Marks & Spencer Group PLC

Marks and Spencer Group PLC 213800EJP14A79ZG1X44 2021-04-04 2022-04-02 213800EJP14A79ZG1X44 2020-03-29 2021-04-03 213800EJP14A79ZG1X44 2022-04-02 213800EJP14A79ZG1X44 2021-04-03 213800EJP14A79ZG1X44 2020-03-28 213800EJP14A79ZG1X44 2020-03-29 2021-04-03 ifrs-full:IssuedCapitalMember 213800EJP14A79ZG1X44 2020-03-29 2021-04-03 ifrs-full:SharePremiumMember 213800EJP14A79ZG1X44 2020-03-29 2021-04-03 ifrs-full:CapitalRedemptionReserveMember 213800EJP14A79ZG1X44 2020-03-29 2021-04-03 ifrs-full:ReserveOfCashFlowHedgesMember 213800EJP14A79ZG1X44 2020-03-29 2021-04-03 ifrs-full:ReserveOfChangeInValueOfForeignCurrencyBasisSpreadsMember 213800EJP14A79ZG1X44 2020-03-29 2021-04-03 ifrs-full:OtherReservesMember 213800EJP14A79ZG1X44 2020-03-29 2021-04-03 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 213800EJP14A79ZG1X44 2020-03-29 2021-04-03 ifrs-full:RetainedEarningsMember 213800EJP14A79ZG1X44 2020-03-29 2021-04-03 ifrs-full:EquityAttributableToOwnersOfParentMember 213800EJP14A79ZG1X44 2020-03-29 2021-04-03 ifrs-full:NoncontrollingInterestsMember 213800EJP14A79ZG1X44 2021-04-04 2022-04-02 ifrs-full:IssuedCapitalMember 213800EJP14A79ZG1X44 2021-04-04 2022-04-02 ifrs-full:SharePremiumMember 213800EJP14A79ZG1X44 2021-04-04 2022-04-02 ifrs-full:CapitalRedemptionReserveMember 213800EJP14A79ZG1X44 2021-04-04 2022-04-02 ifrs-full:ReserveOfCashFlowHedgesMember 213800EJP14A79ZG1X44 2021-04-04 2022-04-02 ifrs-full:ReserveOfChangeInValueOfForeignCurrencyBasisSpreadsMember 213800EJP14A79ZG1X44 2021-04-04 2022-04-02 ifrs-full:OtherReservesMember 213800EJP14A79ZG1X44 2021-04-04 2022-04-02 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 213800EJP14A79ZG1X44 2021-04-04 2022-04-02 ifrs-full:RetainedEarningsMember 213800EJP14A79ZG1X44 2021-04-04 2022-04-02 ifrs-full:EquityAttributableToOwnersOfParentMember 213800EJP14A79ZG1X44 2021-04-04 2022-04-02 ifrs-full:NoncontrollingInterestsMember 213800EJP14A79ZG1X44 2020-03-28 ifrs-full:IssuedCapitalMember 213800EJP14A79ZG1X44 2020-03-28 ifrs-full:SharePremiumMember 213800EJP14A79ZG1X44 2020-03-28 ifrs-full:CapitalRedemptionReserveMember 213800EJP14A79ZG1X44 2020-03-28 ifrs-full:ReserveOfCashFlowHedgesMember 213800EJP14A79ZG1X44 2020-03-28 ifrs-full:ReserveOfChangeInValueOfForeignCurrencyBasisSpreadsMember 213800EJP14A79ZG1X44 2020-03-28 ifrs-full:OtherReservesMember 213800EJP14A79ZG1X44 2020-03-28 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 213800EJP14A79ZG1X44 2020-03-28 ifrs-full:RetainedEarningsMember 213800EJP14A79ZG1X44 2020-03-28 ifrs-full:EquityAttributableToOwnersOfParentMember 213800EJP14A79ZG1X44 2020-03-28 ifrs-full:NoncontrollingInterestsMember 213800EJP14A79ZG1X44 2021-04-03 ifrs-full:IssuedCapitalMember 213800EJP14A79ZG1X44 2021-04-03 ifrs-full:SharePremiumMember 213800EJP14A79ZG1X44 2021-04-03 ifrs-full:CapitalRedemptionReserveMember 213800EJP14A79ZG1X44 2021-04-03 ifrs-full:ReserveOfCashFlowHedgesMember 213800EJP14A79ZG1X44 2021-04-03 ifrs-full:ReserveOfChangeInValueOfForeignCurrencyBasisSpreadsMember 213800EJP14A79ZG1X44 2021-04-03 ifrs-full:OtherReservesMember 213800EJP14A79ZG1X44 2021-04-03 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 213800EJP14A79ZG1X44 2021-04-03 ifrs-full:RetainedEarningsMember 213800EJP14A79ZG1X44 2021-04-03 ifrs-full:EquityAttributableToOwnersOfParentMember 213800EJP14A79ZG1X44 2021-04-03 ifrs-full:NoncontrollingInterestsMember 213800EJP14A79ZG1X44 2022-04-02 ifrs-full:SharePremiumMember 213800EJP14A79ZG1X44 2022-04-02 ifrs-full:CapitalRedemptionReserveMember 213800EJP14A79ZG1X44 2022-04-02 ifrs-full:ReserveOfCashFlowHedgesMember 213800EJP14A79ZG1X44 2022-04-02 ifrs-full:ReserveOfChangeInValueOfForeignCurrencyBasisSpreadsMember 213800EJP14A79ZG1X44 2022-04-02 ifrs-full:OtherReservesMember 213800EJP14A79ZG1X44 2022-04-02 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 213800EJP14A79ZG1X44 2022-04-02 ifrs-full:RetainedEarningsMember 213800EJP14A79ZG1X44 2022-04-02 ifrs-full:EquityAttributableToOwnersOfParentMember 213800EJP14A79ZG1X44 2022-04-02 ifrs-full:NoncontrollingInterestsMember 213800EJP14A79ZG1X44 2022-04-02 ifrs-full:IssuedCapitalMember iso4217:GBP iso4217:GBP xbrli:shares Mar ks an d Spe nce r Gro up pl c An nua l Rep or t & F in anci al St atement s 20 22 T h e n e x t ph a s e o f M & S ’ t ra ns f o rm a t i o n STRONGER TEAM , STRONGER BUSINESS, S TRO N GE R B AL ANC E SH E E T Shaping the FUTU RE Mar ks an d Spe nce r Gro up pl c An nua l Rep or t & F in anci al St atement s 20 22 FOOD p10 Ma rks a nd S pe nc er G ro up p lc M& S IS A LE AD ING BRIT ISH RE T A ILER , W I TH A UNI QUE HE RIT A GE A ND STR ONG BR AND V A L UE S. W e operat e a s a family of b usine sse s, selling high- qual it y , gr eat - v alue, o wn- brand products and services, alon gside a care ful l y selected range of t hird-par t y br ands. W e do this t hr ough a network of 1 ,48 7 st or es and 98 w ebsit es gl obally , and t ogeth er , acro ss our st ore s , support cent res, wareh ouse s and suppl y chain, our 6 5,0 0 0 c ol league s ser ve o ver 3 0 mill ion cu st omers each y ear . CL OTHING & HOME p16 PEO PLE & C UL TU RE p26 A T A G L A NC E INTERNA TIONAL p24 C o v e r Inside M&S St evenage, a stro ng e x am pl e of how we’ re modernising ou r sto re est ate to be f it fo r th e fu tu re. Annual Report & Financial Stat ements 2022 01 STR A TEG IC REPORT G r o u p ov er v iew Strateg ic repo rt 02 Cha ir ma n’s let ter 05 Chi ef E xec uti ve’s state me nt 07 Th e ne x t ph ase o f tra ns for mat io n 09 Busi nes s mo de l 26 Peo ple & c ul ture 30 Sus tainabil ity 3 1 Non-ﬁnancial infor mation st atement 3 2 Engagement & dec ision-making 35 Key pe r for m ance i nd ic ators 36 Fi na nci al rev iew 45 Ris k ma na ge me nt 4 7 Pr inc ip al r isk s and u nce r ta in ties G over na nc e 56 Cha ir ma n’s gover na nce ove r v iew 58 Lea de rsh ip an d over sigh t 5 9 B oa rd comp osit ion a nd meeting attendance 60 Ou r Bo ard 63 Bo ard ac ti vi tie s 65 Bo ard revi ew 66 Nominat ion Comm ittee report 7 0 ESG Co mm it tee re po r t 7 8 Audit Committee r epor t 85 Remunerati on ov er view 89 Rem un er atio n in co ntex t 9 1 Su mm ar y o f Rem un er atio n Pol i cy 95 Remuneration repor t 1 08 Othe r disclosures 1 1 3 Independent audit or’s report Financia l statemen ts 1 2 4 Consolidat ed ﬁnancial stat ements 1 30 Notes to t he ﬁnancial stat ements 1 83 Company ﬁnancial statements 1 85 Notes to the C om pa ny ﬁnancial sta temen ts 1 90 G rou p ﬁn an cia l reco rd 19 2 G l o s s a r y 1 9 8 Not ice o f An nua l General Meeting 2 1 0 Shareholder informat ion 1 2 1 2 Index 1. Shareholder information forms part of the Director s’ Report. Alternative per fo rmance measures The report pr ovides alt ernative performance me asur es (“ APMs”) which are n ot d ef in ed o r sp ec if i ed u nd er th e requirem ents of UK-adopted Intern ationa l Acc ounting Standards. We believe these APM s prov id e rea de rs w it h im po r ta nt additional inf ormation on our busine ss. We have i ncl ud ed ag lo ss ar y o n pa ge s 1 92 to 1 9 7 wh ic h prov id es a com pre he ns ive l is t of th e AP Ms th at we us e, i ncl ud in g an e x pl a na tio n of h ow th ey are c al cu l ated , w hy we u se th em an d how t hey c a n be re con ci led to a statut or y mea sure where r elevan t. G roup p rof it b ef ore t ax £ 3 91 . 7 m Group r ev enue £10 . 9 b n Perc ent ag e of UK Cl oth in g & Ho me sa les o nl in e 34% ( 1 9/2 0 : +48 2.9%) (19 / 2 0 : + 6 . 9 % ) (19 / 2 0 : 2 3 % ) APM Adjusted earnings per shar e 21 . 7 p (1 9/20 : +29.9% ) Sto res: N et p rom ote r sco re 1 + 81 ( 2 0 / 21: 81) Y ear -on -ye ar comp arison Th e im p ac t of C ovi d-1 9 in 2020/2 1 r en de rs co mp ar iso ns to th e p ri or ye ar l ess m ea ni ng f ul . T o a id u nd e rst an di ng , t hro ug ho ut th is d oc um en t we are s how in g th e 52 week s to 28 Marc h 2020 as the co m pa ra tiv e pe ri od , u nl ess s ta ted ot he r wi se. Ne t pro mote r sco re Th is ye ar w e l au nc he d a new Voi ce of th e Cus tom er p rog r am me , in clu d ing N et P rom oter Sco res (N PS), w hi ch es ta bl is he d a new m ea su rem ent f r am ewo rk . Th is in cl ud es sev er al n ew me asu res , in cl ud in g a M&S G ro up N PS m etr ic , w hi ch fo r th e f irs t ti me p rovi de s a tota l vi ew of o ur cu sto me rs an d a ne w Di gi ta l NP S met ri c , wh ich t ra ck s cu stom er s ent im en t acro ss M& S. com a nd o ur a pp . We wil l co nti nu e to be nc hm ar k ou r pe r fo r ma nce a ga in st th e n ew framework in futur e reports. APM APM G roup p rof it b ef ore t ax a nd adjusting items £ 522 . 9 m Bas ic ea rni ngs p er s har e 15 . 7 p (1 9/20 : +29.7%) (19 / 2 0 : 1 . 3 p) G roup : Net p ro mote r sco re 1 +2 9 (n ew m e tr i c) APM Net debt excluding lease liabilities £ 42 0 m (1 9/20 : -7 1. 2%) Dig it al : N et pr omo ter s core 1 +5 No d ivi de nd pa id f or 2 1 /22 (n ew m e tr i c) Al l ref ere n ces to s al es , a ne w APM , t hro ug ho u t thi s do cu me nt a re st at uto r y rev en ue p lu s th e gro ss v al ue of co ns ig nm en t sa le s exc lu di ng VAT . Ma rks a nd S pe nc er G ro up p lc 02 L o o k B e h i n d t h e L a b e l C HAIRMAN ’ S LE T TE R Dear s hareholder , Marks and Spenc er ends the 2 02 2 fin ancial yea r at an i nf lec ti on p oi nt in i ts hi stor y. Not o nly h ave we em erge d f rom th e pa nd em ic a stro ng er b usin ess , b ut we a re al so a t the e nd of t he “ fi x ing t he b asic s” ph ase of o ur t ra nsfo rm ati on . A nd we have a ve r y d yn am ic new l ead er shi p team t ak in g over f rom Steve Rowe , our longstanding Chief Executive. Th ei r ma nd ate is now to resh ap e M&S as a gro w th bus iness capable of exploit ing the p ower o f ou r glo ba l br an d. I wa nt to be cl ear t hat o n do in g so we are not d ecl ar ing v ic tor y . W hi l st we c a n now see m ore th an g l im pses o f the p otenti al in b oth Clo thi ng & H ome a nd F oo d , the re are m any as pec t s of bo th ma in business es t hat r equire impr ovement, bu t the s tra tegy i s now cl ear, and ou r resul ts th is yea r have e xceed ed mos t ex pe c tati ons . Steve Rowe , in h is rem ar ka bl e tenu re as Ch ief E xe cut ive gr asp ed m any of t he n et tles a nd address ed the underlying drift of pre v ious decades. The change in leader ship is not l i kely to her ald a c ha ng e of di rec ti on bu t rat he r a sign if i ca nt acce ler ati on an d a bo lde r ap pro ach to inves tme nt an d g row th . Howeve r , wi th M& S , l ife i s neve r pl a in sa il in g. O n top of t he tr an sfo rm atio n prog r am me , the l a st fo ur yea rs h ave see n the b usi nes ses bu f fe ted by a ser ie s of external shocks, Br exit , t he pandemic, an d the i nvas ion o f Uk ra in e. We li ve in an era o f h yper -ac tive government an d ex pe ct i nc reases i n ta x on p rof it s an d em ploy me nt thi s yea r , a lon gsi de new regulat or y pr ess ures notably on foo d conten t and s tore l ayou t. I n the ne x t eig ht m onth s we ex pe c t the str ongest r educ tion in c onsumer real i nco me fo r de ca des . Th e test of t he qu al i t y of a bu sin ess is n ot whether it enc ount ers st orms, but how resil ie nt i t is to rid e the m ou t. O f cou rse , a dr am ati c redu c tio n in rea l in come w il l im pa ct o ur p rof it s. Bu t w ith th e ch ang es we have m ad e, M &S is i n mu ch stro ng er sha pe a nd we s ta r t f rom a ri sin g tren d in s ale s. We have move d to a fa ster, less hierarchical, more commer cial org an isa tio n and c ult ure. We are m ore digital and geared t o an omni-channel fu tu re, w ith Cl othi ng & H om e on li ne s al es pe netr ati on d ou ble t hat at t he o uts et of ou r tra ns for mat ion a nd t he O ca do jo int vent ure wel l p ositi on ed fo r grow t h. WE HA VE A VE R Y D YNAM IC NE W LE AD ERS HI P TE AM T AKIN G O VE R FROM STE VE RO WE , OUR LONGST AN DING CHIEF EXECUTI VE . T HE IR MAND A TE IS NOW T O R E SHAPE M&S AS A G ROW TH BUSINESS CAP ABLE OF E XPL OITING THE POWE R OF OUR G LOBAL BR AN D. Archie Norman, Chairman ‘‘ ’’ STR A TEG IC REPORT As p a r t of o ur Pl an A res et in Sept ember , we relaunched the iconic Look Behind the L abel campaign , in viting c ustomers to f in d ou t mo re ab ou t th e ac ti on M& S is ta k in g to do r ig ht by the planet. Alongside this, c ustomers wer e en cou ra ge d to vi sit o ur n ew h ub thr ough social channels , wher e we set o ut e ver yday a c tio ns cus tom er s ca n ta ke to he l p reduc e the ir carbon f ootprint. Annual Report & Financial Stat ements 2022 03 STR A TEG IC REPORT Ou r inte rn atio na l f ra nch ises a re in g oo d sha pe a nd we a re ra pi dly grow in g ou r “glo ba l ” on l ine b usi nes s. B oth ou r ma in U K bus ine sses h ave ach ieve d ma rket s ha re grow th i n rece nt mo nths a nd a re wel l pl a ced o n va lu e. We have stron g new s tore for m ats an d a go od pi pe l in e of store rel oc ati ons an d rebu ild s. O ur b al ance s hee t is commer cially str onger than a t an y rece nt ti me . So , our a pp roa ch to the l i kely consu me r reces sion w il l b e unw aver ing . O ur a mb iti on is to be come a g row th b usin ess . M& S wa s fou nd ed i n 1 884 an d we are s tri v ing to bu ild a g reat b usin ess fo r th e ne x t 1 0 0 ye ars . We ex pe ct to in crea se ou r inv estment i n digital, tec hnology and the s tore est ate in th e yea r ahe ad . Fo r tha t reaso n an d be ca use o f the macroec onomic uncertainty, we are reser vi ng ou r po siti on o n fu tu re div id en d pay me nts . Th ere w il l com e a tim e to review t he retu rn o f ca pi ta l for sha reh old er s, b ut i t is no t now. I be li eve th at th e role of t he Bo ard i n a tr ans for ma tio n is not j ust to over see g oo d gove rn an ce. It is to b e the g ua rdi an of t he str ateg y an d va lu es of th e busi nes s , an d the d eb ati ng p ar t ner o f the e xecu ti ve, a nd to be ava il a bl e to provid e im pa r ti al a dv ice to accele ra te the tr an sfor m atio n. A go od B oa rd is an e ng ag ed Bo ard . In th e l as t year w it h the p an de mic , t he succes sion o f lea de rsh ip a nd oth er issu es , we have h ad a s ta ble tea m , rob ust dis cus sion a nd g reat e ng ag em ent . Th is yea r , An dy H al fo rd, w ho h as now se r ve d nin e yea rs , wi ll h an d over Cha ir ma nsh ip o f the Au di t Com mi t tee to Evelyn Bo ur ke an d we ex pe c t to ap po int a su ccesso r to his rol e as Senior Independent Director ( SID ). Mos t im po r ta ntly, Steve Rowe is leav in g us af ter spe nd in g al mo st al l hi s ca ree r at M& S , st ar ti ng o n the s ho p flo or a nd ris ing to Ch ief E xe cut ive , lea di ng th e bus ine ss th roug h the l ast si x yea rs. He h as b een h ea r t an d sou l M& S an d go es wi th th e tha nk s an d af f ec tio n of ever yone i n the b usi nes s. H e ha s hel p ed us p l an th e succes sio n to Stua r t M ach in as Chi ef E xec uti ve an d K atie B icke rst af f e as Co - Ch ief E xe cu tive a lon gsi de Eoi n T o ng e as G rou p CFO & Ch ief S tra tegy O f f i cer . Th ey rep resen t a ver y s tron g an d bal anced team with the experience an d ene rgy to d ri ve the n ex t p ha se of cha ng e – “sh ap in g the f ut ure”. Fi na lly, M&S i s a uni qu e em ploye e br an d an d the p ri nci pl es of eq u al resp ec t , en ga ge me nt an d ca re of ou r col lea gu es ru n de ep i n ou r his tor y. This y ear h as b ee n a testi ng on e for e ver yo ne . Nex t year w il l be d if f ere nt bu t al so c ha lle ng in g. We are de ep ly gr atefu l to al l ou r coll ea gu es for the ir com mi tm ent , loy alt y a nd h ard wo rk . Arc hie N or man Ch airm an T H IN K IN G F o rw a rd B o o s t i n g o u r d i g i t a l & d a t a s k i l ls T o co nsist ently del iver g reat p rodu c ts and s er vi ces to our c usto me rs , we nee d to be fo r ward t hin kin g and data driven. Hav in g th e ri gh t sk il l s , ca pa bi l it ies a nd c ul ture ac ross t he b usi nes s to ha rn es s the i ns ig hts we ge ne ra te isn’ t ju st a ni ce -to - hav e – it ’s a ne cess it y for o u r tra ns fo rm ati on . W hi ch is w hy we’ ve be en inve sti ng i n th e sk il l s of o ur tea ms , w it h over 1,0 0 0 col le ag ue s fro m ac ross t he b usi ne ss h avi ng b ee n up sk il le d thro ug h o ur d at a sk il l s pa thw ay, whi ch we l au n che d in 201 8 wi th ret ai l ’s fi rst e ver d at a ac ad e my in p ar t ne rsh ip w it h De cod ed . Today we ha ve fou r se pa r ate str eam s , in clu di ng o ur most recen tly l aunched L 7 Data Science & AI apprentic eship, all equipping our t eams with the too l s an d sk il l s th ey ne ed to s tay o ne s tep a hea d of o ur cu sto me rs . We wan t to est ab l ish o ur rep ut ati on a s a da ta l ed o rga ni sa tio n – an d th ese pro gr am m es are a b ig p ar t of ho w we’re do in g th at . 1 , 000+ Number of colleag ues upski lled th rou gh ou r dat a ac ad em ies Ma rks a nd S pe nc er G ro up p lc 04 STR A TEG IC REPORT C OMPLE TIO N OF TH E FIRS T PHASE OF TR ANSF ORMA TION Food M& S Fo od i s now th e top - p er f or mi ng UK fo od b us in ess i n th e sec to r ba sed on l i ke- fo r - li ke s ale s over 1 2 m on ths , dr iv en by re cord q ua l it y a nd i mp rove d value per cepti on. Faster online fulﬁlment Castle Donington s truggled to cop e wi th d em an d an d fulfil ment s peeds lagged th e ma rke t, b ut o ut pu ts have n ow d ou bl ed a nd de l ive r y se r v ice a nd s pe ed s are competit ive again. Taking M&S Food online Fo ur ye ar s ag o, M &S F oo d ha d no o nl i ne capabil ity, but our 50% investment in Oc a do Re ta il in 201 9 ha s ta ken o ur f ul l foo d r an ge o nl i ne fo r th e f ir st ti me . Clothing & Home Cus tom er s told u s clot hi ng h ad b eco me co nf us in g to sho p an d grow in g o pti on cou nt s wer e lea di ng to lo wer r ates o f sa le . Op tio ns h ave n ow be en re du ce d by 20% , a nd we ’ve b ac ked ou r be sts el l in g l in es an d im pro ved s t yl e cred e nti al s to d el iv er grow th in key c ate go r ies . Brand appeal Ou r br a nd p erce pti on w as weakening, and customers questioned the rele vance of M &S , b ut o ur ef for ts to bro ad en t he a pp ea l of ou r ra ng es h as res ul ted i n impro vements on almost all cust omer metrics. Growing M&S.com We have n ea rly d ou bl ed o ur C loth in g & Ho me o nl i ne p en etr at io n fro m 1 8% to 34% an d dr iv en a fo cu s on M &S a pp dow n loa ds to re ach 4 m us er s. Th e n asce nt ‘ Br a nd s at M& S ’ of f er h as b ee n established, giving cust omers mor e r easons to vis it M &S .co m. Trusted value In 201 8, c . 30% o f Fo od an d c. 35% of Clo thi ng & Ho me s tock w as s ol d at disc ount, eroding customer trust. T oday, thi s ha s red uce d to c .15% a n d c .18 % res pectively , rebuilding be l ief t ha t the f i rst p r ice is th e ri gh t pr ice . Digital-ﬁrst loyalty In 2020 Sp ar k s rel a un ch ed as a d ig it al- f irs t loy al t y sch em e – an d h as do ub le d cust omer numbers in le ss th an t wo ye ar s to over 1 5 million members. F i x i n g t h e b a s i c s Tackling our legacy store estate Ou r le ga c y store b as e wa s ag ei ng , w it h no tr ac k reco rd of cl osu res or a d apt ati on to h ow ou r cus tom er s wa nt to sh op to day. We now hav e a programme of st ore ro tation under way to crea te a store e st ate f it fo r th e fu tu re. A family of accountable businesses Th e slo w an d hi er arc ha l corporat e structur e has be en re str uc t ure d in to a family of ac countable businesse s, with l eaders wh o are c los e to the fro nt l i ne a nd m ake decisions base d on in sig ht a nd d ata . Fo ur yea rs a go , in a pres ent atio n en titl ed “ Fac in g the Fac t s” , w e set ou t why c han ge w as n ee de d at M&S to a rres t de cl ine . Ou r resul ts th is yea r de mo nst rate th e ex te nt of ch an ge d el iv ered . AL L/ P1 0/ 18 24 46 MS15958~182446_FOO_1000x1500.indd 1 MS15958~182446_FOO_1000x1500.indd 1 14/12/2021 07:54 14/12/2021 07:54 Simplified our clothing range by c . 20 % Store renewal s 40 Sparks customers 15 m #1 Alt ho ug h we h ave ma ter ia lly changed our digital foot print, some of o ur core techn ology systems need in vestment. Most notably in Clo thi ng & H om e, w h ere r an ge planning and supply chain tracking ca n b e sig ni f ic an tly im pro ved to dr iv e mo re ef f i cie nt tr a di ng . #2 Ou r supply chains require fur ther inv estmen t, with the opportunity in C loth in g & Ho me to re du ce single picking, improv e capacity, red uce co st s an d im prove s tore op er at io ns as a re sul t. I n Fo od w e need impr oved operations with Gi st a nd to i nvest i n an d resh a pe the ne twork. #3 Th e full - line store estate r emains aged c ompared t o compe tition, and th ere is m uc h sti l l to do. C loth in g & Ho me s tore s al es are r u nn in g mo re th an 25% bel ow fo ur ye ar s ag o, yet w e have h a d les s tha n a 10% redu c ti on i n space since then. The imperativ e t o red uce s pa ce an d rot ate to new er be tte r sto res rem ai ns . Nonethele ss, ther e rem ai ns m uc h to do as we em b ar k on o ur n ew “shapi ng the future” stage , an d three impor tant infrastructure challenges remain whi ch c an s ti ll im pa c t th e pa ce of change and reco very : STR A TEG IC REPORT C HI E F E XEC U TIVE ’ S S T A TE ME NT STR ONG PERFO RMAN CE DELIV ERED B Y A MORE RESILIENT M&S A str ong all-round performance c ombine d wi th th e be nef it s of th e tr ans for ma tio n delivered an e ncouraging per formance acros s M& S. P rof it b efore t ax a nd a dju sti ng item s for th e pe ri od w as £52 2 .9m (2 0 1 9/20: £ 403. 