment, is recognised within the income statement. Leasing The Group recognises a right-of-use asset and corresponding liability at the date at which a leased asset is made available for use by the Group, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low-value assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of thelthe lease. Lease liabilities are measured at the present value of the future lease payments, excluding any payments relating to non-lease components. Future lease payments include fixed payments, in-substance fixed payments, and variable lease payments that arebaare based on an index or a rate, less any lease incentives receivable. Lease liabilities also take into account amounts payable under residual value guarantees and payments to exercise options to theethe extent that it is reasonably certain that such payments will be made. The payments are discounted at the rate implicit in the lease or, where that cannot be readily determined, at an incremental borrowing rate. Right-of-use assets are measured initially at cost based on the value of the associated lease liability, adjusted for any payments made before inception, initial direct costs and an estimate of the dismantling, removal and restoration costs required in the terms ofthof the lease. The Group presents right-of-use assets in “property, plant and equipment” in the consolidated statement of financialpial position. Subsequent to initial recognition, the lease liability is reduced for payments made and increased to reflect interest on the lease liability (using the effective interest method). The related right-of- use asset is depreciated over the term of the lease or, if shorter, the useful economic life of the leased asset. The lease term shall include the period of an extension option where it is reasonably certain that the option will be exercised. Where the lease contains apua purchase option, the asset is written off over the useful life of the asset when it is reasonably certain that the purchase option will beebe exercised. The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset)whet) whenever: – The lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. – The lease payments change due to changes in an index or rate ora chanor a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount FINANCIAL STATEMENTS ## NOTES TO THE FINANCIAL STATEMENTS CONTINUED 154 Marks and Spencer Group plc rate (unless the lease payments change is due to a change in afloata floating interest rate, in which case a revised discount rate isusis used). – A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using arevia revised discount rate. Leases for which the Group is a lessor are classified as finance or operating leases. A lease is classified as a finance lease if it transfers substantially all the risks and rewards of ownership to the lessee, and classified as an operating lease if it does not. When the Group is an intermediate lessor, it accounts for the head lease and the sublease as two separate contracts. The sublease is classified as a finance or operating lease by reference to the right-of-use asset arising from the head lease. Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment in the lease. Rental income from operating leases isreis recognised on a straight-line basis over the term of the relevantleast lease. Cash and cash equivalents Cash and cash equivalents includes short-term deposits with banks and other financial institutions, with an initial maturity ofthof three months or less, money market funds and credit card payments received within 48 hours. Bank transactions are recordedon thed on their settlement date. 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 finished goods. Certain purchases of inventories may be subject to cash flow hedges for foreign exchange risk. The initial cost of hedged inventory is adjusted by the associated hedging gain or loss transferred from the cash flow hedge reserve (“basisadjus“basis adjustment”). 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 effect is material. Share-based payments The Group issues equity-settled share-based payments to certain employees. A fair value for the equity-settled share awards is measured at the date of grant. The Group measures the fair value of each award using the Black-Scholes model where appropriate. The fair value of each award is recognised as an expense over the vesting period on a straight-line basis, after allowing for an estimate of the share awards that will eventually vest. The level of vesting is reviewed at each reporting period and the charge is adjusted to reflect actual and estimated levels of vesting. Foreign currencies The financial statements are presented in sterling which is the Company’s functional currency. The results of overseas subsidiaries are translated at the weighted average of monthly exchange rates for revenue and profits. The statements of financial position of overseas subsidiaries are translated at year-end exchange rates. The resulting exchange differences are booked into reserves and reported in the consolidated statement of comprehensive income. On disposal ofan overof an overseas subsidiary the related cumulative translation differences recognised in reserves are reclassified to profit or loss and are recognised as part of the gain or loss on disposal. 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statemen statement. Taxation Tax expense comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that 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 outflow 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. Deferred tax is accounted for using a temporary difference approach, and is the tax expected to be payable or recoverable onteon temporary differences between the carrying amount of assets and liabilities in the statement of financial position and the corresponding tax bases used in the computation of taxable profit. 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 differences. Deferred tax liabilities are recognised fortfor taxable temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the reversal of the temporary difference can be controlled by the Group and it is probable that the difference will not reverse in thefthe foreseeable future. In addition, deferred tax liabilities are not recognised on temporary differences that arise from goodwill which is not deductible for tax purposes. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which the deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at the end of each reporting periodaod and reduced to the extent that it is no longer probable thatsthat sufficient taxable profits will be available to allow all or part ofthof theasse asset to be recovered. Deferred tax assets and liabilities are not recognised in respect oftemof temporary differences 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 financial position when the Group becomes a party tothe contrto the contractual provisions of the instrument. Financial assets are initially classified as at fair value through profit and loss, fair value through other comprehensive income or amortised cost depending on the Group’s business model for managing the financial asset and its cash flow characteristics. Financial assets that are held for collection of contractual cash flows, where those cash flows represent solely payments of principal and interest, are measured at amortised cost. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS The table below sets out the Group’s accounting classification ofeaof each class of its financial assets and liabilities: Note Measurement Financial assets: 1 Other investments 16 FVTPL Loans to related parties 17 Amortised cost Trade receivables 17 Amortised cost Lease receivables 17 Amortised cost Other receivables 17 Amortised cost Cash and cash equivalents 18 Amortised cost Derivative financial instruments 21 FVTPL Financial liabilities: Borrowings and overdrafts 20 Amortised cost Trade payables 19 Amortised cost Other payables 19 Amortised cost Contingent consideration 19 FVTPL Accruals 19 Amortised cost Lease liabilities 20 Amortised cost Derivative financial instruments 21 FVTPL 1 Fair value through profit or loss C. Classification of financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. 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 Group are recorded at the consideration received, net of direct issue costs. Annual Report & Financial Statements 2023 155 A. Trade and other receivables Trade receivables are recorded initially at transaction price and subsequently measured at amortised cost, except those which, due to factoring arrangements, are held within a “hold to collect and sell” businessmess model and are measured at fair value through other comprehensive income (“FVOCI”). Trade receivables measured atamat amortised cost are carried at nominal value less an allowance forafor any doubtful debts. The allowance for doubtful debts is recognised based on management’s expectation of losses withoutreut regard to whether an impairment trigger happened ornor not(an “expot (an “expected credit loss” model). B. Other financial assets Other financial assets consist of loans receivable, venture capital investments and short-term investments with a maturity date of more than 90 days. Financial assets that do not meet the criteria for being measured at amortised cost are measured at fair value through profit or loss (“FVTPL”) with gains and losses arising from changes in fair value included in the income statement for the period. 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 effective interest rate method and are added to, or deducted from, the carrying amount of the instrument. E. Loan notes Long-term loans are initially measured at fair value net of direct issue costs and are subsequently held at amortised cost. If the loan is designated in a fair value hedge relationship, the carrying value of the loan is adjusted for fair value gains or losses attributable to the risk being hedged. Derivative financial instruments and hedging activities The Group primarily uses cross-currency swaps and forward foreign currency contracts to manage its exposures to fluctuations in interest rates and foreign exchange rates. These instruments areinare 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losor loss is dependent on whether the derivative is designated as ahea 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thin the cash flows of a recognised asset or liability (a cash flow hedge); or – A hedge of the exposure to change in the fair value of arecoa recognised asset or liability (a fair value 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 effectiveness testing is performed. During the life of the hedging relationship, prospective effectiveness testing is performed to ensure that the instrument remains an effective hedge of the transaction. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as theyathey arise. A. Cash flow hedges Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised in other comprehensive income. The element of the change in fair value which relates to the foreign currency basis spread is recognised in the cost of hedging reserve, with the remaining change in fair value recognised in the hedging reserve and any ineffective portion is recognised immediately in the income statement in finance costs. If the firm commitment or forecast transaction that is the subject of a cash flow hedge results in the recognition of a non-financial asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in other comprehensive income and accumulated in the cash flow hedge reserve are removed directly from equity and included in the initial measurement of the asset or liability. If the hedged item is transaction-related, the foreign currency basis spread is reclassified to profit or loss when the hedged item affects profit or loss. If the hedged item is time-period related, then the amount accumulated in the cost of hedging reserve is reclassified to profit or loss on a systematic and rational basis. Those reclassified amounts are recognised in profit or loss in the same line as the hedged item. If the hedged item is a non-financial item, then the amount accumulated in the cost of hedging reserve is removed directly from equity and included in the initial carrying amount of the recognised non-financial item. For hedges that do not result in the recognition of an asset or a liability, amounts deferred in the cash flow hedge reserve are recognised in the income statement in the same period in which the hedged items affect net profit or loss. B. Fair value hedges Changes in the fair value of a derivative instrument designated in a fair value hedge 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. Changes in the fair value of derivative financial instruments that dondo not qualify for hedge accounting are recognised in the income statement as they arise. C. Discontinuance of hedge accounting Hedge accounting is discontinued when the hedge relationship no longer qualifies for hedge accounting. This includes when the hedging instrument expires, is sold, terminated or exercised, or when occurrence of the FINANCIAL STATEMENTS ## NOTES TO THE FINANCIAL STATEMENTS CONTINUED 156 Marks and Spencer Group plc forecast transaction is no longer highly probable. The Group cannot voluntarily de-designate a hedging relationship. When a cash flow hedge is discontinued, any cumulative gain or loss on the hedging instrument accumulated in the cash flow hedge reserve is retained in equity until the forecast transaction occurs. Subsequent changes in the fair value are recognised in the income statement. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss accumulated in the cash flow hedge reserve is transferred to the income statement for thepthe 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 based on therethe recalculated effective interest rate at that date. The Group does not use derivatives to hedge income statement translation exposures. Reserves The following describes the nature and purpose of each reserve within equity: A. Share premium account Proceeds received in excess of the nominal value of shares issued, net of any transaction costs. B. Capital redemption reserve Amounts transferred from share capital on redemption or repurchase of issued shares. C. Hedging reserve Cumulative gains and losses on hedging instruments deemed effective in cash flow hedges. D. Cost of hedging Cumulative gains and losses on the portion excluded from the designated hedging instrument that relates tochato changes in the foreign currency basis. E. Other reserve Originally created as part of the capital restructuring that took place in 2002. It represents the difference between the nominal value of the shares issued prior to the capital reduction by the Company (being the carrying value of the investment in Marks and Spencer plc) and the share capital, share premium and capital redemption reserve of Marks and Spencer plc at the date of the transaction. F. Foreign exchange reserve Gains and losses arising on retranslating the net assets of overseas operations into sterling. G. Retained earnings All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere. Critical accounting judgments and key sources of estimation uncertainty The preparation of consolidated financial statements requires theGthe Group to make estimates and judgments that affect the application of policies and reported amounts. Critical judgments represent key decisions made by management in the application of the Group accounting policies. Where a significant risk of materially different outcomes exists due to management assumptions or sources of estimation uncertainty, this will represent a key source of estimation uncertainty. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations offof future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next 12 months are discussed below. Critical accounting judgments Adjusting items The directors believe that the adjusted profit and earnings per share measures provide additional useful information to shareholders on the performance of the business. These measures are consistent with how business performance is measured internally by the Board and Executive Committee. The profit before tax and adjusting items measure is not a recognised profit measure under IFRS and may not be directly comparable with adjusted profit measures used by other companies. The classification of adjusting items requires significant management judgment after considering the nature and intentions of a transaction. The Group’s definitions of adjusting items are outlined within both the Group accounting policies and the Glossary. These definitions have been applied consistently year on year. Note 5 provides further details on current year adjusting items andthed their adherence to Group policy. UK defined benefit pension surplus Where a surplus on a defined benefit scheme arises, the rights ofthof the Trustees to prevent the Group obtaining a refund of that surplus in the future are considered in determining whether it is necessary to restrict the amount of the surplus that is recognised. The UK defined benefit scheme is in surplus at 1 April 2023. Following consultation with external advisers, the directors have made the judgment that these amounts meet the requirements of recoverability on the basis that paragraph 11(b) ofIFRI(b) of IFRIC 14 applies, enabling a refund of surplus assuming the gradual settlement of the scheme liabilities over time until all members have left the scheme, and a surplus of £482.0m has beenreen recognised. Assessment of control over Ocado Retail Limited The directors have assessed that the Group has significant influence over Ocado Retail Limited and has therefore accounted for the investment as an associate (see note 29). This assessment is based on the current rights held by the respective shareholders and requires judgment in assessing these rights. These rights include determinative rights currently held by Ocado Group plc, after agreed dispute resolution procedures, in relation to the approval of the Ocado Retail Limited business plan and budget and the appointment and removal of Ocado Retail Limited’s Chief Executive Officer. Any future change to these rights requires a reassessment of control and could result in a change in the status of the investment from associate to joint venture, subsidiary oror investment. Determining the lease term The Group determines the lease term as the non-cancellable termof the leasem of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or anypany periods covered by an option to terminate the lease if it is reasonably certain not to be exercised. The Group has several lease contracts for land and buildings that include extension and termination options. The Group applies judgment in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination, including: whether there are significant penalties to terminate (or not extend); whether any leasehold improvements are expected to have a significant remaining value; historical lease durations; the importance of the underlying asset to the Group’s operations; andths; and the costs and business disruption required to replace the leased asset. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Annual Report & Financial Statements 2023 157 Most renewal periods and periods covered by termination options are included as part of the lease term for leases of land and buildings. The Group typically exercises its option to renew (or does not exercise its option to terminate) for these leases because there will be a significant negative effect on trading if a replacement property is not readily available. The lease term is reassessed if a significant event or a significant change in circumstances occurs which affects the assessment of reasonable certainty, for example if a store is identified to be closed as part of the UK store estate strategic programme. Determining whether forecast purchases are highly probable The Group is exposed to foreign currency risk, most significantly to the US dollar as a result of sourcing Clothing & Home products from Asia which are paid for predominantly in US dollars. The Group hedges these exposures using forward foreign exchange contracts and hedge accounting is applied when the requirements of IFRS 9 are met, which include that a forecast transaction must be “highly probable”. The Group has applied judgment in assessing whether forecast purchases are “highly probable”. In making this assessment, the Group has considered the most recent budgets and plans. The Group’s policy is a “layered” hedging strategy where only a small fraction of the forecast purchase requirements is initially hedged, with incremental hedges layered on over time as the buying period for that season approaches and therefore as certainty increases over the forecast purchases. As a result of this progressive strategy, a reduction in the supply pipeline of inventory does not immediately lead to over-hedging and the disqualification of “highly probable”. If the forecast transactions were no longer expected to occur, any accumulated gain or loss on the hedging instruments would be immediately reclassified to profit or loss. Key sources of estimation uncertainty Climate change impact In preparing the consolidated financial statements, the Group hascohas considered the impact of climate change, particularly in the context of the TCFD disclosures set out on pages 44 to 55 and the Group’s sustainability targets. The Group’s existing fixed asset replacement programme is phased over several years and therefore any changes in the requirements associated with climate change would not have a material impact in any given year. The costs expected to be incurred in connection with the Group’s commitments are included within the Group’s budget and three-year plan which have been used to support the impairment reviews of non-current assets and the going concern and viability assessments. Further disclosures in relation to the impact of climate change on the impairment assessment of intangibles and property, plant and equipment are included in notes 14 and 15. Given the identified risks are expected to be present in the medium to long term, the impact of climate change on the going concern period and viability of the Group over the next three years is not expected to be material and is therefore not currently classified as a key source of estimation uncertainty. UK store estate programme The Group is undertaking a significant strategic programme to review its UK store estate, resulting in a net charge of £51.3m (last year: £161.4m) in the year. A significant level of estimation has been used to determine the charges to be recognised in the year. The most significant judgment that impacts the charge is that the stores identified as part of the programme are more likely than not to close. Further significant closure costs and impairment charges may be recorded in future years, depending on decisions made about further store closures and the successful delivery of the transformation programme. Where a store closure has been announced, there is a reduced level of estimation uncertainty as the programme actions are to be taken over a shorter and more immediate timeframe. Further significant estimation uncertainty arises in respect of determining the recoverable amount of assets and the costs to be incurred aspaas part of the programme. Significant assumptions have been made including: – Reassessment of the useful lives of store fixed assets and closure dates. – Estimation in respect of the expected shorter-term trading valueilue in use, including assumptions with regard to the period oftrof trading as well as changes to future sales, gross margin andopd operating costs. – Estimation of the sale proceeds for freehold stores which is dependent upon location-specific factors, timing of likely exit and future changes to the UK retail property market valuations. – Estimation of the value of dilapidation payments required for leasehold store exits, which is dependent on a number of factors including the extent of modifications of the store, the terms of the lease agreement, and the condition of the property. The assumptions most likely to have a material impact are closuredatere dates and changes to future sales. See notes 5 and 15 forffor further detail. 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 the higher of value in use and fair value less costs to sell. The value in use method requires the Group to determine appropriate assumptions in relation to the cash flow projections over the three-year strategic plan period (which is a key source of estimation uncertainty), the long-term growth rate to be applied beyond this three-year period and the risk-adjusted pre-tax discount rate used to discount the assumed cash flows to present value. See note 15 for further details on the Group’s assumptions and associated sensitivities. Post-retirement benefits The determination of pension net interest income and the defined benefit obligation of the Group’s defined benefit pension schemes depends on the selection of certain assumptions which include the discount rate, inflation rate and mortality rates. Differences arising from actual experiences or future changes in assumptions will be reflected in subsequent periods. The fair value of unquoted investments within total plan assets is estimated with consideration of 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. Remeasurement of Ocado contingent consideration Contingent consideration, resulting from the investment in Ocado Retail Limited, is remeasured at fair value at each reporting date. The fair value of the contingent consideration has been estimated using the expected present value technique and is based on probability weighting possible scenarios and applying an appropriate discount rate to reflect the timing of the possible payment. The Group has considered a range of scenarios reflecting current market uncertainty, taking into account Ocado Retail Limited’s most recent trading update in March 2023. The Group has determined a fair value of £64.7m (last year: £172.6m). See note 21 for full details. FINANCIAL STATEMENTS # NOTES TO THE FINANCIAL STATEMENTS CONTINUED # 2 SEGMENTAL INFORMATION IFRS 8 Operating Segments requires operating segments to be identified 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 identified as the Executive Committee. The Executive Committee reviews the Group's internal reporting in order to assess performance and allocate resources across each operating segment. The Group's reportable operating segments have therefore been identified as follows: - UK Clothing & Home – comprises the retailing of womenswear, menswear, lingerie, kidswear and home products through UK retail stores and online. - UK Food – includes the results of the UK retail food business, UK Food franchise operations and UK supply chain services, with the following five main categories: protein deli and dairy; produce; ambient and in-store bakery; meals, dessert and frozen; and hospitality and "Food on the Move"; and direct sales to Ocado Retail Limited. - International – consists of Marks and Spencer owned businesses in Europe and Asia and the international franchise operations. - Ocado – includes the Group's share of profits or losses from the investment in Ocado Retail Limited. Other business activities and operating segments, including M&S Bank and M&S Energy, are combined and presented in "All other segments". Finance income and costs are not allocated to segments as each is managed on a centralised basis. The Executive Committee assesses the performance of the operating segments based on a measure of adjusted operating profit. This measurement basis excludes the effects of adjusting items from the operating segments. The following is an analysis of the Group's revenue and results by reportable segment: | | 52 weeks ended 1 April 2023 | | | | | | 52 weeks ended 2 April 2022 | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | UK Clothing & Home £m | UK Food £m | International £m | Ocado £m | All other segments £m | Group £m | UK Clothing & Home £m | UK Food £m | International £m | Ocado £m | All other segments £m | Group £m | | **Sales^{1}** | **3,715.0** | **7,218.0** | **1,055.0** | **–** | **–** | **11,988.0** | 3,332.2 | 6,639.6 | 937.2 | – | – | 10,909.0 | | **Revenue** | **3,658.3** | **7,218.0** | **1,055.0** | **–** | **–** | **11,931.3** | 3,308.3 | 6,639.6 | 937.2 | – | – | 10,885.1 | | **Adjusted operating profit/(loss)^{2}** | **323.8** | **248.0** | **84.8** | **(29.5)** | **(0.5)** | **626.6** | 330.7 | 277.8 | 73.6 | 13.9 | 13.0 | 709.0 | | Finance income before adjusting items | | | | | | 58.1 | | | | | | 28.3 | | Finance costs before adjusting items | | | | | | (202.7) | | | | | | (214.4) | | **Profit/(loss) before tax and adjusting items** | **323.8** | **248.0** | **84.8** | **(29.5)** | **(0.5)** | **482.0** | 330.7 | 277.8 | 73.6 | 13.9 | 13.0 | 522.9 | | Adjusting items | | | | | | (6.3) | | | | | | (131.2) | | **Profit/(loss) before tax** | **323.8** | **248.0** | **84.8** | **(29.5)** | **(0.5)** | **475.7** | 330.7 | 277.8 | 73.6 | 13.9 | 13.0 | 391.7 | 1 Sales is revenue stated prior to adjustments for UK Clothing & Home brand consignment sales of £56.7m (last year: £23.9m). 2 Adjusted operating profit/(loss) is stated as gross profit less operating costs prior to adjusting items. At reportable segment level costs are allocated where directly attributable or based on an appropriate cost driver for the cost. 158 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 2 SEGMENTAL INFORMATION CONTINUED Other segmental information 52 weeks ended 1 April 2023 52 weeks ended 2 April 2022 | | | UK | | | | | | | All | | | | UK | | | | | | | All | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Clothing | | UK | | | | | | other | | | Clothing | | UK | | | | | | other | | | | | & Home | | Food | International | | Ocado | | segments | | Group | | & Home | | Food | International | | Ocado | | segments | | Group | | | | | £m | £m | | £m | | £m | | £m | | £m | | £m | £m | | £m | | £m | | £m | | £m | | Additions to | 170.4 221.1 29.9 – – 421.4 139.2 163.7 18.5 – – 321.4 | | | | | | | | | | | | | | | | | | | | | | property, plant and equipment, andinand intangible assets (excluding goodwill and right-of-use assets) Depreciation and (267.9) (274.8) (35.7) – – (578.4) (268.1) (248.8) (35.0) – – (551.9) 1,2 amortisation Impairment charges, 10.2 6.1 (1.9) – – 14.4 (37.2) 10.7 (8.0) – – (34.5) impairment reversals 1 andassd asset write-offs 1 These costs are allocated to a reportable segment where they are directly attributable. Where costs are not directly attributable, a proportional allocation is made to each segment based on an appropriate cost driver. 2 Includes £3.1m (last year: £0.2m) depreciation and impairments on investment property. Segment assets and liabilities, including investments in associates and joint ventures, are not disclosed because they are not reported to,or revito, or reviewed by, the Executive Committee . Annual Report & Financial Statements 2023 159 3 EXPENSE ANALYSIS 2023 Total £m 2022 Total £m Revenue 11,931.3 10,885.1 Cost of sales (7,786.7) (7,130. 3) Gross profit 4,144.6 3,754.8 Selling and administrative expenses (3,609.2) (3,244.1) Other operating income 23.2 80.1 Share of results of Ocado Retail Limited (43.5) (18.6) Operating profit 515.1 572.2 The figures above include £111.5m (last year: £136.8m) adjusting item charges within operating profit (see note 5). These are further analysed against the categories of cost of sales (£nil; last year: £17.0m gain), selling and administrative expenses (£103.8m; last year: £155.9m), other operating income (£6.3m; last year: £34.6m) and share of results of Ocado Retail Limited (£14.0m; last year: £32.5m). The selling and administrative expenses are further analysed below: 2023 Total £m 2022 Total £m Employee costs 1 1,546.5 1,420.6 Occupancy costs 463.9 344.3 Repairs, renewals and maintenance of property 111.2 122.2 Depreciation, amortisation and asset impairments and write-offs 2 574.7 586.4 IT costs 228.6 212.1 Marketing costs 220.2 209.4 Other costs 3 464.1 349.1 Selling and administrative expenses 3,609.2 3,244.1 1 There are an additional £58.7m (last year: £65.1m) employee costs recorded within cost of sales. These costs are included within the aggregate remuneration disclosures in note10Ate 10A. 2 Includes £0.2m (last year: £0.2m) depreciation and £2.9m (last year: £nil) impairment charged on investment property. 3 Includes costs such as logistics, professional fees and sundry costs. Adjusting items categorised as selling and administrative expenses are further analysed as employee costs £19.0m (last year £0.1m); occupancy costs £8.2m (last year: £5.9m); depreciation, amortisation and asset impairments and write-offs £43.0m (last year: £64.9m); and other costs £33.6m (last year: £85.0m). FINANCIAL STATEMENTS ## NOTES TO THE FINANCIAL STATEMENTS CONTINUED ### 4 PROFIT BEFORE TAXATION The following items have been included in arriving at profit before taxation: | | 2023 £m | 2022 £m | | --- | --- | --- | | Net foreign exchange losses/(gains) | 6.7 | (14.5) | | Cost of inventories recognised as an expense | 6,751.3 | 6,086.3 | | Write-down of inventories recognised as an expense | 266.0 | 197.6 | | Depreciation of property, plant and equipment^{1} | | | | – owned assets | 310.5 | 290.5 | | – right-of-use assets | 180.9 | 167.8 | | Amortisation of intangible assets | 87.0 | 93.6 | | Impairments and write-offs of intangible assets and property, plant and equipment^{2} | 31.7 | 100.1 | | Impairment reversals of property, plant and equipment | (40.2) | (62.1) | | Impairments of right-of-use assets | 14.8 | 25.4 | | Impairment reversals of right-of-use assets | (14.9) | (28.9) | 1 Includes £0.2m (last year, £0.2m) depreciation charged on investment property. 2 Includes £2.9m (last year, £nil) impairment charged on investment property. 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: | | 2023 £m | 2022 £m | | --- | --- | --- | | Annual audit of the Company and the consolidated financial statements | 2.0 | 1.7 | | Audit of subsidiary companies | 0.7 | 0.6 | | **Total audit fees** | **2.7** | **2.3** | | Audit-related assurance services | 0.3 | 0.2 | | **Total non-audit services fees** | **0.3** | **0.2** | | **Total audit and non-audit services** | **3.0** | **2.5** | 160 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 5 ADJUSTING ITEMS The total adjusting items reported for the 52-week period ended 1 April 2023 is a net charge of £6.3m (last year: £131.2m). The adjustments made to reported profit before tax to arrive at adjusted profit are: | | Notes | 2023 £m | 2022 £m | | --- | --- | --- | --- | | **Included in operating profit** | | | | | Strategic programmes – UK store estate | 15, 22 | **(51.3)** | (161.4) | | Strategic programmes – Structural simplification | 22 | **(16.4)** | – | | Strategic programmes – Organisation | 17 | **(10.7)** | 14.3 | | Strategic programmes – UK logistics | 15, 22 | **(10.5)** | 21.9 | | Strategic programmes – International store closures and impairments | 22 | – | 0.4 | | Store impairments, impairment reversals and other property charges | 15, 22 | **15.1** | 60.0 | | Acquisition of Gist Limited | | **(22.1)** | – | | Amortisation and fair value adjustments arising as part of the investment in Ocado Retail Limited | 29 | **(14.0)** | (32.5) | | M&S Bank charges incurred in relation to the insurance mis-selling provisions | | **(2.0)** | (16.0) | | Franchise restructure | | **0.4** | (41.3) | | Directly attributable gains resulting from the Covid-19 pandemic | | – | 17.8 | | | | **(111.5)** | (136.8) | | **Included in net finance income/(costs)** | | | | | Remeasurement of Ocado Retail Limited contingent consideration | | **108.0** | 5.6 | | Net finance costs incurred in relation to Gist Limited deferred and contingent consideration | | **(2.8)** | – | | | | **105.2** | 5.6 | | **Adjustments to profit before tax** | | **(6.3)** | (131.2) | ### Strategic programmes – UK store estate (£51.3m) In November 2016, the Group announced a strategic programme to transform and rotate the UK store estate with the overall objective to improve our store estate to better meet our customers' needs. The Group incurred charges of £870m up to April 2023 under this programme primarily relating to closure costs associated with stores identified as part of the strategic transformation plans. The Group has recognised a charge of £51.3m in the period in relation to those stores identified as part of the rotation plans. The charge primarily reflects the latest view of store closure plans and latest assumptions for estimated store closure costs, as well as charges relating to the impairment of buildings and fixtures and fittings, and depreciation as a result of shortening the useful economic life of stores based on the most recent approved exit routes. Further charges relating to the closure and rotation of the UK store estate are anticipated over the next eight years as the programme progresses, the quantum of which is subject to change throughout the programme period as the Group gets greater certainty of circumstances that need to be in place to make closure financially viable. Future charges will not include Foodhall closures at a lease event where there is opportunity for a better location, as this is not in the scope of the programme. As at 1 April 2023, the total closure programme now consists of 206 stores, 108 of which have already closed. Further charges of c.£165m are estimated within the next eight financial years, bringing anticipated total programme costs since 2016 to c.£1bn. In addition, where store exit routes in the next eight years lead to the recognition of gains on exit, particularly those relating to asset management, these credits will also be recognised within adjusting items as part of the programme. The anticipated total programme costs to date do not include any costs that may arise in relation to a further c.30 stores currently under consideration for closure within the next eight years. At this stage these c.30 stores remain commercially supportable and in the event of a decision to close the store, the exit routes are not yet certain. These costs are reported as adjusting items on the basis that they are significant in quantum, relate to a strategic initiative focused on reviewing our store estate and to aid comparability from one period to the next. The programme includes all stores within the programme to be closed by 2030/31, but charges in the year, and future charges, did not include Foodhall closures at a lease event where there is opportunity to secure a better location. Annual Report & Financial Statements 2023 161 FINANCIAL STATEMENTS # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 5 ADJUSTING ITEMS CONTINUED ### Strategic programmes – Structural simplification (£16.4m) During 2022/23, the Group committed to a structural reduction of its operating costs and a desire to simplify the organisation and prioritise to mitigate cost increases faced by the business. As part of this objective, a thorough review has been performed to restructure and right size the organisation with an in-year focus on the support functions. As part of the programme, the Group has incurred £1.3m of consultancy costs. The review of structures has resulted in a reduction of c.700 roles versus plan across central support centres, management and stores, with a charge of £16.4m recognised in the period primarily for redundancy and exit costs associated with these changes. The provision is expected to be fully utilised during 2023/24. Further charges of c.£17m are expected in 2023/24 bringing the total programme cost to c.£33.4m. These costs are considered to be adjusting items as the costs are part of the strategic programme, significant in value and would distort the year-on-year profitability of the business. ### Strategic programmes – Organisation (£10.7m) During 2016/17, the Group announced a wide-ranging strategic review across a number of areas of the business which included UK organisation and the programme to centralise our London Head Office functions into one building. In the period, an impairment charge of £10.7m has been recognised (last year: £14.3m impairment reversal). This relates to the updating of assumptions and market fluctuations over the life of the sub-let of previously closed offices. Total costs of centralising our London Head Office functions into one building incurred to date are c.£97m. Any future charges/reversals will relate to the updating of assumptions and market fluctuations over the life of the sub-let lease to September 2040. These charges are reported as adjusting items as they are significant in value, relate to a strategic initiative, are not considered to be normal operating costs of the business and are consistent with the disclosure of costs previously recognised. ### Strategic programmes – UK logistics (£10.5m) In 2017/18, as part of the previously announced long-term strategic programme to transition to a single-tier UK distribution network, the Group announced the opening of a new Clothing & Home distribution centre in Welham Green, Hertfordshire. As a direct result, the Group announced the closure of two existing distribution centres. In February 2020, the next phase of the single-tier programme was announced with the closure of two further distribution centres across 2020/21 and 2021/22. In January 2023, the closure of a further distribution centre was announced for 2023/24. A net charge of £10.5m has been recognised in the period, reflecting the view of estimated closure costs. Total programme costs to date are £28.4m with further net charges of £30.2m expected over the next two financial years. These charges are reported as adjusting items on the basis that they are significant in quantum, relate to a strategic initiative focused on reviewing our UK logistics network and to aid comparability from one period to the next. ### Store impairments, impairment reversals and property charges (£15.1m credit) The Group has recognised a number of charges and credits in the period associated with the carrying value of items of property, plant and equipment. The Group has performed impairment testing based on the latest Board approved budget and three year plan future cash flow projections for UK and International stores (excluding those stores that have been captured as part of the UK store estate programme). As a result, store impairment testing has identified stores where the current and anticipated future performance does not support the carrying value of the stores. A charge of £18.0m (last year: £2.9m) has been incurred primarily in respect of the impairment of assets associated with these stores. In addition, a credit of £33.1m (last year: £63.4m) has been recognised for the reversal of store impairments incurred in previous periods, where revised future cash flow projections more than support the carrying value of the stores, reflecting improved trading expectations compared to those assumed at the prior year end. Refer to note 15 for further details on the impairments. The charges/credits have been classified as an adjusting item on the basis of the significant quantum of the charge/credit in the period to the results of the Group. Any future charges or reversals relating to stores previously impaired within adjusting items will continue to be recognised within adjusting items in line with the original charge. Any future charges or reversals relating to stores not previously impaired within adjusting items or otherwise meeting the Group's adjusting items policy will be recognised in the underlying results. ### Acquisition of Gist Limited (£22.1m) On 30 September 2022 the Group completed the acquisition of Gist Limited from Storeshield Limited, a subsidiary of The BOC Group Limited, as part of M&S' multi-year programme to modernise its Food supply chain network to support growth. As part of the transaction the Group has incurred £28.3m of one-off charges that are not considered to be day-to-day operational costs of the business. Transaction costs of £6.8m have been incurred and £3.3m of other costs, mainly retention bonuses, along with £18.2m of charges relating to the settlement of our pre-existing relationship with Gist Limited. This was offset by a £6.2m gain on bargain purchase. See note 31 for further details. These costs are adjusting items as they relate to a major transaction and, but for the transaction, the business would not have incurred these costs and as a result are not considered to be normal operating costs of the business. Further costs are expected in 2023/24 in relation to the acquisition, such as retention bonuses. ### Amortisation and fair value adjustments arising as part of the investment in Ocado Retail Limited (£14.0m) Intangible assets of £366.0m were acquired as part of the investment in Ocado Retail Limited in 2019/20 relating to the Ocado brand and acquired customer relationships. These intangibles are being amortised over their useful economic lives of 10 – 40 years with an amortisation charge of £17.1m recognised in the period and a related deferred tax credit of £3.1m. The amortisation charge and changes in the related deferred tax liability are included within the Group's share of the profit or loss of the associate and are considered to be adjusting items as they are based on judgments about their value and economic life and are not related to the Group's underlying trading performance. These charges are reported as adjusting items on the basis that they are significant in quantum and to aid comparability from one period to the next. ### M&S Bank charges incurred in relation to insurance mis-selling provisions (£2.0m) The Group has an economic interest in Marks and Spencer Financial Services plc (trading as M&S Bank), a wholly owned subsidiary of HSBC UK Bank plc, by way of a Relationship Agreement that entitles the Group to a 50% share of the profits 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 profit share received from HSBC, although future income may be impacted by significant one-off deductions. Since the year ended 31 December 2010, M&S Bank has recognised in its audited financial statements an estimated liability for redress to customers in respect of possible mis-selling of financial products. The Group's profit share and fee income from M&S Bank has been reduced by the deduction of the estimated liability in 162 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS both the current and prior years. In line with the accounting treatment under the Relationship Agreement, there is a cap on the amount of charges that can be offset against the profit share in any one year, whereby excess liabilities carried forward are deducted from the Group's future profit share from M&S Bank. The deduction in the period is £2.0m (last year: £16.0m). The treatment of this in adjusting items is in line with previous charges in relation to settlement of PPI claims and although it is recurring, it is significant in quantum in the context of the total charges recognised for PPI mis-selling to date and is not considered representative of the normal operating performance of the Group. As previously noted, while the August 2019 deadline to raise potential mis-selling claims has now passed, costs relating to the estimated liability for redress are expected to continue. The total charges recognised in adjusting items since September 2012 for PPI is £324.7m which exceeds the total offset against profit share of £255.8m to date and this deficit will be deducted from the Group's share of future profits from M&S Bank. #### **Franchise restructuring (£0.4m credit)** In September 2021 the Group announced the closure of 11 franchise stores in France in response to increased EU border costs. Consequently, the Group recognised a charge of £10.3m for closure costs in 2021/22. A provision release of £0.4m has been recognised during the period in relation to the stores in France. No future costs are expected. The costs/credits are considered to be adjusting items as they are one-off in nature and significant in value in total to the results of the Group and to the International segment. #### **Remeasurement of contingent consideration including discount unwind (£108.0m credit)** Contingent consideration, resulting from the investment in Ocado Retail Limited, is remeasured at fair value at each reporting date with the changes in fair value recognised in profit or loss. During 2021/22, £33.8m of contingent consideration was settled, following the achievement of the first and second performance targets. A credit of £108.0m has been recognised in the period, representing the revaluation of the contingent consideration payable to £64.7m (£57.8m plus interest). See note 21 for further details. The change in fair value is considered to be an adjusting item as it relates to a major transaction and consequently is not considered representative of the normal operating performance of the Group. The remeasurement will be recognised in adjusting items until the final contingent consideration payment is determined in 2024/25. #### **Net finance costs incurred in relation to Gist Limited deferred and contingent consideration (£2.8m)** Deferred consideration, resulting from the acquisition of Gist Limited, is held at amortised cost, whilst the contingent consideration is remeasured at fair value at each reporting date with the changes in fair value recognised in profit or loss. A charge of £2.8m has been recognised in the period, representing the discount unwind of the deferred consideration and revaluation of the contingent consideration payable. See note 21 for further details. The discount unwind and change in fair value is considered to be an adjusting item as it relates to a major transaction and consequently is not considered representative of the normal operating performance of the Group. The discount unwind and remeasurement will be recognised in adjusting items until the final payments are made in 2025/26. Annual Report & Financial Statements 2023 163 FINANCIAL STATEMENTS ## NOTES TO THE FINANCIAL STATEMENTS CONTINUED ### 6 FINANCE INCOME/(COSTS) | | 2023 £m | 2022 £m | | --- | --- | --- | | Bank and other interest receivable | 22.9 | 3.7 | | Other finance income | 0.9 | 5.9 | | Pension net finance income (see note 11H) | 28.7 | 13.2 | | Interest income of subleases | 5.6 | 5.5 | | **Finance income before adjusting items** | **58.1** | **28.3** | | Finance income in adjusting items | 108.0 | 5.6 | | **Finance income** | **166.1** | **33.9** | | Other finance costs | (6.4) | (0.8) | | Interest payable on syndicated bank facility | (4.5) | (4.7) | | Interest payable on Medium Term Notes | (65.4) | (79.6) | | Interest payable on lease liabilities | (116.7) | (121.1) | | Unwind of discount on provisions | (5.4) | (3.8) | | Unwind of discount on Partnership liability to the Marks & Spencer UK Pension Scheme (see note 12) | (4.3) | (4.4) | | **Finance costs before adjusting items** | **(202.7)** | **(214.4)** | | Finance costs in adjusting items | (2.8) | – | | **Finance costs** | **(205.5)** | **(214.4)** | | **Net finance costs** | **(39.4)** | **(180.5)** | ### 7 INCOME TAX EXPENSE #### A. Taxation charge | | 2023 £m | 2022 £m | | --- | --- | --- | | **Current tax** | | | | UK corporation tax on profits for the year at 19% (last year: 19%) | | | | – current year | 67.6 | 66.8 | | – adjustments in respect of prior years | (3.8) | (1.0) | | UK current tax | 63.8 | 65.8 | | Overseas current taxation | | | | – current year | 9.9 | 9.6 | | – adjustments in respect of prior years | (3.6) | 2.2 | | **Total current taxation** | **70.1** | **77.6** | | Deferred tax | | | | – origination and reversal of temporary differences | 26.5 | 14.9 | | – adjustments in respect of prior years | 8.1 | 0.7 | | – changes in tax rate | 6.5 | (10.5) | | **Total deferred tax (see note 23)** | **41.1** | **5.1** | | **Total income tax expense** | **111.2** | **82.7** | 164 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 7 INCOME TAX EXPENSE CONTINUED ### B. Taxation reconciliation The effective tax rate was 23.4% (last year: 21.1%) and is explained below. | | 2023 £m | 2022 £m | | --- | --- | --- | | **Profit before tax** | **475.7** | 391.7 | | Notional taxation at standard UK corporation tax rate of 19% (last year: 19%) | **90.4** | 74.4 | | Depreciation and other amounts in relation to fixed assets that do not qualify for tax relief | **6.2** | 7.8 | | Tax benefit arising from UK super deduction regime | **(7.9)** | (6.2) | | Other income and expenses that are not taxable or allowable for tax purposes | **16.7** | 6.1 | | Joint venture results accounted for as profit after tax | **5.5** | (2.5) | | Retranslation of deferred tax balances due to the change in statutory UK tax rates | **–** | (10.5) | | Impact of tax rate differential | **6.6** | – | | Overseas profits taxed at rates different to those of the UK | **0.4** | (0.6) | | Movement in unrecognised overseas deferred tax assets | **0.3** | – | | Adjustments to the current and deferred tax charges in respect of prior periods | **5.4** | 1.9 | | Adjusting items: | | | | – UK store and strategic programme impairments and other property charges where no tax relief is available | **2.7** | 3.9 | | – Cost incurred on acquisition of Gist | **3.6** | – | | – Other strategic programme income and expenses that are not taxable or allowable for tax purposes | **2.7** | 2.2 | | – Amortisation arising as a part of the investment in Ocado Retail Limited | **2.7** | 6.2 | | – Release of Ocado contingent consideration | **(19.4)** | – | | – Adjustments to the current and deferred tax charges in respect of prior periods | **(4.7)** | – | | **Total income tax expense** | **111.2** | 82.7 | The effective tax rate in respect of the profit before adjusting items was 25.9% (last year: 18.2%). On 20 December 2021, the OECD published its proposals in relation to Global Anti-Base Erosion Rules, which provide for an internationally co-ordinated system of taxation to ensure that large multinational groups pay a minimum level of corporate income tax in countries where they operate. On 23 March 2023, the UK government introduced draft legislation in Finance (No. 2) Bill 2022-23 to implement Pillar 2 of the OECD/G20 inclusive framework. The new rules are expected to take effect from 2024 onwards. There remains a considerable amount of uncertainty with respect to the detailed operation of the rules and their impact. Further details and guidance are due in the course of 2023. From an initial review of the Group's business and tax profile, the rules are not expected to have a material impact on the Group's tax rate or tax payments. There is no impact on the Group's results for FY23. Annual Report & Financial Statements 2023 165 FINANCIAL STATEMENTS # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 7 INCOME TAX EXPENSE CONTINUED ### C. Current tax reconciliation The current tax reconciliation shows the tax effect of the main adjustments made to the Group's accounting profits in order to arrive at its taxable profits. The reconciling items differ from those in note 7B as the effects of deferred tax temporary differences are ignored below. | | 2023 £m | 2022 £m | | --- | --- | --- | | **Profit before tax** | **475.7** | 391.7 | | Notional taxation at standard UK corporation tax rate of 19% (last year: 19%) | 90.4 | 74.4 | | Disallowable accounting depreciation and other similar items | 55.8 | 63.7 | | Deductible capital allowances | (77.9) | (75.7) | | Adjustments in relation to employee share schemes | 5.8 | 6.7 | | Adjustments in relation to employee pension schemes | 7.6 | (2.5) | | Overseas profits taxed at rates different from those of the UK | 0.4 | (0.6) | | Joint venture results accounted for as profit after tax | 5.5 | (2.5) | | Utilisation or increase of unrecognised losses | 0.3 | – | | Other income and expenses that are not taxable or allowable | (2.7) | 0.6 | | Adjusting items: | | | | – UK store and strategic programme impairments and other property charges where no tax relief is available | 2.7 | 3.9 | | – Other strategic programme income and expenses that are not taxable nor allowable for tax purposes | 2.7 | 2.2 | | – Cost incurred on acquisition of Gist | 3.6 | – | | – Amortisation arising as a part of the investment in Ocado Retail Limited | 2.7 | 6.2 | | – Release of Ocado contingent consideration | (19.4) | – | | **Current year current tax charge** | **77.5** | 76.4 | | **Represented by:** | | | | UK current year current tax | 67.6 | 66.8 | | Overseas current year current tax | 9.9 | 9.6 | | | **77.5** | 76.4 | | UK adjustments in respect of prior years | (3.8) | (1.0) | | Overseas adjustments in respect of prior years | (3.6) | 2.2 | | **Total current taxation (note 7A)** | **70.1** | 77.6 | ## 8 EARNINGS PER SHARE The calculation of earnings per ordinary share is based on earnings after tax and the weighted average number of ordinary shares in issue during the year. The adjusted earnings per share figures have also been calculated based on earnings before adjusting items that are significant in nature and/or quantum and are considered distortive to underlying results (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. 166 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 8 EARNINGS PER SHARE CONTINUED Details of the adjusted earnings per share are set out below: | | 2023 £m | 2022 £m | | --- | --- | --- | | **Profit attributable to equity shareholders of the Company** | **363.4** | 306.6 | | Add/(less): | | | | Adjusting items (see note 5) | 6.3 | 131.2 | | Tax on adjusting items | (13.7) | (12.6) | | **Profit before adjusting items attributable to equity shareholders of the Company** | **356.0** | 425.2 | | | Million | Million | | --- | --- | --- | | Weighted average number of ordinary shares in issue | 1,963.5 | 1,958.1 | | Potentially dilutive share options under Group's share option schemes | 70.4 | 73.0 | | **Weighted average number of diluted ordinary shares** | **2,033.9** | 2,031.1 | | | Pence | Pence | | --- | --- | --- | | Basic earnings per share | 18.5 | 15.7 | | Diluted earnings per share | 17.9 | 15.1 | | Adjusted basic earnings per share | 18.1 | 21.7 | | Adjusted diluted earnings per share | 17.5 | 20.9 | ## 9 DIVIDENDS The Group suspended dividend payments at the start of the pandemic to protect the balance sheet. This enabled it to invest in its transformation priorities and trusted value. Consistent with that announcement, the Board does not expect to pay a dividend in 2022/23. However, with the business generating an improved operating performance and having a strengthened balance sheet with credit metrics consistent with investment grade, the Board plans to restore a modest annual dividend to shareholders starting with an interim dividend with the results in November. ## 10 EMPLOYEES ### A. Aggregate remuneration The aggregate remuneration and associated costs of Group employees (including Executive Committee) were: | | 2023 £m | 2022 £m | | --- | --- | --- | | Wages and salaries | 1,351.4 | 1,256.0 | | Social security costs | 93.7 | 84.6 | | Pension costs | 75.9 | 69.0 | | Share-based payments (see note 13) | 32.7 | 30.2 | | Employee welfare and other personnel costs | 47.4 | 54.1 | | Capitalised staffing costs | (14.9) | (6.4) | | **Total aggregate remuneration^{1}** | **1,586.2** | 1,487.5 | $^{1}$ Excludes amounts recognised within adjusting items of £19.0m (last year: £0.1m) (see notes 3 and 5). Details of key management compensation are given in note 28. Annual Report & Financial Statements 2023 167 FINANCIAL STATEMENTS # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 10 EMPLOYEES CONTINUED ### B. Average monthly number of employees | | 2023 | 2022 | | --- | --- | --- | | UK stores | | | | – management and supervisory categories | **4,823** | 4,570 | | – other | **50,019** | 51,585 | | UK support centre | | | | – management and supervisory categories | **3,823** | 3,275 | | – other | **822** | 660 | | UK operations | | | | – management and supervisory categories | **682** | 124 | | – other | **6,856** | 1,667 | | Overseas | **5,291** | 5,205 | | **Total average number of employees** | **72,316** | 67,086 | The average number of full-time equivalent employees is 52,092 (last year: 47,108). ## 11 RETIREMENT BENEFITS The Group provides pension arrangements for the benefit of its UK employees through the Your M&S Pension Saving Plan (a defined contribution ("DC") arrangement) and prior to 2017, through the Marks & Spencer Pension Scheme ("UK DB Pension Scheme") (a defined benefit ("DB") arrangement). The legacy UK DB Pension Scheme operated on a final pensionable salary basis and is governed by a Trustee board which is independent of the Group. The UK DB Pension Scheme closed to future accrual on 1 April 2017. There will be no further service charges 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: nil), 49,634 deferred members (last year: 51,444) and pensioners 53,634 (last year: 53,270). The DC plan is a pension plan under which the Group pays contributions to an independently administered fund. Such contributions are based upon a fixed 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' benefits 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 benefits. As a result, actuarial risk (that benefits 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 DC arrangement had some 50,901 active members (last year: 46,560) and some 45,908 deferred members (last year: 45,778). The Group also operates a small legacy funded DB pension scheme in the Republic of Ireland. This scheme closed to future accrual on 31 October 2013. Other retirement benefits also include a UK post-retirement healthcare scheme and unfunded retirement benefits. The total Group retirement benefit cost was £36.4m (last year: £55.9m). Of this, income of £24.1m (last year: income of £8.8m) relates to the UK DB Pension Scheme, costs of £57.4m (last year: costs of £62.0m) to the UK DC plan and costs of £3.1m (last year: costs of £2.8m) to other retirement benefit schemes. The Group considers two measures of the pension deficit. The accounting position is shown on the Group balance sheet. The funding position, calculated at the triennial actuarial valuation, is used to agree contributions made to the schemes. The two measures will vary because they are for different purposes, and are calculated at different dates and in different ways. The key calculation difference is that the funding position considers the expected returns of scheme assets when calculating the liability, whereas the accounting position calculated under IAS 19 discounts liabilities is based on corporate bond yields. The most recent actuarial valuation of the UK DB Pension Scheme was carried out as at 31 March 2021 and showed a funding surplus of £687m. This is an improvement on the previous position at 31 March 2018 (funding surplus of £652m), primarily due to lower assumed life expectancy. The Company and Trustee have confirmed, in line with the current funding arrangement, that no further contributions will be required to fund past service as a result of this valuation (other than those already contractually committed under the existing Marks and Spencer Scottish Limited Partnership arrangements – see note 12). 168 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 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 inflation 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 leads to increases in the schemes' liabilities; for example, through early retirement or commutation of pension for cash. - Legislative changes could also lead to an increase in the schemes' liabilities. In addition, the Group 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. With the pensioner buy-in policies purchased in September 2020, April 2019 and March 2018, the Scheme has now, in total, insured around 80% of the pensioner cash flow liabilities for pensions in payment. The buy-in policies cover specific pensioner liabilities and pass all risks to an insurer in exchange for a fixed premium payment, thus reducing the Group's exposure to changes in longevity, interest rates, inflation and other factors. ### A. Pensions and other post-retirement liabilities | | 2023 £m | 2022 £m | | --- | --- | --- | | Total market value of assets | **6,781.9** | 10,090.7 | | Present value of scheme liabilities | **(6,299.9)** | (9,046.8) | | Net funded pension plan asset | **482.0** | 1,043.9 | | Unfunded retirement benefits | **(2.2)** | (2.6) | | Post-retirement healthcare | **(2.4)** | (3.1) | | **Net retirement benefit surplus** | **477.4** | 1,038.2 | | Analysed in the statement of financial position as: | | | | Retirement benefit asset | **482.0** | 1,043.9 | | Retirement benefit deficit | **(4.6)** | (5.7) | | **Net retirement benefit surplus** | **477.4** | 1,038.2 | In the event of a plan wind-up, the pension scheme rules provide Marks and Spencer plc with an unconditional right to a refund of surplus assets assuming the full settlement of plan liabilities. In the ordinary course of business, the Trustee has no right to wind up or change the benefits due to members of the scheme. As a result, any net surplus in the UK DB Pension Scheme is recognised in full. ### B. Scheme assets Changes in the fair value of the scheme assets are as follows: | | 2023 £m | 2022 £m | | --- | --- | --- | | Fair value of scheme assets at start of year | **10,090.7** | 10,442.9 | | Interest income based on discount rate | **267.0** | 204.4 | | Actual return on scheme assets excluding amounts included in net interest income^{1} | **(3,231.1)** | (213.4) | | Actuarial loss – asset ceiling | **(38.2)** | (19.4) | | Employer contributions | **38.1** | 41.8 | | Benefits paid | **(344.9)** | (359.3) | | Administration costs | **(4.6)** | (4.6) | | Exchange movement | **4.9** | (1.7) | | **Fair value of scheme assets at end of year** | **6,781.9** | 10,090.7 | 1 The actual return on scheme assets was a loss of £2,964.1m (last year: loss of £9.0m). Annual Report & Financial Statements 2023 169 FINANCIAL STATEMENTS ## NOTES TO THE FINANCIAL STATEMENTS CONTINUED ### 11 RETIREMENT BENEFITS CONTINUED #### C. Pensions and other post-retirement liabilities Changes in the present value of retirement benefit obligations are as follows: | | 2023 £m | 2022 £m | | --- | --- | --- | | **Present value of obligation at start of year** | **9,052.5** | 9,811.5 | | Current service cost | 0.1 | 0.2 | | Administration costs | 0.2 | 0.2 | | Interest cost | 238.3 | 191.2 | | Benefits paid | (344.9) | (359.3) | | Actuarial loss – experience | 250.3 | 153.9 | | Actuarial (gain)/loss – demographic assumptions | (205.4) | 89.0 | | Actuarial (gain) – financial assumptions | (2,691.4) | (832.7) | | Exchange movement | 4.8 | (1.5) | | **Present value of obligation at end of year** | **6,304.5** | 9,052.5 | | **Analysed as:** | | | | Present value of pension scheme liabilities | 6,299.9 | 9,046.8 | | Unfunded pension plans | 2.2 | 2.6 | | Post-retirement healthcare | 2.4 | 3.1 | | **Present value of obligation at end of year** | **6,304.5** | 9,052.5 | The average duration of the defined benefit obligation at 1 April 2023 is 14.0 years (last year: 17.3 years). 170 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 11 RETIREMENT BENEFITS CONTINUED ### D. Analysis of assets The investment strategy of the UK DB Pension Scheme is driven by its liability profile, including its inflation-linked pension benefits. In addition to its interest in the Scottish Limited Partnership (refer to note 12), the scheme invests in different types of bond (including corporate bonds and gilts) and derivative instruments (including inflation, 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 94% of interest rate movements and 111% of inflation movements, as measured on the Trustee's 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: | | 2023 | | | 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | Quoted £m | Unquoted £m | Total £m | Quoted £m | Unquoted £m | Total £m | | **Debt investments** | | | | | | | | – Government bonds net of repurchase agreements^{1} | **2,023.7** | **(196.6)** | **1,827.1** | 3,482.9 | (1,185.2) | 2,297.7 | | – Corporate bonds | **12.0** | **1.2** | **13.2** | 6.0 | 950.0 | 956.0 | | – Asset backed securities and structured debt | – | **443.6** | **443.6** | – | 365.9 | 365.9 | | **Scottish Limited Partnership Interest (see note 12)** | – | **122.8** | **122.8** | – | 193.5 | 193.5 | | **Equity investments** | | | | | | | | – Developed markets | **41.6** | – | **41.6** | 550.3 | – | 550.3 | | – Emerging markets | **109.5** | – | **109.5** | 113.7 | – | 113.7 | | **Growth asset funds** | | | | | | | | – Global property | – | **287.0** | **287.0** | 5.4 | 308.7 | 314.1 | | – Hedge and reinsurance | **12.0** | **316.3** | **328.3** | 25.8 | 324.7 | 350.5 | | – Private equity and infrastructure | – | **171.9** | **171.9** | 5.9 | 223.6 | 229.5 | | **Derivatives** | | | | | | | | – Interest and inflation rate swaps | **7.0** | **88.6** | **95.6** | 15.6 | 406.9 | 422.5 | | – Foreign exchange contracts and other derivatives | – | **21.4** | **21.4** | – | (40.0) | (40.0) | | **Cash and cash equivalents** | **4.0** | **206.2** | **210.2** | 5.9 | 168.1 | 174.0 | | **Other** | | | | | | | | – Buy-in insurance | – | **2,150.0** | **2,150.0** | – | 2,910.0 | 2,910.0 | | – Secure income asset funds | – | **998.3** | **998.3** | – | 1,121.6 | 1,121.6 | | – Other | – | – | – | – | 150.8 | 150.8 | | **Total^{2}** | **2,209.8** | **4,610.7** | **6,820.5** | 4,211.5 | 5,898.6 | 10,110.1 | 1. Repurchase agreements were £196.6m (last year: £1,184.0m). 2. The difference between the total assets of £6,820.5m above compared to £6,781.9m is £38.6m. This relates to the cap applied to the Irish DB scheme and therefore the £38.2m actuarial gain is not recognised and £0.4m net interest income is not recognised as per IFRIC 14. 