1 m). Statu tor y p rof it b efo re ta x was £39 1. 7 m (2 0 1 9/20 : £ 67 .2m ). T he recove r y of prof i t comb in ed w ith a fo cus o n wor k in g capital and tight ly con tr olled capital expenditur e generat ed substan tial fr ee ca sh f low an d a sha r p redu c tio n in net d ebt . Resu lt s inc lud ed £59.8m o f UK b usin ess r ates rel i ef an d a net r ates cha rge o f £ 1 39. 7 m in th e pe ri od . M& S Foo d now a hi gh - pe r for mi ng bus in ess w ith m arket s ha re grow t h M&S F oo d de l ive red s ales g row th o f 1 0 . 1 % . Combined with an impro v ing mar g in mix in H2 an d the b en ef it s of th e “ lower in g co st” pr ogramme, th is s upported a strong increa se in operating pr ofit befor e adjusting items. W e were encouraged by the co re sa les p er fo rm an ce an d the resil ie nce o f l arg er b asket si zes, eve n as we saw a g ra du al re cover y i n the f r an chi se trav el and ho spitalit y bus inesses in H2 . Valu e and q u al it y p ercep tio n ind ic ator s are rob ust . T he st reng th of p er for ma nce in n ew cha nn el s (Oc ad o an d Cost a Cof fee) reinf o rc es our belief in the long-term pote ntia l to grow the b usi nes s. Ocado Retail transitioning to strong capa city gro w th po st pandemic re versi on As e xp ec ted , O c ad o Reta il s aw a no rm al is atio n of b asket si zes an d the sha pe o f tr ade , resu ltin g in a 4% d ecl i ne in reve nue a nd a re du ced con tri bu tio n to Grou p resu lts af ter exce ptio na l costs in clu din g th e Eri th f ire . At the s am e tim e, we ar e inve sting in new capacity despite the b ac kdrop of w el l-u nd er stood i nd ust r y co st pr essur es, demons trati ng our conf i den ce in O c ado R eta il . T hi s has t he pote ntia l to grow the b usi nes s by over 50% w he n fu l ly ram pe d up . Wi th th e M&S b r and co nsis tently ove r 25 % o f the aver ag e Oc ad o ba sket , we be li eve th ere is substan tial further syner gy pot ential for the two businesse s to exploit. Clot hi ng & Ho me o n tra ck f or a mo re pro fi tab le m od el c apa bl e of grow th Clot hin g & Ho me d el iv ered 3 .8% s ale s grow th , d ri ven by o nl i ne s ales . We shi f ted to trus ted v alu e, re du cin g opt ion co unt by c. 20% ove r thre e yea rs , wh ich resu lted i n go od g row th in co re cate go ri es an d a red uc tio n of sto ck into s ale . Op er ati ng profit bef o re adjusting it ems grew str ongly , re flecting t he impr oved full-price mi x . MS2 m ade m ul tip le i mp roveme nts to the on l in e of f er an d se r vi ce, w ith arou nd 1 1 % of o rder s fu l fi l led f rom s tore. We have succes sf ul ly grown t he S pa rk s programme to 1 5m members and app use rs to over 4 m, a nd h ave be gu n to personalise c ust omer experience . The nas cent b ra nd s pl at fo rm n ow ha s arou nd 40 cl othi ng b ra nd p ar tne rshi ps , ow n or inve sted brands. WHA T I S IMP OR T ANT A BOUT TH ES E RE SUL TS IS NOT JUS T TH E RE STOR A T ION OF PROFIT A ND S TRONG C ASH FLOW , IT IS THA T THE Y DE MO NS TR A T E M&S HAS FUND AME NT ALL Y CHANGE D . Steve Rowe, Chief Executive ‘‘ ’’ Annual Report & Financial Stat ements 2022 05 U k ra i n e r e s p o ns e : T h a n k y o u t o o u r c u s t o m e r s a n d c o l le a g u e s From th e ou tset o f the i nva sio n, o ur p ri or it y w as to ac t wi th p ace an d prov id e me ani ng fu l sup po r t to the p eo pl e of Uk r ai ne. We move d qu ick ly to get be hi nd U NICE F UK’s Ukr aine Appeal with a corporat e donat ion and pledged t o double donations from cus tome rs wh o se lec ted U NI CEF UK as t he ir Sp a rk s cha ri t y . Howe ver, in respo nse to the es ca l ati ng h um an ita ri an c ris is , we an nou nce d a fu r th er £ 1 . 5m su pp or t p ac ka ge ; in clu din g a k ick sta r t d on atio n of £50 0 ,0 0 0 to UNHC R , th e UN Ref u ge e Age nc y, an d 1 2, 0 0 0 i tems of w in ter cloth in g – to be di str ib uted to tho se in n ee d. We mad e it p ossi ble f or col le ag ues a nd cu stom ers to show their suppor t t oo, activating giving a t till-points an d on M& S .com , a llo c atin g £50 0 ,0 0 0 to ma tch colleague fundr aising and doubl ing Sparks donation s on a n on goi ng b asis . Acros s the e nti re M&S Fa mi ly , the res po nse h as be en i nc redi bl e wi th £ 1. 7m don ated by cus tome rs , ma de p ossi ble t hrou gh t il l-p oi nt an d M&S.c om donat ions for UN ICEF UK on an ongoing ba sis , as wel l as ove r £ 1 1 5k ra ise d thro ug h coll eag u e fu nd ra isi ng eve nts a cross sto res an d sup po r t cent res. Ma rks a nd S pe nc er G ro up p lc 06 Re a d a b o u t o u r s t ra t e g i c p ri o ri t i e s i n t h e fo l l o w i n g c h a p t e rs Building store rotation pipeline driving exit fr om legacy store s W e are now dev eloping a gro wing pipeline of store re loc ati ons , m ovi ng to mo de rn wel l- loc ated si tes, i n th e renew a l for mat wi th om ni - ch an nel c a pa bi li t y . We aim to fu nd t he ex it cos ts of t he le ga cy e sta te thro ug h an in crea sin gly ac ti ve as set management and disposal pr ogramme. We have a pip el i ne of c . 1 5 new f ul l- li ne stores ove r the n ex t t hree ye ar s and c. 40 n ew Fo od s tores , ma ny in th e l arg er rene wal format with click -and- collect ser vi ces for Cl othi ng & H om e. T he 1 0 new stores o pe ne d l ast ye ar tr ad ed 1 1 % ah ea d of s ales p l a n and a re on tr a ck to gen er ate a pay ba ck of t he ne t ca pi tal i nveste d in jus t 1 . 5 year s. N ew store p er f or ma nce gives us encouragement wherev er pos sib le to accel er ate rotati on . Internat ional abso rbing Brex it-rel ated cost s , bu t em erg in g glo bal strategy e ncour aging The Int ernational busine ss, t ogether with our partners, generated 4% r etail sal es grow th . T hi s inc lud ed a s ol id p er f or ma nce in th e Mi dd le E ast a nd o nl in e reta il sa les m ore th an d ou bl in g to over £250m thro ug h grow th i n ma rket s wi th a store prese nce a nd g lob al p l at fo rm s. O pe rat ing prof i t befo re ad just ing i tems ref l ec ted th e com bin ed ef fec t s of EU bo rde r costs a nd ta ri f f s of £29.6m a nd an e stim ated t ra di ng im pa ct i n th e regi on of £1 5m . W hil e we have p rovid ed fo r th e £3 1 m cost of f u lly exiting Ru ssia and business disruption in U kr ai ne , an d wil l i ncu r a loss o f cont ribution, we ar e also exploring multipl e opportunitie s f or further gr owth, including t hrough t he Reliance joint vent ure in Indi a. Ex tending and expressing our sustainability lead Du ri ng th e yea r we reset Pl an A wi th a sin gu l ar fo cus o n cu tt ing o ur c ar b on foot pr int by o ne th ird by 2025 and be comi ng a f ul ly ne t zero bus ine ss by 204 0. A s an ow n -b r and ret ai le r , M &S is ve r y wel l po siti on ed to wor k wi th it s sup pl ie r pa r tn ers to f in d bet ter w ays of d oi ng thing s. W e dev eloped a multi-s takeho lder plan spanning c ust omers, c olleagues and sup pl ie rs to de l ive r on th is ta rget . We al so ag reed a n ew £850m revolv in g cred it f aci l it y l in ked to the d el i ver y o f the n et zero roa d m ap . A st ron ge r M&S Wh en I too k over th e rei ns at M &S si x year s ag o, I com mi t ted to tac kle t he u nde r lyin g issu es th at ha d ero de d the s tren gth of the b usi nes s and b ui ld th e fou nd atio ns fo r future growth. For me, what is important ab ou t thes e resul ts is n ot jus t the restor ati on of p rof it a nd st rong c ash f low ; it is t hat th ey de mo nst rate th at M &S ha s fu nd am en tal ly ch an ge d. W hi le th ere is mu ch mo re to do, th e bu sin ess h as move d beyo nd p rovin g it s relev an ce an d has t he opportunity for s ubstantial f utur e gr ow th. It h as be en my p ri vi leg e to be th e stew ard an d sho pke ep er of th is f an tas tic b usi ness an d ex tr ao rdi na r y br a nd at su ch an im po r ta nt st ag e in i ts hi stor y. Th e cha ng es we have d el i vered a re dow n to the com mit me nt an d ha rd wor k of col lea gu es acros s the b usi nes s an d I am d el ig hted to ha nd th e bato n on to Stu ar t , K ati e an d Eoi n to lead th e ne x t ph ase . Steve Rowe Ch ief E xecutive C HIEF E XE C UT IV E’S ST A TEM ENT C ONTINUED STR A TEG IC REPORT M&S F OOD high- per forming busine ss and marke t shar e g row th p1 0 OCADO transit ioning t o str ong c apacity grow th post pandemic r ev ersion p15 CLOTH IN G & HOM E on track for a more profi table model capable of growth p16 Building S TOR E R O TAT I O N pipeline, dri ving e xit f rom legacy st ores p22 INTERNA TIONAL absorbing Br exit re l ate d cos t s , but embr yonic global s trat egy encouraging p24 Annual Report & Financial Stat ements 2022 07 STR A TEG IC REPORT As we e nter t he ne x t p has e of the transformation, w e maintain our ambition to create a bu sin ess c ap ab le of sust ai na ble g row th i n sa les , ma r ket sha re and pr ofit. With impro ved profitability an d ca sh conver sio n , and f i na nci al n et de bt un de r a thi rd of 20 1 9/20 level s , th e bus ine ss is resi l ien t to the ma croe con om ic headwinds while ha v ing flexibility to inv est in our transformat ion priorit ies. MA CROE CONOMIC HE AD WINDS IMP ACT ON P ERFORMANCE AND EXPECT A TIONS Th ere is s ubs tan tia l inf l a tio n in bo th cost of g oo ds so ld an d op er ati ng cost s including fuel, power , building m at erial s an d ma inten an ce. Fo od cos t inf l at ion i s be ing d ri ven n ot ju st by gl ob al su pp ly issu es bu t al s o l ab ou r sho r ta ge s, b ord er- an d custo ms- rel ate d costs , a nd in s om e ca ses red uc ti on i n UK c ap ac it y by growe rs an d prod uce rs. I n Clo thi ng & Ho me , f ac tor y cos t pr ices , tr ans po r t an d fre ig ht costs , com bi ne d wi th cont inu ed sup ply is sues i n Ch ina , a re dr iv in g sim il ar p ress ures . Conseq uently , customers’ spendi ng ca pa ci t y is un de r pres sure. We ex pe c t thes e pres sures to in crea se as th e yea r progr esses. We are ther efore pl anning for a n ad ver se im pa c t on vol um es du e to pri ce inf l at ion , sl owi ng th e ra te of sa l es g row th . L ATE ST U PDATE AN D G UI DAN CE FO R 2 022/23 Ove ra ll t ra di ng in t he f ir st si x wee ks of the f i na nci al ye ar h as be en a he ad of t he comparable p eriods in 2 02 1 /2 2, including the p er io d fro m Ap ri l 1 2 , 202 1 w he n no n- es sen tia l reta il reo pe ne d , wi th a pa r tic ul a rly s trong p er for ma nce i n Clot hin g & Ho me a nd g row th in th e tota l Food busine ss c ontinuing to ou tperform the o verall market. While enc ouraging , w e expect the impact of de cl in in g real i nco mes to sh ar pe n in the s econ d ha lf a nd e nd ure fo r at lea st the r emainder of the f inancial ye ar . There is no c ur rent si gn of i nf l ati on a bat ing , al tho ug h we be li eve th e rate of cos t grow th w il l su bsid e by the t hi rd qua r ter. Howeve r , we be l ieve th at ou r ma rket positi oning and bus iness st rategy will help us mi tig ate th e ef fe c ts as: – O ur st rong er v al ue p ercep tio n in bo th bus ine sses w il l prov id e protec ti on f rom cust omer downtrading; – Our large s hare in ‘for t onight’ shopping in Food pro vides re silience compared wi th th e core gro cer y m ar ket; – A s trave l , l eisu re event s an d wed di ngs retur n , we ex p ec t to see a rev iv al of t he de ma nd th at rece de d in th e pa st cou pl e of years; – So me o f ou r custo mer s , wh ile n ot im mu ne to the p ressu re, h ave a de gree of cus hio n f rom th e hig he r sav in gs r atio rec orded during the pandemic; – T he e xp er ie nce of th e pa st t wo yea rs has i l lus trate d the e ar ni ngs b al ance prov ide d by bo th Fo od a nd Clo thi ng & Home and t rading thr ough st ores, online and int ernational channels. In a ddi tio n , we are t ak in g spe ci fi c step s to support performance in t his en vironment an d of f set i nf l atio n . In Clo thi ng & H ome we are t ak in g a mo re fl ex ibl e ap pro ach to trading an d curr ently re tain a substan tial prop or tio n of op en to bu y fo r H2. W e are al so s ta r tin g to deve lop th e str ateg ic supplier pr ogramme. W e expect further be nef i ts f rom th e ‘ lower in g cost ’ programme in Food and ar e c ontinuing to dri ve di gi ta l-l ed ef fi cie nci es in stores a nd si mp li f y w ays of wo rk in g in s upport cent res. Th is yea r th e busi nes s wi ll n ot rece ive bus ine ss r ates rel ief a nd I nter nati on al w il l not hav e the profit c ontribution f r om Rus sia . A s we invest i n c ap aci t y grow th at Oc a do Ret ai l , we a ntici pa te a min im al contr ib uti on o f sha re of net i nco me to grou p resu lts . Con seq ue ntly, we sta r t 202 2/23 f rom a lowe r adj usted p rof it ba se. T he b usin ess i s now mu ch b et ter positi oned and had an encouraging star t to the yea r . H owever, give n the i nc reasi ng co st pr essur es a nd c onsumer unc er tainty , we do n ot cu rren tly ex pe c t to progres s fro m thi s lower p rof it b ase i n 202 2/23. IN CR E A SI NG T H E P ACE O F CHA N GE AN D I NV ES T I NG I N G ROW T H Despit e the near -term challenges, t he bus ine ss is b et ter set u p bot h fi na nc ia lly and opera tionall y for the medium-t er m. The c ombined opportunities to bo th im prove th e inf r astr uc tu re an d inves t in grow th m ea n tha t we ex pe c t to contin ue to incre ase o ur i nvestm ent r ate, a l be it sub jec t to ca ref ul as ses sme nt an d even stricter f inancial dis cipline given he igh tene d un cer t ai nt y . As a re sult , a nd taking int o acc ount inflationar y pr essur es, we an ticipat e capital expenditure will in creas e to aroun d £ 40 0m i n the co mi ng yea r ( 202 1 /22 £30 0 . 2m exclud in g pro pe r t y acqui sition s and disposals ). The are as of focu s an d op po r tu nit y a re as fo llow s: – T e ch no log y inves tme nt to dr ive th e digital t ransformat ion of M&S and syst ems impr ovement to support more res ponsive trading. – Su pp ly cha in i nvestm ent to cre ate a quicker , more e f ficient operat ion an d pave th e way to a mo de rn , aut omat ed ne twork. – Multiple oppor tunitie s for growth in the s tore est ate, in clu di ng i nvestm ent in ren ew al , l arge r -fo rm at F ood s tores , rotat ion to mo de rn , a ccessi ble f u ll- l in e stores , an d grow t h thro ug h fr an chi se par tn erships . Ou r c api ta l al loc at ion d ec isio ns w il l conti nu e to be gu id ed by o ur am bi tio n to grow the b usi nes s wh ile su sta in in g ba l an ce she et me tri cs co nsis tent wi th inves tme nt gr ad e. T he B oa rd wi ll co nsid er the s ca le a nd ti min g of a resu mpt ion o f di vi de nd p aym ent s at the ye ar e nd . THE N E X T PHASE OF TR ANSFORMA TIO N F i n a n c i a l Re v i e w Desp ite the n ear -ter m challenges , the business is bet ter set u p both financiall y and operationa ll y to inve st fo r the f uture . Read o ur full Financ ial Re view on p36 ‘‘ ’’ Ma rks a nd S pe nc er G ro up p lc 08 We are conf id en t abo ut t he f utu re po tenti al of M &S , b ut we kn ow we ne ed to go f u r th er an d f aste r in th is ne x t ph ase o f tr ans for ma tio n to reposi tio n for g row th . T he ne w lea de rshi p team wi ll s et ou t the ir pl ans i n mo re det ai l l ater i n the ye ar, but th e fol low in g det ail s ets o ut th ei r clea r are as of fo cus to protec t th e ma gic o f M& S , wh il st m od er ni sing t he p ar t s wh ere we cu rre ntly l ag , s o that we c a n dr ive g row th . – T he m ost i mp or t ant p ri or it y is to bu il d on th e stre ngt h of the M &S b ra nd a nd p rodu c t. We wi ll o f fe r st yl e in Cl othi ng , Ho me a nd Be au t y , gre at ta ste in F ood a nd u nd er pi n tha t wi th ou r com mit me nt to tru sted v alu e. Al on gsid e thi s we wi ll r ai se the b a r in c ateg or ies w he re we have o pp or tu ni t y to grow ma rket sh are . – We wil l of fer o ur cu stom ers a t ru ly sea mles s ex pe ri en ce acros s al l ou r ch ann el s w he rever we t ra de a roun d the wo rl d , usin g ou r dat a an d ins igh t to imp rove per son al is ati on c ap ab il it y. – We wil l of fer o ur cu stom ers c ur ated ch oi ce. Bu ild ing o ur co re M&S p rod uc t , wh il st o p eni ng u p ou r cha nn el s to pa r tn ers tha t comp le me nt an d en ha nce th e ra ng e. – ‘ Do t he r igh t thi ng’ i s an M &S va lu e bu t it ref le c ts a be hav io ur tha t’s de ep i n the c ult ure a nd we w il l pu t it in to ac tio n an d bet ter co nne c t ou r am bit iou s net ze ro pl a ns to our commer cial st rat egy . – Alo ng sid e this , we n ee d to mod er nis e the key e na ble rs th at wi ll u nlo ck g row th po tenti al at M &S . T his m ea ns: · Modernising and focus ing our st ore e stat e · Simplif ying and future proofing our supply chains · Bu ild ing m ore res po nsive a nd a gi le sys tems to im prove visibility and insi ght Jo i n e d t h e B o a rd o n 25 M a y 202 2 Und er Steve’s leade rshi p M& S has cha nge d , whi le hol din g tru e to its va lues . I f eel ver y for tu nate to be lea di ng th e nex t ch apte r in M& S’ s tor y w ith t wo fantastic partners in Katie and Eoin. Thanks to the cha nges m ade – we a re fac ing i nto the m arket wi de inf lati onar y pres sures from a mu ch more resi lient posi tion . We are con fi den t in our a bil it y to tr ade the busine ss and – at the same time – increasing the p ace of ch ang e and i nvestin g beh ind o ur long-term gro w th . Effec tivel y managing for toda y and building the M&S for the fu ture. Thi s mea ns a sim ple r , fa ster M &S w ith a l ase r focu s on exe cuti on , so th at we ca n be a gr eat pl ace f or our co llea gue s to work an d a great p la ce fo r our customers to shop. Stuart Machin Ch ief E xe cuti ve O f f ice r ‘‘ Havin g led t he f irs t phas e of tra nsf orm atio n in our resp ec ti ve areas , th e new lead ers hip te am bri ngs the a bil it y to acce ler ate cha nge , wh il st p rovidi ng the bre adth and c ontinuity the bus iness needs. Like in a ny retail er , we w ill a lwa ys have a to- do lis t , but M&S benefits fr om an extraordinary brand, exceptional customer insight and fantastic comm it ted co llea gues , a nd we now have the right foundations in place t o repos ition the business for gro w th both in the UK and gl oball y. Katie Bick erstaf fe Co - Ch ief E xe cut ive O f f ice r ’’ THE NE X T P HASE OF TR ANSFORMA TION C ONTINUED STR A TEG IC REPORT STEP ONE FIXING THE B ASICS STEP THREE MAKING M&S SPECIAL ST E P T WO SHAPING THE FUTURE Annual Report & Financial Stat ements 2022 09 STR A TEG IC REPORT BU SIN ES S MODEL OCADO M& S ho lds a 5 0% inv est me nt in O c ad o Ret ai l , a r elationship between M&S and Ocado Group pl c. S in ce Se pte mb er 2020 , th e M&S F oo d r an ge an d se lec te d Clo thi ng & H om e pro d uc ts h ave be en av ai l a bl e for c usto me rs to sh op o n th e Oc a do p l at fo rm , g iv in g th e G rou p acces s to th e UK ’s fa stes t - grow in g gro cer y sa les c ha nn el . MS2 MS2 b ri ng s tog eth er o ur d at a an d on l in e teams to in ver t the conven tional model w here M& S. com h ad b ee n r un a s an e x tens io n of th e store s bus in ess a nd e na b les th em to t ake advantage of t he online gro w th opportunity. Food M&S Food sell s s ustainably sourced pro du c ts of e xce pti on al q ua l it y a nd va lu e th rou gh f i ve ma in c ate go ri es: Pro tein, deli and d airy ; Pr oduce; Am bi en t an d in -s tore b ake r y ; Meals, dessert and fr oz en; Hospitality and Food-on-the-move. Cloth ing & H ome M&S sells stylish, qualit y , sus tainably sourc ed own-brand clo thing and homewar e thr ough our princ ipal product departments: W omenswea r , Menswear , Linge rie, Kidswear and Home . International M& S ex po r ts t he b es t of M& S Fo od and Clo thing & Hom e ar ound the wor ld i n se le cte d ta rge t ma rke ts . Cust omers pur chase our products th rou gh a n et wor k of m a in ly pa r tn er-l ed b usi nes ses o r th rou gh online- only channels. A F AMIL Y OF ACC OUNT AB LE BU SINES SES M&S o p er ates a f ami ly of p ar al lel b usi nes ses , ea ch le d by its ow n in tegr ated management t eam, with functional acc ountabil ity for t heir divisions, inc luding marke ting, s upply chain and financ e. W e pr edominantl y sell o w n-brand pr oducts, ma nu fa c ture d an d ma rketed e xclu sive ly und er t he M& S br an d , wi th qu al i t y, in nov atio n an d tru sted v al ue at t hei r core. T H E G R O U P F A M I L Y O F A C C O U N T A B L E B U S I N E S S E S C H A N N E L S MS2 Clothing & Ho me Prope rt y International Stores Food Serv ice s: Bank and Energy Ocado OU R CUS TO M E RS M&S s er v es nea rly 30 m il l io n custo mer s ever y year f rom a cross t he U K . Ou r Fo od , Clot hin g & Ho me a nd oth er ret ai l business es ar e focused on dev eloping prod uc t s and s er v ices to m ake us m ore relev an t, m ore of ten , to our cu stom ers an d beyo nd , w ho we rea ch th roug h a cha nn el n et wor k of 1,487 stores and on li ne s er v ices i n the U K an d over 1 00 int er nat ional mark ets. Number of customers ser ved i n 21/ 2 2 30 millio n OUR C O LLEAGUES We emp loy c. 65, 0 0 0 col lea gu es ac ross our st ores, support ce ntr es, l ogisti cs operation s and internat ional t eams. They demonstra te ex traordinary pass ion for t he busine ss, deliver outstanding cus tome r ser vice a nd b ri ng e x tensi ve tech nic a l ski l l s and e xp er tise i n area s such as sour cing , fit and product dev elopment. Ser v ices Th rou gh M &S B a nk (ope r ated by H SB C), we pro vi de a r an ge o f f in an ci al se r v ice s – wi th a fo cu s on cr ed it c ard a nd pay m ent s ol uti on s th at cre ate a rewar ding shopping experience. M& S En erg y is a co mp eti tiv e fu l ly renewable energy sour ce pro vider (ope rate d by O cto pu s ). Prope r t y We have a n ac ti ve Pro pe r t y Dev elo pm e nt tea m to ma xi mi se th e va lu e of ou r p rop er t y as sets t hro ug h inv estm e nt an d deve lopment opportunities. C u s t o m e r s C o l l e a g u e s Ma rks a nd S pe nc er G ro up p lc 10 BI G GER , B ET T ER , F RE SH ER Financial highlights ( 1 9 / 2 0 : +17 . 4 % ) UK Food reven ue £ 6 . 6bn Operating profit before adjusting items £ 2 7 7. 8 m FO O D STR A TEG IC REPORT ( 1 9/ 20: + 1 0. 1 %) Annual Report & Financial Stat ements 2022 11 STR A TEG IC REPORT T he o bje ct ive fo r M& S Foo d is to “p rotec t the m ag ic” by inves tin g in o ur u niq ue fo cus o n ow n- b ra nd innovati on and fre sh , eas y-t o- cook foo d , wh ile “ mo de rn isin g the res t ” of th e infrastructure s uppor ting it. By extending reac h of th e br an d into bi gg er, new-fo rm at stores a nd g rowin g new c ha nn el s (Oca do Ret ai l , Co sta C of fe e ), we se e the po tential for subs tantial gro wth. M&S F oo d de l ive red s ales g row th o f 1 0 . 1 % vs 20 1 9/20 and i n H2 contin ue d to be th e be st - p er fo rm in g UK g rocer y cha in (Sou rce: Ka nt ar 1 2 week s en de d 20 Ma rch 20 22 ). This was des pite cont inuing adverse Covid-related headwinds and t he absenc e of on l in e groce r y s ale s, w hi ch are re po r ted sep ar ately th rou gh O ca do Ret ai l . Sa les g rew 1 4.7% af ter a djus tin g for t he Covid-related impact on the ho spitalit y an d fr an ch ise bu sin esse s. H2 saw a gr ad ua l recover y of stores i n cit y centres a nd t he f ra nc hise t rave l busi nes s com pa red to H 1 . Operating pr ofit befor e adjust ing it ems of £2 77 . 8m , as co mp are d to £23 6 .7 m in 20 1 9/20 , ref lec ted s al es grow t h and the l ower ing cos t pro gr am me , pa r tly of f set by i ncre asin g sup ply ch ai n cost pres sures i n H2 and B rex it - rel ated cost s in Northern Ireland. PERFORMANC E UNDERPINNED BY IM PROV E ME N T IN Q UAL IT Y AND V ALUE Th e ou tpe r fo rm an ce of th e M&S F oo d ra ng e over th e pa st fo ur yea rs h as deliver ed impr oved cust omer perc eptions for b oth v al ue a nd qu al i t y, and go od co re sa les g row th . Ma rket sh are h as g rown fro m 3.4% to 3. 6% over thre e yea rs. Th e cons istent ly stron g core s ales performance t hro ughout 2 02 1 /2 2, supported b y good mark et c onditions, is ev ide nt in t he c ateg or y sal es mi x , w ith grow th i n core a reas su ch as p rodu ce, me at an d groce r y. Thi s was d ri ven by l arg er b asket si zes, w hi ch b eg an to no rm al ise t hrou gh t he yea r as th e effects of C ovid reduc ed. Th e groce r y mar ket shra nk - 4 .4% co mpa red to t he pr ior year f or th e 52 weeks en ded 1 7 Ap ril 2022 , dec li ning to £1 27bn ( Sourc e: Kantar ). What c ustomers bought Ou r ai m is to of fer e ver y cus tome r sh op pi ng w it h M& S Fo od a b ig ge r an d fre sh er r an ge o f de l ici ou s foo d to ch oos e fro m , at eve r yd ay v al ue th ey ca n tr us t. T h rou gh ou t the y ear w e’ve s ee n cus tom er s pu rch ase mo re pro du c ts f rom o ur co re g roce r y an d pro du ce r an ge s – li ke ou r 7 8p b a na na s, 6 0 p V it am in D - e nr ic he d bre ad o r £ 1 100 % Br it ish e gg s – in h ig he r vol um e, d ri v in g bi gg er b aske ts . Sa les v s 2019/20 (%) H1 H2 FY Froze n 40 18 27 Beers, wines & spirits 30 17 23 Grocery & hous ehold 33 9 20 Me at , f ish , p ou ltr y, del i , da ir y 20 14 17 Ba ker y 13 18 15 Pro du ce & fl owe rs 14 12 13 To t a l 20 14 17 Sa les v s 2019/20 (%) H1 H2 FY Food-on -the-move -18 -4 - 11 Hospitality -53 -27 -40 To t a l -30 -12 - 21 Where cu stomers s hopped Wi th M &S av ai l ab le o n O ca do a nd C ost a , al on g wi th th e grow i ng nu mb er o f bi gg er, bet te r , ne w-f or ma t Fo od ha l l s in ret ai l pa r ks , th e bre ad th of c ha nn el s i n w hic h cus tom er s ca n sh op f or th ei r f avou r ite M& S pro du c ts h as gro wn . T his y ea r , as th e im p ac t of t he p an de mi c on l oc ati on s suc h as ci t y cen tres , h ig h stre et s an d tra vel lo c ati on s red uce d , we’ ve se en cu sto me rs g ra du al ly ret ur ni ng , b ut w it h Si mp ly Food and retail park locations remaining the main d estina tion of ch oic e for M &S cu sto me rs . Sa les v s 2019/20 (%) H1 H2 FY Simply Food 27 18 23 Retail parks 23 20 22 Franch ise fuel 13 8 11 To t a l 25 18 21 Sa les v s 2019/20 (%) H1 H2 FY High street -10 -6 -8 Cit y ce ntre - 18 -10 -14 Franchise travel (rail/air /roadside ) - 49 -29 -39 To t a l -18 -10 -14 MARKET CONTEX T Unde r st a ndi ng o ur c ust o m e r s Ma rks a nd S pe nc er G ro up p lc 12 L OV E Re w a rd s y o u ’ l l C a n I A p p i t ? Y e s y o u c a n! T o promot e the benefits o f the M&S a pp a nd en coura ge mo re customers to downlo ad and sta r t usi ng it , we ra n a t wo week app -focused c ampaign in Ma rch , in clud ing o ur f irs t ever Sp ar ks T V ad ver t . As m or e cus tom ers t ur n to sho p pi ng w ith u s digitally , we ’ve b een bui lding our quick and eas y di gi ta l sh op pi ng e xp er ie nc es – su ch as sc an & s ho p an d di gi ta l cl ic k & col le ct – w h ich , alo n gsi de o ur S pa r ks rew a rds sc he me , are a l l hos ted i n th e M& S ap p. No t on ly is th is th e eas ies t an d mo st rew ard i ng ex p er ie nce f or cus tom er s bu t it a l so bu il ds o ur o mn i- c ha nn el capabil ities and of fers flexibil ity for cust omers so th at th ey c an c ho ose h ow th ey sh op w it h us . Th e resu lt o f th e ca mp ai gn w as o ver h al f a mi ll i on a pp d ow nlo a ds ac ros s Ma rch a nd mo nth ly ac ti ve a pp u ser s rea ch in g new l eve l s. STR A TEG IC REPORT FOO D C ONTINUED G row th wa s sup po r ted by a su bst ant ia l programme of pro duct innova tion, wi th over 1,350 new l in es over th e pa st yea r , i nc lud in g sum me r ba rb ecu e ranges, extensions to our market -leading Pl a nt K itche n of f er, and an e xp a nde d “Dine In ” pr ogramme. In a cl i mate of i ncre asin g pr ice aw are nes s, “Remarksable V alue” and “Fr esh Marke t Specials” ranges ha ve been r el aunched, of f er ing p rod uc ts w ith a n M& S qu al it y di f fe renti al at ev er yd ay low p rices . A roun d on e in fo ur M &S ba skets n ow in clu de o ne of t hese lines. Overall , value perc eption has i mp roved by f i ve poi nts s ince M arc h 20 1 9, a hea d of th e ma rket , an d qu al i t y pe rcepti on is a t the h igh est l evel i n over five y ears. Th e Fo od re new al fo rm at cre ates l arg er s tores wi th th e ef f ic ien c y of a sup er ma rket a nd th e ‘so ul ’ of a f resh f ood ma rket . T his h as now b ee n im pl eme nted i n 40 s tores , en abl i ng cu stom ers to acces s mo re of the M &S r an ge . An nu al ise d sa les in F oo d stores w hic h have b ee n fu lly ren ewed h ave be en st rong , o n aver ag e up ove r 1 0 % vs contro l stores . In th e seco nd h al f, we la un che d a grou nd - break ing par tn ership wi th Costa Cof fee, making a vail able around 30 M&S f ood -on - the - move p rod uc ts i n c. 2, 50 0 cof f ee sho ps . Th ese in clu de n ew lu nch o pti ons , hot m ea l boxes an d ch ild ren’s foo d. E ar ly sa les a re in l in e wi th ou r ex pe c tati on s. MO R E TO DO O N SU PP L Y CH AI N , W AS TE AND AV AILABI LITY Th e M& S Fo od su pp ly cha in rem ai ns les s ef f ic ie nt an d , we be li eve, h ig he r cost to ser ve tha n ou r com peti tors . Th is is a resu lt of a com pl ex store a nd lo gi stic s ne t wor k , a hig h leve l of ch il le d prod uc t m ix a nd a costly su pp ly cha in con tra c t wi th ou r pa r tn ers , G ist . Alo ng sid e this , o ur forecast ing, ordering and s tock al location syste ms are d ated a nd a re in th e proce ss of being upgraded . Ove r the p as t t wo year s we have implemented the “ Vangar de” trading model acr oss the f ull Food estat e, creat ing m ore ef f ici ent p rocess es for st ock management and r eplenishment of stores , w hi ch ha s he lp ed to sus ta in availability thr ough the s upply cha in dis ru ptio n of l a st yea r . H owever, was te an d stock lo ss rem ai n ab ove ta rget le vel s. In th e ne x t st ag e we wi ll ro ll o ut n ew forecast ing, ordering, and space, r ange an d dis pl ay sys tems to be tte r match catalogue and pr oduct display to cus tome r de ma nd , w ith th e ob jec ti ve of realis ing a substantial reduction in food wa ste. T he i ncrea sin g store r atio na l isa tio n prog r am me is a l so he l pi ng to create a net wo rk o f confo rm in g stores w hic h are lower cos t to ser ve . Annual Report & Financial Stat ements 2022 13 M & S F o o d Re n e w a l STR A TEG IC REPORT FUTU R E Strategic KPIs Quality perc eption 1 Cus tom er r ati ng s of M &S F oo d pro du c ts on q ua l it y we re le vel o n l as t yea r (Sou rce: Y ouGov) and r emain at their highes t point in f i ve yea rs . LE VE L Av ailabil ity Our V angarde trading model has improv ed pro cess es fo r sto ck m an ag em en t an d rep le nis hm en t of sto res , an d he l pe d to sustain availabil ity thr ough the supply ch ai n dis ru pt ion o f l as t yea r . 9 5% ( 2 0 / 21: 9 5 . 5 % ) (20/ 21 : +3p p t) V alue for mone y percept ion 1 Cus tom er p erce pti on o f M& S Fo od repr esenti ng value f o r mone y r emained leve l th is ye ar, fol low in g l as t yea r ’s + 3p pt in cre ase (So urc e: Y o u Go v). Ou r foc us on o f fe ri ng M &S q ua l it y p rod uc t s at eve r yd ay va lu e – suc h as th e re l au nc h of ou r “ Rem a rk sa bl e Val ue” r an g e thi s yea r – have d r ive n in cre ase s in v al ue p erce pti on s ah ea d of th e ma r ket. LE VE L Cent ral to th e st rateg y of M& S Foo d is mod ern isin g how we bring delicious , great - qualit y ran ges to cus tom ers ; wit h our Food stor e rene wal programme a key driver of th is . Th e ren ew al p rog r am me t ake s ex ist in g M& S stor es an d inve st s in th em to m eet v a r yi ng requir ements s o that they offer the ef ficiency of a su pe r ma rke t an d the ‘ sou l ’ of a f resh f oo d ma rke t, s how ca sin g th e qu al i t y, val ue a nd fre sh nes s of i ts r an ge s. T he se sto res h ave incre ased pr oduce, bak er y , ambient, gr ocer y an d froze n ra ng es , as w el l as i nn ova ti ve con cep ts l ike F i ll Your O wn , W in e Tasti ng , Ce ra mi c Piz z a O ven s or n ew- lo ok M &S C a fes – all laid out in an inspiring and aesthe tically- pl eas in g for m at. M &S h as re ne wed 4 0 sto res so f ar a cro ss th e UK , de l ive ri ng a b ig g er, bet ter and fre sher experience f or cust omers acr oss Fo od , su ch a s ou r Wok in g store s ee n ri gh t, w it h mo re in t he p ip el i ne fo r th e yea r ah ea d. 40 Sto res re newed F i t f o r t h e (20/ 21 : +3p p t) 1. Re set q u al it y a nd v a lu e pe rce pti on s cor es tr a ck in g in de p en de nt d at a wh ic h fu tu re re po r t s wi ll b e b en ch ma rk ed a ga in st . Ma rks a nd S pe nc er G ro up p lc 14 PA R T N E R S H I P S Ne w C o s t a C o ffe e Thi s Marc h, M &S a nd Cost a Coffee launched a n ex citing partnership to bring t ogether t wo of the n atio n’ s f avourite high street brands . A ra ng e of a rou nd 3 0 de li ci ous M &S F oo d classics, including sandwiches, children ’s foo d a nd p rod uc ts f ro m ou r Pl a nt K itch en and Made Without ranges, are now available in c . 2,5 0 0 Cos ta Co f fe e sto res a nd Dr i ve -Thr u l an es a cros s th e UK . T h e collab oration brings M&S’ delicious Fo od - o n- th e- m ove to th e nat io n’s l arg est ch ai n of cof fee s ho ps , ta k in g ou r tru ste d va lu e of f er to a w id er a ud ie nce . So f a r , cus tom er s have re ac te d br il l ia ntly to th e tie-in, with sales per forming st rongl y . STR A TEG IC REPORT B r i t i s h S e l e c t F a r mer s We’ve co nti nu ed to sh owc as e ou r Br iti sh S ele c t Far me rs , w ho d el i ver t he e xcep tio na l qu a li t y, va lu e, a nd f res hn ess w e’re f am ous f or, thro ug h ou r Fres h Ma rke t Up da te cus tome r c am pa ig n . Th is m ul tim e di a an d T V c am pa ig n he l ps stren gthen cu stomer perc eptions of our qu al i t y an d va lu e. FOO D C ONTINUED Annual Report & Financial Stat ements 2022 15 STR A TEG IC REPORT Ou r am bi tio n is to grow Oc ad o Ret ail ove r the n ex t f i ve yea rs to ach ieve a m ar ket - leading nat ional pos ition in online food reta il in g an d a br il li an t showc as e for th e M&S brand and range. Doing s o means building on the c om petit ive advantages in qu al it y, va lu e and s er v ice th at th e Oc ad o platform combined with M&S Food c an ach ieve . We wil l de li ver g row th th rou gh rapid expan sion of c ust omer fulf ilment cen tr es (“C FC s ” ) al ongside our immediacy propo sit ion, Zoom. Fo llow in g a succes sf ul sw itch over to M&S s up ply, Oca do Re tai l de l ive red an exc eptional performance during t he loc kdow n pe rio ds i n 202 0/2 1 . A s e xp ec ted , 202 1 /22 s aw a redu c tio n in aver ag e b asket size to c. £ 1 23 i n Q4 (20 20/2 1 : c . £ 1 45) and increa singly nor malised demand acr oss the we ek . At t he s am e tim e, w ith a substan tially larger industry gr owth opportunity than w e envisaged when we acq uire d 50% o f Oc ad o Reta il , we are inv esting in an ambit ious capacity roll -out pl a n , wi th new C FC s comi ng o n stre am ag ai nst a b ackd rop of we ll- u nd ers tood indus tr y-wid e cost pressures. Oc ad o Ret ail d el i vere d revenu e of £2,248. 8m , d own 4 .4% co mp are d to 202 0/2 1 , an d EBI TDA befo re exce ptio na l item s of £ 104. 8m a s comp are d to £ 1 89.9m i n 202 0/2 1 . We reco rded a G ro up sha re of n et in come o f £ 1 3.9m , af ter a £7 . 2m sha re of net e xcept ion al cos ts . 2 0 21/ 2 2 M&S financial quar ter Q1 Q2 Q3 Q4 A verage order s per we ek ( k) 383 338 375 367 Retail re venue ( £m ex VA T ) 618 . 4 5 17. 5 5 4 7. 8 56 4 .7 No tes: R eta i l reve nu e co mp ri ses r eve nu es f rom Oc a do. co m an d Oc ad o Zo om a nd e xcl ud es r eve nu es fr om F etch i n cu rr en t an d pr io r pe r io ds . Aver a ge o rd er s pe r we ek re fe rs to re sul ts o f Oc a do .co m. T AR G ET I NG G R OW T H IN AC TI VE CUS TO ME R S AS PAN DE M IC COND ITIONS NORMALISE Oc ad o Ret ail d el i vere d goo d grow th in ac ti ve custo me rs th roug h the ye ar, with an a ccele rat ion i n the f i na l qu ar ter com pa red wi th th e pr io r yea r , a s new CFC s c am e on st ream . O rde r grow th a nd aver ag e bas ket size ref le cte d the ret ur n of cust omer behaviours towar ds pre- Covid level s as restr ic tio ns re du ced an d th ere wa s a retur n to more i n - of f ice wo rk in g . As a resu lt , reven ue d ec li ne d , bu t substan tially outperformed the online groc er y marke t ( Source : Kantar 1 2 weeks en de d 20 March 2022 ). NEAR- TE RM MA RGINS REFLECTING A HI G H ER P E RCE N T AGE O F IMMA TURE CAP A CIT Y Near -t erm margin s r eflect the higher pe rcent ag e of im mat ure c ap aci t y as we ll as th e pea ks a nd t roug hs as soc iated with normalised trading. Follo wing a pe ri od of m ore l im ited c a pa cit y ow in g to a fi re, Er it h CFC w as f ul ly reo pe ne d in De cem be r 202 1 . Du ri ng 202 1 we al so op en ed t wo n ew CFC s in P ur f le et an d An dove r , w hi ch we re op er atin g at aro un d ha lf o f the ir en d - ga me c ap ac iti es by Q4 . So me o ne - of f cos ts , as soc iated w it h the f ire at th e Er ith d ist rib ut ion ce ntre a nd tec hnology platform t ransition, have im pa cte d the M &S sh are of p rof it . Alo ngsi de t he o pen in g of Bi cester i n 202 2 an d Luton i n 2023, we have p l ans to rea ch ca pa ci t y for ove r 7 0 0 ,0 0 0 o rde rs p er wee k ba sed o n pre - Cov id b asket si zes , rep resent ing g row th o f over 50% w he n fully ramped. SUBST ANTIAL FURTHER POTENTIAL FOR THE JOINT VENTURE Th e M& S br an d is cons istent ly over 25 % of O ca do Ret ai l ’s sales , a nd th is ha s ge ne rate d subs ta ntia l bu yi ng g ai ns fo r bot h M&S F oo d an d Oc ad o Ret ail . We believe t here i s additional unexploited pote ntia l to make b et ter us e of th e M&S b r and , d at a ca pa bi l iti es, a nd c ross- ma rketi ng a s the b usi ness es wor k even mo re close ly toget her. T owa rds th e end of ou r com ing f i na nci al ye ar, we are al so pl a nn in g to re- pl at fo r m fro m the le g ac y op er ati ng sys tem to the “ Oc ad o Sm ar t Pl at fo rm”. Thi s rep resent s a ma jor tech no log y sw itchove r an d wi ll p rovid e Oc ad o Ret ail w it h a websi te and o rde ri ng ca pa bi l it y th at wh en f u lly d evelo pe d we believe will be m arket -leading. M & S F o o d o n l i n e Our partnership with Ocado Retail brings t ogether our unbeatable quality and Ocado’ s industry-leading cust omer service. W e’re investing in growing c apacity at O ca do R eta il a nd b el i eve th ere i s po tenti a l for o ur t wo b us in ess es to wor k eve n mo re cl ose ly tog eth er. OCADO TR ANSITIONING T O STR ONG C AP A CIT Y GRO W TH POST P ANDEMIC REVERSION Ma rks a nd S pe nc er G ro up p lc 16 C L O THING & HOME E v er y da y st yle and v alue N u m b e r o n e f u l l - p r i c e a ct iv e w ea r r a n g e We la un che d ou r ac ti vewea r ra ng e G ood move i n Ja nu ar y 202 0 an d have g rown i t to be ou r big ge st in - ho use womens wear sub- brand. It’ s a cr edible c ompetit or in the g rowi ng a ct ivewe ar m ar ket and a t ru ly relev ant o f fe r for o ur cu stom ers – cove ri ng eve r y are a of ac ti vewea r fro m pe r fo rm an ce items ( pi ct ured ) to a growi ng yo ga ra ng e. W ith h ea lth & we ll n ess m ore im po r t ant th an e ver for o ur cu stom ers , we co ntin ue to ma rket t he tr us ted va lu e of the p rod uc t an d th e ma rket - l ead in g inn ova tio ns wi thi n the r an ge , suc h as ou r new E x tra H ig h Im pa ct Sp or t s Br a (£ 28 ), w it h pio ne er in g cup te chn olo gy a nd fro nt ad just ing ve lcro s tra ps . We sell 1.6 mil l io n G ood move i tems a nn ua lly – w ith 5 , 0 0 0 of o ur £25 G o Move “sq ua t proo f ” leg gi ngs s old eve r y m onth , a nd are th e ma rket l ead er fo r f ul l- pr ice wom en’s ac ti vewea r . STR A TEG IC REPORT Annual Report & Financial Stat ements 2022 17 STR A TEG IC REPORT 17 T he o bje ct ive of C loth ing & H om e is to create a contem po r ar y M &S r an ge bo ug ht in g reater d ept h , alo ngs ide a family o f int ernal and external partner brands pro viding broader choic es t o ou r custo me rs. We are at t he ver y ea rly st age s of tr ans itio ni ng to an o mn i- c ha nne l bus ine ss b acke d by except ion al d at a and hi ghly personalised c ust omer relation ships, and a more sustainable, pro fitable model i s starting t o emerge . Clot hin g & Ho me d el iv ered s al es grow t h of 3. 8% vs 20 1 9/20 , wi th thre e cons ecu tive qu ar te rs of u nd er lyin g grow t h. O nl i ne sa les we re up 55.6% , w ith s trong g row th thro ughout the y ear outperforming pu re- p l ay pe ers a nd g ai ni ng 60 b ps of market share ( Sourc e: Kantar 5 2 weeks to 3 Apr il 2022 ). Sto re sal es de cl in ed 1 1 . 