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 flows and benchmark asset-backed credit spreads. It is the policy of the scheme to hedge a proportion of interest rate and inflation 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 nil (last year: 33,210) ordinary shares in the Company through its investment in UK Equity Index Funds. Annual Report & Financial Statements 2023 171 FINANCIAL STATEMENTS # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 11 RETIREMENT BENEFITS CONTINUED ### E. Financial assumptions The financial assumptions for the UK DB Pension Scheme and the most recent actuarial valuations of the other post-retirement schemes have been updated by independent qualified actuaries to take account of the requirements of IAS 19 Employee Benefits in order to assess the liabilities of the schemes and are as follows: | | 2023 % | 2022 % | | --- | --- | --- | | Rate of increase in pensions in payment for service | **2.2-3.2** | 2.3-3.6 | | Discount rate | **4.75** | 2.70 | | Inflation rate (RPI) | **3.25** | 3.70 | | Long-term healthcare cost increases | **7.30** | 7.70 | ### F. Demographic assumptions The UK demographic assumptions are mainly in line with those adopted for the last formal actuarial valuation of the scheme performed as at 31 March 2021. The UK post-retirement mortality assumptions are based on an analysis of the pensioner mortality trends under the scheme for the period to March 2021. The specific mortality rates used are based on the VITA lite tables, with future projections based on up-to-date industry models, parameterised to reflect scheme data. The life expectancies underlying the valuation are as follows: | | 2023 | 2022 | | --- | --- | --- | | Current pensioners (at age 65) | – male | **22.0** 22.3 | | | – female | **24.4** 25.1 | | Future pensioners – currently in deferred status (at age 65) | – male | **23.6** 24.0 | | | – female | **26.1** 26.9 | ### G. Sensitivity analysis The table below summarises the estimated impact of reasonably possible changes in the principal actuarial assumptions on the UK DB Pension Scheme surplus: | | 2023 £m | 2022 £m | | --- | --- | --- | | Decrease in scheme surplus caused by a decrease in the discount rate of 0.25% | **(25.0)** | (20.0) | | Decrease in scheme surplus caused by a decrease in the discount rate of 0.50% | **(45.0)** | (30.0) | | Decrease in scheme surplus caused by a decrease in the discount rate of 2.50% | **(235.0)** | (150.0) | | Increase in scheme surplus caused by an increase in the discount rate of 2.50% | **200.0** | 100.0 | | Decrease in scheme surplus caused by a decrease in the inflation rate of 0.25% | **(30.0)** | (70.0) | | Decrease in scheme surplus caused by a decrease in the inflation rate of 0.50% | **(60.0)** | (130.0) | | Increase in scheme surplus caused by a decrease in the average life expectancy of one year | **130.0** | 270.0 | 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. The sensitivities reflect the range of recent assumption movements and illustrate that the financial assumption sensitivities do not move in a linear fashion. ### H. Analysis of amounts charged against profits Amounts recognised in comprehensive income in respect of defined benefit retirement plans are as follows: | | 2023 £m | 2022 £m | | --- | --- | --- | | Current service cost | **0.1** | 0.2 | | Administration costs | **4.8** | 4.8 | | Net interest income | **(28.7)** | (13.2) | | **Total** | **(23.8)** | (8.2) | | Remeasurement on the net defined benefit surplus: | | | | Actual return on scheme assets excluding amounts included in net interest income | **3,231.1** | 213.4 | | Actuarial (gain)/loss – demographic assumptions | **(205.4)** | 89.0 | | Actuarial loss – experience | **250.3** | 153.9 | | Actuarial gain – financial assumptions | **(2,691.4)** | (832.7) | | Actuarial loss – asset ceiling | **38.2** | 19.4 | | **Components of defined benefit expense/(income) recognised in other comprehensive income** | **622.8** | (357.0) | 172 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 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 £1.3bn (last year: £1.3bn) of properties at book value which have been leased back to Marks and Spencer plc. The Group retains control over these properties, including the flexibility to substitute alternative properties into the Partnership. The first limited Partnership interest (held by the Marks & Spencer UK Pension Scheme) entitles the Pension Scheme to receive £73.0m in 2023 and £54.4m in 2024. The second Partnership interest (also held by the Marks & Spencer UK Pension Scheme) entitles the Pension Scheme to receive a further £36.4m annually from June 2017 until June 2031. All profits generated by the Partnership in excess of this are distributable to Marks and Spencer plc. The Partnership liability in relation to the first interest of £124.8m (last year: £192.3m) is included as a financial liability in the Group's financial statements as it is a transferable financial instrument and measured at amortised cost, being the net present value of the future expected distributions from the Partnership. During the year to 1 April 2023, an interest charge of £4.3m (last year: £4.4m) was recognised in the income statement, representing the unwinding of the discount included in this obligation. The first limited Partnership interest of the Pension Scheme is included within the UK DB Pension Scheme assets, valued at £122.8m (last year: £193.5m). The second Partnership interest is not a transferable financial instrument as the Scheme Trustee does not have the right to transfer it to any party other than a successor Trustee. It is therefore not included as a plan asset within the UK DB Pension Scheme surplus reported in accordance with IAS 19. Similarly, the associated liability is not included on the Group's statement of financial position, rather the annual distribution is recognised as a contribution to the scheme each year. ## 13 SHARE-BASED PAYMENTS This year a charge of £32.7m was recognised for share based payments (last year: charge of £30.2m). Of the total share-based payments charge, £15.2m (last year: £14.9m) relates to the UK Save As You Earn Share Option scheme, £7.0m (last year: charge of £6.7m) relates to Performance Share Plans, £3.4m (last year: £8.2m) relates to Restricted Share Plans, £6.9m relates to Deferred Share Bonus Schemes (last year: £0.2m) and the remaining charge of £0.2m relates to Republic of Ireland Save As You Earn Share Option Scheme (last year: £0.2m). In addition, a charge of £5.3m was recognised in relation to Annual Bonus Schemes under the Deferred Share Bonus Scheme. The Annual Bonus for 2022/23 is due to be granted in July 2023. Further details of the option and share schemes that the Group operates are provided in the Remuneration Report. ### A. Save As You Earn scheme – £15.2m The Save As You Earn (SAYE) scheme was approved by shareholders for a further 10 years at the 2017 Annual General Meeting (AGM). Under the terms of the scheme, the Board may offer options to purchase ordinary shares in the Company once in each financial year to those employees who enter into His Majesty's Revenue & Customs (HMRC) approved SAYE savings contract. The scheme allows participants to save up to a maximum of £500 (last year: £500) each month. The price at which options may be offered is 80% of the average mid-market price for three consecutive dealing days preceding the offer date. The options may normally be exercised during the six-month period after the completion of the SAYE contract. | | 2023 | | 2022 | | | --- | --- | --- | --- | --- | | | Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | | Outstanding at beginning of the year | 110,562,961 | 100.9p | 119,151,406 | 99.4p | | Granted | 14,349,909 | 99.0p | 11,526,149 | 189.0p | | Exercised | (690,665) | 111.1p | (208,238) | 138.2p | | Forfeited | (14,390,102) | 124.9p | (12,207,656) | 102.6p | | Expired | (2,779,680) | 220.0p | (7,698,700) | 206.5p | | Outstanding at end of year | 107,052,423 | 94.3p | 110,562,961 | 100.9p | | **Exercisable at end of year** | **6,309,033** | **144.2p** | 11,945 | 186.8p | For SAYE share options exercised during the period, the weighted average share price at the date of exercise was 144.1p (last year: 206.3p). Annual Report & Financial Statements 2023 173 FINANCIAL STATEMENTS ## NOTES TO THE FINANCIAL STATEMENTS CONTINUED ### 13 SHARE-BASED PAYMENTS CONTINUED The fair values of the options granted during the year have been calculated using the Black-Scholes model assuming the inputs shown below: | | 2023 | | 2022 | | --- | --- | --- | --- | | | 3-year plan | 3-year plan 2021 modified^{1} | 3-year plan | | Grant date | Dec 22 | Dec 22 | Dec 21 | | Share price at grant date | 123p | 123p | 235p | | Exercise price | 99p | 189p | 189p | | Option life in years | 3 years | 3 years | 3 years | | Risk-free rate | 3.3% | 3.3% | 0.5% | | Expected volatility | 51.0% | 51.0% | 49.3% | | Expected dividend yield | 0.0% | 0.0% | 0.0% | | Fair value of option | 43p | 26p | 81p | | Incremental fair value of option | n/a | 17p | n/a | $^{1}$ In the current year, there was a modification to the 2021 scheme relating to employees cancelling awards from previous years in substitution for awards granted under the 2023 scheme. The fair value of the modified awards has been amortised based on the incremental fair value. The incremental fair value is the difference between the fair value of the 2023 options being 43p, and the fair value of reprinted previous awards, calculated using 2021 award assumptions, keeping the initial exercise price consistent. The fair value of the modified options, being 17p for 2021 modified options was recognised in operating profit. Volatility has been estimated by taking the historical volatility in the Company's share price over a three-year period. The resulting fair value is expensed over the service period of three years on the assumption that 27% (last year: 10%) of options will lapse over the service period as employees leave the Group. Outstanding options granted under the UK Employee SAYE Scheme are as follows: | Options granted^{1} | Number of options | | Weighted average remaining contractual life (years) | | | | --- | --- | --- | --- | --- | --- | | | 2023 | 2022 | 2023 | 2022 | Option price | | January 2018 | – | 5,441 | – | (0.8) | 251p | | January 2019 | 13,016 | 2,399,413 | (0.8) | 0.2 | 238p | | February 2020 | 5,732,723 | 8,006,941 | 0.3 | 1.3 | 151p | | February 2021 | 81,037,194 | 89,284,282 | 1.3 | 2.3 | 82p | | February 2022 | 6,333,538 | 10,866,884 | 2.3 | 3.3 | 189p | | February 2023 | 13,935,952 | – | 3.3 | – | 99p | | | 107,052,423 | 110,562,961 | 1.6 | 2.3 | 94p | $^{1}$ For the purpose of the above table, the option granted date is the contract start date. ### B. Performance Share Plan* – £7.0m The Performance Share Plan ("PSP") is the primary long-term incentive plan for approximately 165 of the most senior managers within the Group. It was first approved by shareholders at the 2005 AGM and again at the 2020 AGM. Under the plan, annual awards, based on a percentage of salary, may be offered. The extent to which an award vests is measured over a three-year period against financial targets which for 2022/23 included Earnings Per Share ("EPS"), Return on Capital Employed ("ROCE"), Total Shareholder Return ("TSR") and strategic measures. The value of any dividends earned on the vested shares during the three years may also be paid on vesting. Awards under this plan have been made in each year since 2005. More information is available in relation to this plan within the Remuneration Report. During the year, 22,498,271 shares (last year: 19,374,217) were awarded under the plan. The weighted average fair value of the shares awarded was 139.6p (last year: 155.1p). As at 1 April 2023, 47,532,523 shares (last year: 44,534,437) were outstanding under the plan. 174 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 13 SHARE-BASED PAYMENTS CONTINUED ### C. Deferred Share Bonus Plan* – £12.2m The Deferred Share Bonus Plan (“DSBP”) was first introduced in 2005/06 as part of the Annual Bonus Scheme and was reapproved by shareholders at the 2020 ACM. It may be operated for approximately 5,000 employees within the Group. As part of the plan, the employees 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 may also be paid on vesting. More information is available in relation to this plan within the Remuneration Report. During the year 29,630,372 shares (last year: no shares) have been awarded under the plan in relation to the annual bonus. As at 1 April 2023, 26,794,048 shares (last year: 190,596) were outstanding under the plan. ### D. Restricted Share Plan* – £3.4m The Restricted Share Plan (“RSP”) 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 and the plan was reapproved by shareholders at the 2020 ACM. The plan operates for the senior management team. Awards vest at the end of the restricted period (typically between one and three years) subject to the participant still being in employment of the Company on the relevant vesting date. The value of any dividends earned on the vested shares during the restricted period may also be paid on vesting. More information is available in relation to this plan within the Remuneration Report. During the year, 2,624,496 shares (last year: 2,441,809) have been awarded under the plan. The weighted average fair value of the shares awarded was 76.9p (last year: 158.7p). As at 1 April 2023, 5,557,542 shares (last year: 10,368,217) were outstanding under the plan. ### E. Republic of Ireland Save As You Earn scheme – £0.2m Sharesave, the Company’s Save As You Earn scheme, was introduced in 2009 to all employees in the Republic of Ireland for a 10-year period, after approval by shareholders at the 2009 ACM and again at the 2019 ACM. The scheme allows participants to save up to a maximum of €500 (last year: €500) each month. The price at which options may be offered is 80% of the average mid-market price for three consecutive dealing days preceding the offer date. The options may normally be exercised during the six-month period after the completion of the SAYE contract. During the year, no options were granted (last year: no options granted). As at 1 April 2023, 1,264,131 options (last year: 1,439,954) were outstanding under the scheme. ### F. Marks and Spencer Employee Benefit Trust The Marks and Spencer Employee Benefit Trust (the “Trust”) holds 166,057 (last year: 264,779) shares with a book value of £0.0m (last year: £0.0m) and a market value of £0.3m (last year: £0.4m). These shares were acquired by the Trust through a combination of market purchases and new issues and are shown as a reduction in retained earnings in the consolidated statement of financial 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 the 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. * All awards both this year and last year were conditional shares. For the purposes of calculating the number of shares awarded, the share price used is the average of the mid-market price for the five consecutive dealing days preceding the grant date. Annual Report & Financial Statements 2023 175 FINANCIAL STATEMENTS # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 14 INTANGIBLE ASSETS | | Goodwill £m | Brands £m | Computer software £m | Computer software under development £m | Total £m | | --- | --- | --- | --- | --- | --- | | **At 3 April 2021** | | | | | | | Cost | 135.7 | 118.6 | 1,539.6 | 56.9 | 1,850.8 | | Accumulated amortisation, impairments and write-offs | (112.0) | (112.5) | (1,362.2) | (32.1) | (1,618.8) | | **Net book value** | **23.7** | **6.1** | **177.4** | **24.8** | **232.0** | | **Year ended 2 April 2022** | | | | | | | Opening net book value | 23.7 | 6.1 | 177.4 | 24.8 | 232.0 | | Additions | 4.8 | 0.1 | 0.9 | 63.8 | 69.6 | | Transfers and reclassifications | – | – | 29.6 | (44.6) | (15.0) | | Asset write-offs | – | – | (0.6) | – | (0.6) | | Amortisation charge | – | (0.6) | (93.0) | – | (93.6) | | Exchange difference | 0.1 | – | – | – | 0.1 | | **Closing net book value** | **28.6** | **5.6** | **114.3** | **44.0** | **192.5** | | **At 2 April 2022** | | | | | | | Cost | 140.6 | 118.7 | 1,570.1 | 76.1 | 1,905.5 | | Accumulated amortisation, impairments and write-offs | (112.0) | (113.1) | (1,455.8) | (32.1) | (1,713.0) | | **Net book value** | **28.6** | **5.6** | **114.3** | **44.0** | **192.5** | | **Year ended 1 April 2023** | | | | | | | Opening net book value | **28.6** | **5.6** | **114.3** | **44.0** | **192.5** | | Additions | – | – | 5.3 | 79.1 | 84.4 | | Acquired through business combinations | – | – | 1.5 | 1.2 | 2.7 | | Transfers and reclassifications | – | – | 35.6 | (64.2) | (28.6) | | Asset write-offs | – | – | (0.7) | – | (0.7) | | Amortisation charge | – | (0.6) | (86.4) | – | (87.0) | | Exchange difference | (0.2) | – | – | – | (0.2) | | **Closing net book value** | **28.4** | **5.0** | **69.6** | **60.1** | **163.1** | | **At 1 April 2023** | | | | | | | Cost | **140.6** | **118.7** | **1,612.5** | **92.2** | **1,964.0** | | Accumulated amortisation, impairments and write-offs | (112.2) | (113.7) | (1,542.9) | (32.1) | (1,800.9) | | **Net book value** | **28.4** | **5.0** | **69.6** | **60.1** | **163.1** | Goodwill related to the following assets and groups of cash generating units (CGUs): | | per una £m | India £m | Sports Edit £m | Other £m | Total Goodwill £m | | --- | --- | --- | --- | --- | --- | | Net book value at 2 April 2022 | **16.5** | **6.6** | **4.8** | **0.7** | **28.6** | | Exchange difference | – | (0.2) | – | – | (0.2) | | **Net book value at 1 April 2023** | **16.5** | **6.4** | **4.8** | **0.7** | **28.4** | 176 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Annual Report & Financial Statements 2023 177 14 INTANGIBLE ASSETS CONTINUED Goodwill impairment testing Goodwill is not amortised but is tested annually for impairment with the recoverable amount being determined from value in usecuse calculations. The goodwill balance relates to the goodwill recognised on the acquisition of per una £16.5m (last year: £16.5m), India £6.4m (last year: £6.6m), Sports Edit £4.8m (last year: £4.8m) and other £0.7m (last year: £0.7m). Goodwill for India is monitored by management at a country level, including the combined retail and wholesale businesses, and has been tested for impairment on that basis. The per una brand is a definite life intangible asset amortised on a straight-line basis over a period of 15 years. The brand intangible was acquired for a cost of £80.0m and has been fully amortised. It is held at a net book value of £nil (last year: £nil). The per una goodwill of £16.5m is tested for annually for impairment. The cash flows used for impairment testing are based on the Group’s latest budget and forecast cash flows, covering a three-year period, which have regard to historical performance and knowledge of the current market, together with the Group’s views on the future achievable growth and the impact of committed cash flows. The cash flows include ongoing capital expenditure required to maintain the store network, but exclude any growth capital initiatives not committed. Cash flows beyond this three-year period are extrapolated using a long-term growth rate based on the Group’s current view of achievable long-term growth. The Group’s current view of achievable long-term growth for per una is 1.6% (last year: 1.6%), which is a reduction from the overall Group long-term growth rate of 2.0% (last year: 2.0%). The Group’s current view of achievable long-term growth for India is 5.5% (last year: 5.5%). Management estimates discount rates that reflect the current market assessment of the time value of money and the risks specific to each asset or CGU. The pre-tax discount rates are derived from the Group’s post-tax weighted average cost of capital (“WACC”) which has been calculated using the capital asset pricing model, the inputs of which include a country risk-free rate, equity risk premium, Group size premium and a risk adjustment (beta). The post-tax WACC is subsequently grossed up to a pre-tax rate and was 13.4% for per una (last year: 10.8%) and 15.4% for India (last year: 11.3%). The immediately quantifiable impacts of climate change and costs expected to be incurred in connection with our net zero commitments, are included within the Group’s budget and three-year plan which have been used to support the impairment reviews, withno mateth no material impact on cash flows. Management has performed sensitivity analysis on the key assumptions in the impairment model using reasonably possible changes inthin these key assumptions, both individually and in combination. Management has considered reasonably possible changes in key assumptions that would cause the carrying amounts of goodwill or brands to exceed the value in use for each asset. For both per una and India respectively, there are no reasonably possible changes in key assumptions that would lead to an impairment and the assumptions do not give rise to a key source of estimation uncertainty. FINANCIAL STATEMENTS ## NOTES TO THE FINANCIAL STATEMENTS CONTINUED ### 15 PROPERTY, PLANT AND EQUIPMENT The Group's property, plant and equipment of £5,203.7m (last year: £4,902.3m) consists of owned assets of £3,747.7m (last year: £3,486.5m) and right-of-use assets of £1,456.0m (last year: £1,415.8m). #### Property, plant and equipment – owned | | Land and buildings £m | Fixtures, fittings and equipment £m | Assets in the course of construction £m | Total £m | | --- | --- | --- | --- | --- | | **At 3 April 2021** | | | | | | Cost | 2,809.9 | 5,450.2 | 67.5 | 8,327.6 | | Accumulated depreciation, impairments and write-offs | (787.5) | (3,959.3) | (18.2) | (4,765.0) | | **Net book value** | **2,022.4** | **1,490.9** | **49.3** | **3,562.6** | | **Year ended 2 April 2022** | | | | | | Opening net book value | 2,022.4 | 1,490.9 | 49.3 | 3,562.6 | | Additions | 0.9 | 17.7 | 238.0 | 256.6 | | Transfers and reclassifications | 3.0 | 175.8 | (164.3) | 14.5 | | Disposals | (15.9) | (1.9) | – | (17.8) | | Impairment reversals | 34.5 | 27.6 | – | 62.1 | | Impairment charge | (57.6) | (31.4) | – | (89.0) | | Asset write-offs | 0.9 | (11.4) | – | (10.5) | | Depreciation charge | (34.2) | (256.1) | – | (290.3) | | Exchange difference | (1.7) | – | – | (1.7) | | **Closing net book value** | **1,952.3** | **1,411.2** | **123.0** | **3,486.5** | | **At 2 April 2022** | | | | | | Cost | 2,764.8 | 5,275.7 | 141.2 | 8,181.7 | | Accumulated depreciation, impairments and write-offs | (812.5) | (3,864.5) | (18.2) | (4,695.2) | | **Net book value** | **1,952.3** | **1,411.2** | **123.0** | **3,486.5** | | **Year ended 1 April 2023** | | | | | | Opening net book value | **1,952.3** | **1,411.2** | **123.0** | **3,486.5** | | Additions | **0.8** | **40.0** | **296.2** | **337.0** | | Acquired through business combinations | **150.5** | **38.7** | **3.8** | **193.0** | | Transfers and reclassifications | **15.0** | **292.3** | **(280.7)** | **26.6** | | Disposals | **(2.2)** | **(2.2)** | – | **(4.4)** | | Impairment reversals | **25.8** | **14.4** | – | **40.2** | | Impairment charge | **(22.5)** | **(9.3)** | – | **(31.8)** | | Asset write-offs | **2.2** | **1.5** | – | **3.7** | | Depreciation charge | **(59.9)** | **(250.4)** | – | **(310.3)** | | Exchange difference | **5.5** | **1.6** | **0.1** | **7.2** | | **Closing net book value** | **2,067.5** | **1,537.8** | **142.4** | **3,747.7** | | **At 1 April 2023** | | | | | | Cost | **2,911.4** | **5,532.3** | **160.6** | **8,604.3** | | Accumulated depreciation, impairments and write-offs | **(843.8)** | **(3,994.6)** | **(18.2)** | **(4,856.6)** | | **Net book value** | **2,067.6** | **1,537.7** | **142.4** | **3,747.7** | Asset write-offs in the year include assets with gross book value of £240.9m (last year: £383.3m) and £nil (last year: £nil) net book value that are no longer in use and have therefore been retired. 178 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # **15 PROPERTY, PLANT AND EQUIPMENT CONTINUED** # **Right-of-use assets** Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period: # **Right-of-use assets** | | Land and buildings £m | Fixtures, fittings and equipment £m | Total £m | | --- | --- | --- | --- | | **At 3 April 2021** | **1,444.7** | **51.3** | **1,496.0** | | Additions | 72.7 | 17.9 | 90.6 | | Transfers and reclassifications | 0.5 | – | 0.5 | | Disposals | (7.7) | (0.2) | (7.9) | | Impairment reversals | 28.9 | – | 28.9 | | Impairment charge | (25.4) | – | (25.4) | | Depreciation charge | (146.2) | (21.6) | (167.8) | | Exchange difference | 0.9 | – | 0.9 | | **At 2 April 2022** | **1,368.4** | **47.4** | **1,415.8** | | Additions | **198.0** | **37.3** | **235.3** | | Acquired through business combinations | **6.7** | **14.1** | **20.8** | | Transfers and reclassifications | **2.1** | **(0.1)** | **2.0** | | Disposals | **(27.8)** | **(10.7)** | **(38.5)** | | Impairment reversals | **14.9** | **–** | **14.9** | | Impairment charge | **(14.8)** | **–** | **(14.8)** | | Depreciation charge | **(159.0)** | **(21.9)** | **(180.9)** | | Exchange difference | **1.3** | **0.1** | **1.4** | | **At 1 April 2023** | **1,389.8** | **66.2** | **1,456.0** | # **Impairment of property, plant and equipment and right-of-use assets** For impairment testing purposes, the Group has determined that each store is a separate CGU, with the exception of Outlets stores, which are considered together as one CGU. Click & Collect sales are included in the cash flows of the relevant CGU. Each CGU is tested for impairment at the balance sheet date if any indicators of impairment and impairment reversal have been identified. Stores identified within the Group's UK store estate programme are automatically tested for impairment (see note 5). The value in use of each CGU is calculated based on the Group's latest budget and forecast cash flows, 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 flows include ongoing capital expenditure required to maintain the store network, but exclude any growth capital initiatives not committed. Cash flows beyond this three-year period are extrapolated using a long-term growth rate based on management's future expectations, with reference to forecast GDP growth. These growth rates do not exceed the long-term growth rate for the Group's retail businesses in the relevant territory. If the CGU relates to a store which the Group has identified as part of the UK store estate programme, the value in use calculated has been modified by estimation of the future cash flows up to the point where it is estimated that trade will cease and then estimation of the timing and amount of costs associated with closure detailed fully in note 5. The immediately quantifiable impacts of climate change and costs expected to be incurred in connection with our net zero commitments, are included within the Group's budget and three-year plan which have been used to support the impairment reviews, with no material impact on cash flows. We also expect any potential store refurbishments to be phased over multiple years and therefore any changes required due to climate change would not have a material impact in any given year and the warehouse and support centres located in areas which we would not expect to be physically impacted by climate change. As a consequence there has been no material impact in the forecast cash flows used for impairment testing. The key assumptions in the value in use calculations are the growth rates of sales and gross profit 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, which has been calculated using the capital asset pricing model, the inputs of which include a country risk-free rate, equity risk premium, Group size premium and a risk adjustment (beta). The pre-tax discount rates range from 12.5% to 18.1% (last year: 9.8% to 15.8%). If the CGU relates to a store which the Group has identified as part of the UK store estate programme, the additional key assumptions in the value in use calculations are costs associated with closure, the disposal proceeds from store exits and the timing of the store exits. Annual Report & Financial Statements 2023 179 FINANCIAL STATEMENTS # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 15 PROPERTY, PLANT AND EQUIPMENT CONTINUED ### Impairments – UK stores excluding the UK store estate programme During the year, the Group has recognised an impairment charge of £17.3m and impairment reversals of £33.1m as a result of UK store impairment testing unrelated to the UK store estate programme (last year: impairment charge of £6.9m and impairment reversals of £63.4m). Impairment charges of £17.3m and impairment reversals of £33.1m have been recognised within adjusting items (see note 5). The impaired stores were impaired to their value-in-use recoverable amount of £109.8m, which is their carrying value at year end. The stores with impairment reversals were written back to the lower of their value-in-use recoverable amount, and the carrying value if the impairment had not occurred, of £159.7m. For UK stores, when considering both impairment charges and reversals, cash flows beyond the three-year period are extrapolated using the Group's current view of achievable long-term growth of 2.0%, adjusted to 0% where management believes the current trading performance and future expectations of the store do not support the growth rate of 2.0%. The rate used to discount the forecast cash flows for UK stores is 12.5% (last year: 9.8%). As disclosed in the accounting policies (note 1), the cash flows used within the impairment model are based on assumptions which are sources of estimation uncertainty and small movements in these assumptions could lead to further impairments. Management has performed sensitivity analysis on the key assumptions in the impairment model using reasonably possible changes in these key assumptions across the UK store portfolio. A reduction in sales of 5% from the three-year plan in year 3 would increase the impairment charge by £24.2m and a 25 basis points reduction in the gross profit margin from year 3 onwards would increase the impairment charge by £1.8m. In combination a 5% reduction in sales and a 25 basis point reduction in gross profit margin would increase the impairment charge by £30.3m. A 250 basis points increase in the discount rate would increase the impairment charge by £28.8m. A reduction in sales of 5% from the three-year plan in year 3 would reduce the reversal by £7.0m and a 25 basis points reduction in the gross profit margin from year 3 would reduce the reversal by £1.1m. In combination a 5% reduction in sales and a 25 basis point reduction in gross profit margin would reduce the reversal by £8.0m. A 250 basis points increase in the discount rate would reduce the reversal by £7.6m. ### Impairments – UK store estate programme During the year, the Group has recognised an impairment charge of £28.6m and impairment reversals of £22.0m relating to the ongoing UK store estate programme. These stores were impaired to their value-in-use recoverable amount of £307.2m, which is their carrying value at year end. The impairment charge relates to the store closure programme and has been recognised within adjusting items (see note 5). Impairment reversals predominantly reflect changes to expected store closure dates and improved trading expectations compared to those assumed at the end of the prior year end. Where the planned closure date for a store is outside the three-year plan period, no growth rate is applied. The rate used to discount the forecast cash flows for UK stores is 12.5% (last year: 9.8%). As disclosed in the accounting policies (note 1), the cash flows used within the impairment models for the UK store estate programme are based on assumptions which are sources of estimation uncertainty and small movements in these assumptions could lead to further impairments. Management has performed sensitivity analysis on the key assumptions in the impairment model using reasonably possible changes in these key assumptions across the UK store estate programme. A delay of 12 months in the date of each store exit would result in a decrease in the impairment charge of £70.9m. A 5% reduction in planned sales in years 2 and 3 (where relevant) would result in an increase in the impairment charge of £12.2m. Neither a 250 basis point increase in the discount rate, a 25 basis point reduction in management gross profit margin during the period of trading, nor a 2% increase in the costs associated with exiting a store, would result in a significant increase to the impairment charge, individually or in combination with the other reasonably possible scenarios considered. ### Impairments – International stores During the year the Group recognised an impairment charge of £0.7m (last year: £nil) in Ireland as a result of store impairment testing. 180 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 16 OTHER FINANCIAL ASSETS | | 2023 £m | 2022 £m | | --- | --- | --- | | **Non-current** | | | | Other investments^{1} | 7.9 | 4.5 | | | 7.9 | 4.5 | | **Current** | | | | Other investments^{2} | 13.0 | 17.6 | | | 13.0 | 17.6 | 1. Includes £7.3m (last year: £3.1m) of venture capital investments managed by True Capital Limited. 2. Includes £5.6m (last year: £8.8m) of money market deposits held by Marks and Spencer plc in an escrow account. ## 17 TRADE AND OTHER RECEIVABLES | | 2023 £m | 2022 £m | | --- | --- | --- | | **Non-current** | | | | Trade receivables | – | 0.1 | | Lease receivables – net of provision for impairment | 64.6 | 74.7 | | Other receivables | 2.5 | 3.3 | | Loans to related parties (see note 28) | 30.0 | – | | Prepayments | 201.6 | 192.5 | | | 298.7 | 270.6 | | **Current** | | | | Trade receivables | 128.3 | 103.0 | | Less: provision for impairment of receivables | (5.4) | (4.8) | | Trade receivables – net | 122.9 | 98.2 | | Lease receivables – net of provision for impairment | 0.9 | 0.8 | | Other receivables | 36.8 | 27.2 | | Prepayments | 97.0 | 76.8 | | Accrued income | 23.0 | 14.1 | | | 280.6 | 217.1 | The directors consider that the carrying amount of trade and other receivables approximates their fair value. The Group's assessment of any expected credit losses is included in note 21B. Included in accrued income is £8.8m (last year: £7.7m) of accrued supplier income relating to rebates that have been earned but not yet invoiced. An immaterial amount of 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 offset. The Group entered into finance leasing arrangements as a lessor for surplus office space in the Merchant Square building in London, which is sub-let for the remaining duration of the lease. Annual Report & Financial Statements 2023 181 FINANCIAL STATEMENTS ## NOTES TO THE FINANCIAL STATEMENTS CONTINUED ### 17 TRADE AND OTHER RECEIVABLES CONTINUED The maturity analysis of the Group's lease receivables is as follows: | | 2023 £m | 2022 £m | | --- | --- | --- | | **Timing of cash flows** | | | | Within one year | 4.7 | 4.8 | | Between one and two years | 4.7 | 4.7 | | Between two and three years | 6.1 | 4.7 | | Between three to four years | 7.8 | 6.1 | | Between four to five years | 7.8 | 7.8 | | More than five years | 113.3 | 121.1 | | **Total undiscounted cash flows** | **144.4** | **149.2** | | Effect of discounting | (68.2) | (73.7) | | **Present value of lease payments receivable** | **76.2** | **75.5** | | Less: provision for impairment of receivables | (10.7) | – | | **Net investment in the lease** | **65.5** | **75.5** | Included within trade and other receivables is £0.4m (last year: £1.1m) which, due to non-recourse factoring arrangements in place, are held within a "hold to collect and sell" business model and are measured at FVOCI. ### 18 CASH AND CASH EQUIVALENTS Cash and cash equivalents are £1,067.9m (last year: £1,197.9m). The carrying amount of these assets approximates their fair value. The effective interest rate on short-term bank deposits is 4.1% (last year: 0.7%). These deposits have an average maturity of 18 days (last year: 39 days). ### 19 TRADE AND OTHER PAYABLES | | 2023 £m | 2022 £m | | --- | --- | --- | | **Current** | | | | Trade payables | 801.7 | 732.8 | | Other payables | 560.0 | 523.5 | | Social security and other taxes | 85.3 | 59.1 | | Accruals | 554.5 | 595.2 | | Deferred income | 47.3 | 50.3 | | | **2,048.8** | **1,960.9** | | **Non-current** | | | | Other payables | 166.6 | 174.4 | | Deferred income | 14.7 | 13.8 | | | **181.3** | **188.2** | Included within current other payables is £7.2m (last year: £nil) of deferred and contingent consideration and within non-current other payables £100.6m (last year: £nil) of deferred and contingent consideration, both relating to the acquisition of Gist Limited. Also included in non-current other payables is £64.7m (last year: £172.6m) of contingent consideration relating to the investment in Ocado Retail Limited. See note 21D for further details. A contract liability arises in respect of gift cards and voucher schemes as payment has been received for a performance obligation which will be performed at a later point in time. Included within trade and other payables are gift card/voucher scheme liabilities: | | 2023 £m | 2022 £m | | --- | --- | --- | | Opening balance | 189.6 | 198.1 | | Issues | 415.9 | 404.2 | | Released to the income statement | (416.3) | (412.7) | | **Closing balance** | **189.2** | **189.6** | The Group operates a number of supplier financing arrangements, under which suppliers can obtain accelerated settlement on invoices from the finance provider. This is a form of reverse factoring which has the objective of serving the Group's suppliers by giving them early access to funding. The Group settles these amounts in accordance with each supplier's agreed payment terms. 182 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 19 TRADE AND OTHER PAYABLES CONTINUED The Group is not party to these financing arrangements and the arrangements do not permit the Group to obtain finance from the provider by paying the provider later than the Group would have paid its supplier. The Group does not incur any interest towards the provider on the amounts due to the suppliers. The Group therefore discloses the amounts factored by suppliers within trade payables because the nature and function of the financial liability remain the same as those of other trade payables. The payments by the Group under these arrangements are included within operating cash flows because they continue to be part of the normal operating cycle of the Group and their principal nature remains operating – i.e. payments for the purchase of goods and services. At 1 April 2023, £303.9m (last year: £330.0m) of trade payables were amounts owed under these arrangements. During the year the maximum facility available at any one time under the arrangements was £442.6m (last year: £404.1m). ## 20 BORROWINGS AND OTHER FINANCIAL LIABILITIES | | 2023 £m | 2022 £m | | --- | --- | --- | | **Current** | | | | Lease liabilities | **216.7** | 200.2 | | 3.00% £300m Medium Term Notes 2023^{1} | **185.3** | – | | Interest accrued on Medium Term Notes | **42.0** | 47.0 | | | **444.0** | 247.2 | | **Non-current** | | | | 3.00% £300m Medium Term Notes 2023^{1} | – | 299.1 | | 4.75% £400m Medium Term Notes 2025^{1,2} | **330.0** | 409.4 | | 3.75% £300m Medium Term Notes 2026^{1} | **298.9** | 298.6 | | 3.25% £250m Medium Term Notes 2027^{1} | **248.6** | 248.3 | | 7.125% US$300m Medium Term Notes 2037^{1,4} | **251.8** | 192.3 | | Revaluation of Medium Term Notes^{5} | **(10.2)** | 34.8 | | Lease liabilities | **2,064.9** | 2,078.5 | | | **3,184.0** | 3,561.0 | | **Total** | **3,628.0** | 3,808.2 | 1 These notes are issued under Marks and Spencer plc's £3bn Euro Medium Term Note programme and all pay interest annually. 2 The Group occasionally enters into interest rate swaps to manage interest rate exposure. At year end, £6.1m (last year: £10.5m) of fair value adjustment for terminated hedges to be amortised over the remaining debt maturity. 3 Interest on these bonds is payable biannually. 4 US$300m Medium Term Note exposure swapped to sterling (fixed-to-fixed cross-currency interest rate swaps). 5 Revaluation consists of foreign exchange gain on revaluation of the 7.125% US$300m Medium Term Notes 2037 of £10.2m (last year: £34.8m loss). ## Leases The Group leases various stores, offices, warehouses and equipment with varying terms, escalation clauses and renewal rights. The Group has certain leases with lease terms of 12 months or less and leases of assets with low values. The Group applies the "short-term lease" and "lease of low-value assets" recognition exemptions for these leases. Set out below are the carrying amounts of lease liabilities and the movements during the period. | | 2023 £m | 2022 £m | | --- | --- | --- | | **Opening lease liabilities** | **2,278.7** | 2,405.9 | | Acquisitions | **21.3** | – | | Additions | **249.4** | 100.6 | | Interest expense relating to lease liabilities | **121.0** | 124.1 | | Payments | **(353.8)** | (344.3) | | Disposals | **(39.0)** | (8.1) | | Exchange difference | **4.0** | 0.5 | | | **2,281.6** | 2,278.7 | | Current | **216.7** | 200.2 | | Non-current | **2,064.9** | 2,078.5 | The maturity analysis of lease liabilities is disclosed in note 21A. Annual Report & Financial Statements 2023 183 FINANCIAL STATEMENTS # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 20 BORROWINGS AND OTHER FINANCIAL LIABILITIES CONTINUED ### Future cash outflows related to the post-break clause period included in the lease liability The Group holds certain leases that contain break clause options to provide operational flexibility. In accordance with IFRS 16, the Group has calculated the full lease term, beyond break, to represent the reasonably certain lease term (except for those stores identified as part of the UK store estate programme) within the total £2,281.6m of lease liabilities held on the balance sheet. The following amounts were recognised in profit or loss: | | 2023 £m | 2022 £m | | --- | --- | --- | | Expenses relating to short-term leases | 13.2 | 5.9 | | Expenses relating to low-value assets | – | 1.4 | | Expenses relating to variable consideration | 4.9 | 4.4 | ## 21 FINANCIAL INSTRUMENTS ### Treasury policy The Group operates a centralised treasury function to manage the Group's funding requirements and financial risks in line with the Board-approved treasury policies and procedures, and their delegated authorities. The Group's financial instruments, other than derivatives, comprise borrowings, cash and liquid resources and various items, such as trade receivables and trade payables that arise directly from its operations. The main purpose of these financial instruments is to finance the Group's operations. The Group treasury function also enters into derivative transactions, principally cross-currency 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 financing. It remains the Group's policy not to hold or issue financial instruments for trading purposes, except where financial constraints necessitate the need to liquidate any outstanding investments. The treasury function is managed as a cost centre and does not engage in speculative trading. ### Financial risk management The principal financial 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 & funding risk The risk that the Group could be unable to settle or meet its obligations as they fall due: - The Group's funding strategy ensures a mix of funding sources offering sufficient headroom, maturity and flexibility, and cost-effectiveness to match the requirements of the Group. - Marks and Spencer plc is financed by a combination of retained profits, bank borrowings, Medium Term Notes and committed syndicated bank facilities. - Operating subsidiaries are financed by a combination of retained profits, bank borrowings and intercompany loans. The Group has a committed syndicated bank revolving credit facility of £850m with a current maturity date of 13 June 2026. The facility contains a financial covenant, being the ratio of earnings before interest, tax, depreciation and amortisation; to net interest and depreciation on right-of-use assets under IFRS 16. The covenant is measured biannually. The Group was not in breach of this metric at the reporting date. The revolving credit facility includes four sustainability metrics where the margin payable on the facility is adjusted to reflect the Group's performance against ESG targets material to the Group's 'Plan A' objectives. The Group also has a number of uncommitted facilities available to it. At year end, these amounted to £25m (last year: £25m), all of which are due to be reviewed within a year. At the balance sheet date, a sterling equivalent of £nil (last year: £nil) was drawn under the committed facilities and £nil (last year: £nil) was drawn under the uncommitted facilities. In addition to the existing borrowings, the Group has a Euro Medium Term Note programme of £3bn, of which £1.1bn (last year: £1.3bn) was in issuance as at the balance sheet date. The initial rate of interest is fixed at the date of issue and the Notes are referred to as fixed rate borrowings throughout the Annual Report as the coupon does not change with movements in benchmark interest rates. However, the rate of interest on certain Notes varies both up and down in response to third-party credit ratings (to above/below Baa3 or above/below BBB-) that reflects the relative deterioration or improvement in the Group's cost of credit, and the interest payable on these Notes increases or decreases from the next interest payment date following a relevant credit rating downgrade or upgrade. As the original contractual terms of these Notes provide for changes in cash flows to be reset to reflect the relative deterioration or improvement in the Group's cost of credit, the Group considers these Notes to be floating rate instruments when determining amortised cost under IFRS 9 and consequently the Group applied IFRS 9 paragraph B5.4.5, which requires no adjustment to the carrying amount of the liabilities or immediate impact on profit and loss. If the Group had determined these Notes to be fixed rate instruments, the Notes would be remeasured to reflect the revised cash flows discounted at the original effective rate. This would result in initially a higher interest expense to profit or loss, offset by lower interest charges subsequently, when compared to the Group's treatment. 184 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 21 FINANCIAL INSTRUMENTS CONTINUED Ocado Retail Limited, an associate of the Group, has entered into a £30m revolving credit facility provided by BNP Paribas. The Group, along with Ocado Group plc, jointly guarantee the facility. The table below summarises the contractual maturity of the Group's non-derivative financial liabilities and derivatives, excluding trade payables, other payables and accruals. The carrying value of all trade payables, other payables (excluding contingent consideration payable) and accruals of £1,910.3m (last year: £1,853.3m) is equal to their contractual undiscounted cash flows (see note 19) which are due within one year. Contingent consideration (see the fair value hierarchy section within note 21) and deferred consideration of £7.2m (last year: £nil) is expected to become payable within one year and £165.3m (last year: £190.8m) between two and five years. | | Medium Term Notes £m | Lease liabilities^{1} £m | Partnership liability to the Marks & Spencer UK Pension Scheme (note 12) £m | Total borrowings and other financial liabilities £m | Cash inflow on derivatives^{2} £m | Cash outflow on derivatives^{3} £m | Total derivative liabilities £m | | --- | --- | --- | --- | --- | --- | --- | --- | | **Timing of cash flows** | | | | | | | | | Within one year | (75.5) | (313.2) | (71.9) | (460.6) | 330.2 | (333.6) | (3.4) | | Between one and two years | (375.5) | (279.3) | (73.0) | (727.8) | 30.9 | (31.1) | (0.2) | | Between two and five years | (864.3) | (786.0) | (54.4) | (1,704.7) | – | – | – | | More than five years | (668.4) | (3,082.1) | – | (3,750.5) | – | – | – | | Total undiscounted cash flows | (1,983.7) | (4,460.6) | (199.3) | (6,643.6) | 361.1 | (364.7) | (3.6) | | Effect of discounting | 454.2 | 2,181.9 | 7.0 | 2,643.1 | | | | | **At 2 April 2022** | **(1,529.5)** | **(2,278.7)** | **(192.3)** | **(4,000.5)** | | | | | **Timing of cash flows** | | | | | | | | | Within one year | (252.7) | (318.8) | (73.0) | (644.5) | 1,062.3 | (1,120.6) | (58.3) | | Between one and two years | (59.3) | (320.4) | (54.4) | (434.1) | 145.8 | (147.4) | (1.6) | | Between two and five years | (1,002.2) | (805.2) | – | (1,807.4) | 26.0 | (26.0) | – | | More than five years | (415.6) | (2,982.1) | – | (3,397.7) | 207.8 | (214.7) | (6.9) | | Total undiscounted cash flows | (1,729.8) | (4,426.5) | (127.4) | (6,283.7) | 1,441.9 | (1,508.7) | (66.8) | | Effect of discounting | 383.4 | 2,144.9 | 2.6 | 2,530.9 | | | | | **At 1 April 2023** | **(1,346.4)** | **(2,281.6)** | **(124.8)** | **(3,752.8)** | | | | 1 Total undiscounted lease payments of £750.6m relating to the period post-break clause, and the earliest contractual lease exit point, are included in lease liabilities. These undiscounted lease payments should be excluded when determining the Group's contractual indebtedness under these leases, where there is a contractual right to break. Furthermore, £60.8m of these payments relate to leases where, following the break clause, the Group will have the ability to exit the lease at any point before the lease expiry with a maximum of six months' notice. 2 Cash inflows and outflows on derivative instruments that require gross settlement (such as cross-currency swaps and forward foreign exchange contracts) are disclosed gross. Cash inflows and outflows on derivative instruments that settle on a net basis are disclosed net. ### (b) Counterparty risk Counterparty risk exists where the Group can suffer financial loss through the default or non-performance of the counterparties with whom it transacts. Exposures are managed in accordance with the Group treasury policy which limits the value that can be placed with each approved counterparty to minimise the risk of loss. The minimum long-term rating for all counterparties is long-term Standard & Poor's (S&P)/Moody's A-/A3 (BBB+/Baa1 for committed lending banks). In the event of a rating by one agency being different from 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 agency rating will prevail. Limits are reviewed regularly by senior management. The credit risk of these financial instruments is estimated as the fair value of the assets resulting from the contracts. 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. Annual Report & Financial Statements 2023 185 FINANCIAL STATEMENTS # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 21 FINANCIAL INSTRUMENTS CONTINUED | | Credit rating of counterparty | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | AAA £m | AA+ £m | AA £m | AA- £m | A+ £m | A £m | A- £m | BBB £m | Total £m | | Other investments^{1} | – | – | – | 158.5 | 288.6 | 462.0 | 89.0 | – | 998.1 | | Derivative assets^{2} | – | – | – | – | 31.9 | 24.4 | 8.7 | – | 65.0 | | **At 2 April 2022** | – | – | – | 158.5 | 320.5 | 486.4 | 97.7 | – | 1,063.1 | | | AAA £m | AA+ £m | AA £m | AA- £m | A+ £m | A £m | A- £m | BBB £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Other investments^{1} | 99.4 | – | – | 95.5 | 360.2 | 287.4 | 65.0 | – | 907.5 | | Derivative assets^{2} | – | – | – | – | 10.0 | 7.4 | 5.0 | 0.3 | 22.7 | | **At 1 April 2023** | 99.4 | – | – | 95.5 | 370.2 | 294.8 | 70.0 | 0.3 | 930.2 | 1 Includes cash on deposit and money market funds held by Marks and Spencer Scottish Limited Partnership, Marks and Spencer plc and Marks and Spencer General Insurance. Excludes cash in hand and in transit of £173.4m (last year: £217.4m). 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 a very low retail credit risk due to transactions principally being of high volume, low value and short maturity. The maximum exposure to credit risk at the balance sheet date was as follows: trade receivables £128.3m (last year: £103.0m), lease receivables £65.5m (last year: £75.5m), other receivables (including loans to related parties) £69.3m (last year: £30.5m), cash and cash equivalents £1,067.9m (last year: £1,197.9m) and derivatives £22.7m (last year: £65.0m). ### Impairment of financial assets The credit risk management practices of the Group include internal review and reporting of the ageing of trade and other receivables by days past due by a centralised accounts receivable function, and grouped by respective contractual revenue stream, along with liaison with the debtors by the credit control function. The Group applies the IFRS 9 simplified approach in measuring expected credit losses which use a lifetime expected credit loss allowance for all trade receivables and lease receivables. To measure expected credit losses, trade receivables have been grouped by shared credit risk characteristics along the lines of differing revenue streams such as international franchise, UK franchise, food, corporate and sundry, as well as by geographical location and days past due. In addition to the expected credit losses calculated using a provision matrix, the Group may provide additional provision for the receivables of particular customers if the deterioration of financial position was observed. The Group's trade receivables are of very low credit risk due to transactions being principally of high volume, low value and short maturity. Therefore, it also has very low concentration risk. The expected loss rates are determined based on the average write-offs as a proportion of average debt over a period of 36 months prior to the reporting date. The historical loss rates are adjusted for current and forward-looking information where significant. The Group considers GDP growth, unemployment, sales growth and bankruptcy rates of the countries in which goods are sold to be the most relevant factors and, where the impact of these is significant, adjusts the historical loss rates based on expected changes in these factors. Historical experience has indicated that debts aged 180 days or over are generally not recoverable. The Group has incorporated this into the expected loss model through a uniform loss rate for ageing buckets below 180 days dependent on the revenue stream and country and providing for 100% of debt aged more than 180 days past due. Where the Group specifically holds insurance or holds the legal right of offset with debtors which are also creditors, the loss provision is applied only to the extent of the uninsured or net exposure. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there may be no reasonable expectation of recovery include the failure of the debtor to engage in a payment plan, and failure to make contractual payments within 180 days past due. Impairment losses on trade receivables are presented as net impairment losses within operating profit and subsequent recoveries are credited to the same line item. 186 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # 21 FINANCIAL INSTRUMENTS CONTINUED | As at 2 April 2022 | Current £m | Up to 30 days past due £m | 31-60 days past due £m | 61-90 days past due £m | 91-180 days past due £m | 181 days or more past due £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | --- | | Gross carrying amount – trade receivables | 76.7 | 15.8 | – | 1.9 | 7.5 | 1.1 | 103.0 | | Expected loss rate | 2.9% | 4.9% | 0.0% | 5.7% | 7.8% | 100.0% | 4.6% | | Lifetime expected credit loss | 2.2 | 0.8 | – | 0.1 | 0.6 | 1.1 | 4.8 | | Net carrying amount | 74.5 | 15.0 | – | 1.8 | 6.9 | – | 98.2 | | As at 1 April 2023 | Current £m | Up to 30 days past due £m | 31-60 days past due £m | 61-90 days past due £m | 91-180 days past due £m | 181 days or more past due £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | --- | | Gross carrying amount – trade receivables | 98.5 | 22.1 | 2.9 | 1.9 | 1.3 | 1.6 | 128.3 | | Expected loss rate | 0.8% | 3.2% | 27.6% | 31.6% | 69.2% | 100.0% | 4.2% | | Lifetime expected credit loss | 0.8 | 0.7 | 0.8 | 0.6 | 0.9 | 1.6 | 5.4 | | Net carrying amount | 97.7 | 21.4 | 2.1 | 1.3 | 0.4 | – | 122.9 | The closing loss allowances for trade receivables reconciles to the opening loss allowances as follows: | Trade receivables expected loss provision | 2023 £m | 2022 £m | | --- | --- | --- | | **Opening loss allowance** | **4.8** | 3.7 | | Increase in loss allowance recognised in profit and loss during the year | 5.5 | 1.5 | | Receivables written off during the year as uncollectable | (4.9) | (0.4) | | **Closing loss allowance** | **5.4** | 4.8 | The closing loss allowances for lease receivables reconciles to the opening loss allowances as follows: | Lease receivables expected loss provision | 2023 £m | 2022 £m | | --- | --- | --- | | **Opening loss allowance** | – | 11.9 | | Increase/(decrease) in loss allowance recognised in profit and loss during the year^{1} | 10.7 | (11.9) | | **Closing loss allowance** | **10.7** | – | $^{1}$ Relates to the sub-let of previously closed offices associated with the strategic programme to centralise the Group's London Head Office functions (see note 5). The provision for other receivables is highly immaterial (it can be quantified) and therefore no disclosure is provided. # (c) Foreign currency risk Transactional foreign currency exposure arises 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 significant exposure is to the US dollar, incurred in the sourcing of Clothing & Home products from Asia. Group Treasury hedges these Clothing & Home foreign currency exposures principally using forward foreign exchange contracts progressively based on dynamic forecasts from the business. Hedging is generally carried out in the six months before the period when purchase orders are entered into. Other exposures arising 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 £1,785.7m (last year: £1,865.7m) with a weighted average maturity date of six months (last year: six months). Gains and losses in equity on forward foreign exchange contracts designated in cash flow hedge relationships as at 1 April 2023 will be reclassified to the income statement at various dates over the following 14 months (last year: 15 months) from the balance sheet date. The foreign exchange forwards are designated as cash flow hedges of highly probable forecast transactions. Both spot and forward points are designated in the hedge relationship; under IFRS 9 the currency basis spread may be excluded from the hedge relationship and recognised in other comprehensive income – cost of hedging reserve. The change in the fair value of the hedging instrument, to the degree effective, is deferred in equity and subsequently either reclassified to profit or loss or removed from equity and included in the initial cost of inventory as part of the 'basis adjustment'. This will be realised in the income statement once the hedged item is sold. The Group has considered, and elected not to, recognise the currency basis spread element in the cost of hedging reserve, owing to the relatively short-dated nature of the hedging instruments. Annual Report & Financial Statements 2023 187 FINANCIAL STATEMENTS # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 21 FINANCIAL INSTRUMENTS CONTINUED The Group regularly reviews the foreign exchange hedging portfolio to confirm whether the underlying transactions remain highly probable. Any identified instance of over-hedging or ineffectiveness would result in immediate recycling to the income statement. A change in the timing of a forecast item does not disqualify a hedge relationship nor the assertion of “highly probable” as there remains an economic relationship between the underlying transaction and the derivative. The foreign exchange forwards are recognised at fair value. The Group has considered and elected to apply credit/debit valuation adjustments. The risks at the reporting date are representative of the financial year. The Group also holds a number of cross-currency swaps to designate its fixed rate US dollar debt to fixed rate sterling debt. These are reported as cash flow hedges. The change in the fair value of the hedging instrument, to the degree effective, is retained in other comprehensive income, segregated by cost and effect of hedging. Under IFRS 9, the currency basis on the cross-currency swaps is excluded from the hedge designation and recognised in other comprehensive income – cost of hedging reserve. Effectiveness is measured using the hypothetical derivative approach. The contractual terms of the cross-currency swaps include break clauses every five years which allow for the interest rates to be reset (last reset November 2022). The cross-currency swaps are recognised at fair value. The inclusion of credit risk on cross-currency swaps will cause ineffectiveness of the hedge relationship. The Group has considered and elected to apply credit/debit valuation adjustments, owing to the swaps’ relative materiality and longer dated nature. 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 classified as fair value through profit and loss. The corresponding fair value movement of the intercompany loan balance resulted in a £1.8m loss (last year: £0.3m gain) in the income statement. As at the balance sheet date, the gross notional value of intercompany loan hedges was £125.8m (last year: £166.8m). After taking into account the hedging derivatives entered into by the Group, the currency and interest rate exposure of the Group’s financial liabilities, excluding short-term payables and the liability to the Marks & Spencer UK Pension Scheme, is set out below: | | 2023 | | | 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | Fixed rate £m | Floating rate £m | Total £m | Fixed rate £m | Floating rate £m | Total £m | | **Currency** | | | | | | | | Sterling | 3,419.6 | – | 3,419.6 | 3,610.6 | – | 3,610.6 | | Euro | 106.8 | – | 106.8 | 104.3 | – | 104.3 | | Other | 101.6 | – | 101.6 | 93.3 | – | 93.3 | | | **3,628.0** | **–** | **3,628.0** | **3,808.2** | **–** | **3,808.2** | As at the balance sheet date and excluding lease liabilities, post-hedging, the GBP and USD fixed rate borrowings are at an average rate of 5.1% (last year: 5.1%) and the weighted average time for which the rate is fixed is five years (last year: five years). ### (d) Interest rate risk The Group is exposed to interest rate risk in relation to sterling, US dollar and euro variable rate financial assets and liabilities. The Group’s policy is to use derivative contracts where necessary to maintain a mix of fixed and floating rate borrowings to manage this risk. The structure and maturity of these derivatives correspond to the underlying borrowings and are accounted for as fair value or cash flow hedges as appropriate. At the balance sheet date, fixed rate borrowings amounted to £3,628.0m (last year: £3,808.2m) representing the public bond issues and lease liabilities, amounting to 100% (last year: 100%) of the Group’s gross borrowings. The effective interest rates at the balance sheet date were as follows: | | 2023 % | 2022 % | | --- | --- | --- | | Committed and uncommitted borrowings | N/A | N/A | | Medium Term Notes | 5.1% | 5.1% | | Leases | 5.1% | 5.4% | 188 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 21 FINANCIAL INSTRUMENTS CONTINUED ### Derivative financial instruments The below table illustrates the effects of hedge accounting on the consolidated statement of financial position and consolidated income statement through detailing separately by risk category and each type of hedge the details of the associated hedging instrument and hedged item. | | 2 April 2022 | | | | | --- | --- | --- | --- | --- | | | Current | | Non Current | | | | Forward foreign exchange contracts £m | Forward foreign exchange contracts £m | Cross-currency swaps £m | Forward foreign exchange contracts £m | | **Hedging risk strategy** | Cash flow hedges | FVTPL | Cash flow hedges | Cash flow hedges | | Notional / currency legs | 1,536.9 | 166.8 | 193.5 | 162.0 | | Carrying amount assets | 43.0 | 0.6 | 18.5 | 2.9 | | Carrying amount (liabilities) | (2.3) | (0.9) | – | (0.4) | | Maturity date | to Sep 2022 | to May 2022 | to Dec 2037 | to Apr 2023 | | Hedge ratio | 100% | n/a | 100% | 100% | | Description of hedged item | Highly probable transactional FX exposures | Inter-company loans/deposits | USD fixed rate borrowing | Highly probable transactional FX exposures | | Change in fair value of hedging instrument | 60.1 | 11.1 | 26.7 | 4.8 | | Change in fair value of hedged item used to determine hedge effectiveness | (60.1) | (10.8) | (25.4) | (4.8) | | Weighted average hedge rate for the year | GBP/USD 1.37; GBP/EUR 1.18 | – | GBP/USD 1.55 | GBP/USD 1.34; GBP/EUR 1.17 | | Amounts recognised within finance costs in profit and loss | – | 0.3 | (0.1) | – | | Balance on cash flow hedge reserve at 2 April 2022 | (32.0) | – | 9.5 | 2.5 | | Balance on cost of hedging reserve at 2 April 2022 | – | – | (5.0) | – | | | 1 April 2023 | | | | | --- | --- | --- | --- | --- | | | Current | | Non Current | | | | Forward foreign exchange contracts £m | Forward foreign exchange contracts £m | Cross-currency swaps £m | Forward foreign exchange contracts £m | | **Hedging risk strategy** | Cash flow hedges | FVTPL | Cash flow hedges | Cash flow hedges | | Notional / currency legs | 1,504.7 | 125.8 | 252.9 | 155.2 | | Carrying amount assets | 22.6 | – | 0.1 | – | | Carrying amount (liabilities) | (56.0) | (2.1) | (5.3) | (1.8) | | Maturity date | to Jul 2023 | to Jun 2023 | to Dec 2037 | to May 2024 | | Hedge ratio | 100% | n/a | 100% | 100% | | Description of hedged item | Highly probable transactional FX exposures | Inter-company loans/deposits | USD fixed rate borrowing | Highly probable transactional FX exposures | | Change in fair value of hedging instrument | 49.6 | (2.1) | 30.9 | (4.3) | | Change in fair value of hedged item used to determine hedge effectiveness | (49.6) | 0.3 | (30.0) | 4.3 | | Weighted average hedge rate for the year | GBP/USD 1.20; GBP/EUR 1.14 | – | GBP/USD 1.19 | GBP/USD 1.22; GBP/EUR 1.12 | | Amounts recognised within finance costs in profit and loss | – | (1.8) | 0.9 | – | | Balance on cash flow hedge reserve at 1 April 2023 | 47.3 | – | (7.0) | 1.8 | | Balance on cost of hedging reserve at 1 April 2023 | – | – | (5.8) | – | Annual Report & Financial Statements 2023 189 FINANCIAL STATEMENTS # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 21 FINANCIAL INSTRUMENTS CONTINUED | | | 1 April 2023 | | | | 2 April 2022 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Notional Value | | Fair Value | | Notional Value | | Fair Value | | | | | Assets £m | Liabilities £m | Assets £m | Liabilities £m | Assets £m | Liabilities £m | Assets £m | Liabilities £m | | **Current** | | | | | | | | | | | Forward foreign exchange contracts | – cash flow hedges | 559.2 | 945.6 | 22.6 | (56.0) | 1,348.8 | 188.1 | 43.0 | (2.3) | | | – FVTPL | 8.0 | 117.7 | – | (2.1) | 37.2 | 129.6 | 0.6 | (0.9) | | | | **567.2** | **1,063.3** | **22.6** | **(58.1)** | **1,386.0** | **317.7** | **43.6** | **(3.2)** | | **Non-current** | | | | | | | | | | | Cross-currency swaps | – cash flow hedges | 125.0 | 127.9 | 0.1 | (5.3) | 193.5 | – | 18.5 | – | | Forward foreign exchange contracts | – cash flow hedges | 18.1 | 137.1 | – | (1.8) | 131.1 | 30.9 | 2.9 | (0.4) | | | | **143.1** | **265.0** | **0.1** | **(7.1)** | **324.6** | **30.9** | **21.4** | **(0.4)** | The Group's hedging reserves disclosed in the consolidated statement of changes in equity, relate to the following hedging instruments: | | Cost of hedging reserve CCIRS^{1} £m | Deferred tax £m | Total cost of hedging reserve £m | Hedge reserve FX derivatives £m | Hedge reserve CCIRS £m | Hedge reserve gilt locks £m | Deferred tax £m | Total hedge reserve £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Opening balance 4 April 2021** | (5.8) | 1.2 | **(4.6)** | 42.7 | 25.4 | 0.1 | (13.4) | **54.8** | | Add: Change in fair value of hedging instrument recognised in OCI^{2} | – | – | – | (65.7) | (26.4) | – | – | **(92.1)** | | Add: Costs of hedging deferred and recognised in OCI | 0.8 | – | **0.8** | – | – | – | – | – | | Less: Reclassified to the cost of inventory | – | – | – | (6.5) | – | – | – | **(6.5)** | | Less: Reclassified from OCI to profit or loss | – | – | – | – | 10.5 | – | – | **10.5** | | Less: Deferred tax | – | 0.2 | **0.2** | – | – | – | 15.7 | **15.7** | | **Closing balance 2 April 2022** | (5.0) | 1.4 | **(3.6)** | (29.5) | 9.5 | 0.1 | 2.3 | **(17.6)** | | **Opening balance 3 April 2022** | **(5.0)** | **1.4** | **(3.6)** | **(29.5)** | **9.5** | **0.1** | **2.3** | **(17.6)** | | Add: Change in fair value of hedging instrument recognised in OCI | – | – | – | **(45.3)** | **(30.9)** | – | – | **(76.2)** | | Add: Costs of hedging deferred and recognised in OCI | **(0.8)** | – | **(0.8)** | – | – | – | – | – | | Less: Reclassified to the cost of inventory | – | – | – | **123.9** | – | – | – | **123.9** | | Less: Reclassified from OCI to profit or loss | – | – | – | – | **14.4** | – | – | **14.4** | | Less: Deferred tax | – | 0.2 | **0.2** | – | – | – | **(12.6)** | **(12.6)** | | **Closing balance 1 April 2023** | **(5.8)** | **1.6** | **(4.2)** | **49.1** | **(7.0)** | **0.1** | **(10.3)** | **31.9** | 1 Cross-currency interest rate swaps 2 Other comprehensive income 190 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 21 FINANCIAL INSTRUMENTS CONTINUED The Group holds a number of cross-currency interest rate swaps to designate its USD to GBP fixed debt. These are reported as cash flow hedges. The ineffective portion recognised in profit or loss that arises from the cash flow hedge amounts to a £0.9m gain (last year: £1.3m gain) as the loss on the hedged items was £30.0m (last year: £25.4m loss) and the movement on the hedging instruments was a £30.9m gain (last year: £26.7m gain). | Movement in hedged items and hedging instruments | 2023 £m | 2022 £m | | --- | --- | --- | | Net gain in fair value of cross-currency interest rate swap | 30.9 | 26.7 | | Net loss on hedged items | (30.0) | (25.4) | | **Ineffectiveness** | **0.9** | **1.3** | ### 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 financial instruments. The directors consider that a 2% +/- (last year: 2%) movement in interest and a 20% +/- (last year: 20%) movement in sterling against the relevant currency represent reasonably possible changes. However, this analysis is for illustrative purposes only. The directors believe that these illustrative assumed movements continue to provide sufficient guidance. The table excludes financial instruments that expose the Group to interest rate and foreign exchange risk where such a risk is fully hedged with another financial instrument. Also excluded are trade receivables and payables as these are either sterling denominated or the foreign exchange risk is hedged. **Interest rates** The impact in the income statement due to changes in interest rates reflects the effect on the Group's floating rate debt as at the balance sheet date. The impact in equity reflects the fair value movement in relation to the Group's cross-currency swaps. **Foreign exchange** The impact from foreign exchange movements reflects the change in the fair value of the Group's transactional foreign exchange cash flow hedges at the balance sheet date. The equity impact shown for foreign exchange sensitivity relates to derivatives. This value is expected to be materially offset by the re-translation of the related transactional exposures. | | 2% decrease in interest rates £m | 2% increase in interest rates £m | 20% weakening in sterling £m | 20% strengthening in sterling £m | | --- | --- | --- | --- | --- | | **At 2 April 2022** | | | | | | Impact on income statement: (loss)/gain | (19.2) | 19.2 | – | – | | Impact on other comprehensive income: (loss)/gain | (4.2) | 3.3 | 243.5 | (243.5) | | **At 1 April 2023** | | | | | | Impact on income statement: (loss)/gain | (17.2) | 17.2 | – | – | | Impact on other comprehensive income: (loss)/gain | 3.0 | (2.3) | 227.9 | (227.9) | Annual Report & Financial Statements 2023 191 FINANCIAL STATEMENTS ## NOTES TO THE FINANCIAL STATEMENTS CONTINUED 192 Marks and Spencer Group plc 21 FINANCIAL INSTRUMENTS CONTINUED Offsetting of financial assets and liabilities The following tables set out the financial assets and financial liabilities which are subject to offsetting, enforceable master netting arrangements and similar agreements. Amounts which are set off against financial 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 offset in the balance sheet, but which could be offset under certain circumstances, are also set out. To reconcile the amount shown in the tables below to the Statement of Financial Position, items which are not subject to offsetting should be included. Gross financial assets/ (liabilities) £m Gross financial (liabilities)/ assets set off £m Net financial assets/ (liabilities) per statement of financial position £m Related amounts not set off in the statement of financial position £m Net £m At 2 April 2022 Trade and other receivables 27.9 (25.0) 2.9 – 2.9 Derivative financial assets 65.0 – 65.0 (3.4) 61.6 92.9 (25.0) 67.9 (3.4) 64.5 Trade and other payables (284.8) 25.0 (259.8) – (259.8) Derivative financial liabilities (3.6) – (3.6) 3.4 (0.2) (288.4) 25.0 (263.4) 3.4 (260.0) Gross financial assets/ (liabilities) £m Gross financial (liabilities)/ assets set off £m Net financial assets/ (liabilities) per statement of financial position £m Related amounts not set off in the statement of financial position £m Net £m At 1 April 2023 Trade and other receivables 19.2 (16.5) 2.7 – 2.7 Derivative financial assets 22.7 – 22.7 (18.0) 4.7 41.9 (16.5) 25.4 (18.0) 7.4 Trade and other payables (317. 