2%, w it h pe r for m an ce conti nui ng to be i mp ac ted by le g ac y hig h stre et an d cit y ce ntre stores , a lth ou gh th ere w as some i mpro vement in H2. Operating pr ofit befor e adjust ing it ems of £330.7 m , as co mp are d to £2 23.9m in 20 1 9/20 , ref lec ted t he be ne fi ts o f sa les grow th co mb in ed w ith a n in creas ed fu l l-p ri ce sa les mi x . RESHA PING THE “PR ODU CT EN GINE” TO DR I VE S HA PE O F BU Y A ND RE DUCE CLE AR A NCE Th e Clot hi ng & Ho me o f fe r has b ee n resha pe d over t he p ast th ree ye ars around trading principles focused on con temporary style, simpl e ac ce ssible prod uc t , an d gre ater de pth o f bu y . Ove ra l l opt ion co unt h as red uce d by c. 20% o n 20 1 8/1 9. A lon gsi de th e pro du ct c ha ng e, the re ha s be en a su ccessf ul s hif t to tru sted v al ue a nd eve r yd ay low pr ice. As a resu lt o f thes e ac tio ns , di scou nted sa les h ave redu ced a nd s tock in to the cle ar an ce sal e wa s dow n 34% on t wo yea rs ag o, e na bl in g a sim ple r , mo re pro fitable operation. These c hanges ar e beginning t o be r eflec t ed in impro ved cus tome r st yl e pe rcepti ons a nd a re generating increa sed c onf idence in the n ew ap pro ach w it hin t he core product t eams. Blanket promo tions, which o f t en obs cur ed in consis tent p ri cin g an d redu ced tr us t, have l a rge ly bee n rem oved . T he p ric ing arch itec tu re is cle are r , o f fe ri ng v alu e on ent r y pr ice p oin ts in p rod uc ts su ch as wom en’s jeg gi ngs , m en’s de nim a nd th e rec ently intr oduced “Remarksable V alue” l ab el i n ou r Ho me r an ges . As w e have shi f ted to a tr uste d va lue a pp roa ch , we have se en a n im prove men t in v alu e pe rcepti on , w hic h is now m ar ket - le adi ng . Th e clot hing m arket in crease d by 25 % year o n year fo r the 52 weeks to 4 A pri l 202 1 to a tota l valu e of £33. 1 b n ( Sourc e: Kantar ). What c ustomers bought In C loth in g & Ho me , ou r ai m is to of fe r ever yday, sus ta in ab ly so urce d pro du c ts th at a re rel ev ant to h ow ou r cus tom er s are l i vi ng a nd wo r ki ng – at tr us ted v al ue . In th e f ir st h al f of th e ye ar we s aw cu stom er s cont in ue to p urc has e c asu al a nd a c tiv ewea r, a trend re p rese nta ti ve of th e pa nd e mi c – bef ore o the r c ateg or ie s suc h as fo r ma lwea r be g an to retu rn l a ter i n the y ea r . Sa les v s 2019/20 (%) H1 H2 FY W o men’ s denim 8 27 17 W omen’ s cas ual t ops 10 30 17 W omen’ s knitwear 15 7 9 Men’ s casual 1 13 7 Kids day wear 21 27 24 Lingerie 0 9 5 Soft fur nishings 23 12 16 Sa les v s 2019/20 (%) H1 H2 FY W omen’ s formal -33 -20 -26 W o men’ s holiday -35 26 -24 Men’ s formal -35 -2 0 -28 Men’ s foo twear -9 6 -1 Where cu stomers s hopped As w el l as g reat p rod u ct s , ou r cus tom er s are a lway s sea rch in g for easy and inspirat ional shopping experience s, and w e’ re aiming to deliver this by building an omni -channel business w here our st ores an d M& S. com co mb in e se am les sly tog eth er. Ove r th e cou rse o f the yea r we s aw cus tom er s gr ad ua l ly retu rn in g to Clo thi ng & H om e sto res; howe ver , M&S.com remained t he most p opular shopping channel f or our c ust omers. Sa les v s 2019/20 (%) Q1 Q2 Q3 Q4 FY Retail park -2 3 3 24 5 Ou tlet -10 1 3 26 3 Shopping cen tre -26 -16 - 12 15 - 12 High stree t -24 -22 -2 0 -5 - 19 Ci t y cent re -37 -28 - 19 3 -22 T o tal C &H s tore s -21. 2 -14 . 3 -10 . 9 5.6 - 11 . 2 MARKET CONTEX T UK Cl oth ing & H om e reven ue £3 . 3b n ( 19 / 2 0 : + 3 . 8 % ) Operating profit before adjusting items £ 3 30.7 m (1 9/20 : + 47 .7% ) Unde r st a ndi ng o ur c ust o m e r s Ma rks a nd S pe nc er G ro up p lc 18 STRONG P E RFORMANC E IN CORE CA TEGORIES AND IMPRO VING STYLE PER CEPT ION As e xp ec ted , c ateg or y pe r fo rm an ce over the t wo p an de mi c year s has b ee n gre atest in core c asu al c ate go rie s, s lee pwea r an d soft furnishings. Following the r eopening of th e econ omy i n July 202 1 , t he slow retur n to of f i ces, co mb ine d wi th grea ter mo bi li t y, has le d to a gra du al impro vement in formal ranges, ele me nts o f foot we ar a nd ho l id ay . – W omenswe ar has driven good gro w th in th e “ bi g thre e” de pa r tm ent s of de ni m , kn it we ar a nd c asu al tops . A foc us on simple, repeatable styles in dres ses, supported by popular c oll aborati ons wi th br an ds su ch as G h ost , ha s resul ted in a ve r y stro ng p er fo r ma nce. T he Goodmove ac tive wear brand has grow n to over £ 65m i n t wo year s. – L in ger ie h as se en a re cover y ove r the pa st yea r in core a reas su ch as s lee p, un de r wea r an d br as . A focu s on sh ar pe r va lu e throu gh m ul ti- p ac ks at o pe ni ng pr ice po in ts ha s comb in ed w ith n ew stretch of fer s suc h as “ Bo uti qu e” an d the l aun ch of t he “ Ne utr al s” r an ge. – Me nsw ear w as i mp ac ted i n the pa nd em ic by it s hig h fo rm al a nd of f i ce- wear s ha res. We saw g oo d grow th i n je rsey, kn it wea r an d under wear , although following reopening a vail abil ity in formal ca tego ri es wa s be low ta rget . – K ids wea r’s in crea sed fo cus o n day wear h as com bi ne d wi th grow t h in school wear t o del iver double- digit sa les g row th . Th e grow t h of M& S Ki ds prov ide s an im po r t ant e ntr y p oi nt to the b ra nd fo r f am ily- ag e cus tome rs. – Ho me r an ge s have b een re sha pe d , wi th pr ici ng rea l ig ned to th e ma rket i n area s suc h as be d l in en , l ig htin g an d cur tai ns . Furniture r anges ar e being upgraded and l osses have reduc ed. Quality perc eption 1 Cus tom er s cont in ue d to rate M &S C loth in g & Ho me p rod uc t s hi gh ly on q ua l it y (So urce : Y o uG ov). A lth ou gh n o ch an ge y ea r on ye ar in o ur s core , we con tin ue to b e cle ar #1 in th e ma rke t on p rod uc t q ua l it y a s a resu lt of t he resh ap in g of o ur p rod uc t e ng in e to foc us o n con temporary style c ombined with simple and ac cessible products. LE VE L Clot hi ng & Ho me s pac e Pro gres s ha s be en m ad e i n ad dres si ng th e le ga cy o f ou r f ul l- l in e store e st ate; h oweve r, th ere is m uc h sti l l to do to conv er t s tores to a new m ore e f f ic ie nt , sho pp a bl e for m at an d sup p or t o ur g row th tow a rds a n omni-channel cu stome r offer . -1 . 0 % V alue for mone y percept ion 1 Th e p erce nta ge p oi nt i nc reas e in c usto me rs rating M&S Clothing & Hom e pr odu cts hi gh ly on v al ue f or m on ey (So urce: YouG ov). Ou r su ccess f ul sh if t to tru ste d va lu e an d eve r yd ay low p ri ces an d th e rep l a cem ent o f wi de spre ad p rom oti on s wi th c lea r pr ic in g of ou r pro du c ts , ha s im pro ved o ur s core by a fu r th e r pe rcent ag e p oi nt an d me an s we rem ai n th e ma rke t lea de r o n va lu e for m o ney pe rcep tio n by cu stom e rs. +1 N o t h i n g N e u t ra l A b o u t I t Th e ne w ne utr a l s of f er is a c lea r a nd simple proposit ion f or all women – mo re col ou rs , mo re size s an d mo re choice w ithin neutral ( al so kno wn as nu de) br as & k ni cke rs . Th is n ew ra ng e gi ves cu sto me rs th e f ree do m to comple ment or contrast their skin ton e. Cu stom er s c an o pt fo r a size , st y le a nd co lou r th at m akes t he m look good and feel great. STR A TEG IC REPORT CLOT H I N G & H O M E C ONTINUED 20/21 10.3m sq ft 21/22 10.2m sq ft Strategic KPIs (2 0/ 21: +3) ( 2 0 / 21 : +1) 1. Re set q u al it y a nd v a lu e pe rce pti on s cor es tr a ck in g in de p en de nt d at a wh ic h fu tu re re po r t s wi ll b e b en ch ma rk ed a ga in st . Annual Report & Financial Stat ements 2022 19 STR A TEG IC REPORT In M arch 2020 we l aun che d our “ B ran ds at M& S” p lat f orm , and to day we sel l over 40 complement ar y and curat ed brands on M&S.com. From S os an de r to Sm ig gl e, w e op er ate a r an ge of models, including ex clusive collabor ations an d br an ds w e own , l i ke Ja eg er (Sp r in g/S um m er col le c tio n pi c tur ed) , or h ave a m in or it y s ta ke in , l ike N ob od y ’s Chi ld . Du ri ng t he ye ar, br an ds rep rese nte d c. 3. 5% of ou r on l in e sa les a nd were s ho pp ed b y over a m il l io n cu stom er s. Cus tom er s wh o bu y br a nds n ot o nly o n aver a ge sp en d do ub le b ut ret ur n to pu rch ase a ga in 1 0 day s so on er. “B ra nd s at M& S ” wi l l cont in ue to be online first, maximising the advantage ou r sto re net wo r k br in gs fo r se am les s de l ive r y an d col le c tio n , bu t we’ ve be gu n a nu mb e r of ex citing in-stor e trials with brands including Ea r ly Lea rn in g Ce ntre (now i n 1 0 sto res) and Se aS al t (i n 20 stor es ). Br i ng i ng b a c k s t r o n g b ra n d s Nobod y ’ s Chil d Ou r Br a nds a t M& S str ate gy h as cont in ue d to ga in m om en tu m. I n November , w e ev olved our par tnership with a f for dable, ec o -consciou s fashion br an d No b od y ’s Chil d by inv esti ng a 27 % st ake i n th e bus in ess . MS2 DRIVING OMNI- CHANNEL G RO W TH MS2 h ad a succes sf ul ye ar, with s tron g on li ne s al es grow t h at an a djus ted operating pr of it margin competitive wi th store s al es. T he M S2 org ani sat ion brings t ogether t he data, digi tal and on li ne tea ms a cross M &S . It s ai m is to pr io ri tise th e be st on l ine o f fe r , ac ti ng w ith the s pe ed of a p ure - pl ay w hi le leve ra gi ng the s tore est ate to dri ve ad va nt age s in reac h an d fu lf i l men t to del i ver b et ter cust omer ser vice. – A pr ogramme of fr ont -end digital dev elopment to in spir e c ust omers has incl uded upgraded imager y , incre ased us er -gener at ed c ontent, “sh op th e loo k ” feat ures a nd “hotspotting” of p roduct benefits. – We have i ntr oduced ov er 60 digital hu bs in s tores , ena bl i ng r ap id click -and -collect and rolled out pa p er -f re e retu r ns. – Onl ine availabilit y through omni- cha nn el f ul f il m ent n ow exce eds s tore availabil ity, with an incr easing number of “on l in e- o nly ” p rodu c ts an d use o f the cha nn el to tr ia l “ test an d rep eat ” r an ges . Over 6 0 0 M& S sto res now have the ir own so cia l med ia accou nts on F acebook and TikT ok . Set u p d ur in g the p a nd em ic as a w ay to co mm un ic ate wi th lo c al cu sto me rs a bo ut av ai l ab il i t y of es se nti al i tems an d op en in g ho ur s, t he se acco un ts h ave evo lved i nto a hi gh ly ef f ec ti ve an d en g ag in g way fo r M& S sto res to rea ch local c ust omers and c ommunities. Cont ent updat es on new p rod u ct s an d se r v ices a re at tr ac ti ng a co l le ct ive 3+ mil l io n v iew s a wee k . O ur s tores a re al s o dr iv in g pe rcep tio n ch an ge o n T ikTok , w ith o ver 5 1 mi ll i on v ie ws of o ur d ed ic ate d ha sht ag a nd M &S Ro mfo rd le ad in g th e cha rg e wi th th ei r vi ra l v id eos . A v e r y s o c i a l e x p e ri m e n t STR A TEG IC REPORT Th e on l ine co mm erci al tea ms a re fu lly inv olved in cat egor y planning . – D ur ing t he yea r , c . 1 1 % of on l ine ord ers we re sa tisf i ed th roug h in -s tore fu l fi l me nt. T h e abi l it y to sel l th roug h stock i n the s tore net wo rk h as i ncre ase d cust omer c onv enienc e, impr oved st ock tur n an d he l pe d dr ive cu stom er ava il a bil i t y to c.90 % , com pa red w ith c.7 5 % thr ough the on line dist ribution cen tre alone. – T he cu t - of f for n ex t - day d el i ver y rem ain s be low ou r ta rget l evel bu t is now m ar ket - comp eti tive. Ove r the p as t thre e year s we have b ui lt the fo un da tio ns of a m ore p erso na l ise d , cust omer -focused digital o f fer . W e ha ve create d a sin gle cu stom er d ata p l at fo rm alo ng sid e our e nter pr ise d at a pl at fo rm , “ BE AM ”, wh ich co ntin ues to con sol i date ou r dat a in o ne p l ace . The r elaunched Sparks pr ogramme has grow n to over 1 5m me mb ers , of w hi ch close to 9 m are ac ti ve, a nd we a re wor k ing on the nex t generation of impr ov ements to the of fer . We have grow n ap p use rs to over 4 m an d ex pe ct to l a unc h Sp ar ks Pay, of fe ri ng cu stom ers a n inte gr ated payment and credit pr oposition including loya lt y rew ards t hrou gh S pa rk s an d th e M&S a pp . Ove r the p as t year w e be ga n to personalise t he cus tomer ex perience thr ough our websit e, app and cust omer relati onship management programme, an d arou nd 8% of M &S .co m sa les are n ow being driv en by personalisat ion. Although sti ll at a n ea rly st ag e, we h ave deve lo pe d a bes po ke in -h ous e sol uti on to de ep en rel at ion shi ps wi th cu stom ers a nd d ri ve fu tu re grow th . T he g oa l is to bui ld pe rso na li sat ion a t sc ale to move f rom a ta rgeted p rom otio ns m od el to one wh ere th e ra ng e, i nter ac tio ns a nd p rodu c t prese nt atio n are rel eva nt to the i nd iv id ua l cust omer, m aking M&S a more e ngaging an d easi er p l ace to sho p. Sp ar ks a nd d at a provi de th e ga teway to del i ver y o f fu r th er se r v ices , no ta bly the s hif t to a dig ita l pro posi tio n fo r M&S Bank cu st omers inc luding cr edit, loyalty rewa rds an d pay me nt . NA SCE N T PL A T FO R M OF BRANDS EST ABLISHED M&S h as a s tron g and t ru sted b ra nd w hic h at tr ac ts cu stom ers to ou r pl atf or ms as the s econ d l arg est U K on li ne c loth ing re tailer ( Sourc e: Kantar 5 2 weeks ending 3 Ap ri l) wi th th e l arg est o mni - ch an ne l foot pr int . T his , com bi ne d wi th ou r 1 5m Sparks card holders, c redit card an d cus tome r dat a en gi ne , creates th e scop e to bri ng ot he r br an ds on to our p l at for m , CLOT H I N G & H O M E C ONTINUED Marks and Spencer Group plc 20 Annual Report & Financial Stat ements 2022 21 STR A TEG IC REPORT pro viding br oader choice and personalisat ion for the M& S cu st omer and s ubstant ial ne w r even ue str eams. – In t he l a st yea r we have es ta bl ish ed a ser ies o f pi lots w ith a co mb in atio n of around 40 clo thing brand partnerships, own o r inves ted br an ds . Th is h as in clu de d the p urch ase a nd rel aun ch of Ja eg er, as a contem po ra r y Br it ish br an d , a 2 7% share ho ldi ng i n No bod y ’s Chi ld an d th e majo r it y acq uisi tio n of ac ti vewea r br an d cur ator, The S po r ts Edi t, w hi ch br in gs n ew ca pa bi l iti es, cus tome rs an d br an ds to the G rou p. – These brand partnerships bring broader c hoice, pr emium price point s and additional exper tise t o M&S. In tota l , th ird - pa r t y br an ds a cross Clot hing, Home and Beauty , including Jaeger , generat ed c.£ 1 0 0m of or ders i n 2 0 21/ 2 2 . – In e sta bl is hin g the o pe r atio n , we have ma de e ar ly investm en t in th e ini ti al capacity requir ed for or dering and bus ine ss de velo pm ent . At thi s sta ge , the b usi nes s tra des t hrou gh a w ho les al e or c ommission model , wit h pr oduc t flowing t hrough t he M&S di stribution net wo rk . We ex pe c t to evolve the m od el to add dropship c apabilit y , enabling the s al e an d fu lf i l men t of ord er s fro m par tner s toc k . IMPRO VING PERFORMA NCE THROUGH ADDRESSING LEGA CY ISSUES Despit e the far -reaching dev elopments an d prog ress i n the p rod uc t en gi ne , the Clot hin g & Ho me b usin ess re qu ires f ur the r dev elopment in legacy sy st ems, supp ly cha in a nd s tores to ena bl e a more respo nsi ve bu sin ess w ith f as ter sp ee d to mar ket , an i mp roved retu rns p roces s, lower s tock le vel s an d a lowe r cost t o operat e. In th e cur ren t syste m, l ess ef fec ti ve syste ms con fi gu ra tio n and i nter f a ce makes pl anning and tracking sl ow and T h e S p o r t s E d i t In M arc h , we an no un ced a n ew i nves tme nt i n th e fa st-g rowi ng b ra nd p l at f or m Th e S po r ts Edi t , wh ich o f fe rs n ew a nd i nn ova tiv e br an ds . Ou r inv est me nt ref le c ts o ur s tr ateg ic fo cu s on a c tiv ewea r, and i n May we m a de o ur market - leading ac tive wear brand Goodmov e ava il a b le on t he p l at fo r m. Dig it al ne t pro mot er sc ore +5 T raf f i c (visi ts p er we ek) 13 . 3 m ( 2 0 / 21: 13 . 5 m ) Perc ent ag e of UK Cl oth in g & Ho me sa les o nl in e 34% (19 / 2 0 : 2 3 % ) l ab ou r inte nsive . T e ams h ave l imi ted vis ibi l it y to create a ccur ate cha nn el pl a ns , an d stock j ou rn eys f rom po r t to cus tome r vi a mu ltip le s tock ho ld ing a nd conso l id atio n po int s are le ng thy an d ca n be h ard to tr ack . T h e reconf i gu rat ion o f syste ms is l ike ly to take a nu mb er o f yea rs t o implement. Th e sup ply ch ai n pi ck ing m od el c an be sl ow and h ig h cost to op er ate, resul tin g in a r isk of t ra pp ed sto ck . The opportunity is t o r econ figure t he network to suppor t our omni- channel ne eds b et ter . In a dd iti on , th e retur ns channel r emains slo w, c reat ing ex cess ha nd li ng cos t and m arg in lo ss . We have al rea dy i de ntif i ed m ult ipl e ways o f reducing this; for instanc e preparing retur ns fo r res ale i n the s tore of retu rn or n ear by stores to e na ble f u r the r impro vements in omni-channel availabil ity. So , the p at ter n and r hy th m of p rodu c t fl ow wi ll b e f ur th er res ha pe d over th e ne x t few yea rs . Th is resh ap in g wi ll b e underpinned by a c ommitment to fewer, dee pe r str ateg ic sup pl i er rel at ion shi ps to sup po r t a f aste r , more flexible sourc ing model which has alr eady pr oved comparativ ely re silient during the pandemic. Ma rks a nd S pe nc er G ro up p lc 22 Th e step c ha ng e in on l in e pa r tic ip atio n an d fu r th er sh if t o f tr ad e away f rom hi gh stre et an d cit y ce ntre stores d ur in g the pa nd em ic ha s in creas ed th e im pe rat ive to red uce Clo thi ng & Ho me t ra di ng sp ace. L ast ye ar we s et ou t the o bje ct ive of t he M&S s tore rotat io n prog ra mm e to create a mo de rn ise d esta te of c. 1 80 f u ll- l in e stores an d a growi ng p rog ra mm e of l a rger, more ins pir ati on al F oo d stores . We aim to fu nd the e xi t costs o f the l eg ac y est ate thro ug h an i ncre asin gly a ct ive as set m an ag eme nt and fr eehold di sposal programme, whi ch we ex pe c t to releas e at le ast £20 0 m of cash pr oceeds. DEVELOPING PROFIT ABLE ROT A TION P IPELINE F OR FULL -LINE AND F OOD STORES So f ar i n th e tra nsf or mat ion , we h ave made significant pr ogress in closing 68 le ga cy f ul l- l ine s tores an d 1 9 sm al ler Fo od sto res. We have a l so create d a big ge r Fo od s tore for ma t wh ich c an ser ve mo re of the f a mi ly sho p and o f fe r cl ick-a nd - col le c t ser vices f or Clo thi ng & Ho me , and o p ene d 1 3 new, more e f f ici ent full-line st ores. W e are now dev eloping a gro wing pipeline of store re loc ati ons , m ovi ng f rom old mult i-floor buildings, often with challenged fabric an d poor ac cess and ca r pa rk i ng , to mo de rn , wel l- loc ate d sites wherev er possible in the r enewal f ormat with omni-channel capabil ity . Moving away fro m town cen tres is no t our o nly fo cus , bu t we recog nis e tha t in a n om ni -c ha nn el wor ld , ea se of sh op pi ng an d f ast a ccess is cr iti ca l to comp eti tive nes s, a nd i n ma ny ca ses we b el ieve t he town ce ntre lo cat io ns have lo st im pet us as a resu lt of f a ile d lo ca l au tho ri t y or g over nm ent p ol ic y. As a resul t, a h ig h prop or tio n, b ut n ot al l , o f ou r relo cat ion s are to the e dg e of town . Combined with the r elocation programme, we are targe ting an overall r eduction in Cl othi ng & H om e spa ce ref lec ti ng the r ap id g row th of o nl in e an d ou r ex it fro m the l ong t ai l of low s ale s de nsit y st ores t hat de liver a small pr opor tion of tota l prof i t. The full-line stor e pipeline already has arou nd 1 5 n ew stores p l an ne d over th e ne x t thre e yea rs , in clu din g seve n for me r De be nh ams s ites , and w e ex pe ct t his to bu ild f ur the r . T his w il l h el p en ab le a f ur t he r 3 2 store cl osures . E x am ples i nc lud e: – In L eam in gton S pa , t he rece nt clos ure of rel a ted town cen tre stores a nd relo ca tio n to a ful l- l ine e dg e - of-town for me r De be nh am s to create a fu l l-l in e prop osi tio n is ex p ec ted to pay b ack t he net c ap it al of £7 .0 m i nvested i n the n ew site in 3 .5 yea rs . – T he rel oc atio n of T hu rro ck f rom th e ba ck of a n un de rp er f or min g cent re wi th no a ccessib le p ar ki ng to th e for me r De be nh ams s ite by the b us st ati on w ith ex ten sive p ar k in g is ex pe c ted to cost a net £8. 4m a nd to pay b ack i n 2 yea rs . – T he a nno un ced cl osure o f the le g ac y fou r - f loo r town cent re store at Col ches ter an d op en in g of a new mo de rn s tore in th e reta il pa r k on th e ed ge of tow n wi ll cos t a net £7 .3m , resul tin g in a n esti mate d pay ba ck of 3. 2 yea rs. T o a ccele rate th e est ate’s rotatio n , we are focu sed o n dr i vi ng th e rec apt ure of Clot hin g & Ho me s al es fro m ex isti ng leg a cy si tes eit her to n ew stores , to al tern ati ve stores o r on li ne a nd a re tri al l in g a nu mb er of n ew in iti ati ves to increase this. T o a l so he l p en abl e the f u ll- l in e store rotat ion , a nd to dr ive a ccess to new area s of grow th , we cur rent ly anti cip ate op en ing c . 40 n ew Fo od sto res in the n ex t t hree y ear s, l arge ly in th e 1 2 ,0 0 0 - 1 5 ,0 0 0 s q f t ren ew al fo rm at. These s tor es generat e higher productivity and good cash pa ybacks. ENCOURAGING RESUL TS FROM RECENT OPENINGS Of t he 1 0 M& S stores op en ed i n 2020/2 1 * , sa les are ave ra gi ng c . 1 1 % ab ove pl a n , wi th pay ba ck s of aro un d 1 . 5 yea rs. 10 sto res o pe ne d in 2 020/ 21 Foodhall Full-line Performance V s original plan Performance Performance Avera ge a nn ua l sa les (£m ) 1 4.3 11 % 12 . 3 18 . 8 Avera ge c ap ex (£m ) 3.7 -2% 2.2 7. 3 Avera ge p ayb ac k ( yea rs ) 1. 5 - 4 4% 1. 5 1. 5 * 2020/21 store o pe n in gs a re sh ow n ab ove r at he r th an 2021 /22, a s th es e hav e 1 2 mo nt hs o f sa le s da ta to a ll ow a f ul l ﬁnancial r eview. STR A TEG IC REPORT S TO RE S & PR OPE R T Y A C C E L E R AT E D R O TAT I O N O F T H E E S TAT E T ransactions ( av erage per w eek) 9 . 7m ( 2 0 / 21: +3 9 % ) Sto res ne t pro mot er sc ore + 81 ( 2 0 / 21: 81) Footfall ( av erage per w eek) 14 . 1 m ( 2 0 / 21: + 4 5 % ) Strategic KPIs Annual Report & Financial Stat ements 2022 23 We ha ve a uni que co mbi nati on of nation wide stores and a broad-reaching onl ine p l at form , g ivi ng us a com pe titi ve advantage and the ability t o offer seam less a nd conven ient e xpe rie nces to customers, ho wev er they want to sh op. Not o n ly is th is b et ter fo r cu stom er s , bu t du al c ha nn el sho p pe rs sp en d t w ice as m uc h as th os e sho pp in g on ly in s tore. I n -sto re f ul f il m ent i s a bi g pa r t of o ur ad va nt ag e, l eve ra gi ng t he sto re es tate to b eco me a cr iti c al p ar t o f ou r su pp ly ch ai n net wo r k . T o m ee t de ma nd i n th e pa nd em ic , we s ca le d up o ur i n -s tore pi ck mo d el to cove r mo re th an 20 0 lo c ati on s; at th e he ig ht of t he Cov i d-1 9 cr isis , th es e op er ati on s wer e fu l f il l in g over 20 % of o nl in e de m an d. T h is ac te d as th e ca ta lyst f or f u r th er g row th , a nd tod ay a ll o ur c lot hi ng stor es are s et up to b e mi cro - fu lf i l me nt ce ntres col le c tiv ely p ick i ng ove r 50% o f cus tom er s’ onl i ne ord er s. S o if a c usto me r is p ick i ng u p a new G o od mov e top i n the ir l oc al s tore , th ere’s a st ron g ch an ce the loc a l tea m have a l so f ul f il l ed th at o rde r, whi ch as w el l as b ei ng ef fi ci ent , i s a nice p e rso na l ise d tou ch . STR A TEG IC REPORT Cl ot h i n g re n e w a ls Modern st ores in con venient loc a tio ns a re at th e he ar t o f ou r sto re str ate gy, suc h as ou r 75,0 00 s q f t n ew f ul l- li ne stor e in Stev en ag e, w hi ch brings elements of our renewal for mat into Clothing & Ho me f or th e f ir st ti me . C h a n g i n g t h e w a y w e c o n n e ct w ith cu s t o me r s Ma rks a nd S pe nc er G ro up p lc 24 International w ebsites 98 INTE RNA T IONAL BUILDING OUR G L OBAL RE A CH THR OU GH STR ONG P ARTNE RSHIPS AND ONLINE G RO W TH Ou r ob jec ti ve is to create a g rowin g Int ernational bu sine ss thr ough str ong pa r tn ers hip s and a m ul ti -p l at fo rm o nl in e bus ine ss w ith g lob al re ach . Inter n atio na l sa les g rew 1 .7% at const an t currency , reflecting t he c ontinuing reb oun d in a c tiv it y th rou gh th e yea r an d sust ai ne d grow th i n on l ine s al es bot h in m ar kets wi th a sto re prese nce and t hrough global mark etpl ace s . Operating pr ofit befor e adjust ing it ems of £73.6m (20 1 9/20: £ 1 1 0 .7 m) incl ud ed costs a nd t ar if fs of £29.6 m and a n esti mate d tr adi ng i mp ac t in t he reg io n of £ 1 5m d ue to on goi ng EU b ord er is sues , l arg ely rel a ted to the Re pu bl ic o f Irel a nd following Brexit. SO LI D G ROW TH I N TH E M ID D LE EAST, INDIA AND GLOBAL ONLINE T ogether with our par tners, w e generat ed 4% grow th i n reta il s ale s in 202 1 /22. T hi s included a particularly good p erformance in th e Mi dd le E ast re gio n , wi th grow t h in d om esti c de ma nd . In A sia , we s aw a substant ial bounce b ack in Indi a f ollowing loc kdow n in Q 1, whi ch w as pa r tly of fse t by conti nu ing res tr ic tio ns in s om e ma rket s. Sa les i n Europ e ref lec ted s tren gth i n Clot hin g & Ho me s al es in th e Rep ub l ic of Irel and , p ar tly of f set by th e im pa ct o f EU -re l ated b ord er is sues o n the F oo d bus ine ss. O ve r the p ast t wo ye ars , o nl in e reta il s ales o f M&S a nd o ur p ar tne rs have grow n by 1 5 2% a nd now tot al £25 1 m. Following t he expansion in to an additional 46 ter ri tori es in M arch 202 1 , we now tr ad e in 1 05 m ar kets . Performance vs 201 9/20 (%) H1 H2 FY Euro p e 4.2 7. 4 5.8 Middle East 9.5 28 . 0 18 . 6 Asi a -23 . 6 9.9 - 6.6 T otal retail sales -2 . 7 11 . 2 4.3 Performance vs 201 9/20 (%) H1 H2 FY Sto re s - 13 . 1 1. 5 - 5.7 Online 1 65.7 141. 1 15 2 . 2 T otal retail sales -2 . 7 11 . 2 4.3 Operating pr of it bef ore adju sting it ems £73 . 6 m International Re venue £ 9 3 7. 2 m (1 9/20 : -33 .5% ) ( 1 9/ 20: - 0.8% ) Net promot e r sc ore 86 ( 2 0 / 21: 8 5 ) ( 2 0 / 21: 9 8 * rest ated ) STR A TEG IC REPORT Alongside g ro w ing online channels, we’ re expanding our global reach by building a stro ng , e f f ic ie nt bu sin es s wi th p ar t ne rs i n se lec t t arg et m ar ket s. We’re fo cus ed o n ma ki ng it a s eas y as p ossi bl e fo r pa r tn er s to ord er, shi p a nd se ll M &S p rod u ct s in t he ir m ar kets , an d as p ar t o f th is , in M ay 202 1 we l a un che d a new U K hu b sp ec if i ca lly f or d ist ri bu ti on o f inte r nat io na l ord er s. T hi s me an s th at pro du c ts fro m ou r l a rges t so urc in g reg io ns ar e no lo ng er req ui red to b e so urce d fro m ou t of t he U K net w or k an d re -ro ute d to pa r tn er s. S in ce th e go - l iv e in M ay, the UK h ub h as p roc ess ed over 7 m il l io n si ng les f ro m the U K ne t wor k ; we' ve im prov ed th e vi si bil i t y an d sto ck pre sen tat io n of o rde rs to m ake i t eas ie r to tr ac k an d pro cess , a nd re du ced o ur l ea d tim es , me an in g M& S pro du ct s w il l be l a nd in g on t he sh elves e ven q ui cke r for c usto me rs a cros s ou r partner markets. B u i l d i n g a g re a t s e r v i c e f o r o ur i nt e r na t i o na l pa rt ne r s Annual Report & Financial Stat ements 2022 25 STR A TEG IC REPORT AD APTING TO GEO-PO LITICAL SHOCKS : BREXIT & R USSIA/UKR AINE Du ri ng th e yea r , t he bu sin ess f a ced the d ua l he ad wi nds o f the i mp ac t of EU bo rder i ssu es an d the e nd in g of shi pm ent s to our f r an chis e pa r tn er in Rus sia as a res ult o f the w ar i n Uk r ain e. T o m iti gate EU bo rde r cost s, we e xi ted the h ig h stre et fr an ch ise Fo od o pe r atio n in Fr an ce an d cease d ex po r ti ng ch il le d foo d to the Cze ch bu sin ess . We contin ue to abso rb m ater ia l ad min ist rat ion - rel a ted cost he ad wi nd s on F ood e xp or ts to Irel a nd , b ec aus e of cer tif ic ati on , de cl a rati on s and t he com pl ex it y of seg reg ati on in w a reho uses , n on e of wh ich b en ef it cu stom ers . We ex pe ct to be a ble to m itig ate th ese cost s fu r th er thro ugh increa sed local sourcing and by automat ing pr ocess es. In our Clo thing & Ho me o pe rat ion , we a re pl a nn in g to op en a n ew “ EU hub ” in Cro ati a , ena bl i ng the d ire ct f low o f stock i nto ma rket to fu lf il o rde rs fo r ou r pa r tn ers , including mark etplaces. Th e M& S busi nes ses i n Rus sia a nd Uk r ai ne have b ee n op er ated by a l ice nce ho ld er an d fr an ch ise p ar tn er a nd i n 202 1 /22 ge ne rate d retai l sa les o f £ 1 02. 5m an d a cont ribution t o profit bef ore ad justing item s of £5. 2m. M &S is a v alu es- le d bus ine ss; th eref ore, a s a resul t of th e inv asio n of U kr ai ne , we cease d sh ipm en ts to Russi a on 3 M arch 2022. Sub seq ue ntly, we have m ad e the d ec isio n to fu lly ex it o ur Ru ssia n f ra nch ise a nd we h ave recog nis ed a ch arg e of £3 1 m in a dju sti ng item s, re pres enti ng o ur f ul l ex it cos ts f rom Rus sia a nd bu sin ess d isr upt ion i n Uk r ain e. Unfortunatel y, our Ukrainian busine ss has al so b ee n pa r ti al ly close d as a resu lt of wa r im pa c ts , an d we are wo rk in g wi th ou r pa r tn er to reo pe n as an d wh en p ossi bl e. EXPLOITING GLOBAL G RO W TH OPPORTUNITIES IN INDIA, THE REPUBLIC OF IREL AND A ND ONLINE Ou r joi nt ven ture p ar tne rshi p wi th Rel i ance R eta il in I nd ia o pe ne d six n ew stores , clo sed n in e mos tly sma ll er-for mat stores a nd ref ur bi she d or e xp an de d a fu r th er si x . T he bu sin ess i s ex plo ri ng multipl e opt ions for fut ure gro wth , including ambiti ous plans t o gr ow s pace, wi th aro und 10 new store o pe nin gs p er year and expansions in k ey exist ing loc ati on s, a s wel l as leve ra gi ng th e dedicat ed Indian webs ite and pursuing growth throu gh third- par t y mar ketpl aces. Du ri ng th e yea r we al so d evel op ed a nd grew i n- store f ul f il m ent of C loth in g & Ho me o nl in e ord ers i n key ma rket s such as th e Rep ub li c of Ire l an d . In ad di tio n , the pa r tn ers hip w it h Za l a ndo h as d el i vered subs ta nti al g row th over th e pa st yea r , an d we ex pe c t to broa de n the r an ge av ail ab le as w e dev elop additional c apabilities. Ne w o pe ni ngs New In ternational store openings include our compr ehensiv e 1 3, 0 0 0 sq f t new s tore in t he Du ba i Hi l l s Ma ll . P EOPL E & C UL TURE STR A TEG IC REPORT O u r Pe o p l e Pl a n h a s si x k e y a i m s: #1 T r ansfo rm ing o ur org anis atio nal d esign to drive o w nership , pace a nd c ommercialit y . #2 Becomi ng a da ta enabled an d digitally focused busine ss. #3 Creatin g a team of em powered , responsi ve and com me rcial le ade rs wh o are close to the fro nt li ne. #4 Put tin g the store voice b ack at th e centre of the b usines s and a mp li f y ing the voi ce of the custom er . #5 Cre ating a culture of p lain speaking: dat a- d ri ven an d focuse d on p er fo rm ance. #6 Building an inv olving, engaging cultur e wh ere ever yon e ca n get o n. Ma rks a nd S pe nc er G ro up p lc 26 Annual Report & Financial Stat ements 2022 27 STR A TEG IC REPORT Fo ur yea rs a go , we set ou t the unv ar nis he d tru ths a bo ut th e st ate of the bus iness and w hy f ar -reaching change wa s ne ed ed to ar rest d ecl in e. Ce ntr al to this w as ad dre ssin g th e hie ra rchi ca l , slow- mov in g , over ly cor po rate a nd t op- hea v y c ultur e tha t had stalled previous transformation strat eg ies. We were clea r th at ou r ai m was to d raw on th e fou nd ati ons o n wh ic h M&S w as bu ilt a nd a pp ly the m in a mo de r n set tin g to creat e the most engaging , in volving pl a ce to work i n UK ret ai l – an o rga nis atio n that was data-driven, digitall y-enabled, empower e d and fast -moving , un de rp inn ed by a f l a t str uc tu re bui lt around the trading business u nits t hat dr ives a c lose nes s to the f ront l in e an d the cust om er . At the b eg in ni ng of th e f in an cia l yea r , Stu ar t M ac hi n and K at ie Bi cker sta f fe we re appointed Co - Chief Operating Off icers ( COOs ), sharing opera tional overs ight of the b usi nes s, to acce ler ate th e pa ce of cha ng e ac ross th e core bu sin esses . T his has driv en real momentum behin d our key str ateg ic pr io ri ties , fo r ex am pl e on store rot atio n wi th an a ccele ra ted closu re, rel ocation and r enewal pr ogramme and acc elerating online growth thr ough MS2. It h as al so a ccele r ated th e brea dth a nd pa ce of ch an ge i n our c ult ure , as th e exe cuti ve team to ok d irec t ow ne rsh ip of the Pe op le Pl an an d we have m ad e so me progr ess again st our priorities: #1 T ransformi ng our organisa tional des ign t o dri ve owne rs hip , pac e and c ommerciality Th e key ch ang e over t he p ast ye ar has b ee n th e ap poi ntm ent o f the t wo Co - COO s an d the g alv an isin g ef f ec t the y have h ad a cross th e core bu sin ess es, a s ca n be s ee n in ou r pre l imi na r y resu lts . Acros s the b usin ess , th e move to mo re fl ex ib le, a gi le wo rk in g has b ee n f ur th er embedded, underpinned b y cle ar frameworks and our market - leading par tn ership wi th Microsof t. Adoptio n of TE A MS is n ow at 93 % ac ross th e busi ne ss , with 9 .5 million int erac tions every mont h: 9 mi ll io n ch at mes sa ges , 280 ,0 0 0 vid eo ca l l s and 1 20, 0 0 0 o nl in e me eti ngs , as we ll as 2 40 s trea me d event s. In sto res, wo rk h as b eg un to mo de rn ise ou r ap proa ch to f lex ib il it y. For s tore management t eams we have intr oduced job s ha ri ng , move d f rom shi f t p at ter ns to ho urs- b ase d mat ri ces and a re tr ia ll in g new wor k pa tte rns s uch a s nin e - day fo r tn igh ts . Fo r custo me r assi sta nts , we w il l be p ilo tin g a new p rovid er to m ake it e asie r fo r store team s to boo k an d cha ng e shi f ts t hrou gh a mobile-compat ible digital platform access ed th rou gh TE AMS . T his w il l al so me an store m an ag er s ca n ma na ge sh if ts thro ug h the ir el ec tron ic d evi ces on th e shop floor . #2 Be com ing a d ata e na ble d an d digitall y focused busine ss If we w ant to b e a tru ly om ni - ch ann el business and maximise our c ompetitiv e advantage, our colleagues need the right sk il l s an d ca pa bi li tie s, e na bl ed by th e ri ght syst ems and t echnologies, underpinned by a dig it al f i rst cu ltu re. Pro gres s this yea r inc lud es: Skill s & Capabilities In Ja nu ar y the “ Pro du ct A ca de my” w as l au nch ed , a n £ 1 1 m inves tme nt i n fa ce -to - f ace tr ai nin g to hel p o ur sto re teams pe r fo rm a nd se ll b et ter, del ive red to 2 5,0 0 0 c ol leagues. This in cludes “sell ing thro ug h ever y c ha nn el ” to inc rease colleague confidence and capabilit y in utilising our g r owing number o f digital tool s a nd i n sel l in g prod uc ts a nd s er v ices ava il a ble o nl i ne r ath er th an i n store. I n December w e l aunched t he first e ver Data Sci en ce an d AI ap pre ntices hip i n reta il , of f er ing a 1 5 - mo nth Leve l 7 cour se fo r 1 0 col lea gu es thro ug h ou r “ BE AM Ac a de my” di git al a nd d ata l ea rn ing h ub. O ve r the pa st yea r , 1 4 , 0 0 0 le ar ni ng ses sio ns have be en u nd er t ake n throu gh t he Ac ad emy – ranging from longer -term c ourses t o bite -sized ses sions . Th e rig ht sys tem s & tec hno lo gie s Th e f irs t ph ase o f MyH R – the cl ou d- b ase d di git al p eo pl e syste m – was l aun ch ed in Sept ember , focus ed on performance management and talent management acros s the co ll eag ue l i fec ycl e. Wh il e the re were b um ps in th e roa d an d we conti nu e to respo nd to col lea gu e fee db ac k , it w as a rel at ively s moo th pro cess a nd is a key p ar t of mo ving t o a manager -and -colleague- led s el f -se r v ice mo de l . Colleague representation measurements 1 1 . Colleague measur ements c omp ared to 20/21 to ill us tr ate ye ar- on -y ea r pro gr ess . 2. A s at p ub l ic at io n da te. Engagement 62% Ove r 50 , 0 0 0 col le ag ue s pa r ti cip ate d in o ur Y o ur Voi ce col le ag ue su r ve y, giv in g th e business insights int o how engaged colleagues are feeling in the ir r oles a t M&S. Following a rese t of ou r su r vey p rovi de r, we ca nn ot acc ur ately co mp a re ag ai nst l ast ye ar ’s sco re of 82% bu t thi s wi ll b e th e be nc hm ar k sco re we me asu re ag a ins t in f u tu re rep or t s. Senior man agers fr om ethnic minorities 6 . 8% Wh il e we ma d e pro gres s in a t tra c ti ng talent from div erse back grounds, int ernal progr ession f or this group remained br oadly static imp ac ting overal l representation am on g se ni or m an ag er s. We’re t ak in g ac ti on to in crea se re pres en tat io n by op en in g acc essible attraction rout es and w orking with our business- wide divers ity networks. ( 2 0 / 21: 8 % ) Gender pay gap 12 . 5 % Ou r ge nd e r pay g ap , th e aver ag e dif ferenc e in hourly ear nings be tween ou rma le a nd f em al e col le ag ues , rem ai ne d lev el o n the y ea r . We’ ve ma de pro gre ss i nthe re pr ese nta tio n of wo m en in leaders hip r oles acr oss the business, wi th wo me n in m ore t ha n 50% o f ou r senior management roles. We remain com mi t ted to red u cin g th e ga p f ur t he r through action such as expanding ta le ntp athw ays to f ur the r ra is e the rep rese nt ati on a nd re wa rd of wo me n acro ss the business. ( 2 0 / 21: 12 . 5 %* r e s t a t e d ) Female 45,484 Male 20,726 Total employees 1 66,210 Female 69 (20/21: 57) Male 92 (20/21: 79) Total senior managers 1 161 11 Total Board 1,2 Female 5 (20/21: 4) Male 6 (20/21: 6) * Our reporting cov erage has been updated and wi l l in clu d e an a dd it io na l col l ea gu e sh if t p at te rn in o ur d is tr ib ut io n cen tre , so w e’v e rest ate d pre vi ou s ye ar s to gi ve th e tr ue st co mp a ri so n going forward. Ma rks a nd S pe nc er G ro up p lc 28 We have conti nu ed to use T E AM S as a gatew ay to dif fere nt se r vi ces , uti li sin g its hig h ad op tio n rates . We have fu l ly dig iti sed the operational communicati ons t hat go ou t to stores thro ug h the T E AM S pl at fo rm . Th ey are n ow pe rso na li sed to b e more relev an t to colle ag ues , a lb ei t the re is sti ll wo rk to do o n m ak in g thes e communication s suc cinc t and engaging. Th e reva mp ed co ll eag ue su r vey a nd CEO sug ge stio n sch em e are a l so f ul ly digitis ed and acc essed thr ough TEAMS , wh ich h as d ri ven i ncre ase d pa r tic ip atio n. In ter ms of e qu ip me nt , hea dset s for s tore team s are be in g tri al le d in 25 stores so tha t col lea gu es ca n ta l k to each o the r on th e move u sin g TE AM S , cu tt ing t im e and helping c olleagues spend more t ime with cust o mers. Th ere re ma ins m ore wo rk to do to en sure a consi stent q ua l it y of W iF i a cross th e est ate, p ar ti cul ar ly as we ex pa nd o ur omni-channel capabilities. Digital-firs t culture Ou r BE A M Aca de my ha s eng ag ed ove r 1 0 0 , 0 0 0 col le agu es th roug h even ts du ri ng the ye ar, inclu di ng 3 ,0 0 0 coll eag ue s at ou r big ge st - eve r an nu al “ D igi fest ”, 450 colleagues p articipating in the digital and data hackathon and 90 0 r egul arly attendin g the “ DigiMeetU p” s essi ons. T o t arge t col lea gu es of th e fu tu re, we al so s po nso red “ Ha ck th e Bu rgh ” – Sco tl and’s biggest student hac kathon. T o fos ter di gi ta l in nov atio n , "I gn ite" – ou r external innovat ion and partnerships fu nc ti on – m et over 50 0 s ta r t - up s , launched 1 9 new t r ials and e stablished t wo new p ar t ne rshi p wi th st ar t - ups , building on our existing work with T r ue a nd F ou nd ers Fa cto r y. Howeve r , hav in g dire c tly asked co ll eag ue s the ir v iews o n ou r pro gres s in crea tin g a digital -first business, t he feedback is clear . While c olleag ues understand the i mpor tance of digital and d ata tr ans for ma tio n and o f grow ing t he S pa rk s di git al loy al t y pro gr am me , they d o not ye t be li eve th at da ta is u sed e no ug h to info rm de cisi on - ma ki ng o r tha t we have inve sted en oug h in t he too l s an d ca pa bi li ties to en ab le th em to do th ei r job b et ter . #3 Creating a team of empowered , respons ive and commer cial l eaders wh o are c lose to t he f ron t lin e Impro ving talent pl anning and driving a high-performance cultur e has been a real a rea of fo cus f or th e exe cuti ve team ove r the p as t year. As a resul t, wh ile we co nti nue to b e a des tin atio n for wo rl d- c l ass t al ent , fo r the f i rst ti me since beg inning t he transformat ion we have p romo ted mo re pe op le in to sen io r lea de rsh ip rol es tha n we have hired ex t ernally . Standardi sing expectations has impr oved, wi th th e intro du ct ion o f a lea de rsh ip fr am ewo rk a nd mo de l of p otenti al to gi ve cl a ri ty to w hat g