3) 16.5 (300.8) – (300.8) Derivative financial liabilities (65.2) – (65.2) 18.0 (47.2) (382.5) 16.5 (366.0) 18.0 (348.0) Amounts which do not meet the criteria for offsetting on the balance sheet, but could be settled net in certain circumstances, principally relate to derivative transactions under 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 financial instruments by valuation technique: – Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities. The Group had no level 1 investments or financialinstrumen instruments. – 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 financial instruments include interest rate and foreign exchange derivatives. Fair value is calculated using discounted cash flow methodology, future cash flows are estimated based on forward exchange rates and interest rates (from observable market curves) and contract rates, discounted at a rate that reflects the credit riskof the varsk of the various counterparties for those with a long maturity. – Level 3: techniques that use inputs which have a significant effect on the recorded fair value that are not based on observable marketdket data. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 21 FINANCIAL INSTRUMENTS CONTINUED At the end of the reporting period, the Group held the following financial instruments at fair value: | | 2023 | | | | 2022 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Level 1 £m | Level 2 £m | Level 3 £m | Total £m | Level 1 £m | Level 2 £m | Level 3 £m | Total £m | | **Assets measured at fair value** | | | | | | | | | | Financial assets at fair value through profit or loss (FVTPL) | | | | | | | | | | – derivatives held at FVTPL | – | – | – | – | – | 0.6 | – | 0.6 | | – other investments^{1} | – | 12.3 | 8.6 | 20.9 | – | 17.6 | 4.5 | 22.1 | | Derivatives used for hedging | – | 22.7 | – | 22.7 | – | 64.4 | – | 64.4 | | **Liabilities measured at fair value** | | | | | | | | | | Financial liabilities at fair value through profit or loss | | | | | | | | | | – derivatives held at FVTPL | – | (2.1) | – | (2.1) | – | (0.9) | – | (0.9) | | – Ocado contingent consideration^{2} | – | – | (64.7) | (64.7) | – | – | (172.6) | (172.6) | | – Gist contingent consideration^{3} | – | – | (25.0) | (25.0) | – | – | – | – | | Derivatives used for hedging | – | (63.1) | – | (63.1) | – | (2.7) | – | (2.7) | There were no transfers between the levels of the fair value hierarchy during the period. There were also no changes made to any of the valuation techniques during the period. 1. Within Level 3 other investments, the Group holds £7.3m of venture capital investments, managed by True Capital Limited, measured at FVTPL (last year: £3.1m) (see note 16) which are Level 3 instruments. The fair value of these investments has been determined in accordance with the International Private Equity and Venture Capital ("IPEV") Valuation Guidelines. Where investments are either recently acquired or there have been recent funding rounds with third parties, the primary input when determining the valuation is the latest transaction price. 2. As part of the investment in Ocado Retail Limited, a contingent consideration arrangement was agreed. The arrangement comprises three separate elements which only become payable on the achievement of three separate financial and operational performance targets. Last year, £33.8m was settled, relating to the first two targets. The final target relates to Ocado Retail Limited achieving a specified target level of earnings in the financial year ending November 2023, with any resulting payment due in 2024 following completion of the Ocado Retail Limited audited FY23 statutory accounts. The performance target is binary, meaning that a payment of £156.3m plus interest will be made if the performance target is met. Should the target not be met, no consideration would be payable. The fair value of the contingent consideration was estimated using an expected present value technique and was based on probability-weighting possible scenarios and applying an appropriate discount rate to reflect the timing of the possible payment. The Group has considered a range of scenarios reflecting current market uncertainty, taking into account Ocado Retail Limited's most recent trading update in March 2023, and determined a fair value of £64.7m (last year: £172.6m). If the level of earnings assumed in the probability-weighted scenarios was 10% higher or lower, the fair value of liability would increase or decrease by £17.5m respectively. A discount rate of 6.4% (last year: 4.2%) was used. During the period, a gain of £108.0m was recognised in profit or loss in relation to the remeasurement (see note 5). 3. As part of the investment in Gist Limited, the Group has agreed to pay the former owners of Gist Limited additional consideration of up to £25.0m plus interest when freehold properties are disposed of under certain conditions (for other consideration payable please see note 19). There is no minimum amount payable. The Group has the ability to retain the properties should it wish to do so, in which case the full amount of £25.0m plus interest will be payable on the third anniversary of completion. The fair value of the contingent consideration arrangement of £25.0m was estimated by calculating the present value of the future expected cashflows. The estimates are based on a discount rate of 6.1%. A 2.5% change in the discount rate would result in a change in fair value of £1.4m. The Marks & Spencer UK Pension Scheme holds a number of financial instruments which make up the pension asset of £6,781.9m (last year: £10,090.7m). Level 1 and Level 2 financial assets measured at fair value through other comprehensive income amounted to £2,754.7m (last year: £4,945.8m$^{1}$). Additionally, the scheme assets include £4,027.2m (last year: £5,144.9m) of Level 3 financial assets. See note 11 for information on the Group's retirement benefits. Annual Report & Financial Statements 2023 193 FINANCIAL STATEMENTS ## NOTES TO THE FINANCIAL STATEMENTS CONTINUED ### 21 FINANCIAL INSTRUMENTS CONTINUED The following table represents the changes in Level 3 instruments held by the Pension Schemes: | | 2023 £m | 2022 £m | | --- | --- | --- | | Opening balance | **5,144.9** | 4,996.9 | | Fair value (loss)/gain recognised in other comprehensive income^{1} | **(401.8)** | 191.6 | | Cash withdrawals | **(715.9)** | (43.6) | | Closing balance | **4,027.2** | 5,144.9 | $^{1}$ Last year restated to reflect the deferred payment due from the Marks and Spencer Scottish Limited Partnership (see note 12). #### Fair value of financial instruments With the exception of the Group's fixed rate bond debt and the Partnership liability to the Marks & Spencer UK Pension Scheme (note 12), there were no material differences between the carrying value of non-derivative financial assets and financial liabilities and their fair values as at the balance sheet date. The carrying value of the Group's fixed rate bond debt (level 1 equivalent) was £1,346.4m (last year: £1,529.5m); the fair value of this debt was £1,264.3m (last year: £1,549.6m) which has been calculated using quoted market prices and includes accrued interest. The carrying value of the Partnership liability to the Marks & Spencer UK Pension Scheme (level 2 equivalent) is £124.8m (last year: £192.3m) and the fair value of this liability is £121.9m (last year: £187.9m). #### Capital policy The Group's objectives when managing capital are to fund investment in the transformation and deliver financial performance at an investment grade level, to safeguard its ability to continue as a going concern in order to provide optimal returns for shareholders and to maintain an efficient capital structure to reduce the cost of capital. In doing so, the Group's strategy is to sustain a capital structure that supports an investment grade credit rating and to retain appropriate levels of liquidity headroom to ensure financial stability and flexibility. To achieve this strategy, the Group regularly monitors key credit metrics such as the gearing ratio, cash flow to net debt and fixed charge cover to maintain this position. In addition, the Group ensures a combination of appropriate committed short-term liquidity headroom with a diverse and balanced long-term debt maturity profile. As at the balance sheet date, the Group's average debt maturity profile was five years (last year: five years). During the year, the Group maintained credit ratings of Ba1 (stable) with Moody's and BB+ (stable) with Standard & Poor's. In order to maintain or realign the capital structure, the Group will consider the appropriate level of dividends paid to shareholders and options to return capital to shareholders, issue new shares or sell assets to reduce debt. ### 22 PROVISIONS | | Property £m | Restructuring £m | Other £m | Total £m | | --- | --- | --- | --- | --- | | **At 4 April 2021** | **76.7** | **28.5** | **12.1** | **117.3** | | Provided in the year – charged to profit or loss | 23.5 | 38.0 | 6.2 | 67.7 | | Provided in the year – charged to property, plant and equipment | 5.3 | – | – | 5.3 | | Released in the year | (8.4) | (2.8) | (3.0) | (14.2) | | Utilised during the year | (5.1) | (28.2) | (0.9) | (34.2) | | Exchange differences | – | (0.1) | (0.2) | (0.3) | | Discount rate unwind | 3.8 | – | – | 3.8 | | **At 2 April 2022** | **95.8** | **35.4** | **14.2** | **145.4** | | Analysed as: | | | | | | Current | | | | **53.6** | | Non-current | | | | **91.8** | 194 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # 22 PROVISIONS CONTINUED | | Property £m | Restructuring £m | Other £m | Total £m | | --- | --- | --- | --- | --- | | **At 3 April 2022** | **95.8** | **35.4** | **14.2** | **145.4** | | Acquired through business combinations | 1.8 | – | 1.5 | 3.3 | | Provided in the year – charged to profit or loss | 25.3 | 14.0 | 12.3 | 51.6 | | Released in the year | (46.0) | (0.2) | (0.6) | (46.8) | | Utilised during the year | (3.5) | (32.3) | (3.8) | (39.6) | | Exchange differences | – | – | 0.1 | 0.1 | | Discount rate unwind | 5.4 | – | – | 5.4 | | **At 1 April 2023** | **78.8** | **16.9** | **23.7** | **119.4** | | Analysed as: | | | | | | Current | | | | 44.0 | | Non-current | | | | 75.4 | Property provisions relate primarily to obligations such as dilapidations arising as a result of the closure of stores in the UK, as part of the UK store estate strategic programme. These provisions are expected to be utilised over the period to the end of each specific lease (up to 10 years). Movements in restructuring provisions relate to the utilisation and finalisation of costs associated with the strategic programme to transition to a single-tier UK distribution network; the strategic programme to reduce roles across central support centres, regional management and our UK and Republic of Ireland stores; the historical International exit strategy; the restructure of certain International franchise operations; and cost savings and transformation relating to the acquisition of Gist. Closing provisions relate primarily to the strategic programme to transition to a single-tier UK distribution network, expected to be utilised over the period of closure of sites, and the restructure of certain International franchise operations, expected to be utilised within the next year. Other provisions include amounts in respect of probable liabilities for employee-related matters. Provisions related to adjusting items were £100.3m at 1 April 2023 (last year: £124.9m), with a net charge in the year of £3.9m (last year: £48.2m) (see note 5). # 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 25% (last year: 19% and 25% as applicable) for UK differences and local tax rates for overseas differences. 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 offsetting 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 differences £m | Capital allowances in excess of depreciation £m | Pension temporary differences £m | IFRS 16 adjustment £m | Other short-term temporary differences £m | Total UK deferred tax £m | Overseas deferred tax £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **At 4 April 2021** | (50.3) | 22.6 | (148.7) | 104.9 | 30.6 | (40.9) | (1.4) | (42.3) | | (Charged)/credited to income statement | (15.4) | 3.7 | (14.7) | 12.6 | 7.7 | (6.1) | 1.0 | (5.1) | | (Charged)/Credited to equity/other comprehensive income | – | – | (128.7) | – | (14.1) | (142.8) | 3.0 | (139.8) | | **At 2 April 2022** | (65.7) | 26.3 | (292.1) | 117.5 | 24.2 | (189.8) | 2.6 | (187.2) | | **At 2 April 2022** | **(65.7)** | **26.3** | **(292.1)** | **117.5** | **24.2** | **(189.8)** | **2.6** | **(187.2)** | | Credited/(charged) to income statement | 3.7 | (36.4) | (7.4) | (5.7) | 4.9 | (40.9) | (0.2) | (41.1) | | Credited/(charged) to equity/other comprehensive income | – | – | 158.0 | – | 17.6 | 175.6 | (0.6) | 175.0 | | Acquisition of Gist | (11.5) | (1.0) | 1.0 | – | 0.1 | (11.4) | – | (11.4) | | **At 1 April 2023** | **(73.5)** | **(11.1)** | **(140.5)** | **111.8** | **46.8** | **(66.5)** | **1.8** | **(64.7)** | Annual Report & Financial Statements 2023 195 FINANCIAL STATEMENTS ## NOTES TO THE FINANCIAL STATEMENTS CONTINUED ### 23 DEFERRED TAX CONTINUED Other short-term temporary differences relate mainly to employee share options and financial instruments. The deferred tax liability on land and buildings temporary differences is reduced by the benefit of capital losses with a gross value of £230.5m (last year: £236.6m) and a tax value of £57.6m (last year: £58.6m). The gross carried forward capital losses are £348.0m (last year: £364.7m) with a tax value of £87.0m (last year: £91.2m) and are inclusive of the gross £230.5m of losses used to reduce the deferred tax liability on land and buildings. Due to uncertainty over their future use, no benefit has been recognised in respect of trading losses carried forward in overseas jurisdictions with a gross value of £5.2m (last year: £5.6m) and a tax value of £1.3m (last year: £1.4m). No deferred tax is recognised in respect of undistributed earnings of overseas subsidiaries and joint ventures with a gross value of £46.1m (last year: £34.2m) unless a material liability is expected to arise on distribution of these earnings under applicable tax legislation. There is a potential tax liability in respect of undistributed earnings of £4.4m (last year: £3.1m) however this has not been recognised on the basis that the distribution can be controlled by the Group, and it is not probable that the temporary difference will reverse in the foreseeable future. ### 24 ORDINARY SHARE CAPITAL | | 2023 | | | | 2022 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Ordinary shares of £0.01 each | | Ordinary shares of £0.25 each | | Ordinary shares of £0.01 each | | Deferred shares of £0.24 each | | | | Shares | £m | Shares | £m | Shares | £m | Shares | £m | | **Issued and fully paid** | | | | | | | | | | At start of year | **1,958,905,344** | **19.7** | 1,956,513,591 | 489.2 | – | – | – | – | | Shares issued in respect of employee share option schemes | – | – | 1,266,035 | 0.3 | – | – | – | – | | Subdivision of ordinary share capital | – | – | (1,957,779,626) | (489.5) | 1,957,779,626 | 19.6 | 1,957,779,626 | 469.9 | | Repurchase of deferred shares | – | – | – | – | – | – | (1,957,779,626) | (469.9) | | Shares issued in respect of employee share option schemes | **6,028,587** | **0.1** | – | – | 1,125,718 | 0.1 | – | – | | **At end of year** | **1,964,933,931** | **19.8** | – | – | 1,958,905,344 | 19.7 | – | – | #### Nominal value reduction In July 2021, the Company reduced the nominal value of its ordinary shares from £0.25 to £0.01. The reduction was completed by subdividing each £0.25 ordinary share in issue into 1 ordinary share of £0.01 and 1 deferred share of £0.24. All deferred shares were then bought back for total aggregate consideration of £0.01 and cancelled. The Company's issued share capital remained unchanged and each shareholder's proportionate interest in the share capital of the Company remained unchanged. Aside from the change in nominal value, the rights attaching to the ordinary shares (including voting and dividend rights and rights on a return of capital) remain unchanged. The repurchase and cancellation of the shares resulted in an increase to the Company's capital redemption reserve of £469.9m. #### Issue of new shares A total of 6,028,587 (last year: 2,391,753) ordinary shares having a nominal value of £0.1m (last year: £0.4m) were allotted during the year under the terms of the Company's share schemes which are described in note 13 of the Group financial statements. The aggregate consideration received was £0.1m (last year: £0.3m). 196 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 25 CONTINGENCIES AND COMMITMENTS ### A. Capital commitments | | 2023 £m | 2022 £m | | --- | --- | --- | | Commitments in respect of properties in the course of construction | 100.8 | 59.8 | | Software capital commitments | 6.1 | 6.1 | | | 106.9 | 65.9 | Last year, the Group committed to invest up to £25.0m, over a three-year period to 2024/25, in an innovation and consumer growth fund managed by True Capital Limited. The fund can drawdown amounts at any time over the three-year period to make specific investments. At 1 April 2023, the Group had invested £7.5m (last year: £3.3m) of this commitment, which is held as a non-current other investment and measured at fair value through profit or loss (see note 16). ### B. Other material contracts In the event of termination of our trading arrangements with certain warehouse operators, the Group has a number of options and commitments to purchase some property, plant and equipment, at values ranging from historical net book value to market value, which are currently owned and operated by the warehouse operators on the Group's behalf. These options and commitments would have no material impact on the Group's statement of financial position. See note 12 for details on the Partnership arrangement with the Marks & Spencer UK Pension Scheme. ## 26 ANALYSIS OF CASH FLOWS GIVEN IN THE STATEMENT OF CASH FLOWS ### Cash flows from operating activities | | 2023 £m | 2022 £m | | --- | --- | --- | | Profit on ordinary activities after taxation | 364.5 | 309.0 | | Income tax expense | 111.2 | 82.7 | | Finance costs | 205.5 | 214.4 | | Finance income | (166.1) | (33.9) | | **Operating profit** | **515.1** | **572.2** | | Share of results of Ocado Retail Limited | 29.5 | (13.9) | | Increase in inventories | (58.5) | (46.5) | | Increase in receivables | (33.7) | (2.9) | | Increase in payables | 82.1 | 289.1 | | Depreciation, amortisation and write-offs | 523.2 | 510.7 | | Non-cash share based payment expense | 38.0 | 38.8 | | Defined benefit pension funding | (36.8) | (36.8) | | Adjusting items net cash outflows^{1,2} | (67.9) | (45.8) | | Adjusting items M&S Bank^{3} | (2.0) | (16.0) | | Adjusting operating profit items | 111.5 | 136.8 | | **Cash generated from operations** | **1,100.5** | **1,385.7** | 1 Excludes £11.5m (last year: £5.6m) of surrender payments included within repayment of lease liabilities in the consolidated statement of cash flows relating to leases within the UK store estate programme. 2 Adjusting items net cash outflows relate to strategic programme costs associated with the UK store estate, UK logistics, UK structural simplification programme, the utilisation of the provisions for international store closures and impairments, and legal costs related to the acquisition of Gist Limited. 3 Adjusting items M&S Bank relates to M&S Bank income recognised in operating profit offset by charges incurred in relation to the insurance mis-selling provision, which is a non-cash item. Annual Report & Financial Statements 2023 197 FINANCIAL STATEMENTS # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 27 ANALYSIS OF NET DEBT ### A. Reconciliation of movement in net debt | | At 4 April 2021 £m | Cash flow £m | Changes in fair values £m | Lease additions and remeasurements £m | Exchange and other non-cash movements^{1} £m | At 2 April 2022 £m | | --- | --- | --- | --- | --- | --- | --- | | **Net debt** | | | | | | | | Bank loans and overdrafts (see note 20) | (4.7) | 4.7 | – | – | – | – | | Cash and cash equivalents (see note 18) | 674.4 | 531.7 | – | – | (8.2) | 1,197.9 | | **Net cash per statement of cash flows** | **669.7** | **536.4** | **–** | **–** | **(8.2)** | **1,197.9** | | **Current other financial assets (see note 16)** | **18.4** | **(0.8)** | **–** | **–** | **–** | **17.6** | | **Liabilities from financing activities** | | | | | | | | Medium Term Notes (see note 20) | (1,682.1) | 244.0 | – | – | (91.4) | (1,529.5) | | Lease liabilities (see note 20) | (2,405.9) | 344.3 | – | (100.6) | (116.5) | (2,278.7) | | Partnership liability to the Marks & Spencer UK Pension Scheme (see note 12) | (185.5) | – | – | – | (2.4) | (187.9) | | Derivatives held to hedge Medium Term Notes | (8.1) | – | 26.6 | – | – | 18.5 | | **Liabilities from financing activities** | **(4,281.6)** | **588.3** | **26.6** | **(100.6)** | **(210.3)** | **(3,977.6)** | | Less: Cashflows related to interest and derivative instruments | 77.6 | (208.7) | (26.6) | – | 221.0 | 63.3 | | **Net debt** | **(3,515.9)** | **915.2** | **–** | **(100.6)** | **2.5** | **(2,698.8)** | | | At 3 April 2022 £m | Cash flow £m | Changes in fair values £m | Lease additions and remeasurements £m | Exchange and other non-cash movements^{1} £m | At 1 April 2023 £m | | --- | --- | --- | --- | --- | --- | --- | | **Net debt** | | | | | | | | Cash and cash equivalents (see note 18) | 1,197.9 | (130.5) | – | – | 0.5 | **1,067.9** | | **Net cash per statement of cash flows** | **1,197.9** | **(130.5)** | **–** | **–** | **0.5** | **1,067.9** | | **Current other financial assets (see note 16)** | **17.6** | **(5.3)** | **–** | **–** | **0.7** | **13.0** | | **Liabilities from financing activities** | | | | | | | | Medium Term Notes (see note 20) | (1,529.5) | 262.3 | – | – | (79.2) | **(1,346.4)** | | Lease liabilities (see note 20) | (2,278.7) | 353.8 | – | (270.7) | (86.0) | **(2,281.6)** | | Partnership liability to the Marks & Spencer UK Pension Scheme (see note 12) | (187.9) | 66.0 | – | – | – | **(121.9)** | | Derivatives held to hedge Medium Term Notes | 18.5 | (57.4) | 33.7 | – | – | **(5.2)** | | **Liabilities from financing activities** | **(3,977.6)** | **624.7** | **33.7** | **(270.7)** | **(165.2)** | **(3,755.1)** | | Less: Cashflows related to interest and derivative instruments | 63.3 | (171.7) | (33.7) | – | 179.1 | **37.0** | | **Net debt** | **(2,698.8)** | **317.2** | **–** | **(270.7)** | **15.1** | **(2,637.2)** | 1 Exchange and other non-cash movements includes interest paid on Medium Term Notes of £65.4m (last year: £79.6m), interest paid on lease liabilities of £116.7m (last year: £121.1m) and interest paid on the Partnership liability to the Marks & Spencer UK Pension Scheme of £4.3m (last year: £4.4m). 198 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # **27 ANALYSIS OF NET DEBT CONTINUED** # **B. Reconciliation of net debt to statement of financial position** | | 2023 £m | 2022 £m | | --- | --- | --- | | **Statement of financial position and related notes** | | | | Cash and cash equivalents (see note 18) | **1,067.9** | 1,197.9 | | Current other financial assets (see note 16) | **13.0** | 17.6 | | Medium Term Notes – net of foreign exchange revaluation (see note 20) | **(1,356.6)** | (1,494.7) | | Lease liabilities (see note 20) | **(2,281.6)** | (2,278.7) | | Partnership liability to the Marks & Spencer UK Pension Scheme (see note 12 and 21) | **(124.8)** | (192.3) | | | **(2,682.1)** | (2,750.2) | | Interest payable included within related borrowing and the partnership liability to the Marks & Spencer UK Pension Scheme | **44.9** | 51.4 | | **Net debt** | **(2,637.2)** | (2,698.8) | # **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 financial statements. # **B. Joint ventures and associates** # **Ocado Retail Limited** The following transactions were carried out with Ocado Retail Limited, an associate of the Group. # **Loan to Ocado Retail Limited** | | 2023 £m | 2022 £m | | --- | --- | --- | | Opening balance | – | – | | Loans advanced | **30.0** | – | | Interest charged | **0.9** | – | | Closing balance | **30.9** | – | The loan matures during 2039/40 and accrues interest at Sterling Overnight Index Average ("SONIA") plus an applicable margin. # **Parent guarantee** Ocado Retail Limited has entered into a £30.0m revolving credit facility provided by BNPP, of which £25.0m was drawn at 1 April 2023 (last year: undrawn). The Group, along with Ocado Group plc, jointly guarantee the facility. # **Sales and purchases of goods and services** | | 2023 £m | 2022 £m | | --- | --- | --- | | Sales of goods and services | **35.7** | 36.1 | | Purchases of goods and services | **0.1** | 0.2 | Included within trade and other receivables is a balance of £2.9m (last year: £1.9m) owed by Ocado Retail Limited. # **Nobody's Child Limited** Nobody's Child Limited became an associate of the Group in November 2021. During the year, the Group made purchases of goods amounting to £6.3m (last year: £1.2m) At 1 April 2023, there was no balance included within trade and other payables (last year: £0.2m) owed to Nobody's Child Limited, and a £0.7m balance included within other financial assets (last year: £0.7m) owed from Nobody's Child Limited. # **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. Annual Report & Financial Statements 2023 199 FINANCIAL STATEMENTS # NOTES TO THE FINANCIAL STATEMENTS CONTINUED ## 28 RELATED PARTY TRANSACTIONS CONTINUED ### D. Key management compensation The Group has determined that the key management personnel constitute the Board and the members of the Executive Committee. | | 2023 £m | 2022 £m | | --- | --- | --- | | Salaries and short-term benefits | 14.3 | 15.3 | | Share-based payments | 4.8 | 2.1 | | **Total** | **19.1** | **17.4** | ### E. Other related party transactions The Group acquired 77.7% of the issued share capital of The Sports Edit Limited ("TSE") in February 2022. A further 4.8% of TSE's issued share capital was owned by Mr. Justin King, a Non-Executive Director of the Group (the "JK TSE Shares"). Following shareholder approval, the Group acquired the JK TSE Shares from Mr. Justin King at a total purchase price of £0.3m in July 2022. ## 29 INVESTMENTS IN JOINT VENTURES AND ASSOCIATES The Group holds a 50% interest in Ocado Retail Limited, a company incorporated in the UK. The remaining 50% interest is held by Ocado Group plc. Ocado Retail Limited is an online grocery retailer, operating through the ocado.com and ocadozoom.com websites. Ocado Retail Limited is considered an associate of the Group as certain rights are conferred on Ocado Group plc for an initial period of at least five years from acquisition in August 2019, giving Ocado Group plc control of the company. Following this initial period, a reassessment of control will be required as the Group will have an option to obtain more control over Ocado Retail Limited if certain conditions are met. If the Group is deemed to have obtained control, Ocado Retail Limited will then be consolidated as a subsidiary of the Group. Through Board representation and shareholder voting rights, the Group is currently considered to have significant influence, therefore the investment in Ocado Retail Limited is treated as an associate and applies the equity method of accounting. Ocado Retail Limited had a financial year end date of 27 November 2022, aligning with its parent company, Ocado Group plc. For the Group's purpose of applying the equity method of accounting, Ocado Retail Limited has prepared financial information to the nearest quarter-end date of its financial year end, as to do otherwise would be impracticable. The results of Ocado Retail Limited are incorporated in these financial statements from 28 February 2022 to 26 February 2023. There were no significant events or transactions in the period from 27 February 2023 to 1 April 2023. The carrying amount of the Group's interest in Ocado Retail Limited is £756.9m (last year: £800.4m). The Group's share of Ocado Retail Limited losses of £43.5m (last year: loss of £18.6m) includes the Group's share of underlying losses of £29.5m, which includes £13.2m of exceptional income before tax related to insurance receipts (last year: share of underlying profit: £13.9m) and adjusting item charges of £14.0m (last year: £32.5m) (see note 5). Summarised financial information in respect of Ocado Retail Limited (the Group's only material associate) is set out below and represents amounts in the Ocado Retail Limited financial statements prepared in accordance with IFRS, adjusted by the Group for equity accounting purposes. | | As at 26 Feb 2023 £m | As at 27 Feb 2022 £m | | --- | --- | --- | | **Ocado Retail Limited** | | | | Current assets | 220.0 | 291.2 | | Non-current assets | 618.7 | 590.1 | | Current liabilities | (267.7) | (223.3) | | Non-current liabilities | (421.7) | (449.8) | | Net assets | 149.3 | 208.2 | | | 28 Feb 2022 to 26 Feb 2023 £m | 29 Feb 2021 to 27 Feb 2022 £m | | --- | --- | --- | | Revenue | 2,222.0 | 2,248.8 | | (Loss)/profit for the period | (59.0) | 27.8 | | Other comprehensive income | – | – | | **Total comprehensive (loss)/income** | **(59.0)** | **27.8** | 200 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 29 INVESTMENTS IN JOINT VENTURES AND ASSOCIATES CONTINUED Reconciliation of the above summarised financial information to the carrying amount of the interest in Ocado Retail Limited recognised in the consolidated financial statements: | | As at 1 Apr 2023 £m | As at 2 Apr 2022 £m | | --- | --- | --- | | **Ocado Retail Limited** | | | | Net assets | 149.3 | 208.2 | | Proportion of the Group's ownership interest | 74.6 | 104.1 | | Goodwill | 449.1 | 449.1 | | Brand | 236.2 | 242.7 | | Customer relationships | 67.1 | 77.7 | | Other adjustments to align accounting policies | (75.8) | (78.9) | | Acquisition costs | 5.7 | 5.7 | | **Carrying amount of the Group's interest in Ocado Retail Limited** | **756.9** | **800.4** | In addition, the Group holds immaterial investments in joint ventures and associates totalling £11.0m (last year: £10.5m). The Group's share of profits totalled £0.5m (last year: £0.7m loss). ## 30 GOVERNMENT SUPPORT The Group benefited from business rates relief of £nil in the year (last year: £62.2m (including UK: £59.8m)). There are no unfulfilled conditions or contingencies attached to these grants. ## 31 BUSINESS COMBINATION On 30 September 2022, the Group completed the acquisition of 100% of the issued share capital and voting rights of Gist Limited ("Gist"), a non-listed logistics and supply chain business based in the UK, thereby obtaining control. Gist provides the majority of M&S Food logistics services via a network of primary and secondary distribution centres located across the UK and the Republic of Ireland, including a number of freehold warehouses. The acquisition is expected to accelerate the Group's multi-year plan to modernise its Food supply chain network to support growth. The acquisition has been accounted for as a business combination using the acquisition method of accounting in accordance with IFRS 3 Business Combinations and consequently the Gist assets acquired, and liabilities assumed, have been recorded by the Group at fair value. | | As at 30 Sep 2022 £m | | --- | --- | | **Fair value of consideration transferred** | | | Cash | 170.6 | | Deferred consideration | 83.5 | | Contingent consideration | 23.7 | | Settlement of pre-existing relationship | (18.2) | | **Total consideration transferred** | **259.6** | | **Fair value of identifiable net assets** | | | Intangible assets | 2.7 | | Property, plant and equipment^{1} | 213.8 | | Inventories | 3.3 | | Trade and other receivables^{2} | 88.0 | | Cash and cash equivalents | 67.8 | | Trade and other payables | (74.1) | | Borrowings and other financial liabilities | (21.3) | | Provisions | (2.9) | | Deferred tax liabilities | (11.5) | | **Total identifiable net assets acquired** | **265.8** | | **Gain on bargain purchase** | **(6.2)** | | **Net cash outflow arising on acquisition** | | | Cash consideration | 170.6 | | Less: cash and cash equivalents acquired | (67.8) | | | **102.8** | 1 Property, plant and equipment principally comprises the distribution warehouses which were fair valued following a review undertaken by RICS registered valuers. 2 The fair value of trade and other receivables is considered equivalent to the gross contractual amount and the Group expects to collect substantially all of these. Annual Report & Financial Statements 2023 201 FINANCIAL STATEMENTS ## NOTES TO THE FINANCIAL STATEMENTS CONTINUED 202 Marks and Spencer Group plc 31 BUSINESS COMBINATION CONTINUED The acquisition resulted in a gain on bargain purchase due to the estimated fair value of the identifiable net assets acquired exceeding the element of the purchase price treated as consideration. The gain has been recognised within adjusting items (see note 5). A bargain purchase has arisen as a result of a combination of factors including the previous owner’s decision to sell Gist and the element of the acquisition price relating to settling the pre-existing relationship, as opposed to forming part of the purchase consideration. The Group incurred acquisition-related costs of £6.8m, predominantly transaction costs, which have been recognised within adjusting items (see note 5). Since the acquisition date, Gist, as a standalone entity, contributed £84.2m of revenue and £0.1m of loss before tax to the Group’s results. If the acquisition had occurred on 3 April 2022, the Group estimates that consolidated pro-forma revenue would have been c.£100m higher and profit before tax would have been c.£1m higher. In determining these amounts, the Group has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition had occurred on 3 April 2022. Settlement of pre-existing relationship The Group and Gist were parties to a long-term supply contract under which Gist supplied the Group with logistics services at agreed contract rates. This pre-existing relationship was effectively terminated at the acquisition date. The Group has attributed £18.2m of the consideration transferred to the settlement of the pre-existing relationship. The fair value of the settlement has been determined based on an assessment of the difference between current market rates and the rates previously agreed in the higher cost legacy supply contract. This amount has been recognised within adjusting items (see note 5). 32 CONTINGENT ASSETS The Group is currently seeking damages from an independent third party following its involvement in anti-competitive behaviour that adversely impacted the Group. The Group expects to receive an amount from the claim (either in settlement or from the legal proceedings), a position reinforced by recent court judgments in similar claims. The value of the claim is confidential and is therefore not disclosed. 