reat l ead er shi p loo ks l i ke at M& S . Howeve r , t here i s sti ll n ot a reg ul a r cadence o f leaders hip engagement or deve lop me nt to bu ild “o ne M &S lea de rsh ip team”. In ad dit ion , w hi le l iste nin g gro ups are no w an est ab l ish ed p ra ct ice at M& S an d the “ Chr ist mas E lf ers” sch em e – wh ere sup po r t cen tre col lea gu es he lp s tores over th e pe ak p er iod – w as t he bi gg est to date, t he rea l it y is th at p rogr am mes to conn ec t lea de rs to the f ron t li ne h ave st al led i n the p as t yea r . #4 Put t ing t he s tore vo ice b ack at t he centre of the business and amplifying th e voice o f the c us tom er In Sept ember we e stabl ished t he “St ore V oi ce Fee db ac k ” net wo rk , a ll owi ng sto res to send f ee db ack d ire ct ly to the lea de rsh ip, i ncl ud ing t he CEO. T hi s is coup le d wi th a wee kly c al l eve r y Mo nd ay mo rn ing i n wh ic h the s tore ma nag er s cha l len ge t he bu sin ess o n al l issu es sto res are g ra pp li ng w ith . T hi s is fol lowe d ever y Mo nd ay af ter no on by a c al l to store ma na ge rs set ti ng ou t th e pr io rit ies of t he wee k bu t al so res po ndi ng to ch al le nge s ra ise d thro ug h the fe ed ba ck c al l . I n ad dit ion , “ B uye rs a nd Se ll ers” n et wor ks hav e been established, c onnec ting our top sel le rs w ith b uy in g team s. T hes e me et reg ul a rly to dis cus s wh at is a nd isn’ t wor ki ng a nd t ake ac ti on . Our c ol league suggestion programme, “ Su gg est to Steve”, has be en re inv igo ra ted sin ce mov ing to a d igi ta l pl at fo r m, w it h an in creas e in su gg esti ons o f over 1 0 0% o n the p ri or ye ar . Steve Rowe h as sur p ris ed colleagues w ith winning id eas with a “ Steve Rowe he ll o”, and “ Dr ag on’s De n” event s have t aken p l a ce in stores a cros s the c ountr y , with colleagues pitc hing ag ai nst ea ch ot he r . T he b usin ess h as p ut over 6 0 0 id eas i nto ac tio n sin ce l au nch in g fou r yea rs ag o. We al so l au nc he d our n ew “ Voice o f the Custo me r” d ig it al p l at for m , “ Ma ke you r Ma rk s” , wh ich h ou ses al l of o ur cu stom er feedback, rec eived acr oss all channe ls , fro m on li ne to stores , i n on e pl a ce. T his he lp s col lea gu es to make d at a- d ri ven de cisi ons b ase d on e xa c tly wh at ou r cust omers need an d want. #5 Creating a culture of pl ain speaking: da ta- driven and focused on performance In th e pa st yea r , Stu ar t M ac hi n has l ed a reset of p er for ma nce m an ag eme nt focu sed o n rob ust g oa l set ti ng . Th is is l inke d to tra nsfo r mati on p ri or iti es an d open and honest c onversa tions through the ye ar to tr ack p er for ma nce , en abl ed by the M yHR s ystem . Ever y sin gle s al ari ed colleague had an end-of -year rat ing record ed i n the s ystem , e na bl in g f ar bet ter v isi bi li t y of p er fo rm an ce da ta to ensu re f ai rn ess a nd tr an spa ren cy. In stores we reset e xp ec ta tio ns fo r our c ustom er assi sta nts a nd h ave conti nu ed to dr ive qu ar te rly ch ec k-ins o n pro gres s, w it h dat a sh owi ng th at 84% of co ll eag ues are no w hav ing re gu l ar c he ck-in s wi th their manager . C o m p e t i t i v e re w a rd W e’ve invest ed in our remarkable people by in cre asi ng o ur h ou rly r ate o f pay. Ever y store co l lea gu e ac ross t he U K now e ar ns a t lea st £1 0 an h ou r, as pa r t of o ur co mp eti ti ve rew ard p ac ka ge . STR A TEG IC REPORT Annual Report & Financial Stat ements 2022 29 STR A TEG IC REPORT Alo ngsi de t ra ck ing o f pe r for m an ce, we al so i nvested i n ou r ra tes of pay a nd be nef i ts fo r col lea gu es. W it h pay a nd cost of living r emaining t op of mind for our colle agues, in Februar y we announced an in creas e in th e ba se ra te of pay so th at a ll permanent c olleagues e arn a minimum of £ 10, ri sin g to £ 1 1.25 for col le ag ues i n Lon do n , both a he ad of t he rea l l iv ing wa ge . In ad di tio n , we en ha nced w id er benefits t o include healt h & wellness be nef i ts , suc h as V ir t ua l GP a ccess a nd financial management advic e which combined with our pens ion and di scoun t contr ib uti on s of fe rs o ne of t he b est al l-ro un d rewa rd pa ck ag es in ret ail . #6 Building an invol ving , engaging culture wh ere eve r yone c an g et o n M&S i s ma de u p of over 65 ,0 0 0 coll eag ue s, an d our a im i s to esta bl ish a c ult ure w hic h br in gs ou t the b est i n ea ch of th em . A pl ac e whe re ever yo ne c an g et on We have ex pa nd ed th e succes sf ul F oo d Lea de rs pro gr am mes to of fer a r an ge o f innova tive developmen t programme s; BUI LD fo r col lea gu es new to le ad ers hip , E VOL VE fo r coll ea gu es mov ing f rom ma na ge me nt to broa de r roles a nd TR ANSFORM for colleagues mo ving into se nio r lea de rsh ip rol es. T h ey are, cr itic a lly, for AL L col lea gu es ac ross th e business, and feedba ck i s extremel y posi ti ve. T he key now i s to exp an d an d embed t he pr ogr ammes w ithout lowerin g the ir q ua l it y. In add iti on , we h ave expanded our c oaching offer , previous ly on ly for e xecu tive l ead er s, to 30 0 high-poten tial c olleagues, and have dev eloped “Stepping Into ” programme s to bet ter su pp or t th e c are er p ath of 750 high-per forming stor e colleagues. T o e nsure we a re bu ild in g a di vers e org an isa tio n, we h ave inves ted in n ew at tr ac tio n rou tes and p ar tne red wi th thi rd pa r tie s to source c an di dates f rom di vers e ba ckgrou nd s. T hi s sum me r we wi ll welco me th e f irs t of ou r “ Bl ack I nter ns” in iti ative p a r tici pa nts a nd we h ave al rea dy delivered our first “Diversity Insi ght” work e xperience pr ogramme target ed at undergraduate s with an e thnic minority or lower s oci o - econ om ic b ackg roun d . We are piloting a RISE – R ecognis ing In-Stor e Experience – programme, opening up support c entr e oppor tunit ies for s tor e col lea gu es , and w il l e xp an d it in t he comi ng ye ar . 42 7 you ng p eo pl e par tic ipat ed in t he “M arks and Start ” programme for tho se furthest away fro m wor k , w ith 8 1 % of fere d wor k at the e nd of i t , and w e have d el ive red the go vernment -backed Kickstart prog r am me , gi vin g 358 young p eo pl e a six -month placement and of fering 80% of p ar ti cip an ts wor k at th e en d of it . Building an invol ving , engaging culture Ove r 50 ,0 0 0 co ll eag ue s pa r tic ip ated in o ur Y ou r Voice sur vey , an d the f ee db ack w as cle ar . C ol lea gu e be l ief th at we a re in a posi tio n to succee d ha s real ly im proved , the re rem ain s hu ge p ri de i n the b ra nd , a nd scores o n be ing e mp owere d an d tr usted to do wh at ’s best f or th e bus ine ss an d cus tome rs are h ig h. H owever, whi le col lea gu es’ bel i ef th at we en ga ge i n genuine tw o-way c ommunication has move d upw ards , i t rem ain s po or ; too f ew col lea gu es be l ieve th e ri ght p eo pl e are rec ognised and re warded, and belief tha t ac tio n w il l be t aken o n fe ed ba ck th roug h the co ll eag ue su r vey is v er y low. Th ese a re cr itic a l area s to targ et in th e comi ng ye ar . Ou r Bus ine ss Invo lvem ent G rou p, BI G , conti nu es to eng ag e reg ul a rly w ith t he leadership – including at Boar d and exe cuti ve leve l s – an d wor k ha s be en do ne to bet ter est ab l ish th e role o f BIG re ps . We’ve al so t ake n ac tio n to get th e ba sic s right with a much-improv ed induction. Fi na lly, it ’s bee n a yea r sin ce we l au nch ed ou r alu mn i net wo rk – t he M& S Fam ily – wh ich h as d ou ble d to c. 10, 0 0 0. I n a “ wor ld f irs t”, we are e ng ag ing o ur a lu mn i as me ntors fo r cu rren t col lea gu es , and we are d el ig hted th at Steve Rowe – p er ha ps ou r mos t fa mo us a lum nu s – wi ll b e the comm unity’s pr esident. MO VING FR OM FIXING THE BA SI CS T O TH E N E X T P HA SE OF TRANSFORMA TION Per ha ps th e mos t sig nif i ca nt ch an ge to ou r pe op le an d cul ture i s the h an di ng of the b aton f rom Steve Row e to the new lea de rsh ip tea m. O n 25 May Stu a r t Ma chi n wi ll b eco me CEO , Ka tie Bi cker st af fe Co - CEO a nd Eo in T o ng e G roup C FO & Chi ef Str ateg y O f f ice r . B ri ngi ng th ese thre e lea de rs tog ethe r wi l l provi de th e stability, pace and bandwidth r equired to accel er ate the p ace o f cha ng e as M& S ente rs the “ sha pi ng th e fu tu re” ph ase . Key to this is u pp in g the p ace of c ha ng e an d be comi ng a b usin ess t hat m oves away f rom a l in ea r tr ans for ma tio n programme to an organisat ion t hat i s cont inu ally changing , e vol ving and experimenting. In man y way s it means mo re fu lly e xecu tin g the p ri or iti es we h ave ha d for o ur p eo ple a nd cu lt ure fo r the pa st fou r yea rs . Brea ki ng d own h ie ra rchi es , real ly l isten in g an d – cri tic a lly – ac ti ng o n wh at col le agu es a nd cus tome rs a re say in g. M ak in g M& S a pl a ce wh ere eve r y single colleague feels t hey belong and ca n grow th ei r ca ree r at a bu sin ess th ey tru st to do th e ri gh t thi ng . Ki ll i ng s acre d cows an d be comi ng a tr u ly dat a- le d , digitally enabled busine ss f ocused on outc omes, not inputs. Stuart has tak en immediat e “Day One” steps to l iste n an d ac t on w ha t col lea gu es are s ayi ng . Th e CEO su gg esti on sc hem e has b ee n reset a nd e xp an de d , so anyo ne ca n ma ke a sug ges tio n , ask a q ues tio n , or br in g an is sue “ St ra ig ht to Stua r t ”, and h e an d the l ead er shi p team w il l ad dres s it an d re spond within 48 hours. In addition , St uar t an d the e xecu tive te am w il l lea d fro m the fro nt wh en i t com es to bei ng “o ne M& S team” cl ose to the f ront l i ne a nd th e cus tome r . T hey w il l be r u nni ng a s tore for a wee k at le ast o nce a yea r , an d ever y sup po r t cen tre col lea gu e wi ll b e ex pe c ted to spe nd a mi ni mu m of f ive d ays a yea r with c ol leagues s er ving cust omers, either in st ores or e- c ommerc e distribut ion. New technology By i nvest in g in n ew tec hn ol og y – including digital h eadset s – we’ re helping our stor e c olleagues deliver seaml ess experienc es f or our c ust omers. Ma rks a nd S pe nc er G ro up p lc 30 STR A TEG IC REPORT EX TENDING AND EXPRESSING OUR SUST AINABILIT Y LEAD M&S w as a p io ne er in c reati ng a n ind us tr y- leading, fully int egrated s ustainabilit y plan un de r the “ Pl an A ” ba nn er, la un che d in 20 0 7 , wh ich ref l ec ted v alu es th at have be en core to M& S ’ cul ture si nce i ts in cepti on . Du ri ng th e yea r we reset Pl a n A wi th a sin gu l ar fo cus o n cu tt ing ou r ca rb on fo otp ri nt by on e th ird by 202 5 an d be comi ng a n et zero bu sin ess a cross Scop e 1, 2 and 3 by 204 0. A s an ow n - br an d reta ile r , M&S i s ver y wel l posi tio ne d to work wi th it s sup pl ie r pa r tn er s to fin d be tte r ways o f do ing t hi ngs . We have deve lop ed a mult i-stakehol der plan spanning cust omers, c olleagues and suppliers to del i ver o n this t arg et. Th is reset i ncl ud es th e retur n of th e G roup’s icon ic “ Lo ok B ehi nd t he L a bel ” campaign, foc using custome rs on the stor ies b eh ind f i ve ever yday p rodu c ts , fro m cof fe e to cotton , w hi ch are respo nsi bly so urced . We al so i de ntif i ed 1 0 0 co ll eag ues a s “C ar bo n Ch am pio ns” in le ad ers hip p osi tio ns in key ro les in buying , sour cing and operations and id enti f ie d key targ ets fo r 202 5. Fo llow in g th e reset of Pl an A , we ag reed to li nk ou r ne w £ 850 m revolvi ng cre di t f aci l it y to the d el iv er y o f our n et zero ta rgets . T hes e targ ets s pa n ac tiv it y o n ou r net ze ro road ma p acros s the v al ue chain, including c ommitments t o z ero defor estation in soy sourcing, sour cing more sustainable fibre s , r educing em issi ons i n ou r pro pe r t y est ate and eliminating millions of units of single-use pl astic pa ckaging. Du ri ng th e yea r we l au nch ed n ew in iti ative s to hel p cus tome rs le ad low er -c arbon lives, including: – Remov in g 75 mill i on i tems of p l as tic packaging fr om our food pr oducts and installing pl astic ta ke-back bins in ov er 50 0 of o ur sto res to make i t easi er fo r cus tome rs to rec ycle so f t pl asti c. – A new in cent ive p rogr am me to rew ard Sparks cu st omers when they dona te pre - loved c loth es to our “ S hwop pi ng” par tn ership wi th Ox fa m. – A “ test an d lea rn” tr ia l in a n im po r ta nt grow th m a rket , clot hin g rent al , wi th a Founders F actory joint v entur e inves tme nt in th e Zoa G rou p, th e operator of leading clothing r ental webs ite, Hirest reet. – In Ja nu ar y, a Sp ar ki ng C ha ng e Nati on al Challenge, inviting 1 4 million Sparks cus tome rs to tr y a lowe r - c a rb on di et, to fe el h eal thi er a nd p otenti al ly save m oney. Wh ile w e have le adi ng p osit io ns in cust omer perc eption, ther e is much mo re to do in Pl an A to comm un ic ate ou r pr ac ti ces. I n the ye ar a hea d we ex pe c t to acc elerate our programme s and bring them thr ough muc h mor e st rongl y t o the s hel f e dg e both w it hin t he sto re envir onment and during the online shopping experience. We believ e that wi de r sust ai na bil i t y conce rn s are he re to sta y , r esulting in opportunities for our br an d to enter n ew ma rket s. T hro ug h ou r de ep rel atio nsh ips w ith c ustom er s thro ugh Sparks , our longstanding trus ted sup pl ie r pa r tn er s and o ur p or tfo l io of in nov atio n pa r tn ers , we a re wel l pl a ced t o dev elop cu st omer pr opositions in a reas su ch as ci rcul ar f ash io n an d low -impac t farming. SU S T AINABI LIT Y Supporting the circ ular economy In A pr il , we jo in ed t he d ot te col le c tiv e, th e UK ’s f ir st f ul ly circ ular kidswear peer- to-peer marke tpl ace where parents ca n bu y, sel l , d o nate a nd re c ycle o utg row n ki dsw ea r . We sh are a co mm it me nt wi th d ot te to f in di ng m ore c ircu l ar so lut io ns w hi ch in cor p or ate b oth n ew an d pre - lov ed clo thi ng . d ot te ad dres se s the c ha ll en ge s pa ren ts f a ce when buying sec ond hand – through our partnership, tho se w ho s el l a pre - love d M& S ite m on t he p l at fo rm wi ll r ece ive a M &S vo uc he r for £5 o f f w he n the y spe nd £25 in ou r sto res o r on li ne . Su st ai na bi li t y ha s be en a t th e hea r t o f M&S K i ds’ th in ki ng f or ove r a de c ad e, a nd we’ re c ontinuing t o devel op the sustainability credentials wi th in o ur r an ge s. O ur s ch oo lwea r is m ad e to of fe r qu al i t y th at c an b e ha nd ed d ow n an d thi s is p roven i n th e fa c t th at M& S is o ne o f the m os t po pu l ar b r an ds o n do tte f or res al e, w i th ove r 40 0 i tem s li ste d on th e si te. w i t h d o t t e O U R P AR TN E RSH I P Sust a i na bi li t y R e p o rt Sh are ho ld er s ca n rea d a fu ll u pd ate on our progress in our s ustainability report at marksandspencer .com/ sustainabilit yrepor t202 2 ESG c o m m i t t e e re p o r t Rea d ou r ES G com mi t tee r ep or t on p70 Annual Report & Financial Stat ements 2022 31 STR A TEG IC REPORT NON - FINANC IAL I NFORM A TION ST A T EMEN T The stat ements belo w re ﬂect our c ommitment t o, and management o f , people, c o mmunit ies, the en vironmen t, human rights, anti-briber y and an ti-corrupti on in the last 1 2 mont hs. Full detai l s of all our policies on t hes e matter s c an be found a t marksan dspencer .c om/thecomp an y . PEOPLE We are comm it ted to prov id ing a l l of ou r col lea gu es wi th a sa fe wor k in g envir onment and an organisa tional cultur e wh ich p rom otes in clusi on , d ive rsit y, eq ua l opportunities, personal deve lopment and mu tua l resp ec t. We w ant p eo ple to e njoy comi ng to wor k an d fo r the wo rk pl ace to be fr ee fr om dis criminat ion, harassme nt an d vic ti mi sati on . We kn ow tha t our B oa rd an d lea de rshi p team p l ay a v ita l role i n thi s com mit me nt, w hi ch is w hy we have l a id ou t ou r prog ress i n ba l an ced le ad ers hip on p ag es 68 to 69. Fur th er d eta il o n soci al mat ter s ca n be f oun d in Pe op le & Cu ltu re on p ag es 26 t o 29, an d our S ec ti on 1 7 2( 1 ) st ateme nt on p ag es 32 t o 34. Read more on our c ommitment to pe op le i n ou r : – People Principles – Co de of C on du c t – Respons ible Marke ting Principl es – In clu sio n , Di ve rsi t y & Equ al Opportunities Policy COMMUNI TIES AND E NVIRONMENT W e ha ve supported our local c ommunities thr oughout o ur 1 3 8-year history , because we kn ow th at vi br an t comm un iti es are esse nti al fo r ou r succes s. We aim to t ake a progr essiv e appr oach t o our commun ity en ga ge me nt, w hi ch is ref le c ted in o ur sustainability commitments. Sustainabil ity is al s o core to the M &S br an d . Th is framework brings t ogether individual bus ine ss un it s tra tegi es into a sh are d programme to driv e behavioural change an d ensu re the w ho le b usin ess o pe r ates in a m ore sus ta in abl e way. Read more on our c ommitment to communi ties and the en vironment on our dedicat ed corporat e webs ite areas : – Our Comm unities – Pl a n A : Ou r Pl a ne t Rea d mo re o n ou r ac ti vi ti es in t hes e are as th is ye ar : – Envir onmental c ommitment s and progr ess ca n b e fou nd i n th e ESG C om mi t tee Re po r t on p ag es 70 to 77 . D et ai l s of ou r g ree nh ou se ga s (“ GH G ”) e mi ssi on s are o n pa g e 7 6 . – Our c ontributions to wards, and cons ideration o f , c ommunitie s is integrat ed th rou gh ou t the re po r t a nd c a n al so b e fou nd i n ou r Se c ti on 1 72( 1 ) s tate me nt o n pa ge s 32 t o 34 , an d in t he ES G Co mm it tee Rep o r t on p ag es 70 to 77 . HU M AN R IG H T S M&S h as a lo ng h istor y of resp ec ti ng hu ma n rig ht s in th e UK a nd st an din g up f or tho se values int ernationally . Our commi tment t o human rights is r einfor ced in o ur Hu m an R igh ts Pol i cy a nd Co de of Co nd uc t an d , for a ll su pp l ie rs an d business p artners, in our Global Sour cing Pri nc ip les. We are a l so a sig na tor y to the UN W omen’ s Empowerment Principles and the p ri nc ipl es of th e Un ited N atio ns G lo ba l Com pa c t. We str ive to b e a fa ir p ar tne r by pay in g a fa ir p ri ce to supp l ier s , sup po r tin g local c ommunities and ensurin g good working c onditions f or ev er yone working in o ur bu sin ess a nd su pp ly cha ins . We are committed to building knowledge and awa ren ess o n hum an r ig hts f or al l of o ur colleagues and suppliers , enc our aging the m to spe ak up a bo ut a ny conce rn s wi tho ut fe ar of re tri bu tio n – the o utcom es of w hic h al so e na ble u s to comp ly wi th legislation and meet t he expectation s of s hareholders. Read more on our c ommitment to hu ma n ri gh ts i n ou r : – Modern Slavery Stat ement – Hu ma n Ri gh ts Po l ic y – Co de of C on du c t – M&S Global Sour cing Principles – Child L abour Pr ocedure – M&S grie vance proc edure for Food and Clo thing & Hom e s upply c hains ANTI- BRIBERY AND ANTI- CORRUPTION M&S i s com mit ted to th e hi ghe st st and ard s of eth ic s, h on est y a nd in tegr it y. We have a zero -tol er an ce app roa ch to any fo rm o f br ib er y a nd cor r upt ion a nd operat e a complianc e pr ogramme to pre vent bribery and corrupt ion in our business and supply chain. Our Ant i-Briber y and Anti-Corruption policies outline the exp ected standards of c onduct that colleagues, con tractor s, suppliers, busine ss par tners and any ot her thi rd pa r tie s wh o ac t for o r on b eh al f of M&S a re ob l ig ed to fol low. Th e Gro up Pol ic y ou tl in es core p ri nci pl es an d ap pro ach , w hi le th e Col lea gu e Pol i cy pro vides detailed guidance and sets out the applicable proc edures f or c ol leagues, wor kers a nd co ntr ac tors . Th e Bu sin ess Par tner Policy ident ifies the requir ements for s er v ice p rovid er s, su pp l ie rs an d oth er busin ess pa r ties. Our pr ogr amme i ncludes detailed proc edures an d c ontr ol s ar ound giving and r eceiving gifts, hospitalit y and ent er tainment; pr ocedur es f o r engaging new suppliers and partners, specifically tho se wh o are b ase d in h igh er-ri sk jurisdi ctions; and standard c ontract clauses and cl ear r epor ting channels, including c onf idential reporting. All colle agues ar e requir ed t o undertake ma nd ator y A nti - Br ib er y and A nti - Corrupti on e-learning. The Company will c onsider tak ing di sciplinar y action ag ai nst a nyone w ho f a il s to com ply w ith its A nti - Br ib er y Pol ic y, up to and i nclu di ng