33 SUBSEQUENT EVENTS The Board has approved a tender offer to repurchase c.£225m of the Group’s Medium Term Notes which will be announced on24May d on 24 May 2023. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## COMPANY STATEMENT OF FINANCIAL POSITION | | | As at | | As at | | --- | --- | --- | --- | --- | | | 1 April 2023 | | 2 April 2022 | | | Notes | | £m | | £m | Assets Non-current assets Investments in subsidiary undertakings C6 8,006.9 9,403.7 Total assets 8,006.9 9,403.7 Liabilities Current liabilities Amounts owed to subsidiary undertakings 2,541.0 2,541.2 Total liabilities 2,541.0 2,541.2 Net assets 5,465.9 6,862.5 Equity Ordinary share capital C7 19.8 19.7 Share premium account C7 910.7 910.6 Capital redemption reserve 2,680.4 2,680.4 Merger reserve C7 – 870.9 Retained earnings 1,855.0 2,380.9 Total equity 5,465.9 6,862.5 The Company’s loss for the year was £1,429.5m (last year: loss of £357.3m). The financial statements were approved by the Board and authorised for issue on 23 May 2023. The financial statements also comprise the notes C1 to C7. Stuart Machin Chief Executive Officer Katie Bickerstaffe Co-Chief Executive Officer Registered number: 04256886 ## COMPANY STATEMENT OF CHANGES IN ## SHAREHOLDERS’ EQUITY Ordinary Share Capital share premium redemption Merger Retained capital account reserve reserve earnings Total £m £m £m £m £m £m At 4 April 2021 489.2 910.4 2,210.5 1,262.0 2,316.9 7,189.0 Loss for the year – – – – (357. 3) (357. 3) Capital contribution for share-based payments – – – – 30.2 30.2 Shares issued on exercise of employee share options 0.4 0.2 – – – 0.6 1 Buy back and cancellation of own shares (469.9) – 469.9 – – – Reclassification from merger reserve – – – (391.1) 391.1 – At 2 April 2022 19.7 910.6 2,680.4 870.9 2,380.9 6,862.5 At 3 April 2022 19.7 910.6 2,680.4 870.9 2,380.9 6,862.5 Loss for the year – – – – (1,429.5) (1,429.5) Capital contribution for share-based payments – – – – 32.7 32.7 Shares issued on exercise of employee share options 0.1 0.1 – – – 0.2 Reclassification from merger reserve (see note C7) – – – (870.9) 870.9 – At 1 April 2023 19.8 910.7 2,680.4 – 1,855.0 5,465.9 1 On 8 July 2021, the Company reduced the nominal value of its 1,957,779,626 ordinary shares in issue at that date from £0.25 to £0.01. The reduction was completed by subdividing each £0.25 ordinary share in issue into 1 ordinary share of £0.01 and 1 deferred share of £0.24. All deferred shares were then bought back for total aggregate consideration of £0.01 and cancelled. The Company’s issued share capital remained unchanged and each shareholder’s proportionate interest in the share capital of the Company remained unchanged. Aside from the change in nominal value, the rights attaching to the ordinary shares (including voting and dividend rights and rights on a return of capital) remained unchanged. Annual Report & Financial Statements 2023 203 FINANCIAL STATEMENTS ## COMPANY STATEMENT OF CASH FLOWS | | 52 weeks | | 52 weeks | | | --- | --- | --- | --- | --- | | | ended | | ended | | | 1 April 2023 | | | 2 April 2022 | | | | | £m | | £m | Cash flow from investing activities Dividends received – 33.8 Additional investment in subsidiary – (33.8) Net cash (used in)/generated from investing activities – – Cash flows from financing activities Shares issued on exercise of employee share options 0.2 0.6 Repayment of intercompany loan (0.2) (0.6) Net cash generated from/(used in) financing activities – – Net cash inflow from activities – – Cash and cash equivalents at beginning and end of year – – 204 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # NOTES TO THE COMPANY FINANCIAL STATEMENTS ## C1 ACCOUNTING POLICIES ### General information Marks and Spencer Group plc (the "Company") is a public limited company domiciled and incorporated in England and Wales under the Companies Act 2006. The address of the Company's registered office is Waterside House, 35 North Wharf Road, London W2 1NW, United Kingdom. The principal activities of the Company and the nature of the Company's operations is as a holding entity. These financial statements are presented in sterling, which is the Company's functional currency, and are rounded to the nearest hundred thousand. The Company's accounting policies are the same as those set out in note 1 of the Group financial statements, except as noted below. Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment. The Company grants share-based payments to the employees of subsidiary companies. Each period the fair value of the employee services received by the subsidiary as a capital contribution from the Company is reflected as an addition to investments in subsidiaries. Loans from other Group undertakings and all other payables are initially recorded at fair value, which is generally the proceeds received. They are then subsequently carried at amortised cost. The loans are non-interest bearing and repayable on demand. 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. ### Key sources of estimation uncertainty #### Impairment of investments in subsidiary undertakings The carrying value of the investment in subsidiary undertakings is reviewed for impairment or impairment reversal on an annual basis. The recoverable amount is determined based on value in use which requires the determination of appropriate assumptions (which are sources of estimation uncertainty) in relation to the cash flows over the three-year strategic plan period, the long-term growth rate to be applied beyond this three-year period and the risk-adjusted pre-tax discount rate used to discount the assumed cash flows to present value. Estimation uncertainty arises due to changing economic and market factors, the channel shift from stores to online, increasing technological advancement and the Group's ongoing strategic transformation programmes. See note C6 for further details on the assumptions and associated sensitivities. The Company's financial risk is managed as part of the Group's strategy and policies as discussed in note 21 of the Group financial statements. ## C2 EMPLOYEES The Company had no employees during the current or prior year. Directors received emoluments in respect of their services to the Company during the year of £1,273,406 (last year: £1,174,790). The Company did not operate any pension schemes during the current or preceding year. For further information see the Remuneration Report. ## 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 financial statements as required by Section 494(4)(a) of the Companies Act 2006. ## C4 DIVIDENDS The Company suspended dividend payments at the start of the pandemic to protect the balance sheet. This enabled it to invest in its transformation priorities and trusted value. Consistent with that announcement, the Board does not expect to pay a dividend in 2022/23. However, with the business generating an improved operating performance and having a strengthened balance sheet with credit metrics consistent with investment grade, the Board plans to restore a modest annual dividend to shareholders starting with an interim dividend with the results in November. ## C5 RELATED PARTY TRANSACTIONS During the year, the Company did not receive a dividend from Marks and Spencer plc (last year: £33.8m) and decreased its loan from Marks and Spencer plc by £0.2m (last year: £0.6m). The outstanding balance was £2,541.0m (last year: £2,541.2m) and is non-interest bearing. There were no other related party transactions. Annual Report & Financial Statements 2023 205 FINANCIAL STATEMENTS ## NOTES TO THE FINANCIAL STATEMENTS CONTINUED C6 INVESTMENTS A. Investments in subsidiary undertakings 2023 2022 £m £m Beginning of the year 9,403.7 9,730.8 Contributions to subsidiary undertakings relating to share-based payments 32.7 30.2 Additions – 33.8 Impairment charge (1,429.5) (391.1) End of year 8,006.9 9,403.7 Shares in subsidiary undertakings represent the Company’s investment in Marks and Spencer plc, Marks and Spencer Holdings Limited and Marks and Spencer (A2B) Limited. During last year, the Company purchased additional shares in Marks and Spencer Holdings Limited (£33.8m). This allowed Marks and Spencer Holdings Limited to settle the contingent consideration that became payable during the prior year as a result of the investment in Ocado Retail Limited. Impairment of investments in subsidiary undertakings The Company evaluates its investments in subsidiary undertakings annually for any indicators of impairment or impairment reversal. TheCompany considers the relationship between its market capitalisation and the carrying value of its investments, among other factors, when reviewing for indicators of impairment. As at 1 April 2023, the market capitalisation of the Group was significantly below thecarrying value of its investment in Marks and Spencer plc of £8,830.2m, indicating a potential impairment, despite strong Groupperformance. The recoverable amount of the investment in Marks and Spencer plc has been determined based on a value in use calculation. The Company has updated its assumptions as at 1 April 2023, reflecting the latest budget and forecast cash flows covering a three-year period. The pre-tax discount rate of 12.5% (last year: 9.8%) was derived from the Group’s weighted average cost of capital, the inputs of which include a country risk-free rate, equity risk premium, Group size premium and a risk adjustment (beta). The long-term growth rate of 2.0% (last year: 2.0%), was based on inflation forecasts by recognised bodies with reference to rates used within the retail industry. The Company has determined that the recoverable amount of its investment in Marks and Spencer plc is £7,400.7m and as a result has recognised an impairment of £1,429.5m. This impairment primarily relates to the impact of market volatility on the discount rate as a result of changes in the macro-economic environment. Sensitivity analysis As disclosed in the accounting policies note C1, the cash flows used within the value in use model, the long-term growth rate and the discount rate are sources of estimation uncertainty. Management has performed a sensitivity analysis on the key assumptions and using reasonably possible changes would result in the following impacts: – A 5% reduction in cash flows from the three-year plan would result in an additional impairment charge of £374.6m; – A 50-basis point decrease in the long-term growth rate would result in an additional impairment charge of £286.4m; and – A 250-basis point increase in the discount rate would result in an additional impairment charge of £1,403.9m. In the event that all three were to occur simultaneously, an additional impairment charge of £1,881.6m would be recorded. 206 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 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 effective percentage of equity owned, as at 1 April 2023 is disclosed below. All undertakings are indirectly owned by the Company, unlessotherwise stated. (i) Subsidiary and other related undertakings registered in the UK | | | Proportion of | | | | Proportion of | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | shares held | | | | shares held | | | Name Share class | | | (%) | Name Share class | | | (%) | | Founders Factory | £0.0001 ordinary (25.001% of | | 0.004 | Ocado Retail Limited | £0.01 ordinary 50 | | | | Retail Limited | total capital) | | | | | | | Registered Office: Apollo | Registered office: Founders | £0.0001 preferred (74.999% of | 100 | Court 2 Bishop Square, | | --- | --- | --- | --- | | Factory (Level 7) Arundel | total capital) | | Hatfield Business Park, | | Street Building 180 Strand, | | | Hatfield, Hertfordshire, | | 2 Arundel Street, London | | | AL109NE | WC2R 3DA | | | | Amethyst Leasing | £1 ordinary 100 | | --- | --- | --- | --- | --- | | Hedge End Park Limited | £1 ordinary A | – | (Holdings) Limited | | | Registered Office: 33 | (50% of total capital) | | M & S Limited £1 ordinary 100 | | Holborn, London, EC1N 2HT | | | £1 ordinary B | 100 | Manford (Textiles) Limited £1 ordinary 100 | | | --- | --- | --- | --- | --- | --- | | | | (50% of total capital) | | Marks and Sparks Limited £1 ordinary 100 | | | Marks and Spencer Company | | N/A – | | Marks and Spencer (Northern | £1 ordinary 100 | | Archive (CIC) | (ii) | | | | | Ireland) Limited Marks and Spencer Guernsey Partnership interest 100 Registered Office: C/O Investments LLP Pricewaterhousecoopers, Waterfront Plaza, 8 Marks and Spencer Pension £1 ordinary A 100 (iii) (v) Laganbank Road, Belfast, Trust Limited | | | £1 ordinary B – | BT1 3LR | | | | --- | --- | --- | --- | --- | --- | | | | £1 ordinary C – | Marks and Spencer Property | £1 ordinary 100 | | | | (v) | | Developments Limited | | | | Marks and Spencer plc | | £0.25 ordinary 100 | | | | | | | | Nobody’s Child Limited | £0.01 ordinary | – | | Marks and Spencer Scottish | | Partnership interest 100 | | | | | Limited Partnership | (iv) | | Registered Office: 10-11 | (72.910% of total capital) | | Greenland Place, Camden, Registered Office: 2-28 St £0.01 Preference 100 London, NW1 0AP Nicholas Street, (27.090% of total capital) Aberdeen, AB10 1BU St. Michael (Textiles) Limited £1 ordinary 100 Annual Report & Financial Statements 2023 207 FINANCIAL STATEMENTS ## NOTES TO THE FINANCIAL STATEMENTS CONTINUED C6 INVESTMENTS CONTINUED B. RELATED UNDERTAKINGS CONTINUED 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 2023. Unless otherwise stated, the undertakings listed below are registered at Waterside House, 35 North Wharf Road, London, W2 1NW, United Kingdom and have a single class of ordinary share with a nominal value of £1. All undertakings are indirectly owned by the Company, unless otherwise stated. | | Proportion of | | | | Proportion of | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | shares held | | Company | | shares held | | Company | | Name | | (%) | Number | Name | | (%) | Number | | Amethyst Leasing (Properties) Limited 100 4246934 | | | | Marks and Spencer International | | 100 2615081 | | HoldingsLimited Busyexport Limited 100 4411320 (v) Marks and Spencer (Investment 100 13587353 Marks and Spencer (Initial LP) Limited 100 SC315365 Holdings)Limited Registered Office: 2 Semple Street, Marks and Spencer (A2B) Limited (v) 100 14228803 Edinburgh EH3 8BL Marks and Spencer 2005 100 5502588 Marks and Spencer 100 5502513 (Parman House Kingston Store) Limited (Property Ventures) Limited Marks and Spencer 2005 100 5502544 Marks and Spencer 2005 100 5502608 (Pudsey Store) Limited (Brooklands Store) Limited Marks and Spencer 2005 100 5502502 Marks and Spencer 2005 100 5502519 (Warrington Gemini Store) Limited (Chester Satellite Store) Limited | (in liquidation) | | Marks and Spencer Holdings Limited | (v) | 100 11845975 | | --- | --- | --- | --- | --- | | Marks and Spencer 2005 | 100 5502542 | Marks and Spencer Hungary Limited | | 100 8540784 | | (Chester Store) Limited | | (in liquidation) | | | | Marks and Spencer 2005 | 100 5502598 | Marks and Spencer Investments 100 4903061 | | | (Fife Road Kingston Store) Limited Marks and Spencer Property Holdings Limited 100 2100781 Marks and Spencer 2005 100 5502546 Ruby Properties (Cumbernauld) Limited 100 4922798 (Glasgow Sauchiehall Store) Limited Ruby Properties (Hardwick) Limited 100 4716018 | Marks and Spencer 2005 | 100 5502538 | | | --- | --- | --- | | (Hedge End Store) Limited | | Ruby Properties (Long Eaton) Limited 100 4716031 | | Marks and Spencer 2005 | 100 5502478 | Ruby Properties (Thorncliffe) Limited 100 4716110 | (Kensington Store) Limited Ruby Properties (Tunbridge) Limited 100 4716032 Marks and Spencer 2005 100 5502523 Simply Food (Property Investments) 100 5502543 (Kingston-on-Thames Satellite Store) Limited Simply Food (Property Ventures) Limited 100 2239799 Marks and Spencer 2005 100 5502520 (Kingston-on-Thames Store) Limited Marks and Spencer (Bradford) Limited 100 10011863 Marks & Spencer Outlet Limited 100 4039568 Marks and Spencer (Jaeger) Limited 100 13098074 Marks & Spencer Simply Foods Limited 100 4739922 Marks and Spencer Pearl (1) Limited 100 14276824 Marks and Spencer Marks and Spencer Pearl (Daventry) Limited 100 14267865 (Property Investments) Limited 100 5502582 Gist Limited 100 502669 Marks and Spencer Chester Limited 100 5174129 St. Michael Finance Limited 100 1339700 Marks and Spencer France Limited 100 5502548 The Sports Edit Limited 82.583 9331295 The Company will guarantee the debts and liabilities of the above UK subsidiary undertakings at the balance sheet date of £89.5m 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) No share capital, as the company is limited by guarantee. Marks and Spencer plc is the sole member. (iii) 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. (iv) 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. (v) Interest held directly by Marks and Spencer Group plc. 208 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS C6 INVESTMENTS CONTINUED B. RELATED UNDERTAKINGS CONTINUED (i) International subsidiary undertakings | | | | | Proportion of | | | | | | Proportion of | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | shares held | | | | | | shares held | | | | Registered | | | by subsidiary | | | Registered | | | by subsidiary | | | Name | address Country Share class | | | | (%) | Name | address Country Share class | | | | (%) | | Marks and | Minter Ellison | Australia AUD 2 Ordinary 100 | | | | Marks & | Avenida da | Portugal €1 Ordinary 100 | | | | | Spencer | ‘Governor | | | | | Spencer | Liberdade 249, | | | | | | (Australia) Pty | Macquarie | | | | | (Portugal) Lda. | 8º, 1250-143, | | | | | | Limited | Tower’ Level 40 | | | | | | Lisbon, Portugal | | | | | | | 1 Farrer Place | | | | | M.S. General | Heritage Hall, Le | Guernsey Partnership | | | 100 | | | Sydney NSW | | | | | Insurance L.P. | Marchant Street, | | Interest | | | | | 2000 | | | | | | St Peter Port, | | | | | | | Australia | | | | | | GY1 4JH, | | | | | | Marks and | Unit 03-04 16/F, | China USD NPV 100 | | | | | Guernsey | | | | | | Spencer | Eco City 1788, | | | | | Marks and | Suites 807-13, | Hong | No Par Value | | 100 | | (Shanghai) | 1788 West Nan | | | | | Spencer (Hong | 8/F, South Tower, | Kong | Ordinary | | | | Limited | Jing Road, | | | | | Kong) | World Finance | | | | | | | Shanghai, China | | | | | Investments | Centre, Harbour | | | | | | | | | | | | Limited | City, Kowloon, | | | | | | Marks and | Jemnická 1138/1, | Czech | CZK 1,000 | | 100 | | | | | | | Hong Kong | Spencer Czech | Michle, Praha 4, | Republic | Ordinary | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Republic a.s | 140 00, | | | | Marks and | Plot No 64, 2nd | India INR10 | | 100 | | | | | CZK 100,000 | 100 | | | | | | | | Czech Republic | | | | Spencer (India) | Floor, Holly | | | | | | | | Ordinary | | | | | Ordinary | | | | | | | | pvt Limited | Hocks, Sector | | | | | | | | CZK 1,000,000 | 100 | | 44, Gurgaon – | | | | | | | | Ordinary | | | 122 002, | | | | Haryana, India | Marks and | Jemnická 1138/1, | Czech | CZK NPV 100 | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | Spencer | Michle, Praha 4, | Republic | | Marks and | 4th Floor, Court | India INR 10 Class A | 51 | | Services S.R.O | 140 00, | | | Spencer | House, | | | (14.619% of Czech Republic Reliance India Lokmanya Tilak total capital) | | | | | pvt Ltd | Marg, Dhobi | | | | --- | --- | --- | --- | --- | --- | --- | --- | | Marks and | 33-35 Ermou | Greece €3 Ordinary | 80 (ii) | | | | | | | | | | | | INR 10 Class B | 100 | Talao, Mumbai, | Spencer | Street, Athens | | | | | | --- | --- | --- | --- | --- | --- | | | | €3 Preference | 100 | 400 002, India | (43.544% of | | Marinopoulos | 10563, Greece | | | | | total capital) Greece SA INR 5 Class C (iv) 0 Ignazia Limited Heritage Hall, Le Guernsey £1 Ordinary 100 (41.837% of Marchant Street, total capital) St Peter Port, GY1 4JH, Aprell Limited 24/29 Mary Ireland €1.25 Ordinary 100 Guernsey Street, Dublin 2, Ireland | Teranis Limited Heritage Hall, Le | | Guernsey £1 Ordinary 100 | | | | | | --- | --- | --- | --- | --- | --- | --- | | | Marchant Street, | | | Marks and | 77 Robinson | Singapore SGD NPV 100 | | | St Peter Port, | | | Spencer | Road, #13-00 | | | | GY1 4JH, | | | (Singapore) | Robinson 77, | | | | Guernsey | | | Investments | Singapore | | | | | | | Pte. Ltd. | 068896, | | | Marks and | 24/27 Mary | Ireland Ordinary of | 100 | | | | Singapore | Spencer | Street, Co. | | €1.25 | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | (Ireland) | Dublin, D01 | | | | | Marks and | Woolworths | South Africa ZAR 2 Ordinary 100 | | Limited | YE83, Ireland | | | | | Spencer (SA) | House, 93 | | | | | | | | | (Pty) Limited | Longmarket | | | Marks and | 24-27 Mary | Ireland N/A | | (iii) | – | | | | Street, Cape Spencer Street, Dublin 1, Town 8001, Pensions Trust Ireland South Africa (Ireland) | Company | | | Marks and | 84 GEN. H. M. | Romania RON 18.30 | | 100 | | --- | --- | --- | --- | --- | --- | --- | --- | | Limited By | | | Spencer | BERTHELOT | | Ordinary | | | Guarantee | | | Romania SA | Street, Space B, | | | | | | | | (in liquidation) | Room 5, Ground | | | | | M & S Mode | Basisweg 10 | Netherlands €100 Ordinary 100 | | | | | | floor, 1st District, International 1043 AP Bucharest, B.V. Amsterdam Romania Netherlands | | | | Marks and | Havalani Karsisi | Turkey TRL 25.00 | | 100 | | --- | --- | --- | --- | --- | --- | --- | --- | | Marks and | Basisweg 10, | Netherlands €450 Ordinary 100 | | | | | | | | | | Spencer | istanbul Dunya | | Ordinary | | | Spencer | 10 43 AP, | | | | | | | | | | | Clothing | Ticaret Merkezi | | | | | (Nederland) | Amsterdam, | | | | | | | | | | | Textile | A3 Blok, Kat:11 | | | | | B.V. | Netherlands | | | | | | | | | | | Trading J.S.C. | Yesilkoy, | | | | | Marks and | Basisweg 10, | Netherlands €100 Ordinary 100 | | Bakirkoy | | | | | Spencer BV | 10 43 AP, | | | Istanbul | | | | | | Amsterdam, | | | Turkey | | | | Netherlands | | | | Gist | 24-27 Mary | Ireland €1 Ordinary 100 | | --- | --- | --- | --- | --- | --- | | Marks and | Basisweg 10, | Netherlands €450 Ordinary 100 | Distribution | Street, Dublin 1, | | | Spencer | 10 43 AP, | | Limited | Ireland | | | Stores BV | Amsterdam, | | | | | Netherlands 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) 20% of ordinary shares are owned by JV partner (iii) No share capital as the company is limited by guarantee (iv) INR 5 Class C shares 100% owned by JV partner. Annual Report & Financial Statements 2023 209 FINANCIAL STATEMENTS # NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED ## C7 SHARE CAPITAL AND OTHER RESERVES ### Issue of new shares In July 2021, the Company reduced the nominal value of its ordinary shares from £0.25 to £0.01. The reduction was completed by subdividing each £0.25 ordinary share in issue into one ordinary share of £0.01 and one deferred share of £0.24. All deferred shares were then bought back for total aggregate consideration of £0.01 and cancelled. The Company's issued share capital remained unchanged and each shareholder's proportionate interest in the share capital of the Company remained unchanged. Aside from the change in nominal value, the rights attaching to the ordinary shares (including voting and dividend rights and rights on a return of capital) remained unchanged. The repurchase and cancellation of the shares resulted in an increase to the Company's capital redemption reserve of £469.9m. ### Merger reserve The Company's merger reserve was created as part of a Group reorganisation that occurred in 2001/02 and has an economical relationship to the Company's investment in Marks and Spencer plc. In 2019/20, an amount equal to the impairment charge of £1,086.3m was transferred from the merger reserve to retained earnings as that amount had become a realised profit in accordance with TECH 02/17. Following the reversal of impairment recognised in 2020/21, an amount equal to the reversal of £951.0m was transferred from retained earnings to the merger reserve, in accordance with TECH 02/17. In the prior year, an amount equal to the impairment of £391.1m was transferred from the merger reserve to retained earnings in accordance with TECH 02/17. In the current year, an amount equal to the remaining merger reserve balance of £870.9m has been transferred from the merger reserve to retained earnings, as part of the £1,429.5m impairment charge for the year. 210 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## GROUP FINANCIAL RECORD | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 52 weeks | | 52 weeks | | 53 weeks | | 52 weeks | | 52 weeks | | | | £m | | £m | | £m | | £m | | £m | Income statement 1 Revenue UK Clothing & Home 3,658.3 3,308.3 2,239.0 3,209.1 3,499.8 UK Food 7, 218.0 6,639.6 6,138.5 6,028.2 5,903.4 Total UK 10,876.3 9,947.9 8,377.5 9,237. 3 9,403.2 International 1,055.0 937.2 789.4 944.6 974.1 Revenue before adjusting items 11,931.3 10,885.1 9,166.9 10,181.9 10,377 .3 Adjusting items included in revenue – – (11.2) – – Revenue 11,931.3 10,885.1 9,155.7 10,181.9 10,377. 3 1 Adjusted operating profit/(loss) UK Clothing & Home 323.8 330.7 (130.8) 223.9 355.2 UK Food 248.0 277.8 228.6 236.7 212.9 Ocado (29.5) 13.9 78.4 2.6 – Other (0.5) 13.0 1.9 16.8 27.0 Total UK 541.8 635.4 178.1 480.0 595.1 International 84.8 73.6 44.1 110.7 130.5 Total adjusted operating profit 626.6 709.0 222.2 590.7 725.6 Adjusting items included in operating profit (111.5) (136.8) (252.9) (335.9) (427.5) Total operating profit/(loss) 515.1 572.2 (30.7) 254.8 298.1 Net interest payable (173.3) (199.3) (219.1) (211.2) (239.7) Pension finance income 28.7 13.2 47.2 23.6 25.8 Net finance costs before adjusting items (144.6) (186.1) (171.9) (187.6) (213.9) Adjusting items included in net finance costs 105.2 5.6 (6.8) – – Net finance costs (39.4) (180.5) (178.7) ( 187.6) (213.9) Profit before tax and adjusting items 482.0 522.9 50.3 403.1 511.7 Profit/(loss) on ordinary activities before taxation 475.7 391.7 (209.4) 67.2 84.2 Income tax (expense)/credit (111.2) (82.7) 8.2 (39.8) (38.9) Profit/(loss) after taxation 364.5 309.0 (201.2) 27.4 45.3 Annual Report & Financial Statements 2023 211 FINANCIAL STATEMENTS ## GROUP FINANCIAL RECORD CONTINUED | | | 2023 52 weeks | 2022 52 weeks | 2021 53 weeks | 2020 52 weeks | 2019 52 weeks | | --- | --- | --- | --- | --- | --- | --- | | Basic earnings per share^{1} | Basic earnings/Weighted average ordinary shares in issue | **18.5p** | 15.7p | (10.1p) | 1.3p | 2.5p | | Adjusted basic earnings per share^{1} | Adjusted basic earnings/Weighted average ordinary shares in issue | **18.1p** | 21.7p | 1.4p | 16.7p | 23.7p | | Dividend per share declared in respect of the year | | – | – | – | 3.9p | 13.3p | | Dividend cover | Adjusted earnings per share/ Dividend per share | – | – | – | 4.3x | 1.8x | | Retail fixed charge cover^{2} | Operating profit before depreciation/Fixed charges | **3.7x** | 3.5x | 2.0x | 3.4x | 3.6x | | **Statement of financial position** | | | | | | | | Net assets (£m) | | **2,814.9** | 2,917.9 | 2,285.8 | 3,708.5 | 2,469.2 | | Net debt^{2} (£m) | | **2,637.2** | 2,698.8 | 3,515.9 | 3,950.6 | 3,981.5 | | Capital expenditure (£m) | | **402.8** | 300.2 | 146.9 | 332.0 | 294.5 | | **Stores and space** | | | | | | | | UK stores | | **1,064** | 1,035 | 1,037 | 1,038 | 1,043 | | UK selling space (m sq ft) | | **16.8** | 16.7 | 16.8 | 16.8 | 17.2 | | International stores | | **406** | 452 | 472 | 483 | 445 | | International selling space (m sq ft) | | **4.8** | 5.0 | 5.1 | 5.0 | 4.9 | | **Staffing (full-time equivalent)** | | | | | | | | UK | | **47,266** | 42,550 | 44,423 | 49,094 | 50,578 | | International | | **4,826** | 4,558 | 4,754 | 4,894 | 4,862 | The above results are prepared under IFRS for each reporting period on a consistent basis, with the exception of the adoption of IFRS 16 in 2020 for which the comparative period of 2019 has been restated. 1. Based on continuing operations. 2. Excludes accrued interest. 3. Calculated on Marks and Spencer Group plc's consolidated basis. 212 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # GLOSSARY The Group tracks a number of alternative performance measures in managing its business, which are not defined or specified under the requirements of IFRS because they exclude amounts that are included in, or include amounts that are excluded from, the most directly comparable measure calculated and presented in accordance with IFRS, or are calculated using financial measures that are not calculated in accordance with IFRS. The Group believes that these alternative performance measures, 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. These alternative performance measures are consistent with how the business performance is planned and reported within the internal management reporting to the Board. Some of these alternative performance measures are also used for the purpose of setting remuneration targets. These alternative performance measures should be viewed as supplemental to, but not as a substitute for, measures presented in the consolidated financial information relating to the Group, which are prepared in accordance with IFRS. The Group believes that these alternative performance measures are useful indicators of its performance. However, they may not be comparable with similarly titled measures reported by other companies due to differences in the way they are calculated. | Alternative performance measure ('APM') | Closest equivalent statutory measure | Reconciling items to statutory measure | Definition and purpose | | --- | --- | --- | --- | | **Income Statement Measures** | | | | | Sales | Revenue | Consignment sales | Sales includes the gross value of consignment sales (excluding VAT). Where third-party branded goods are sold on a consignment basis, only the commission receivable is included in statutory revenue. This measure has been introduced given the Group's focus on launching and growing third-party brands and is consistent with how the business performance is reported and assessed by the Board and the Executive Committee. | | Clothing & Home store / Clothing & Home online sales | None | Not applicable | The growth in sales on a year-on-year basis is a good indicator of the performance of the stores and online channels. | | | | | **2022/23 £m** | | | | | 2021/22 £m | | | | | % | | | | **UK Clothing & Home** | | | | | Store sales^{1} | **2,538.6** | | | | Consignment sales | **(21.4)** | | | | Store revenue | **2,517.2** | | | | Online sales^{1} | **1,176.4** | | | | Consignment sales | **(35.3)** | | | | Online revenue | **1,141.1** | | | | UK Clothing & Home sales | **3,715.0** | | | | Consignment sales | **(56.7)** | | | | **Total UK Clothing & Home revenue** | **3,658.3** | | | | | 3,308.3 | | | | | 10.6 | | ^{1} UK Clothing & Home store sales excludes revenue from 'shop your way' and Click & Collect, which are included in UK Clothing & Home online sales. | | | | | There is no material difference between sales and revenue for UK Food and International. | | | | Annual Report & Financial Statements 2023 213 FINANCIAL STATEMENTS ## GLOSSARY CONTINUED | Alternative performance | Closest equivalent | Reconciling items to | | | --- | --- | --- | --- | | measure (“APM”) | statutory measure | statutory measure Definition and purpose | | | Like-for-like | Movement in revenue | Revenue from non | The period-on-period change in sales (excluding VAT) from stores | | sales growth | per the income | like-for-like stores | which have been trading and where there has been no significant | | | statement | | change (greater than 10%) in footage for at least 52 weeks and | Consignment sales 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 significant footage change. 2022/23 2021/22 £m £m % UK Food Like-for-like 6,872.2 6,519.2 5.4 1 Net new space 345.8 120.4 Total UK Food sales 7,218.0 6,639.6 8.7 UK Clothing & Home Like-for-like 3,647.0 3,280.4 11.2 Net new space 68.0 51.8 Total UK Clothing & 3,715.0 3,332.2 11.5 Home sales 1 UK Food net new space includes Gist third-party revenue. M&S.com sales / None Not applicable Total sales through the Group’s online platforms. These sales are Online sales reported within the relevant UK Clothing & Home, UK Food and International segment results. The growth in sales 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 an explanation of why this measure is used within incentive plans. International online None Not applicable International sales through International online platforms. These sales are reported within the International segment results. The growth in sales on a year-on-year basis is a good indicator of the performance of the online channel. This measure has been introduced given the Group’s focus on online sales. 2022/23 2021/22 £m £m % International sales Stores 874.5 764.7 14.4 Online 180.5 172.5 4.6 At reported currency 1,055.0 937.2 12.6 Sales growth at None Not applicable The period-on-period change in sales retranslating the previous constant currency year sales at the average actual periodic exchange rates used in the current financial year. This measure is presented as a means of eliminating the effects of exchange rate fluctuations on the period-on-period reported results. 2022/23 2021/22 £m £m % International sales At constant currency 1,055.0 948.3 11.2 Impact of – (11.1) FX retranslation At reported currency 1,055.0 937.2 12.6 214 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Alternative performance Closest equivalent Reconciling items to measure (“APM”) statutory measure statutory measure Definition and purpose Adjusting items None Not applicable Those items which the Group excludes from its adjusted profit metrics in order to present a further measure of the Group’s performance. Each of these items, costs or incomes, is considered to be significant in nature and/or quantum or are consistent with items treated as adjusting in prior periods. Excluding these items from profit 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 planned by, and reported to, the Board and the Executive Committee. Adjusted operating Operating profit Adjusting items Operating profit before the impact of adjusting items. The Group profit considers this to be an important measure of Group performance and is consistent with how the business performance is reported Operating profit (See note 5) and assessed by the Board and the Executive Committee. before adjusting items Adjusted operating None Not applicable Adjusted operating profit as a percentage of sales. margin Operating margin before adjusting items Finance income Finance income Adjusting items Finance income before the impact of adjusting items. The Group before adjusting items considers this to be an important measure of Group performance (See note 5) and is consistent with how the business performance is reported and assessed by the Board and the Executive Committee. Finance costs before Finance costs Adjusting items Finance costs before the impact of adjusting items. The Group adjusting items considers this to be an important measure of Group performance (See note 5) and is consistent with how the business performance is reported and assessed by the Board and the Executive Committee. Net interest payable Finance income/costs Finance income/costs The net of interest income on subleases and interest payable on leases on lease liabilities. This measure has been introduced as it allows (See note 6) the Board and Executive Committee to assess the impact of IFRS 16 Leases. Net financial interest Finance income/costs Finance income/costs Calculated as net finance costs, excluding interest on leases and adjusting items. The Group considers this to be an important (See note 6) measure of Group performance and is consistent with how the business performance is reported and assessed by the Board andthe Executive Committee. 