dismissal. Any potential incidents r epor ted int ernally or t o the external c onfidential reporting c hannels are follo wed up and fu l l invest ig atio ns l a unc he d wh ere su ch action i s deemed appropriat e af t er preliminar y enquiries. A ll inv estigat ions are subsequentl y reported to the Audit Committ ee. Br ib er y R isk A ss essm en ts are co ndu c ted on an annual bas is and an annual re por t issu ed to th e Aud it Co mm it tee . Read more on our c ommitment to Anti- Br iber y and A nti- Corr uptio n in our: – Busines s Partner Anti-Bribery and Anti- Co rru ption Poli cy – Co de of C on du c t Ma rks a nd S pe nc er G ro up p lc 32 SECT ION 1 7 2( 1 ) ST A TEMENT EN GA GEMEN T & DEC IS ION - MAKIN G We bel i eve th at co nsi de ri ng o ur s ta keh ol de rs in key b usi ne ss d ec isi ons i s no t on ly the r ig ht thi ng to d o, b ut i s fu nd a me nta l to ou r ab il i t y to dr ive v a lue c rea tio n ove r the l on ge r ter m . Du ri ng t his f i na nc ia l yea r, in the m id st of re cover in g f rom a g lo ba l pa nd em ic , balancing the needs and expec tations of our stak eholders has ne ver been a mor e important or c hallenging tas k. Bo ard d ire c tors a re b ou nd by th ei r du ti es un de r th e Co mp an ies A ct 20 0 6 (th e “Act ” ) to pro mote t he su cces s of th e Co mp any for t he b en ef i t of ou r m em be rs as a w h ole . In d oi ng so , ho weve r , th ey mu st h ave reg a rd to the i nte rest s of al l o f ou r st ake ho lde rs , to ens ure th e lo ng - ter m sus ta in ab il it y o f th e Co mp any. Th e Bo ard i s th eref ore re spo ns ib le for e ns ur in g th at it f u lf i l s it s ob li g ati ons to tho se im p ac ted by o ur b us in ess , i n it s stakeholder consideration and engagement. Stakehol der c onsideration is embedded throughout the bus iness, with the Executiv e Committee (“ ExCo”) an d seni or management actively eng aged in communication and involvement initi atives. Th e fo ll owi ng p ag es co mp r ise o ur S ec ti on 1 72 (1 ) s tate me nt , se tt in g ou t how t he B oa rd ha s, i n p er fo r mi ng i ts d uti es ove r th e cou rse of th e yea r, had re ga rd to th e mat te rs se t ou t in S ec ti on 1 72( 1 ) (a) t o (f ) of t he Ac t , al on gsi de ex am pl es of h ow ea ch o f ou r key st ake ho ld er s have b e en co nsi de red a nd e ng ag e d. F ur t he r information can also be f ound thr oughout th e Str ateg ic R ep or t a nd i n ou r e xp lo rat io n of key s tr ateg ic d ec isi on s ma de i n th e Governance Repor t. Rea d mo re: Strategic Repor t, p 2- 5 5 Key Bo a rd De cis io ns , p34 , p63- 6 4 At marksandspencer .com/thecompan y SECTION 1 7 2( 1 ) ST A TEME NT ST AK EHOLD ER ENGA GEMENT & C ONSID ER A TION S SHAREHOLDE RS Why t hey m at te r Securing our shareholders ’ trust thr ough cont inuous engagement ens u re s their ongoing inv estment and support . Key p riorities For some, del ivering sustainable, pr of itable grow th ove r the l on g- ter m . Fo r oth er s , see in g immediat e ret urns on their in vest ment. Increas ingly for all, seeing pr o active and cons cienti ous En vironmental, Social and G over na n ce (“ ES G ”) p l an s be in g fo rm ed a nd corr esponding good per formance in ESG areas. How the Board engages – The Annual General Mee ting (“ A GM” ) is the Board’ s primar y opportunity t o int erac t wi th sh a reh old er s , an d at l as t yea r ’s dig it a l me eti ng t he B oa rd en ga ge d wi th n ea rly t hre e tim es a s ma ny sh are ho ld er s tha n at th e l a st phy sic a lly h eld AG M i n 20 1 9 . Al mo st 1,7 0 0 individual shareholders eng aged with ou r AGM p l at fo rm , e it he r to watc h, v ote or su b mi t qu est io ns . Th e Bo ard i nte nd s to conti nu e w ith thi s im prov ed e ng ag em en t tr aje c tor y, by hosting another digital me eting this year . – Ou r Pr iv ate S ha reh ol de r Pa ne l is a g rou p of randomly selected private s hareholders wh o hav e the o p po r tu ni t y to atte nd re g ul a r meetings with our Board and senior ma na ge m ent , d ur in g wh ic h the y ca n he ar mo re ab ou t M& S an d prov id e th ei r in pu t on t he b usi nes s’ di rec ti on o f tr avel . How M &S e ng ag es – Our Inve stor R el ations t eam , alongside the Chairman and senior management, maintains a regular dialogue with k ey in sti tu tio na l inv esto rs . Ove r th e cou rse o f th e pas t yea r, the tea m me t wi th (vi a vi d eo conf erencing, o ver the phone and in-person ) over 1 20 institutional funds, engaging with inve stor s wh o we es tim ate re pre se nt ove r ha lf o f ou r is sue d sh are c a pi ta l . Govern ance c onsiderations – Dividend decision-making, bal ancing the de sire o f sha re ho lde rs f or i mm ed ia te retu rn s , ag ai nst t he n ee d to pre ser ve l iqu id it y and ens ure t he long-term sustainabilit y of th e bu sin es s. – Overarching strategy and purpose se tting , aimed at d elivering against shareholders ’ needs f or long-t erm , s ustainable an d profitable growth. – Aud it C om mi t tee ove rs igh t of i nter n al a nd ex te rn al a ud it p roc ess es , ens ur in g th e bu sin es s’ inte rn al f r am ewo rk o f cont rol s is suff icient to pr otect shar eholder in vest ment, an d th at th e pre sen tat io n of th e f in an ci al st atem en ts p rovi de s inve stor s wi th an a ccu ra te, f ai r an d ba l a nce d vi ew of performance, st rategy and operat ions. CUS TO ME R S Why t hey m at te r Ou r cu stom er s are a t the h ea r t of o ur b us in ess . Maintaining and increas ing their enthusiasm an d loy al t y for t he M &S b ra nd e nsu res t he enduring suc cess of our busine ss. Key p riorities G reat q ua l it y a nd v al ue p rod uc t s; h avi ng go od av ai l a bi li t y ac ross p rod u ct l i nes ; a sto re est ate a nd a n on l in e of fe r th at a re eas y an d en joy ab le to sh op i n; a co nsc ie nti ous co r po ra te ci tize n wh o cu stom er s ca n re ly on to hav e acted e thically and sustainably when sourcing th e pro du ct s th ey wea r, eat , an d br in g into their home s. How the Board engages – Cust omer feedback is incorpora ted into bu sin es s up da tes an d pro po sa l s fo r the Bo ard ’s rev iew a nd co ns id er ati on . – Our non-executiv e direct ors r egularly att end stor e visits t hroughout t he year , seeing f irs t -h a nd h ow stor es op er ate a nd h ow this impacts cust omer experience. How M &S e ng ag es – Th is ye ar w e int rod uce d ou r Voice of t he Cust omer programme, to me asur e cu stome r sa tis f ac ti on a nd e xp er ie nce w i th sh or t , ta rge ted su r vey s ac ross a pp roxi m ately 1 .5 m il l io n tou ch po int s on l in e an d in s tore. – W e r egul arly monitor c ust omer mood and top ic al i ssu es th rou gh a m on th ly sur vey of 1,0 0 0 cus tom er s. T hi s he lp s us to u nd er sta nd how cust omers are feel ing and w hat i s going on i n th eir l i ves , so w e ca n sh ap e con tent a nd tone across our commun ication channels. – We cond uc t f ocu s gro up s, i n - de pth inte r v iew s an d su r veys t hro ug ho ut t he ye ar on o ur s tr ateg ic p ri or i tie s. T hi s yea r, in- d ep th di scu ssi on s have b ee n he ld w it h over 4 0 0 cus tom er s, a nd a no th er 9, 0 0 0 h ave be en sur veye d , on a r an ge o f top ic s in clu di ng : webs ite experience; delivery and collections propo sition; Spring and Autumn campaigns resp on se ; an d Chr is tm as sto re ex p er ie nce . Govern ance c onsiderations – ESG C om mi t tee rev ie w of cu stom er i nsi gh ts and perc eptions on M&S’ sustainability cre de nti al s , to in fo rm th e Pl a n A res et an d future s trategic aims on sustainability . – Budget and thr ee -ye ar plan disc ussions, agreeing pricing strat egies to take acc ount of cust om er impact amidst infl ationar y pre ssu res a nd th e en erg y p ri ce cr isis . COLLEAGUES Why t hey m at te r We ca nn ot o pe ra te and a ch iev e ou r str ate gi c go al s w it ho ut a n en ga g ed co ll eag u e ba se th at feels apprec iat ed, and is motivated to deliver for o u r cus tom ers a nd t he b usi ne ss’ su ccess . Key p riorities Feeling valued and appr o priat ely rewarded; hav in g an i nc lu sive a nd d i ver se pl ace to wo rk wi th a res pe c tf u l cor po r ate cu ltu re; b ei ng a b le to sha re th ei r vi ews a nd h ave th ei r col le ag ue voic e hear d in dec ision-making . Annual Report & Financial Stat ements 2022 33 STR A TEG IC REPORT ST AK EHOLD ER ENGA GEMENT & C ONSID ER A TION S CONTINUE D How the Board engages – Ou r Bu sin es s Invo lvem e nt G rou p (“ B IG ” ), a net w or k of e lec te d rep rese nt ati ves f rom ac ross a ll p a r ts o f the b us in ess , f ac il i tate s engagement with colleagues, with loca l BIG team s r egular ly feeding back to National BIG. Th e ch ai r of B IG re pre sen ts th e col le c ti ve col le ag ue vo ice by a t tend in g a nu m be r of Board and Remunera tion C ommittee meetings throughout the y ear . – Bo ard m em b ers h ea r f rom a nd e ng ag e with our colleagues directly dur ing st ore visits, thr ough listening gr oups , and a lso regularly join leadership te am meetings acro ss the business. How M &S e ng ag es – Co ll eag u e up da tes on p er for m an ce an d str ate gy a re p rovi de d by E xC o me mb e rs and s enior management through r egul ar bu sin es s area “ h ud d les”, as we ll a s by em ai l , vir tual mee tings, and our Microsoft T eams communi cation and c oll aboration platform. Co ll eag u es are e nco ur a ge d to be i nvolve d in th ese fo ru ms b y voi cin g th ei r vi ews , id ea s an d qu est io ns w ith t he l ea de rsh ip te am d ire c tly. – Th is ye ar, we int rod uce d a ne w Col l eag u e V oice pr ogramme, surveying our colleague s bi -a n nu al ly to gi ve th e Bo ard a nd E x Co a n in for me d p ic tu re of ho w col le ag ues f ee l ab ou t wor k in g fo r the b us in ess . T he progr essiv e c olleague engagement scor e th rou gh th e yea r w as 62% , wi th 75 % of colleagues p articipating sa ying that they fe el p rou d to wor k fo r M&S . Govern ance c onsiderations – Th e Bo a rd ’s Grou p p ur po se set t ing and strategy discussions, highlighting th e im po r ta nce o f col le ag ue b u y- in and c onsequentl y c ommissioning a col le ag ue su r ve y to inv ite v iew s on purpose communication. – In su pp o r t of a n “ inte r na l f irs t ” ap pro ac h to gro wing talent and impro v ing div ersity in t he wor k fo rce , an d col lea g ue su r vey f ee db ac k on de velopmen t opportunitie s, the Board en cou ra ge d th e con tin ue d l au n ch of long-form learning and dev elopment programmes tailored t o all car eer stage s. COMMUNI TIES Why t hey m at te r Co mm un it y a ccept a nce a nd m utu a l resp ec t prov id es u s wi th a l ice nce to o pe r ate an d en sure s we are a f orce fo r g oo d for t he pe op le a nd p l ac es we im p ac t . Th is i ncl ud es the wider environment, wher e c o nsiderat e use o f reso urce s cont ri bu tes tow ard s ou r long-term s ustainabil ity. Key p riorities A f ai r an d va lu ab le co ntr ib ut io n to soc iet y an d th e eco no my an d for M &S to b e a so cia l ly res ponsible corporate, that care s about its long-term impact on the communities and env iro nm en t it o pe r ates in . How the Board engages – Th e Bo a rd an d ESG Co m mi tte e hav e revie wed k ey community initia tives in m eet in gs , in cl ud in g as p ar t o f th e sustainability strat egy and, more rec ently , th e bus in ess’ a pp roa ch to th e inv as io n of Ukraine. – Directors meet and engage with var ious com mu ni t y pl ay ers i n v isi ts to sto res an d dis tr ib uti on ce ntres . How M &S e ng ag es – This y ear , our c haritable donat ions r eached over £5 . 2m, a nd we f u nd ra is ed m ore th a n £ 4m in dona tions f rom our cust omers, col le ag ue s an d pa r tn er s. O ur d on at io ns were m a de to ou r 35 Sp ar k s cha r it y p ar t ne rs , as we ll a s to UN HCR a nd U NI CEF i n sup p or t of th e cr isi s in U kr a in e. – Th e M& S Co mp any A rch iv e prov id ed opportunities for people to enjoy M&S’ ri ch h er it ag e th rou gh a co mb in ati on o f po pu l a r on li ne e ven ts , an e xp a nd ed r an ge o f digital learning resour ces and relaunched vi sito r se r vi ces at t he “ M ar ks i n T im e” Exhibition in Leeds. Visit marksintime. marksandspencer .com f or m ore d et ail s . Govern ance c onsiderations – In co nsi de ra tio n of o ur co mm un it y a nd to ensur e the business ’ effective charitable gi vi ng , t he ES G Co mm it te e over ha ul ed a nd stren gthened our governanc e pr ocess on c ha ri t y pa r tn er sh ips a nd d on at io ns. SUPPLI ERS Why t hey m at te r Ou r tr us ted su pp l ie rs e na bl e us to prov i de ou r cus tom er s wi th th e hi gh - q ua l it y, ethi c al ly sourc ed and pr oduced goods they ex pect. Key p riorities A long-t erm, productive r el ationship with M&S, al low in g th em to cre ate g reat p rod uc t s , bu ild volume at equitable prices and achiev e thei r own s tr ate gi c go al s . How the Board engages – Th e Bo a rd an d Aud it C om mi t tee rev ie ws and c onsiders supplier relationships and feedback in oper ational, performance and ri sk u p da tes . – Th e ES G Com mi t tee m on ito rs a nd cr it ic al ly evaluat es s ustainabilit y and ethical t rading in th e su pp ly ch ai n. How M &S e ng ag es – We mea sure S u pp li er S at isf a c tio n us in g the independent Advantage R epor t Mirr o r t o survey a proportion o f our supplier base each year . The annual Grocerie s Code Adjudicator sur vey al s o prov id es v al ua bl e in sig ht o n sector priorities and s upplier per cept ions. – We have e ng ag ed w it h ou r M& S Se le ct Fa r m f ar me rs a nd g rowe rs on l ow im p ac t f ar mi ng to he lp a dd res s th e cha l le ng es of g lo ba l wa r mi ng a nd cl i ma te cha ng e. A s a resu lt , we ha ve est ab l ish ed a n et wo rk o f 1 8 I nd ic ator & In nov ati on Fa r ms to tr ia l new co n cept s , identify so lutions for wider adoption and champion production syste ms tha t reduc e carbon and impro ve wildlife habitats. Govern ance c onsiderations – Aud it C om mi t tee rev ie w of co mp li a nce w it h th e Gro cer ie s Su pp ly Co de o f Pr ac ti ce, u sin g th e resu lts f ro m the a n nu al G roc er ies C od e Adj ud ic ato r sur vey to foc us m an ag em en t’s ac ti vi ti es w ith s up pl ie rs f or th e com in g ye ar. – Rev iew o f ou r pay m ent p r ac ti ces , en sur in g th at th ese a re ap pro p ri ate an d ou r sm al le r sup p li er s are su p po r ted a nd a l so h ave acce ss to ou r Su pp ly Ch ai n Fi na nce s ol uti on . PA R T N E R S Why t hey m at te r Ou r p ar t ne rs pro vi de ave nu es to ex p an d ou r rea ch a nd a ccess to n ew cu stom er s - in t he UK a nd i nter n ati on al ly. We als o hav e pa r tn er s assess ing and s u pporting our operations, t o en sure w e cons ta ntly e volve a nd i mp rove . Key p riorities A cor po r ate pa r tn er w h o resp on ds to con ce rn s, acknowledges jurisdictional and technical expertise, and p ro vides peer -to-peer support. How the Board engages – Th e Bo a rd has co ns id ere d an d ap prov ed cont ract ex ten sions with existing partners, as we ll a s ap pro vi ng th e l au n ch of a n ew strategic pa rtn ership with Cost a Coffe e, supplying chilled and snacking M&S food in over 2 ,0 0 0 C ost a sto res . – Up on R uss ia’s inv as io n of Uk r ai ne , th e Bo ard qu ic kly d isc uss ed t he i mp ac t o n ou r col le ag ue s an d cus tom ers i n th e reg io n . Th e pro po sed r esp on se to ou r T u r ki sh f ra nc hi se par tner operat ing in bo th Ukraine and Russia wa s al s o de ba ted at l en gth . T he B oa rd rea di ly ag ree d th at col l eag u e wel f are s ho uld b e th e priority and our partner should be engaged to ens ure th e s afet y o f col le ag ue s by any means necessary . How M &S e ng ag es – We have wo rke d cl ose ly wi th o ur g lob a l fr a nch is e pa r tn er s du ri ng t he ye ar to su pp or t th em th rou gh t he v ar io us c ha ll en ge s th at Cov id - 1 9 h as c reate d in th ei r m ar kets . Frequen tly changing gov er nment regulations hav e impact ed c onsumer sen timent and shopping habits; we have responded b y sup p or t in g ou r pa r tn er s wi th ch an ge s to product demand and f acilitating multipl e new s el l in g ch an ne l s to ma ke it e asi er fo r pa r tn er s to cont in ue p rovi di ng M &S p rod uc t s. – At th e Bo ard ’s di rec t io n, w e cont in ue to en ga ge w i th ou r T ur k ish f r an ch ise p ar tne r, FIB A , o n th e op er ati on o f sto res in U k ra in e an d Rus si a. F or t he s af et y of col l eag u es , al l op er at io ns in U k ra in e wer e susp e nd ed o n 2 4 Fe br u ar y 2022. Shi pm en ts to Ru ssi an stor es wer e susp e nd ed o n 3 Ma rch 2022, an d ne go tia tio ns h ave n ow con clu d ed w ith FIB A to fu lly e x it f rom Ru ss ia . Govern ance c onsiderations – Th e Bo a rd cons id ere d ou r T ur k ish f r an ch ise pa r tn er ’s ne ed s at l en gth i n it s de ci sio n to withdraw fr om Russ ia. Ultimat ely agreeing th at , wh il e ou r pa r tn er ’s in teres ts a nd o ur ongoing r el ations hip would l ikel y be je op ard ise d , cea sin g tr ad e in R us sia w as th e ri ght t hi ng to do m o ra lly. – Inve stments in thir d -par ty brands, reviewing corporat e and dec ision-making structure s being implement ed whil st c onsidering the needs and suppor t r equired by our new strat egic brand partners. Ma rks a nd S pe nc er G ro up p lc 34 ST AKEH OLDER C ONS IDER A TIONS During the year , as the Board ma de decisi ons implemen ting our strategic priorities, the different inter ests of ou r st akeh old er g rou ps , an d the i mp ac t of key de cis ion s upo n th em , we re con sid ere d . In so me c as es , the i nte res ts a nd im pa c ts b et wee n st akeh old er g rou ps con fl ic te d , and t he B oar d and E x Co had t o asse ss t hese c onf li c ts a nd at te mp t to bal a nce t hem i n th ei r dec isi on - mak in g. SECT ION 1 7 2( 1 ) ST A TEMENT THREE - YEAR PLAN AND STRA TEGIC FINANCIAL MANA GE MENT Backgr ound: Th e Bo ard a nd E x Co co mp lete a t hre e -yea r ly root a nd b r an ch rev iew o f th e Gro up ’s str ateg ic f i na nc ia l pl a ns . T his y ear ’s rev ie w wa s pa r ti cu l ar ly fo cus ed o n en sur in g b al a nce s he et st ren gth f or t he n ex t p ha se of o ur t ra ns for m ati on . Shareholders In i ts d isc us sio ns , th e Bo ard c a ref ul ly con sid ere d th e ne ed to d el i ver t an gi bl e va lu e to sha re ho lde rs , weighing their short -term des ire for returns ag ainst the need to de li ve r lon g -te rm su st ai na bl e va lu e. T he B oa rd d iscu ss ed rei ntro du c tio n of a d iv id en d al on gsi de ov er al l c ap it al ma na ge m ent ; i n pa r ti cul ar, invest me nt s in th e tr an sfo r mat io n , and actions aimed at improving investment gr ade met rics. Th e Bo a rd ag ree d no n- p aym e nt of a d iv id en d con tin ue s to be ap pro pr i ate in t he co ntex t o f stre ng th en in g th e ba l an ce sh ee t and securing the business ’ long-term futur e for shareholders. Custom ers A m ids t in fl atio n ar y p res sure s an d the e ne rg y pr ice cr isi s, t he B oa rd ha s be en co nsc io us of c us tome rs’ p erce pti on of M&S’ a f fordability and ens u ring our pricing stra tegy does not ad d to pres su re on h ou seh ol ds . It a gre ed e ar ly on i n th ree -ye ar pl a n di scu ssi on s th at in cre ase s in cu sto me r pr ic in g sho ul d be av oided where possible, in favour of maximising int ern al ef f i cie nc ies a nd r eso urce a ll oc ati on . Colleagues K now in g th at o ur co ll ea gu es w il l al s o be managing pre ssure on their household budgets, the Bo ard ag ree d to in cor po r ate in t he p l an i nf l at io na r y pa y ris es fo r al l col le ag ue s. T he p ay me nt of a b on us to c .5 , 0 0 0 em pl oyee s wa s al s o ap prove d , an d to al ig n col l eag u e inte rest s w ith sh are ho ld ers , 50 % of b on us e nti tle me nt i s be in g def er red into s ha res ex erci sa bl e in t hre e yea rs’ ti me . Communities I n reco g nit io n of o ur Pl an A co mm itm e nts to ou r com mu ni t y an d the e nv iro nm ent , th e Bo a rd has incorporat ed strat egic inv estment s int o the three-y ear plan, en sur in g th e bu sin es s ca n ac hi eve it s ta rge t of a o ne -t hi rd red uc ti on i n c ar bo n em is sio ns by t he e nd o f the t hre e -yea r pl a n’s du ra tio n in 2025 , an d is set u p i n the l on ge r ter m to be com e a ne t zero b usi nes s by 20 40 . Suppliers The B oa rd ha s con sid ere d ho w bes t to sup p or t sup p li er s. I t ha s com mi t ted to mi ti gat in g cost p res sure s by absorbing inflationary impacts where poss ible, supporting sm al le r sup p li er s wi th a ccess to su p ply ch ai n f in an ce a nd sho r te r pay me nt te rm s , inves ti ng i n loc a l sou rci ng i n th e Food suppl y chain and c onsidering near -shor e manufacturing in Cl othing & Home. Partners T he B oa rd con sid ere d ex is tin g a nd p oten tia l par tners in thr ee-year plan deliberations. Ult imatel y agr eeing th at th e use o f pa r tn er s cou ld b e be ne fi ci al to e xp an d th e M& S br an d ’s reac h an d im pa c t th e bot to m l in e (Cost a) and wou ld e nco ur ag e a cu lt ure of i nn ov ati on i n th e bus in ess ( True C a pi ta l III F un d inve stm en t). Outcome The bus iness ’ thr ee -ye ar plan foc uses on s uppor ting th e ne x t st ag e of th e M& S tr an sfo rm at io n, s et ti ng th e bus in ess u p fo r lon g er-ter m sus ta in ab le v al ue gro w th while considering and meeting various stakehol der expectation s. FRANCHISE P ARTNERSHIPS IN UKRAINE AND RUSSI A Background Upo n Ru ssi a’s inv asi on o f Uk r ai ne , the B oa rd q uic kly met a nd a g ree d tha t any t ra di ng i n Rus si a sho ul d cea se im me d iate ly. Colleagues The Board consider ed c ol leagues af fected in th e re gi on f ir st a nd f ore mos t , ag ree in g tha t col le ag ue sa fet y is a p r io ri t y an d the ref ore U kr ai ni a n store s sho ul d not t ra de w h ile u ns af e to do so . Custom ers & Communiti es Anticipatin g that our cus tom er s an d wi de r com mu ni t y wou ld e xp ec t a n M& S res ponse, the Boar d encouraged decisiv e management ac ti on to d on ate an d f un dr ai se fo r ch ar it ab le c a use s in support of Ukraine, including by activating t ill-point and online giving in t he UK. Partners O ur Turk is h fr an ch ise p a r tn er, FIBA , op er ates M& S store s in b oth U k ra in e an d Rus si a. T h eir i nte rest s wer e con sid ere d at l en gth by t he B oa rd , no tin g th at th ese a nd our ongoing r el ationship would likely be jeopardis ed if we cea sed t ra de i n Ru ssi a . Outcome Th e Bo a rd is w hol ly a gre ed t hat i ts a pp ro ach i s th e ri gh t thi ng to d o mo ra l ly for a l l ou r st ake ho ld ers . As a re sul t , the G ro up h as re cog ni sed a c ha rg e of £3 1 . 