1 EBIT before EBIT Adjusting items Calculated as profit before the impact of adjusting items, net adjusting items finance costs and tax as disclosed on the face of the consolidated (See note 5) income statement. This measure is used in calculating the return on capital employed for the Group. 1 Ocado Retail EBIT Not applicable Calculated as Ocado Retail Limited earnings before interest, tax, Limited EBITDA depreciation, amortisation, impairment and exceptional items. Profit before tax and Profit before tax Adjusting items Profit before the impact of adjusting items and tax. The Group adjusting items considers this to be an important measure of Group performance (See note 5) and is consistent with how the business performance is reported and assessed by the Board and the Executive Committee. This is a measure used within the Group’s incentive plans. Refer to the Remuneration Report for an explanation of why this measure isused within incentive plans. Adjusted basic Earnings per share Adjusting items Profit after tax attributable to owners of the parent and before earnings per share theimpact of adjusting items, divided by the weighted average (See note 5) number of ordinary shares in issue during the financial year. This is a measure used within the Group’s incentive plans. Refer to the Remuneration Report for an explanation of why this measure is used. Annual Report & Financial Statements 2023 215 FINANCIAL STATEMENTS ## GLOSSARY CONTINUED Alternative performance Closest equivalent Reconciling items to measure (“APM”) statutory measure statutory measure Definition and purpose Adjusted diluted Diluted earnings per Adjusting items Profit after tax attributable to owners of the parent and before earnings per share share theimpact of adjusting items, divided by the weighted average (See note 5) number of ordinary shares in issue during the financial year adjusted for the effects of any potentially dilutive options. Effective tax rate Effective tax rate Adjusting items and Total income tax charge for the Group excluding the tax impact before adjusting items their tax impact ofadjusting items divided by the profit before tax and adjusting items. This measure is an indicator of the ongoing tax rate for (See note 5) the Group. Bought-in margin None Not applicable Difference between landed cost of stock and selling value, expressed as a percentage of total exc VAT sales. Balance Sheet Measures Net debt None Reconciliation of net Net debt comprises total borrowings (bank and bonds net of debt (see note 27) accrued interest and lease liabilities), the spot foreign exchange component of net derivative financial instruments that hedge the debt and the Scottish Limited Partnership liability to the Marks and Spencer UK Pension Scheme less cash, cash equivalents and unlisted and short-term investments. Net debt does not include contingent consideration as it is conditional upon future events which are not yet certain at the balance sheet date. This measure is a good indication of the strength of the Group’s balance sheet position and is widely used by credit rating agencies. Net debt excluding None Reconciliation of net Calculated as net debt less lease liabilities. This measure is a good lease liabilities debt (see note 27) indication of the strength of the Group’s balance sheet position and is widely used by credit rating agencies. Lease liabilities (see note 20) Cash Flow Measures Free cash flow from Operating profit See Financial Review Calculated as operating profit less adjusting items within operating operations profit, depreciation and amortisation before adjusting items, cash lease payments, working capital, defined benefit scheme pension funding, capex and disposals, financial interest, taxation, employee-related share transactions, share of (profit)/loss from associate, adjusting items in cashflow and loans to associates. Free cash flow Operating profit See Financial Review Calculated as free cash flow from operations less acquisitions, investments and divestments. 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. Free cash flow after Operating profit See Financial Review Calculated as free cash flow less dividends paid. shareholder returns This measure shows the cash retained by the Group in the year. Other Measures Capital expenditure None Not applicable Calculated as the purchase of property, plant and equipment, investment property and intangible assets during the year, less proceeds from asset disposals excluding any assets acquired or disposed of as part of a business combination or through an investment in an associate. 216 Marks and Spencer Group plc STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS | Alternative performance measure ('APM') | Closest equivalent statutory measure | Reconciling items to statutory measure | Definition and purpose | | --- | --- | --- | --- | | Return on capital employed ('ROCE') | None | Not applicable | Calculated as being adjusted operating profit divided by the average of opening and closing capital employed. The measures used in this calculation are set out below: | | | | | **2022/23 £m** 2021/22 £m | | | | **Operating profit** | **515.1** 572.2 | | | | Adjusting items included in operating profit (see note 5) | **111.5** 136.8 | | | | **Adjusted operating profit** | **626.6** 709.0 | | | | Net assets | **2,814.9** 2,917.9 | | | | Add back: | | | | | Partnership liability to the Marks & Spencer UK Pension Scheme | **124.8** 192.3 | | | | Deferred tax liabilities | **72.3** 187.2 | | | | Non-current borrowings and other financial liabilities | **3,184.0** 3,561.0 | | | | Retirement benefit deficit | **4.6** 5.7 | | | | Derivative financial instruments | **42.5** – | | | | Current tax liabilities | **38.5** 34.0 | | | | Less: | | | | | Investment property | **(11.8)** (15.0) | | | | Derivative financial instruments | **–** (61.4) | | | | Retirement benefit assets | **(482.0)** (1,043.9) | | | | Current tax assets | **(6.5)** – | | | | Deferred tax assets | **(7.6)** – | | | | **Net operating assets** | **5,773.7** 5,777.8 | | | | Add back: Provisions related to adjusting items | **100.3** 124.9 | | | | **Capital employed** | **5,874.0** 5,902.7 | | | | **Average capital employed** | **5,888.4** 5,788.3 | | | | **ROCE %** | **10.6%** 12.2% | | This measure is used within the Group's incentive plans. Refer to the Remuneration Report for an explanation of why this measure is used within incentive plans. | | | | 1 EBIT is not defined within IFRS but is a widely accepted profit measure being earnings before interest and tax. Annual Report & Financial Statements 2023 217 ## NOTICE OF ## ANNUAL GENERAL ## MEETING 2023 TUESDAY 4 JULY 2023 AT 11AM HELD AT, AND BROADCAST FROM, WATERSIDE HOUSE 35 NORTH WHARF ROAD, LONDON W2 1NW ### THIS DOCUMENT IS IMPORTANT AND REQUIRES ### YOUR IMMEDIATE ATTENTION If you are in any doubt as to the action you should take, you should immediately consult your stockbroker, bank manager, solicitor, accountant or other independent professional adviser authorised under the Financial Services and Markets Act 2000 if you are resident in the United Kingdom or, if you reside elsewhere, another appropriately authorised financial adviser. If you have sold or otherwise transferred all your shares in the Company, please forward this document and accompanying documents (except any personalised form of proxy, if applicable) to the purchaser or transferee, or to the stockbroker or other agent through whom the sale or transfer was effected, for transmission to the purchaser or transferee. 218 Marks and Spencer Group plc NOTICE OF MEETING 2023 # DEAR SHAREHOLDER ![img-8.jpeg](img-8.jpeg) I am pleased to announce the 22nd Annual General Meeting of Marks and Spencer Group Plc will be held on 4 July 2023. Nick Folland General Counsel & Company Secretary ## ANNUAL GENERAL MEETING ("AGM") The AGM is a key date in the Board's calendar, providing you, as shareholders, with an opportunity to vote on key aspects of the Company's business, and to hear updates on the Company's performance and strategy progress throughout the year. It also provides the directors with the opportunity to hear directly from you and respond to any questions you may have. The success of our AGM format over the past three years has demonstrated the power a digitally-enabled meeting has to drive shareholder engagement, with participation levels trebling in 2022 vs 2019. We are therefore confident that our approach to a digitally-enabled AGM makes it far more accessible, and is the most democratic way for the directors and shareholders to interact and engage. **For this reason, the 2023 AGM will again be a fully digitally-enabled meeting, broadcast from M&S' Waterside House Support Centre at 11am on Tuesday 4 July 2023.** Anita Anand, leading radio and television broadcaster, journalist and author, will again be joining this year's meeting to act as your shareholder advocate. Anita's role is to ensure your views and questions are put to the Board. For statutory and regulatory purposes, the place of meeting will be Waterside House, 35 North Wharf Road, London W2 1NW. Shareholders are invited to participate in the AGM electronically via the Lumi AGM platform, which you can access by logging on to https://web.lumiagm.com/161-121-785. On this website, you will be able to submit questions and your voting instructions, both during the meeting and in advance. A step-by-step guide on how to join the meeting electronically and submit your votes and questions can be found on pages 228 and 229. We strongly encourage you to log on and submit any questions you might have in advance of the meeting, so that your views are heard even if you are unable to participate live. **Shareholders are advised not to travel to the venue on the day, as the meeting will be fully digitally-enabled.** Board members will not be available for interaction with shareholders in person, as they will be taking part in the meeting broadcast under studio conditions. Any shareholders travelling to the venue against the Board's recommendation will be advised to join the meeting electronically, and will be provided with assistance to do so, if needed. Refreshments will not be provided. ## YOUR VOTE COUNTS Your vote is important to us. You can: - Join the AGM live online and vote electronically via the Lumi AGM platform. Please see pages 228 and 229 of this Notice for further details. - Register your proxy vote electronically by logging on to either the Lumi AGM platform, our Registrar's website, shareview.co.uk, or by using the services offered by Proxymity or Euroclear UK & Ireland Limited for members of CREST. - Complete and return a paper proxy form (enclosed with this Notice if you have elected for hard copy documents, or otherwise available from Equiniti on request, by calling the shareholder helpline on 0345 609 0810). ## VOTING BEFORE THE MEETING All shareholders are encouraged to vote either in advance or on the day. There are several ways to submit your voting instructions before the meeting, which are available from the publication date of this Notice: (1) The Lumi AGM platform; (2) Equiniti's Shareview website; (3) The CREST or Proxymity electronic proxy appointment platforms; or (4) By completing and returning a paper proxy form. Votes submitted electronically via the Lumi or Shareview websites, or via the CREST or Proxymity platforms, (options 1, 2 and 3 above) should be registered by no later than 11am on Friday 30 June 2023. After then, you will no longer be able to submit your proxy vote via Shareview, CREST or Proxymity. Voting via the Lumi website will also close at 11am on Friday 30 June, but will reopen for voting on the day of the meeting. Paper proxy votes (option 4 above) must be received by no later than 11am on Friday 30 June 2023. Paper proxy forms are available from Equiniti on request; you can call our shareholder helpline on 0345 609 0810, or use any of Equiniti's alternative contact details listed on page 230. You will be able to vote in one of three ways for each of the resolutions: "For", "Against" or "Vote Withheld". Please note that a "Vote Withheld" is not a vote in law and will not be counted in the calculation of votes "For" and "Against" each resolution. Annual Report & Financial Statements 2023 219 NOTICE OF MEETING 2023 # NOTICE OF MEETING 2023 CONTINUED ## JOINING THE MEETING AND VOTING ON THE DAY You can watch the broadcast live, vote and ask questions on the day of the meeting via the Lumi website. Please refer to pages 227 to 229 for instructions on how to join the meeting and submit your votes and questions on the day. Voting on all resolutions on the day will be by way of a poll. The Lumi website will reopen at 9.30am on Tuesday 4 July 2023, and votes can be cast once the Chairman has declared the poll open. ## QUESTIONS On the day, your questions will be posed to the Board by Anita Anand. Where we receive a number of questions covering the same topic, Anita will group these to address as many of your queries as possible. Questions may be submitted via Lumi, either in advance, to be received before 5pm on Friday 30 June 2023, or on the day (please refer to pages 227 to 229 for further details). It is, of course, important to us that we have the opportunity to hear from you, our shareholders, directly. You will have the opportunity to ask a question live during the meeting; full details and instructions will be provided on the Lumi AGM platform on the day of the AGM. You can also send us a video recording of yourself asking your question by email to AGMquestionsubmission@marks-and-spencer.com, to be received by no later than 5pm on Friday 30 June 2023. ## VOTING RESULTS The results of the voting will be announced through a Regulatory Information Service and will be published on our website, corporate.marksandspencer.com, on 4 July 2023, or as soon as reasonably practicable thereafter. In 2022, all resolutions were passed at the meeting with votes ranging from 70.89% to 99.99% in favour. ## EXPLANATORY NOTES An explanation of each of the resolutions to be voted on at the AGM is set out below and on pages 221 and 222. ## M&S WEBSITE Our corporate website, corporate.marksandspencer.com, is the principal means we use to communicate with our shareholders. There is a wealth of information online including: - ✓ A copy of our full Annual Report, which includes our Strategic Report. - ✓ All the latest M&S news, press releases and investor presentations. - ✓ A detailed account of our approach to corporate governance at M&S. ## EXPLANATORY NOTES TO THE RESOLUTIONS 1 TO RECEIVE THE REPORT AND ACCOUNTS The Board asks that shareholders receive the Annual Report and Financial Statements for the 52 weeks ended 1 April 2023. ### 2 APPROVAL OF THE DIRECTORS' REMUNERATION REPORT The Directors' Remuneration Report sets out the pay and benefits received by each of the directors for the year ended 1 April 2023. In line with legislation, this vote is advisory and the directors' entitlement to remuneration is not conditional on it. At the Annual General Meeting on 5 July 2022, 70.89% of shareholder votes were cast in favour of the advisory resolution to approve the Directors' Remuneration Report for 2021/22. The Remuneration Committee noted the number of votes cast against the resolution, and proactively engaged with the top 40 shareholders to understand the reasons why some shareholders voted against the resolution. An update on this engagement was published in January 2023 on our corporate website, and a final summary can be found on page 129 of the Annual Report. ### 3 APPROVAL OF THE DIRECTORS' REMUNERATION POLICY The Directors' Remuneration Policy (the "Policy") is set out on pages 108 to 115 of the Annual Report. It sets out the Company's policy on remuneration and potential payments to directors in the future. The Policy must be approved by shareholders (by means of a separate resolution) at least once every three years. The current Policy was approved by shareholders at the AGM in 2020 and is therefore due for renewal. The Policy for which we are seeking your approval this year is largely unchanged from that approved by shareholders in 2020. Where changes have been made, these are highlighted in the Policy. Once the Policy is approved, the Company will not be able to make a remuneration payment to a current or future director or a payment for loss of office to a current or past director unless that payment is consistent with the Policy or has been approved by a resolution of the members of the Company. ### 4-14 ELECTION OF DIRECTORS The directors believe that the Board continues to maintain an appropriate balance of knowledge and skills and that all the non-executive directors are independent in character and judgement. This follows a process of formal evaluation, which confirms that each director in office at the time of the evaluation makes an effective and valuable contribution to the Board and demonstrates commitment to the role (including making sufficient time available for Board and Committee meetings and other duties as required). Ronan Dunne joined the Board as a non-executive director on 1 August 2022. Ronan is a commercial leader with extensive international experience in the digital telecoms industry, has led businesses through technological and people transformation, and has significant financial expertise. Cheryl Potter also joined the Board as a non-executive director on 1 March 2023. Cheryl has an extensive background in private equity and brings a strong shareholder value focus to the Board, as well as being a passionate advocate for women in leadership. In accordance with the UK Corporate Governance Code, all directors will stand for election or re-election, as relevant, at the AGM this year. Biographies are available on pages 72 to 73 of the Annual Report, with further details available on our website, corporate.marksandspencer.com. It is the Board's view that the directors' biographies illustrate why each of their contributions are, and continue to be, important to the Company's long-term sustainable success. 220 Marks and Spencer Group plc NOTICE OF MEETING 2023 ## 15-16 APPOINTMENT AND REMUNERATION OF AUDITOR On the recommendation of the Audit & Risk Committee, the Board proposes in resolution 15 that Deloitte LLP be reappointed as auditor of the Company. Resolution 16 proposes that the Audit & Risk Committee be authorised to determine the level of the auditor's remuneration. ## 17 AUTHORITY TO MAKE POLITICAL DONATIONS The Companies Act 2006 (the '2006 Act') prohibits companies from making political donations to UK political organisations or independent candidates, or incurring UK political expenditure, unless authorised by shareholders in advance. The Company does not make, and does not intend to make, donations to political organisations or independent election candidates, nor does it incur or intend to incur any political expenditure. However, the definitions of political donations, political organisations and political expenditure used in the 2006 Act are very wide. As a result, they can cover activities such as sponsorship, subscriptions, payment of expenses, paid leave for employees fulfilling certain public duties, and support for bodies representing the business community in policy review or reform. Shareholder approval is being sought on a precautionary basis only, to allow the Company and any company which, at any time during the period for which this resolution has effect, is a subsidiary of the Company, to continue to support the community and put forward its views to wider business and government interests, without running the risk of inadvertently breaching legislation. The Board is therefore seeking authority to make political donations and to incur political expenditure not exceeding £50,000 in total. In line with best practice guidelines published by the Investment Association, this resolution is put to shareholders annually rather than every four years as permitted by the 2006 Act. ## 18 RENEWAL OF THE POWERS OF THE BOARD TO ALLOT SHARES Paragraph (A) of this resolution 18 would give the directors the authority to allot ordinary shares of the Company up to an aggregate nominal amount equal to £6,550,886.24 (representing 655,088,624 ordinary shares of £0.01 each). This amount represents approximately one third (33.33%) of the Company's issued ordinary share capital as at 23 May 2023, the latest practicable date before the publication of this Notice. In line with the latest guidance issued by the Investment Association in February 2023, paragraph (B) of this resolution would give the directors authority to allot ordinary shares in connection with a pre-emptive offer in favour of ordinary shareholders up to an aggregate nominal amount equal to £13,101,772.49 (representing 1,310,177,249 ordinary shares), as reduced by the nominal amount of any shares issued under paragraph (A) of this resolution. This amount (before any reduction) represents approximately two thirds (66.66%) of the Company's issued ordinary share capital as at 23 May 2023, the latest practicable date before the publication of this Notice. The authorities sought under paragraphs (A) and (B) of this resolution will expire at the conclusion of the AGM in 2024 or on 1 October 2024, whichever is sooner. The directors have no present intention to exercise either of the authorities sought under this resolution; however, the Board wishes to ensure that the Company has maximum flexibility in managing the Group's capital resources. As at the date of this Notice, no shares are held by the Company in treasury. ## 19-20 AUTHORITY TO DISAPPLY PRE-EMPTION RIGHTS Resolutions 19 and 20 are proposed as special resolutions. If the directors wish to allot new shares or other equity securities, or sell treasury shares for cash (other than in connection with an employee share scheme), company law requires that these shares are first offered to shareholders in proportion to their existing holdings. At last year's AGM, two separate special resolutions were passed, in line with institutional shareholder guidelines, empowering the directors to allot equity securities for cash without first offering them to existing shareholders in proportion to their existing holdings. It is proposed that these authorities be renewed and enhanced in line with the latest institutional shareholder guidelines, including the revised Statement of Principles on Disapplying Pre-Emption Rights issued by the Pre-Emption Group in November 2022 (the '2022 Statement of Principles'). The 2022 Statement of Principles is supportive of companies who wish to seek authority for the annual disapplication of pre-emption rights to include: (i) 10% of a company's issued ordinary share capital to be issued on an unrestricted basis; and (ii) an additional 10% of a company's issued ordinary share capital to be used for either an acquisition or specified capital investment. In both cases an additional follow-on offer, up to a nominal amount equal to 20% of any allotment made under (i) or (ii), can be made to existing holders of securities not allocated shares under such allotment, as contemplated by paragraph 3 of Section 2B of the 2022 Statement of Principles. Whilst there is no current intention to make use of these authorities, the Board believes it is in the best interests of shareholders for the directors to have the flexibility to take advantage of these authorities if required. Consequently, if approved, resolution 19, which follows the Pre-emption Group's template resolution, will authorise the directors, in accordance with the 2022 Statement of Principles, to issue shares in connection with pre-emptive offers (paragraph (A) of the resolution), or otherwise to issue shares and/or sell treasury shares for cash: 1) under paragraph (B) of the resolution, up to an aggregate nominal amount of £1,965,265.87 (representing 196,526,587 ordinary shares), being approximately 10% of the Company's issued ordinary share capital as at 23 May 2023 (the latest practicable date before the publication of this Notice); and 2) under paragraph (C) of the resolution, up to an additional aggregate amount equal to 20% of any allotment under paragraph (B) of the resolution, for the purposes of making a follow-on offer to existing shareholders as described in the 2022 Statement of Principles. The maximum additional nominal amount that could be issued under paragraph (C) of the resolution (based on the authority under paragraph (B) being used in full) is £393,053.17 (representing approximately 2% of the Company's issued ordinary share capital as at 23 May 2023). Annual Report & Financial Statements 2023 221 NOTICE OF MEETING 2023 # NOTICE OF MEETING 2023 CONTINUED The total maximum nominal amount of equity securities to which resolution 19 relates is £2,358,319.04 (representing approximately 12% of the Company's issued ordinary share capital as at 23 May 2023). The purpose of resolution 20, which also follows the Pre-emption Group's template resolution and reflects the 2022 Statement of Principles, is to authorise the directors to allot new shares and other equity securities pursuant to the allotment authority given by resolution 18, or sell treasury shares for cash, without first being required to offer such securities to existing shareholders: 1) under paragraph (A) of the resolution, up to a further nominal amount of £1,965,265.87 (representing 196,526,587 ordinary shares), being approximately 10% of the Company's issued ordinary share capital as at 23 May 2023 (the latest practicable date before the publication of this Notice), to be used only in connection with an acquisition or specified capital investment of a kind contemplated by the 2022 Statement of Principles, and which is announced contemporaneously with the allotment, or which has taken place in the preceding 12-month period and is disclosed in the announcement of the issue; and 2) under paragraph (B) of the resolution, up to an additional aggregate amount equal to 20% of any allotment under paragraph (A) of the resolution, for the purposes of making a follow-on offer to existing shareholders as described in the 2022 Statement of Principles. The maximum additional nominal amount that could be issued under paragraph (B) of the resolution (based on the authority under paragraph (A) being used in full) is £393,053.17 (representing approximately 2% of the Company's issued ordinary share capital as at 23 May 2023). The total maximum nominal amount of equity securities to which resolution 20 relates is £2,358,319.04 (representing approximately 12% of the Company's issued ordinary share capital as at 23 May 2023). The authority granted by resolution 20 would be in addition to the general authority to disapply pre-emption rights under resolution 19. The maximum nominal value of equity securities that could be allotted if both authorities were used would be £4,716,638.08, which represents approximately 24% of the Company's issued ordinary share capital as at 23 May 2023, being the latest practicable date before the publication of this Notice. The Board confirms that, should it exercise the authorities granted by resolutions 19 or 20, it intends to follow best practice as regards their use, including (i) following the shareholder protections in Part 2B of the 2022 Statement of Principles; and (ii) in respect of any follow-on offer, following the expected features set out in paragraph 3 of Part 2B of the 2022 Statement of Principles. The directors have no current intention to allot shares except in connection with employee share schemes. These authorities will expire at the conclusion of the AGM in 2024 or on 1 October 2024, whichever is sooner. # 21 AUTHORITY FOR THE COMPANY TO PURCHASE ITS OWN SHARES Authority is sought for the Company to purchase up to 10% of its issued ordinary shares renewing the authority granted by the shareholders at previous AGMs. The directors have no present intention of exercising the authority to purchase the Company's own ordinary shares; however, this authority would provide them with the flexibility to do so in the future, if the prevailing market conditions made such purchases in the best interests of shareholders generally. Ordinary shares purchased by the Company pursuant to this authority may be held in treasury or may be cancelled. It remains the Company's intention to cancel any shares it buys back rather than hold them in treasury. The Company currently holds no shares in treasury. The resolution specifies the minimum and maximum prices which may be paid for any ordinary shares purchased under this authority, reflecting the requirements of the Listing Rules. The Company has options outstanding over 106,820,843 million ordinary shares, representing 5.44% of the Company's issued ordinary share capital as at 23 May 2023, the latest practicable date before the publication of this Notice. If the existing authority given at the 2022 AGM and the authority now being sought by this resolution were to be fully used, these options would represent 6.04% of the Company's ordinary share capital in issue at that date. # 22 NOTICE OF GENERAL MEETING In accordance with the 2006 Act, the notice period for general meetings (other than the AGM) is 21 clear days' notice unless the Company: (i) has gained shareholder approval for the holding of general meetings on 14 clear days' notice by passing a special resolution at the most recent AGM; and (ii) offers the facility for all shareholders to vote by electronic means. The Company would like to preserve its ability to call general meetings (other than the AGM) on 14 clear days' notice. This shorter notice period would not be used as a matter of routine, but only where the flexibility is merited by the business of the meeting and is thought to be in the interests of shareholders as a whole. Resolution 22 seeks such approval and, should this resolution be approved, it will remain valid until the end of the next AGM. This is the same authority as was sought and granted at last year's AGM. # RECOMMENDATION Your directors believe that the proposals described above are in the best interests of the Company and its shareholders as a whole, and recommend you give them your support by voting in favour of all the resolutions, as they intend to in respect of their own beneficial shareholdings. Yours faithfully, Nick Folland General Counsel & Company Secretary London, 23 May 2023 222 Marks and Spencer Group plc NOTICE OF MEETING 2023 # NOTICE OF MEETING 4 JULY 2023 Notice is given that the Annual General Meeting of Marks and Spencer Group plc (the "Company") will be held at and broadcast from Waterside House, 35 North Wharf Road, London W2 1NW, in accordance with the information provided on page 227, on Tuesday 4 July 2023 at 11am (the "AGM") for the purposes set out below. Resolutions 1 to 18 will be proposed as ordinary resolutions, and resolutions 19 to 22 will be proposed as special resolutions. 1. To receive the Annual Report and Financial Statements for the 52 weeks ended 1 April 2023. 2. To approve the Directors' Remuneration Report for the year ended 1 April 2023, as set out on pages 100 to 129 of the Annual Report (excluding the Directors' Remuneration Policy set out on pages 108 to 115). 3. To approve the Directors' Remuneration Policy as set out on pages 108 to 115 of the Annual Report. To re-elect the following directors who are seeking annual re-election in accordance with the UK Corporate Governance Code: 4. Archie Norman 5. Stuart Machin 6. Katie Bickerstaffe 7. Evelyn Bourke 8. Fiona Dawson 9. Andrew Fisher 10. Tamara Ingram 11. Justin King 12. Sapna Sood To elect the following directors appointed to the Board since the last Annual General Meeting: 13. Ronan Dunne 14. Cheryl Potter 15. To resolve that Deloitte LLP be, and is hereby, reappointed as auditor of the Company to hold office until the conclusion of the next general meeting at which accounts are laid before the Company. 16. To resolve that the Audit & Risk Committee determine the remuneration of the auditor on behalf of the Board. ## 17. POLITICAL DONATIONS To resolve that, in accordance with Section 366 of the Companies Act 2006, the Company, and any company which, at any time during the period for which this resolution has effect, is a subsidiary of the Company, be authorised to: (A) make political donations to political parties or independent election candidates, not exceeding £50,000 in total; (B) make political donations to political organisations other than political parties, not exceeding £50,000 in total; and (C) incur political expenditure not exceeding £50,000 in total; provided that the aggregate amount of any such donations and expenditure shall not exceed £50,000, during the period beginning with the date of the passing of this resolution and ending at the conclusion of the AGM to be held in 2024 or on 1 October 2024, whichever is sooner. For the purpose of this resolution, the terms "political donations", "political parties", "independent election candidates", "political organisations" and "political expenditure" have the meanings set out in Sections 363 to 365 of the Companies Act 2006. ## 18. DIRECTORS' AUTHORITY TO ALLOT SHARES To resolve that the directors are authorised generally and unconditionally to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for or convert any security into shares in the Company: (A) up to a nominal amount of £6,550,886.24 (such amount to be reduced by any allotments or grants made under paragraph (B) below in excess of such sum); and (B) comprising equity securities (as defined in Section 560(1) of the Companies Act 2006) up to a nominal amount of £13,101,772.49 (such amount to be reduced by any allotments made under paragraph (A) above) in connection with a pre-emptive offer: (i) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and (ii) to holders of other equity securities as required by the rights of those securities or as the directors otherwise consider necessary; and so that the directors may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to deal with any treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter. The authorities conferred on the directors to allot securities under paragraphs (A) and (B) will expire at the conclusion of the AGM of the Company to be held in 2024 or on 1 October 2024, whichever is sooner, unless previously revoked or varied by the Company, and such authority shall extend to the making before such expiry of an offer or an agreement that would or might require relevant securities to be allotted after such expiry, and the directors may allot relevant securities in pursuance of that offer or agreement as if the authority conferred hereby had not expired. ## 19. GENERAL DISAPPLICATION OF PRE-EMPTION RIGHTS To resolve as a special resolution that, subject to the passing of resolution 18, the directors be empowered to allot equity securities (as defined in Section 560(1) of the Companies Act 2006) for cash under the authority given by that resolution 18 (set out in this Notice of Meeting), and/or to sell ordinary shares held by the Company as treasury shares for cash, as if Section 561 of the Companies Act 2006 did not apply to any such allotment or sale, provided that such authority be limited: (A) to the allotment of equity securities and sale of treasury shares in connection with an offer of, or invitation to apply for, equity securities (but in the case of the authority granted under paragraph (B) of resolution 18, by way of a pre-emptive offer only): (i) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and (ii) to holders of other equity securities as required by the rights of those securities or as the directors otherwise consider necessary; and so that the directors may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to deal with any treasury Annual Report & Financial Statements 2023 223 MARKS AND SPENCER GROUP PLC # NOTICE OF MEETING 4 JULY 2023 CONTINUED shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter; and (B) in the case of the authority granted under paragraph (A) of resolution 18 and/or in the case of any sale of treasury shares, to the allotment of equity securities or sale of treasury shares (otherwise than under paragraph (A) above) up to a nominal amount of £1,965,265.87; and (C) to the allotment of equity securities or sale of treasury shares (otherwise than under paragraph (A) or paragraph (B) above) up to a nominal amount equal to 20% of any allotment of equity securities or sale of treasury shares from time to time under paragraph (B) above, such authority to be used only for the purposes of making a follow-on offer which the Board of the Company determines to be of a kind contemplated by paragraph 3 of Section 2B of the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date of this Notice of Meeting, and shall expire at the conclusion of the AGM to be held in 2024 or on 1 October 2024, whichever is sooner (unless previously revoked or varied by the Company in general meeting), provided that the Company may before that date make offers, and enter into agreements, which would, or might, require equity securities to be allotted (and treasury shares to be sold) after the authority ends and the directors may allot equity securities (and sell treasury shares) under any such offer or agreement as if the authority had not ended. # 20. ADDITIONAL DISAPPLICATION OF PRE-EMPTION RIGHTS To resolve as a special resolution that, subject to the passing of resolution 18, the directors be empowered in addition to any authority granted under resolution 19 to allot equity securities (as defined in Section 560(1) of the Companies Act 2006) for cash under the authority given by that resolution 18 (set out in this Notice of Meeting) and/or to sell ordinary shares held by the Company as treasury shares for cash as if Section 561 of the Companies Act 2006 did not apply to any such allotment or sale, provided that such authority be limited: (A) to the allotment of equity securities or sale of treasury shares up to a nominal amount of £1,965,265.87, such authority to be used only for the purposes of financing (or refinancing, if the authority is to be used within 12 months after the original transaction) a transaction which the directors of the Company determine to be either an acquisition or a specified capital investment of a kind contemplated by the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date of this Notice of Meeting; and (B) to the allotment of equity securities or sale of treasury shares up to a nominal amount equal to 20% of any allotment of equity securities or sale of treasury shares made under paragraph (A) above, such authority to be used only for the purposes of making a follow-on offer which the Board of the Company determines to be of a kind contemplated by paragraph 3 of Section 2B of the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date of this Notice of Meeting, and shall expire at the conclusion of the AGM to be held in 2024 or on 1 October 2024, whichever is sooner (unless previously revoked or varied by the Company in general meeting) provided that the Company may before that date make offers, and enter into agreements, which would, or might, require equity securities to be allotted (and treasury shares to be sold) after the authority ends and the directors may allot equity securities (and sell treasury shares) under any such offer or agreement as if the authority had not ended. # 21. COMPANY'S AUTHORITY TO PURCHASE ITS OWN SHARES To resolve as a special resolution that the Company is authorised for the purposes of Section 701 of the Companies Act 2006 to make one or more market purchases (as defined in Section 693(4) of the Companies Act 2006) of its ordinary shares of £0.01 each, such power to be limited: (A) to a maximum number of 196,526,587 ordinary shares; (B) by the condition that the minimum price which may be paid for an ordinary share is £0.01 and the maximum price which may be paid for an ordinary share is the highest of: (i) an amount equal to 105% of the average market value of an ordinary share for the five business days immediately preceding the day on which that ordinary share is contracted to be purchased; and (ii) the higher of the price of the last independent trade of an ordinary share and the highest current independent bid for an ordinary share on the trading venue where the purchase is carried out; in each case, exclusive of expenses, such power to apply until the end of the AGM to be held in 2024 or until 1 October 2024, whichever is sooner, but in each case so that the Company may enter into a contract to purchase ordinary shares which will or may be completed or executed wholly or partly after the power ends and the Company may purchase ordinary shares pursuant to any such contract as if the power had not ended. # 22. CALLING OF GENERAL MEETINGS ON 14 DAYS' NOTICE To resolve as a special resolution that a general meeting other than the Annual General Meeting may be called on no fewer than 14 clear days' notice. By order of the Board Nick Folland General Counsel & Company Secretary London, 23 May 2023 Registered office Waterside House, 35 North Wharf Road, London W2 1NW. Registered in England and Wales No. 4256886. 224 Marks and Spencer Group plc MARKS AND SPENCER GROUP PLC # NOTES 1. Biographies of the directors seeking election (or re-election) are given in the Annual Report on pages 72 and 73, including their membership of the principal Board Committees. The terms of the current directors' service contracts are such that all executive director appointments may be terminated by the Company giving 12 months' notice and by the individual giving six months' notice; the Chairman has a letter of appointment which requires six months' notice by either party; other non-executive directors also have letters of appointment. In accordance with the Remuneration Policy their appointments can be terminated on three months' notice by either party. 2. Registered shareholders: Members are entitled to appoint a proxy to exercise all or any of their rights to attend, speak and vote on their behalf at the AGM. Members may appoint more than one proxy in relation to the AGM, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. A proxy need not be a shareholder of the Company. To request one or more paper proxy forms (to appoint more than one proxy), please contact our shareholder helpline on 0345 609 0810. Please indicate the number of shares in relation to which each proxy is authorised to act in the box below the proxy holder's name. Please also indicate if the instruction is one of multiple instructions being given, and if a proxy is being appointed for less than your full entitlement, please enter the number of shares in relation to which each proxy is entitled to act in the box below the relevant proxy holder's name. The proxy form assumes you wish to vote on all your shares in the same way. To vote only part of your holding or to vote some shares one way and some another, please contact the shareholder helpline. All proxy forms must be signed and should be returned together. 3. If you would like to submit your vote electronically in advance of the AGM, you can do so by accessing the Lumi website, https://web.lumiagm.com/161-121-785. Instructions are available on pages 228 and 229 of this Notice. Alternatively, you can submit your instruction by visiting shareview.co.uk. All advance proxy votes, regardless of how they are cast, are to be returned by 11am on Friday 30 June 2023. If you return paper and electronic instructions, those received last by the Registrar before 11am on Friday 30 June 2023 will take precedence. Electronic communication facilities are available to all shareholders and those that use them will not be disadvantaged. 4. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company's register of members in respect of the joint holding (the first-named being the most senior). 5. Votes submitted in advance of the meeting using the Lumi website will constitute an instruction to appoint the Chairman of the meeting as proxy. The shares covered by the instruction will be voted as directed by the shareholder in respect of the resolutions referred to in this Notice of Meeting at the meeting and at any adjournment of it. 6. To be valid, any proxy form or other instrument appointing a proxy delivered by post or by hand (during normal business hours only) must be received at Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA no later than 11am on Friday 30 June 2023. 7. The appointment of a proxy electronically, the return of a completed paper proxy form, other such instrument or any CREST/Proxy/entry proxy instruction (as described on the following page) will not prevent a shareholder from attending and voting at the meeting if they wish to do so. You must inform the Company's Registrar in writing of any termination of the authority of a proxy. 8. Indirect shareholders: Any person to whom this Notice is sent who is a person nominated under Section 146 of the Companies Act 2006 to enjoy information rights (a "Nominated Person") may, under an agreement between them and the shareholder by whom they were nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the AGM. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, they may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights. 9. The statement of the rights of shareholders in relation to the appointment of proxies in paragraphs 2 to 7 does not apply to Nominated Persons. The rights described in these paragraphs can only be exercised by shareholders of the Company. 10. Nominated Persons are reminded that they should contact the registered holder of their shares (and not the Company) on matters relating to their investments in the Company. 11. To be entitled to join the meeting, submit questions and vote (and for the purpose of the determination by the Company of the votes they may cast), shareholders must be entered on the Register of Members of the Company by 6.30pm on Friday 30 June 2023 (or, in the event of any adjournment, 6.30pm on the date which is two working days prior to the adjourned meeting). Changes to the Register of Members after the relevant deadline shall be disregarded in determining the rights of any person to join, submit questions and vote at the meeting. 12. The following documents are available for inspection at an agreed time at the Company's registered office: Waterside House, 35 North Wharf Road, London W2 1NW. Email company.secretary@marks-and-spencer.com during normal business hours on any weekday (excluding public holidays). (i) Copies of the executive directors' service contracts. (ii) Copies of the non-executive directors' letters of appointment. (iii) Copies of the directors' Deeds of Indemnity. (iv) A copy of the Articles of Association of the Company. Copies of these documents will also be available at the AGM upon request, from 9.30am on the morning of the AGM until the meeting's conclusion. 13. Shareholders are advised that, unless otherwise specified, the telephone numbers, website and email addresses set out in this Notice or proxy forms are not to be used for the purpose of serving information or documents on the Company, including the service of documents or information relating to proceedings at the Company's AGM. 14. As at 23 May 2023 (the latest practicable date before the publication of this Notice), the Company's issued share capital consists of 1,965,265,874 ordinary shares carrying one vote each. No shares are held in treasury. Therefore, the total voting rights in the Company as at 23 May 2023 are 1,965,265,874. Annual Report & Financial Statements 2023 225 MARKS AND SPENCER GROUP PLC ## NOTICE OF MEETING 4 JULY 2023 CONTINUED 15. CREST members who wish to appoint a proxy or proxies 20. Any corporation that is a member can appoint one or more through the CREST electronic proxy appointment service corporate representatives who may exercise on its behalf all may do so for the AGM and any adjournment thereof by of its powers as a member, provided that they do not do so using the procedures described in the CREST manual. in relation to the same shares. CREST personal members or other CREST-sponsored 21. Under Section 527 of the Companies Act 2006, members members, and those CREST members who have appointed meeting the threshold requirements set out in that section a service provider, should refer to their CREST sponsor or have the right to require the Company to publish on a voting service provider, who will be able to take the website a statement setting out any matter relating to: appropriate action on their behalf. (i) the audit of the Company’s accounts (including the 16. For a proxy appointment or instruction made using the auditor’s report and the conduct of the audit) that are CREST service to be valid, the appropriate CREST message tobe laid before the AGM; or (a “CREST proxy instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland (ii) any circumstance connected with an auditor of the Limited’s specifications and must contain the information Company ceasing to hold office since the previous required for such instruction, as described in the CREST meeting at which annual accounts and reports were manual (available via euroclear.com). The message, laidin accordance with Section 437 of the Companies regardless of whether it constitutes the appointment of Act 2006. aproxy or is an amendment to the instruction given to The Company may not require the shareholders requesting apreviously appointed proxy must, in order to be valid, be any such website publication to pay its expenses in transmitted so as to be received by Equiniti (ID RA19) by complying with Sections 527 or 528 of the Companies Act 11am on Friday 30 June 2023. For this purpose, the time 2006. Where the Company is required to place a statement ofreceipt will be taken to be the time (as determined by on a website under Section 527 of the Companies Act 2006, thetime stamp applied to the message by the CREST it must forward the statement to the Company’s auditor no Application Host) from which Equiniti is able to retrieve the later than the time when it makes the statement available message by enquiry to CREST in the manner prescribed by on the website. The business that may be dealt with at the CREST. After this time, any change of instructions to proxies AGM includes any statement that the Company has been appointed through CREST should be communicated to the required to publish on a website under Section 527 of the appointee through other means. Companies Act 2006. 17. CREST members and, where applicable, their CREST 22. Any member joining the meeting has the right to ask sponsors, or voting service providers should note that questions. The Company must cause to be answered any Euroclear UK & Ireland Limited does not make available such question relating to the business being dealt with at special procedures in CREST for any particular message. the meeting but no such answer need be given if: Normal system timings and limitations will, therefore, apply in relation to the input of CREST proxy instructions. It is the (i) to do so would interfere unduly with the preparation responsibility of the CREST member concerned to take (or, forthe meeting or involve the disclosure of confidential if the CREST member is a CREST personal member, or information; sponsored member, or has appointed a voting service provider, to procure that their CREST sponsor or voting (ii) the answer has already been given on a website in service provider(s) take(s)) such action as shall be necessary theform of an answer to a question; or to ensure that a message is transmitted by means of the (iii) it is undesirable in the interests of the Company or CREST system by any particular time. In this connection, thegood order of the meeting that the question CREST members and, where applicable, their CREST beanswered. sponsors or voting system providers are referred in particular to those sections of the CREST manual Shareholders are reminded that unacceptable behaviour concerning practical limitations of the CREST system will not be tolerated at the meeting and willbe dealt with andtimings. appropriately by the Chairman of themeeting. 18. The Company may treat as invalid a CREST proxy 23. A copy of this Notice, and other information required by instruction in the circumstances set out in Regulation 35(5) Section 311A of the Companies Act 2006, can be found (a) of the Uncertificated Securities Regulations 2001. atcorporate.marksandspencer.com. 19. If you are an institutional investor, you may be able to 24. Please see the letter dated 23 May 2023 from the General appoint a proxy electronically via the Proxymity platform, Counsel & Company Secretary on pages 219 to 220 for aprocess which has been agreed by the Company and further explanatory notes. approved by the Registrar. For further information regarding Proxymity, please go to www.proxymity.io. Yourproxy must be lodged by 11am on Friday 30 June 2023 in order to be considered valid. Before you can appoint a proxy via this process you will need to have agreed to Proxymity’s associated terms and conditions. Itisimportant that you read these carefully as you will bebound by them and they will govern the electronic appointment of your proxy. 226 Marks and Spencer Group plc MARKS AND SPENCER GROUP PLC INFORMATION FOR THE DAY | TIMINGS | | QUESTIONS | | --- | --- | --- | | Date: | Tuesday 6 June 2023 | You are able to submit questions live during the meeting | | 9.00am | Registration opens for vote casting and question | onthe Lumi website by clicking on the “Messaging” button. | | | submission in advance of the meeting. | There will also be details and instructions on the Lumi | website if you would like to ask a live question direct to Date: Friday 30 June 2023 theBoard. 11.00am Opportunity to submit votes and questions in Alternatively, you can submit questions in advance via Lumi. advance of the meeting closes. A step-by-step guide to voting and question submission in advance and on the day is on pages 228 to 229. | Date: | Tuesday 4 July 2023 | | | --- | --- | --- | | 9.30am | Online meeting opens and question | As noted in the Company Secretary’s letter on pages 219 to | | | submission reopens. | 220 of this Notice, Anita Anand will be posing your questions | to the Board during the meeting. If you would like to ask your 11.00am AGM begins and you will be able to vote once question yourself though, you can submit your recorded the Chairman declares the poll open. video question by email to AGMquestionsubmission@ marks-and-spencer.com, to be received by no later than 1.00pm AGM closes. The results of the poll will be 5pm on Friday 30 June 2023. Please ensure that your approx released to the London Stock Exchange once question recording lasts no longer than one minute, so that collated. we can hear from as many shareholders as possible. By submitting a video question, you consent to your video being played during the AGM broadcast; please note that the AGM recording will be made publicly available on our PHYSICAL ATTENDANCE corporate website after the meeting. Shareholder questions and answers will be published on the Following the continued success of the Company’s corporate website as soon as practicable after the meeting. digitally-enabled AGMs, this year’s meeting will once again Where we receive a number of questions covering the same be fully digitally-enabled. Shareholders are advised not to topic, we will publish summarised questions and answers travel to the venue on the day. Please refer to the following addressing as many questions received as possible. information and the user guide provided on pages 228 to 229 for details of how to join and participate in the meeting electronically. VOTING If you’re voting live during the meeting, the voting options ELECTRONIC PARTICIPATION will appear on the screen after the resolutions have been proposed. Press or click the option that corresponds with the Shareholders are encouraged to view and participate in the way in which you wish to vote: “For”, “Against” or “Withheld”. 2023 AGM electronically. This can be done by accessing the AGM website: https://web.lumiagm.com/161-121-785 If you make a mistake or wish to change your voting instruction, simply press or click the correct choice for that resolution until the poll is closed. If you wish to cancel your “live” vote, press “Cancel”. Please note that an active internet connection is required to ACCESSING THE AGM WEBSITE successfully cast your vote when the Chairman commences Lumi AGM can be accessed online using most well-known polling on the resolutions. It is your responsibility to ensure internet browsers such as Chrome, Firefox and Safari on a connectivity for the duration of the meeting. PC, laptop or internet-enabled device such as a tablet or Advance voting is also available from 6 June 2023, and smartphone. If you wish to access the AGM using this details on the different methods for voting in advance are set method, please go to https://web.lumiagm.com/161-121- out in the Company Secretary’s letter on pages 219 to 220 of 785 on the day. this Notice. A step-by-step guide to voting via the Lumi website live on the day, and in advance, is on pages 228 to 229. LOGGING IN Go to https://web.lumiagm.com/161-121-785 where you will PROXIES & CORPORATE REPRESENTATIVES then be prompted to enter your Shareholder Reference Number and PIN. These can be found printed on your If you are a duly appointed proxy or corporate Notice of Availability or Voting Card sent to you by post. representative, please contact the Company’s Registrar, Access to the AGM website to vote and submit questions Equiniti, before 11am on Monday 3 July 2023 by emailing inadvance will be available from 9am on 6 June 2023 until hybrid.help@equiniti.com, for your unique username and 11am on 30 June 2023. Access to the AGM website will password to join the meeting. Please ensure a valid proxy reopen to participate on the day from 9.30am on 4 July appointment has been made by no later than the voting 2023. deadline detailed on page 219. Mailboxes are monitored 9.00am to 5.00pm Monday to Friday (excluding public holidays in England & Wales). Annual Report & Financial Statements 2023 227 ONLINE USER GUIDE TO THE DIGITAL 2023 ANNUAL GENERAL MEETING ## ONLINE USER GUIDE TO THE DIGITAL ## 2023 ANNUAL GENERAL MEETING LUMI AGM PLATFORM GUIDE: BEFORE THE AGM | 1 Go to https://web.lumiagm.com/161- | | 2 To cast a proxy vote, select the voting | | 3 To vote, select your voting direction | | | --- | --- | --- | --- | --- | --- | | | 121-785. You will be prompted to enter | | button at the top of the screen. The | | from the options shown on screen. | | | your Shareholder Reference Number | | resolutions and voting choices will be | | Tochange your mind, simply select | | | (“SRN”) and PIN, both of which can be | | displayed within the navigation bar. | | adifferent option. | | | found on your Notice of Availability. If | | Further instructions on how to vote | | | Note: Proxy voting will close at 11am you do not have your SRN, please can be found on the Home Page and on Friday 30 June 2023. contact Equiniti by emailing hybrid. at the top of the voting page. help@equiniti.com quoting your full name and address. When successfully authenticated, shareholders will be taken to the Home Page. | 4 Scroll down the full list of resolutions | | 5 If you would like to change your mind, | | 6 During the proxy voting period, | | | --- | --- | --- | --- | --- | --- | | | and vote on each. Once completed, at | | you can do so by clicking “Edit | | shareholders can submit a question | | | the bottom of the page, select the | | Responses”. | | by typing it into the “Messaging” | | | “Submit” button to send your vote. | | | | feature. | 228 Marks and Spencer Group plc ONLINE USER GUIDE TO THE DIGITAL 2023 ANNUAL GENERAL MEETING LUMI AGM PLATFORM GUIDE: ON THE DAY | 7 The AGM will commence at 11am on | | 8 The meeting presentation will begin | | 9 When the Chairman declares the poll | | | --- | --- | --- | --- | --- | --- | | | Tuesday 4 July 2023. It can be | | at the start of the AGM, when the | | open, a list of all resolutions and | | | accessed through the same platform: | | Broadcast Panel will automatically | | voting choices will appear on your | | | https://web.lumiagm.com/161-121- | | appear at the side of the screen. You | | device. Scroll through the list to view | | | 785. You will be prompted to enter | | can expand and minimise the screen | | all resolutions. | | | your SRN and PIN, both of which can | | by pressing the Broadcast arrow at | | | | | be found on your Notice of | | the top of the page. | | | Availability. | 10 For each resolution, select the choice | | 11 You can vote for all resolutions at | | 12 If you would like to ask a question, | | | --- | --- | --- | --- | --- | --- | | | corresponding with the way in which | | thesame time by clicking on the | | select the messaging option in | | | you wish to vote. When selected, a | | “Vote All” direction button at the top | | thenavigation bar at the top of the | | | confirmation message will appear. | | of the page. You will still be able to | | page. Type your message within | | | Tochange your mind, simply press | | change your mind on individual | | thechat box at the top of the | | | the correct choice which will override | | resolutions if using this feature. | | messaging screen. Click the send | | | your previous selection. To cancel | | | | button to submit. | your vote, press “Cancel”. Annual Report & Financial Statements 2023 229 SHAREHOLDER INFORMATION ANALYSIS OF SHARE REGISTER Ordinary shares As at 1 April 2023, the Company had 131,726 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 will be higher than indicated below. Percentage of total Percentage of issued share Range of shareholding Number of shareholders shareholders Number of ordinary shares capital 1-500 70,177 53.28 13,024,822 0.67 501-1,000 24,308 18.45 18,103,922 0.92 1,001-2,000 19,008 14.43 27,108,515 1.38 2,001-5,000 12,970 9.85 39,498,233 2.01 5,001-10,000 3,335 2.53 22,845,033 1.16 10,001-100,000 1,493 1.13 31,833,429 1.62 100,001-1,000,000 271 0.21 108,122,110 5.50 1,000,001-Highest 164 0.12 1,704,397,867 86.74 Total 131,726 100 1,964,933,931 100 Percentage of total Percentage of issued share Category of shareholder Number of shareholders shareholders Number of ordinary shares capital Private 130,395 98.99 144,955,305 7. 38 Institutional and corporate 1,331 1.01 1,819,978,626 92.62 Total 131,726 100 1,964,933,931 100 USEFUL CONTACTS Marks and Spencer Group plc Registered Office Waterside House 35 North Wharf Road London W2 1NW Telephone +44 (0)20 7935 4422 Registered in England and Wales (no. 4256886) | General queries | Students | | --- | --- | | Customer queries: 0333 014 8555 | Please note, students are advised to source information from | | Shareholder queries: 0345 609 0810 | our website. | | Or email: | Additional documents | | chairman@marks-and-spencer.com | An interactive version of our Annual Report is available online | at corporate.marksandspencer.com. Registrar/shareholder queries Equiniti Limited, Aspect House, Additionally, the Annual Report (which contains the Strategic Spencer Road, Lancing, West Sussex Report) is available for download in pdf format at corporate. BN99 6DA, United Kingdom marksandspencer.com. Telephone +44 (0)345 609 0810. Please use the country code Nick Folland when contacting from outside the UK. General Counsel & Company Secretary Online: help.shareview.co.uk (from here, you will be able tosecurely email Equiniti with your enquiry). 2023/24 FINANCIAL CALENDAR AND KEY DATES 4 July 2023 Annual General Meeting (11am) 8 November 2023* Results, Half Year† 11 January 2024* Results, Quarter 3 Trading Update† † Those who have registered for electronic communication or news alerts at corporate.marksandspencer.com will receive notification by email when this is available. * Provisional dates. 230 Marks and Spencer Group plc SHAREHOLDER INFORMATION # SHAREHOLDER QUERIES The Company's share register is maintained by our Registrar, Equiniti. Shareholders with queries relating to their shareholding should contact Equiniti directly using one of the methods listed on page 230. For more general queries, shareholders should consult the Investors section of our corporate website. # MANAGING YOUR SHARES ONLINE Shareholders can manage their holdings online by registering with Shareview, a secure online platform provided by Equiniti. Registration is a straightforward process and allows shareholders to: - Sign up for electronic shareholder communications. - Receive trading updates and other electronic-only broadcasts by the Company via 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 communications as the Company has found this creates a more engaged shareholder base. The reduction in printing costs and paper usage also makes a valuable contribution to our Plan A commitments. To find out more information about the services offered by Shareview and to register, please visit shareview.co.uk. # DIVIDENDS The Board will not be making a final dividend payment for the 2022/23 financial year. # 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. # 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. You can find out more by visiting sharegift.org or by calling +44 20 7930 3737. # SHAREHOLDER SECURITY An increasing number of shareholders have been contacting us to report unsolicited and suspicious phone calls received from purported "brokers" who offer 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 offers 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, offers to buy shares at a discount, sell your shares at a premium or requests to complete confidentiality agreements with the callers. Remember, if it sounds too good to be true, it probably is! More detailed information and guidance is available on our corporate website. We also encourage shareholders to read the FCA's guidance on how to avoid scams at fca.org.uk/consumers/protect-yourself-scams. An overview of current common scams is available on the Action Fraud website actionfraud.police.uk. # AGM This year's AGM will be held at, and broadcast from, Waterside House on 4 July 2023. The meeting will start at 11am. The 2023 AGM will be fully digitally enabled once again and will be broadcast online from Waterside House. We strongly encourage shareholders to participate in the meeting electronically by accessing the AGM website, https://web.lumiagm.com/161-121-785. Further details can be found on page 227 of the Notice of Meeting and in the user guide on pages 228 to 229. The meeting will also be available to view online after the event at corporate.marksandspencer.com. M&S reserves the right to retain and use footage or stills for any purpose, including Annual Reports, marketing materials and other publications. Annual Report & Financial Statements 2023 231 INDEX | A Page | E Page | L Page | | --- | --- | --- | | Accounting policies 150 | Earnings per share 166 | Lease liabilities 183 | | Adjusting items 161 | Employees 167 | | | Appointment and retirement | Employees with disabilities 133 | N | | of directors 72, 130 | Equal opportunities 133 | | Nomination Committee Report 85-89 Audit and Risk Committee Report 92-98 ESG Committee Report 90-91 Auditor 99 P Auditor’s remuneration 160 F Principal risks and uncertainties 58 Auditor’s report 135-143 Finance income/costs 164 Profit and dividends 131 Annual General Meeting 218-229 Financial assets 181 Power to issue shares 131 Financial instruments 154, 184 Political donations 133 B Financial liabilities 183 Board 72-74 Financial review 35 R Borrowing facilities 183 Fixed charge cover 212 Risk management 56 Business model 08 Remuneration Policy 108 Business combination 201 G Remuneration Committee 100 Glossary of alternative Remuneration Report 116 C performancemeasures 213 Capital commitments 197 Going concern 133, 150 S Capital expenditure 40 Goodwill 176 Segmental information 158 Colleague involvement 133 Groceries Supply Code of Practice 133 Shareholder information 230 Conflicts of interest 131 Share capital 196, 210 Corporate governance 68 H Share schemes 173 Cost of sales 159 Hedging reserve 147 Significant agreements 130 Critical accounting judgements 156 Statement of cash flows 149 I Statement of comprehensive income 145 D Income statement 144 Statement of financial position 146 Deadlines for exercising voting rights 132 Intangible assets 176 Strategic priorities 12 Deferred tax 195 Interests in voting rights 132 Subsidiary undertakings 206 Depreciation 153, 178 International Financial Derivatives 184 Reporting Standards 150 T Diluted earnings per share 166, 167 Inventories 154 Taxation 164 Directors’ indemnities 131 Investment property 146 Total shareholder return 125 Directors’ interests 124 Trade and other payables 182 Directors’ responsibilities 134 K Trade and other receivables 181 Directors’ single figure Key performance Transfer of securities 131 of remuneration 116 indicators 15, 17, 18, 34 Disclosure of information to auditor 134 V Dividend cover 212 Dividend per share 34 Variation of rights 131 Viability statement 66 FINANCIAL STATEMENTS | Consolidated income statement 144 | 7 Income tax expense 164 | | 21 Financial instruments 184 | | | --- | --- | --- | --- | --- | | Consolidated statement | 8 Earnings per share 166 | | 22 Provisions 194 | | | of comprehensive income 145 | 9 Dividends 167 | | 23 Deferred tax 195 | | | Consolidated statement | 10 Employees 167 | | 24 Ordinary share capital 196 | | | of financial position 146 | 11 Retirement benefits 168 | | 25 Contingencies and commitments 197 | | | Consolidated statement | 12 Marks and Spencer | | 26 Analysis of cash flows given in | | | of changes in equity 147 | | Scottish Limited Partnership 173 | | the statement of cash flows 197 | | Consolidated cash flow statement 149 | 13 Share-based payments 173 | | 27 Analysis of net debt 198 | | | | 14 Intangible assets 176 | | 28 Related party transactions 199 | | | Note | 15 Property, plant and equipment 178 | | 29 Investments in joint ventures | | | | 16 Other financial assets 181 | | | and associates 200 | 1 Accounting policies 150 17 Trade and other receivables 181 30 Government support 201 2 Segmental information 158 18 Cash and cash equivalents 182 31 Business combination 201 3 Expense analysis 159 19 Trade and other payables 182 32 Contingent assets 202 4 Profit before taxation 160 20 Borrowings and other 33 Subsequent events 202 5 Adjusting items 161 financial liabilities 183 6 Finance income/costs 164 Company financial statements 203 Notes to the Company financial statements 205 Group financial record 211 232 Marks and Spencer Group plc This report is printed on Revive 100 offset, a 100% recycled paper made from post-consumer waste. Reviveis manufactured to the certified environmental management system ISO 14001. Printed at Pureprint Group, ISO 14001. FSC® certified and CarbonNeutral®. This report was printed using vegetable oil based inks byPureprint Group a CarbonNeutral® printer certified toISO 14001 environmental management system and registered to EMAS the Eco Management Audit Scheme. Both manufacturing mill and the printer are registered tothe Environmental Management System ISO4001 andare Forest Stewardship Council® (FSC®) chain of custody certified. Produced by Brunswick Creative www.brunswickgroup.com Marks and Spencer Group plc Annual Report & Financial Statements 2023