0m re p rese nti ng th e G rou p’s fu l l ex it co sts f ro m Rus si a an d bus in ess d is ru pti on s in U kr a in e. Se e no te 5 in the f inancial sta tements. T ALENT AND SUC CES SION REVIEWS Background As p ar t o f it s com mi tm ent to i nter n al t al ent grow th , succe ssi on a nd d iv ers it y, the B oa rd h as rev iew ed a nd di rec te d the E x Co to d evel op su cces sio n p l an s for s en io r management acr oss the business. Shareholders: T he B oa rd con sid er s th at di ve rsi t y of thought and appropria te succe ssion planning a t all lev els in the business will pos itivel y c ontribute to shar eholders’ long-term r eturns. Colleagues: Acknowledging c olleague appetit e t o grow a nd d eve lo p the ir c a ree rs at M &S , t he B oa rd ha s supported the use o f le adership programme s, enhancing th e pe rso na l an d pro fes sio n al d evel op me nt o f col lea g ues at al l c ar ee r sta g es. Custom ers & Communiti es: Noti ng t he d ive rsi t y of ou r cus tom er s an d com mu ni tie s, t he B oa rd be l iev es an equally diverse colleague base, championing pr oducts th at th ey th em selve s wou ld b uy, wi l l ul tim ate ly reso na te with cust omers. Outcome Su ccess io n pl a ns a re in p l ac e for a l l key se nio r le ad er sh ip posit ions, wit h longer -term de velopmen t pr ogr ammes be in g use d to grow o ur i nte rn al t al en t. He re, we p rovid e an ove r v iew of h ow so me of th ese d ec isio ns we re inf lu en ced by, and i mp ac ted , ou r si x sta keh old er g roup s. Annual Report & Financial Stat ements 2022 35 STR A TEG IC REPORT KE Y P E RFORMANC E INDICA TOR S RETURN ON CAPIT AL EMPLO YED ( ROCE) 21/22 20/21 19/20 18/19 11.8 10.0 3.8 12.2% 12.2 +2.2ppt Retu r n on c ap it al e m ploy ed i mp roved t w o pe rcen ta ge p oi nts o n 1 9/20 following a r ebound in earnings b efor e int erest, tax and adjusting it ems. ADJ US T E D E AR N IN G S PE R S HA RE (E P S) 21/22 20/21 19/20 18/19 21.7 23.7 16.7 1.1 21.7p +29.9% Adj uste d b asi c ear n in gs p er sh are w a s 2 1 .7p ( 201 9/20: 1 6.7p; 2020/2 1 52 - wee k b asis : 1 . 1p ) d ue to h ig he r ad jus ted p rof it y ear-o n -ye ar. APM A lte rn ati ve p er f or ma nce m ea su res as o utl i ne d on t he i nsi de cov er. 52 T h ese f i gu res are r ep or te d on a 52-wee k ba sis . APM APM GROUP REVENUE 21/22 20/21 19/20 18/19 10.4 10.2 9.0 10.9 £ 10.9bn +6.9 % G rou p reven ue b ef ore a dju sti ng i tem s in cre ase d 6.9% v ers us 20 1 9/20 , dr iv en by F oo d sa les u p 10. 1%, Cl oth in g & Ho me s a les u p 3. 8% an d Inte rn at io na l sa les d ow n 0. 8% . G ROU P PR OF I T BE FO R E T A X (P BT ) & AD JUS TING ITEMS 21/22 20/21 19/20 18/19 511.7 403.1 41.6 £522.9m +29.7% 522.9 Th e G rou p de l ive red p rof i t be fore t a x an d ad jus tin g ite ms o f £5 22.9m a s a stro ng a l l-ro un d p er fo r ma nce co mb in ed w i th th e benefits of the transformation del iver ed an enc ouraging per formance across the business. APM 52 52 52 53 APM DI VI D EN D PE R S HA R E 21/22 20/21 19/20 18/19 13.3 3.9 Nil Nil (20/21: nil) Nil We did n ot p ay a di vi de nd f or 2020/2 1, an d th e Bo ard h as d ec id ed n ot to pay a d iv id e nd th is ye ar. Thi s is co nsi sten t wi th th e an no un cem e nt at th e ha lf-ye ar res ul ts th at p aym en t of a d iv id en d th is f in an ci al ye ar w ou ld be unlikely as w e focu s on r estoring s ustainable pr ofitabilit y and r ecovering ba l an ce sh ee t met ri cs co nsi ste nt wi th i nves tme nt g ra d e. FR E E CA S H FLOW (PRE-SHAREHOLDER RETURNS) 21/22 20/21 19/20 18/19 580.8 205.7 296.4 £699.2m 699.2 +239.9% Th e bu si nes s ge ne r ated f re e ca sh f low o f £ 699. 2m, l a rg ely d ri ven by th e recove r y i n EBI TDA , w or k ing c a pi ta l in fl ow an d red uc ed c ash t a x an d capital expenditure. APM APM 53 T h ese f i gu res are r ep or te d on a 53- wee k b asis . 53 FINANCIAL Ma rks a nd S pe nc er G ro up p lc 36 STR A TEG IC REPORT FINANC IAL RE VIE W FINANCIAL SUMMARY 52 weeks ended 2 Ap r 22 27 Mar 21 1 28 Ma r 20 Cha ng e vs 2 0 /21 % Cha ng e vs 19/ 2 0 % Grou p statutor y revenue 1 0,88 5. 1 8 , 9 61. 5 1 0 ,181 . 9 21. 5 6.9 G roup s al es be for e adj ust in g ite ms 1 0,909.0 8 ,972 .7 10 , 181. 9 21. 6 7. 1 UK Food 6 , 639 .6 5 ,9 94 . 8 6 , 028 . 2 1 0.8 10 .1 UK Cl othi ng & H om e 3 , 332 . 2 2 ,19 8 . 6 3 , 2 0 9 .1 51. 6 3.8 Int ernational 9 3 7. 2 7 79 . 3 944 .6 20. 3 - 0.8 G roup o pe rat ing p rof it /(lo ss) bef ore a dju sti ng i tems 7 09.0 209 .7 590 .7 2 3 8 .1 20.0 UK Food 2 7 7. 8 2 13 . 6 236 .7 3 0 .1 17 . 4 UK Cl othi ng & H om e 33 0 .7 ( 12 9 . 4 ) 223.9 n/a 4 7. 7 Int ernational 73 .6 4 5 .1 11 0 . 7 63 . 2 -33 . 5 M&S B an k an d Se r v ices 13 . 0 2. 0 16 . 8 55 0 . 0 -2 2 . 6 Sh are of resu lt i n ass oci ates an d joi nt ven tures 13 . 9 78 . 4 2.6 -8 2.3 434 .6 Intere st pay ab le o n lea se l ia bil i ties ( 11 5 . 6 ) ( 12 2 . 5 ) ( 13 3 . 4 ) -5.6 - 13 . 3 Net financial int erest ( 70 . 5 ) (4 5 . 6 ) ( 5 4 . 2) 54.6 3 0 .1 Prof it b ef ore t ax & ad jus ti ng it ems 522 . 9 41. 6 4 0 3 .1 1 , 15 7. 0 29.7 Adjust ing it ems ( 131 . 2 ) (24 2 . 8 ) (335. 9) - 46.0 - 60 .9 Profit/ (loss ) before tax 3 91. 7 ( 2 01. 2) 6 7. 2 n /a 482 . 9 Prof it /(los s) af ter t ax 309 .0 ( 19 4 . 4 ) 2 7. 4 n/a 1,027 .7 Bas ic ea rn in gs/(los s ) p er sh are 15 . 7 p (9 . 8 ) p 1. 3 p n/a 1 , 10 7. 7 Adju sted b asi c ear ni ngs /(loss) per sh are 21. 7 p 1.1p 16 . 7 p 1, 872 . 7 29 .9 Dividend per s hare – – 3.9 p n/a n /a Net debt £2 .70 b n £3.52bn £3.95b n -23 . 3 - 31. 6 1. 2020/ 2 1 w as a 53 -we e k yea r an d co mp ar at iv e pe ri od s are o n a 52-we ek b asi s. To ai d un de rs ta n di ng , we h ave p res en ted t he u na ud i ted 52 we ek s to 27 Mar ch 2021 ; ho weve r, net d e bt is gi ve n on a 53 -we ek b as is . Notes: Th e re are a n um b er o f no n- GA A P me asu res a n d al ter na ti ve p roﬁt m ea su res ( "APMs” ) d isc us se d wi th in t hi s an no un ce me nt , an d a gl os sa r y a nd re con ci l ia tio n to st at uto r y m eas ur es is pro vi de d at t he e nd o f thi s re po r t. A dj us ted re sul ts a re co ns iste nt w i th ho w bu sin es s pe r fo r ma nc e is me as ure d in ter n al ly a nd p res ent ed to a id co mp ar a bi l it y of p e r fo rm an ce. R ef er to th e ad jus ti ng i tem s ta b le b elo w fo r fu r th er d et ai l s. Gi ve n th e exc ep tio n al n atu re o f ﬁn an ci al re su lt s l ast y ea r du e to th e im p ac t of C ov id , al l co mp a ra ti ves w it hi n th is F in an ci al R ev iew a re g iv en a ga in st 201 9/2 0 un les s ot he r w ise s ta ted . In t he cu r ren t pe r io d, w e hav e in tro du ce d a new A PM : ‘s al es’. Al l refe re nce s to sa le s th rou gh ou t th is d oc um en t ar e st atu tor y reve nu e pl us t he g ros s va lu e of co ns ig nm en t sa le s exc lu di ng VAT . W h ere t hi rd -p a r t y br an d ed g oo ds a re so ld o n a co nsi gn me nt b as is , on ly th e co mm is sio n re cei v ab le i s in clu d ed i n st at uto r y reve n ue . Th is n ew m eas ure h as b e en in tro du ced g i ven t he G ro up ’s foc us o n l au nc hi ng a nd g row i ng th ir d- p ar t y b r an ds a nd i s con sis ten t wi th h ow th e bu si ne ss p er f or m an ce is re po r te d an d as ses se d by th e B oa rd an d th e Execu tive Commit tee. DES PITE THE NEAR- TER M C HALLEN GE S , THE BUS IN ES S IS BE T TE R S ET U P BOTH FINANCIALL Y AND OPE R A TIONALL Y TO INVE ST FO R THE FU TUR E . Eoin Tonge, Chief Financial Officer ‘‘ ’’ Annual Report & Financial Stat ements 2022 37 STR A TEG IC REPORT GROUP RESUL TS G roup s al es bef ore ad jus tin g items w as £1 0,9 09. 0 m. S a les in creas ed 7 . 1 % ve rsus 20 1 9/20 , dr ive n by Fo od s al es up 1 0.1 % , Clot hin g & Ho me s al es up 3. 8% an d Inte rn atio na l sa les d own 0 . 8% . Sta tutor y revenu e in t he p er iod w as £ 1 0 , 885. 1 m , an i nc rease o f 6.9% ve rsus 20 1 9/20. T h e Gro up g en er ated a n adju sted prof i t befo re ta x of £52 2 .9m an d a sta tutor y prof i t befo re ta x o f £ 3 91 . 7 m . UK b usin ess r ates rel i ef of £5 9. 8m (20 20/2 1 : £ 1 7 2. 2m ) h el pe d to com pen sa te for th e conti nui ng lo ss of t ra de f rom lowe r foo tf a ll to Cloth ing & H om e stores i n the U K , a nd i n the F oo d hos pit al i t y bus ine ss w hic h was c lose d unt il mi d -M ay 202 1 a nd con tin ues to tr ade w el l be low 20 1 9/20 level s . Sta tutor y prof i t befo re ta x in clu des tot al ch arg es fo r adju sti ng item s of £ 1 3 1 . 2m. Fo r fu l l det ail s o n ad jus tin g items a nd t he G rou p’s rel ated po l ic y, see n otes 1 an d 5 to the f in an ci al st atem ent s. U K : F O O D UK F oo d sa les in crea sed by 10. 1 % , d ri ven by th e pe r fo rm an ce of core c ateg or ies , p ar t ly of f set by red uce d sa les f rom th e rec overing franchise and hospitalit y busine sses. Exc luding fr an ch ise a nd ho spi ta li t y, sales g rew 1 4.7% . Cha ng e vs 19/20 % Q1 Q2 Q3 Q4 FY Food 9.4 11 . 5 12 . 4 7. 0 10 .1 Food ex franchise and hos pitalit y 17. 0 16 . 8 16 . 4 8.6 14 . 7 M&S F oo d rep or te d sa les d o not b en ef it f rom a d irec t o nl in e groce r y p resen ce, w ith t hese s al es in stead re po r ted th rou gh Ocado Retail. 52 weeks ended 2 Ap r 22 27 Ma r 21 28 M ar 2 0 Cha ng e vs 19/ 2 0 % Footfal l , m (a verage/week) 10 .1 8.0 11 . 8 - 14 . 4 T ra nsactio ns, m ( average/week ) 8.0 5.6 9.3 -14 . 0 Bas ket va lu e inc VA T (£ ) 15 . 9 20 . 6 12 . 6 26 . 2 T o tal s al es ex VA T £m 1 6 ,639 .6 5,994 . 8 6 ,028 . 2 10 .1 1. I ncl ud es M &S . com . Fo ot f al l in th e pe ri od , w hil e recover in g , rem ai ned b el ow 20 1 9/20, wi th a sim il a r tren d for t he n um be r of tr ans ac ti ons . Reve nu e was dr ive n by in creas ed b asket v alu e as cu stom ers u sed M &S fo r mo re of the ir eve r yd ay sho p. How ever, basket size h as d ecl i ned com pa red to 202 0/2 1 dr ive n by the g ra du al re cover y o f ou r hospitality and food-on -the-move businesse s , which typically have sm al le r ba skets , as we ll a s a red uc tio n in “co re” bas ket size thro ug h the ye ar as C ovid t ai lwi nds re du ced . Alt hou gh c ustom er be hav iou r st ar te d to nor ma l ise in Q 4 , met ric s rem ai ne d ah ead o f 20 1 9/20 l ev el s. 52 weeks ended 2 Ap r 22 £m 27 Ma r 21 £m 28 Ma r 20 £m Cha ng e vs 19/ 2 0 % Sa les 1 6 , 639 .6 5 ,994 . 8 6 , 028 . 2 10 .1 Operating pr ofit befor e adjusting items 2 7 7. 8 213 . 6 236 .7 17. 4 Operating margin 4 . 2% 3. 6% 3.9% 3 0 bps 1. ‘ S al es’ is e qu a l to reve nu e w ith in t he F oo d b usi ne ss . Th e Fo od b usi ness i n tota l ge ne rate d op er atin g prof i t bef ore adj usti ng i tems of £277 .8 m com pa red w ith £236.7 m in 20 1 9/20. Th e ta bl e be low sets o ut th e dr i vers o f the m ovem ent i n Fo od op er ati ng pro fi t ma rgi n befo re ad just ing i tems ove r t wo yea rs. Op er at in g pro f it ma rg in b ef or e ad jus ti ng i te ms % 20 1 9/20 3.9 Gross margin 0.2 St ore staf fing 1. 4 Other stor e c osts 0.4 Distribution and warehous ing ( 1 . 1) Centra l costs (0 . 6) 2 0 21/ 2 2 4.2 – Gross margin incre ased c . 20 bps . Th e im prove me nt in m argi n rate w as a resu lt of cos t -s avi ng p rog ra mm es , inc lud in g Oc ad o syn erg ies , as we ll a s lower n et w aste an d red uce d sa les in o ur lower g ross m arg in Fr an chi se bu sin ess . Th is w as p ar tly o f fs et by invest me nt in p ri ce, red uce d sa les f rom o ur h igh er-ma rgi n Hospitality of fering, and additional war e housing a nd fr eight charges within margin. – Store s ta f fi ng cos ts d ecrea sed c . 1 40 b ps , pr im ar ily dr ive n by re tail r estructuring efficiencies enabled b y t echnology impro vements in st ore and ongoing initiativ es, partly offset b y inves tme nt in co ll eag ue p ay ra tes and Cov id - rel a ted costs suc h as do or h ost s. – Th e c. 40 b ps de crea se in o th er s tore co st s re l a tes to gove rn me nt bu sin ess r ates rel ief o f £2 4 .6 m an d lower de pre ciat ion c ha rges a s leg ac y store m od er nis ati on s come to the e nd of t he ir use fu l eco no mic l i ves , pa r tly of fset by a n in creas e in m ain tena nce a nd store s ta nd ards s pe nd . – Distribution and warehousing c ost s in creas ed c . 1 1 0 b ps , ref lec ti ng i nvestm ent i n the M il ton Keyn es am bi ent d ep ot to support vo lume gr ow th, high er pa y , incen tive s and sub- contr ac ti ng re l ated to wa reh ous es an d hau l a ge , the cos t to ser ve of on l in e orde rs , an d in ef f i cie nci es f rom EU bo rde r - related p roc esses f or serving Nor thern Ir el and. – Centra l costs i ncre ase d c. 60 bp s, d r ive n by invest men ts in technol ogy , data and digit al init iative s, including in forecast ing, ord er ing a nd a ll oc atio n sys tems , as we ll a s col lea gu e in centi ves. T h is wa s pa r tly of fset by te chn olo gy s avi ng s fro m opt imi sin g the cos t bas e an d a redu c tio n in th e de pre cia tio n of tech no log y ass ets as t hey rea ch th e en d of the ir u sef ul l i ves. Ma rks a nd S pe nc er G ro up p lc 38 STR A TEG IC REPORT FINANC IAL REVIEW C ONTINUED OCADO RET AIL L TD Th e G roup h old s a 50% i nterest i n Oc a do Ret ai l Ltd ("O c ado Reta il " ). Th e rem ai nin g 50% i nterest i s hel d by Oc ad o G roup plc ( "O ca do G rou p"). F ul l Y ea r Resu lts a re cons istent w it h the qu ar te rly resu lts re po r ted by O ca do G rou p on b eh al f of O ca do Reta il fo r the q u ar ter ly pe ri od s end ed 3 0 May 202 1, 29 Augus t 202 1, 2 8 N ovem be r 202 1 a nd 27 Febr u ar y 2022. Al l comm en ta r y in th is se c tio n is ag ai nst 2020/2 1 comp ar ati ves , as th e acqu isi tio n of th e invest me nt in O ca do Re tai l Ltd by M& S wa s ma de p ar t -w ay throu gh 20 1 9/20. Q1 Q2 Q3 Q4 Reven ue g row th vs 2020/ 2 1 (% ) 8.4 -10 . 6 -3 .9 - 5 .7 Acti ve customers (k) 777 76 9 8 32 8 35 Avera ge o rde rs pe r wee k (k) 383 33 8 37 5 3 67 No tes: R eta i l reve nu e co mp ri ses r eve nu es f rom O c ad o. com a nd O c ad o Zoo m a nd exc lu de s reve nu es f ro m Fe tch i n cur re nt a nd p ri o r pe ri od s. Av er ag e or de rs p er w ee k ref er s to resu lt s of O c ad o.c om . Reven ue d ecl i ne d 4. 4% com pa red to 202 0/2 1 ( - 3. 0% e xclud in g Fetch) as tra de a nn ua l ised a g ain st s ales g row th d ur in g thre e nat ion al l ockd owns i n 2020 and towa rds th e end o f H 1 w as im pa cte d by the f i re at the E ri th CF C on 1 6 Ju ly. These i mp ac t s were p ar t ly of f set by th e ong oi ng c ap ac it y rol l- ou t in th e pe ri od . M&S p rod uc ts co ntin ue to acco unt fo r over 25% of the aver ag e Ocado ba sk et. £m 52 weeks ended 2 7 February 2022 52 weeks ended 2 8 February 2 021 Chan ge % Reven ue 2,2 48. 8 2, 353 . 2 - 4.4 EBITD A before except ional item s 10 4 . 8 18 9 . 9 -44.8 Except ional it ems (14 . 4 ) 50. 5 - 12 8 . 5 Deprecia tion and amortisat ion (41 . 3 ) ( 3 6 . 2) -14 . 1 Operating profit 4 9 .1 204. 2 -76 . 0 Prof it a f ter t ax 2 7. 8 15 6 . 8 -8 2.3 M& S 50% s ha re of p rof it af t er ta x 13 . 9 78 . 4 - 82 . 3 Oc a do Re ta il L td is re po r te d as a n as so ci ate of M &S a s ce r ta in r ig ht s are c on fer re d on O c ad o G rou p pl c fo r an i ni ti al p er io d of a t le ast ﬁ ve y ea rs f rom a cq ui sit io n . It is ex pe c ted t ha t fu l l con so l id ati on o f O ca do R et ai l Ltd by O c ad o Gr ou p pl c wi ll c ont in ue fo r at le as t ﬁv e yea rs f ro m th e for m ati on o f th e jo in t ven tu re, a f te r wh ic h it i s ant ic ip ate d th at co ntr ol of t he j oi nt ve nt ure w i ll p as s to M& S fo ll ow in g wh ic h it w il l co ns ol id ate t he jo int v en tu re. E xce pt io na l ite ms a re d eﬁ ne d wi th in t he O c ad o G rou p pl c An nu a l Rep o r t an d Acco un ts 2021 . Oc ad o Ret ail EB IT DA befo re except ion al i tems w as d own 4 4 .8% , ref lec ti ng th e no rm al is ati on of b asket si ze an d sha pe o f wee k as wel l as a n inc reasi ng h igh er p erce nta ge of i mm atu re ca pa ci t y as we op en n ew CFC s . In a ddi tio n , Oc ad o Ret ail h as re cogn ise d £ 1 4 .4 m of net excep tio na l costs b efo re ta x , in clu din g £ 6. 8m e xcept ion al costs re l ati ng to the f i re at Er ith CF C an d £ 6. 2m rel at ing to th e deve lop me nt an d int rodu c tio n of IT s ystem s as we tr an siti on away f rom O ca do G rou p IT s er v ices , too l s an d sup po r t. E xcepti on al i tems i n the p ri or p er iod re l ate pr im ar ily to the An do ver f i re in sur a nce re cei pts . As a resu lt o f lower EB IT DA and n et excep tio nal cos ts , G roup sh are o f Oc ad o Ret ail p rof it af ter ta x w as £ 1 3.9m . UK: CL OTHING & HOME Clot hin g & Ho me s al es in creas ed 3. 8% as th e conti nu ed g row th of th e on li ne b usi nes s of f set th e de cl in e in store s al es du e to low er foo tf all . The online busine ss r emained robust throughout the period. Cha ng e vs 19/20 % Q1 Q2 Q3 Q4 FY Clot hin g & Ho me sal es -4.2 2.0 3.2 17. 3 3.8 Clot hin g & Ho me stores sales - 21. 2 - 1 4.3 -10 . 9 5.6 - 11 . 2 Clot hin g & Ho me online sales 59 . 2 62 . 3 50.8 5 2 .1 55 . 6 Clot hin g & Ho me stat utory r ev enue - 4.6 1. 4 2.4 16 . 0 3 .1 Com pa r ative f i gu res in Q4 a re im pa c ted by the f i rst C ovid nat ion al l ockd own , w hic h we esti ma ted ha d a £7 8m a dve rse im pa ct o n s ales a t the ti me , pre do mi na ntly in sto res. Ad jus tin g for t his , Clo thi ng & Ho me s al es in crea sed c . 3.9% in Q4 a nd c . 1.4% for t he f ul l yea r . Online 52 weeks ended 2 Ap r 22 27 Ma r 21 28 M ar 2 0 Cha ng e vs 19/ 2 0 % Tr a f f i c (m ) 1 4 05 .7 4 17. 5 308 .8 31 . 4 Acti ve customers (m ) 2 9.0 9.0 5 .9 52 . 5 Con vers ion ( %) 3 7. 0 7. 2 6.3 +7 0 b p s Avera ge o rde r va lue i nc VA T pre re tur ns (£) 55 . 4 4 9.7 51 . 5 7. 6 Retu rns r ate (%) 25 . 8 18 . 6 28 . 0 -2 2 0 b p s Sal es ex VA T £m 1 , 12 2 . 7 1,10 9 . 7 721 . 3 55 .6 1. Tra c : th e nu mb er o f si te vi si ts to M& S .co m an d th e ap p. 2. Ac ti ve c us tom er s: th e nu m be r of u ni qu e cu sto me rs w ho h ave m a de a p urc ha se i n th e prior 5 2 we eks. 3. Co nve rs io n: th e n um be r of o rd er s as a % of t he n um b er o f site v is it s. Fo llow in g grow t h in 2020/2 1, onl i ne s ale s rema in ed rob us t, wi th grow t h on b oth a o ne an d t wo -yea r ba sis fo r the f ul l yea r , des pite e lev ated com pa ra tives i n Q4 2020/2 1 f rom t he th ird nat ion al l ockd own . O nl in e tr af f ic t hrou gh th e ap p wa s up ove r 20 0% on 20 1 9/20 foll owi ng th e rel a un ch of S pa rk s in J uly 2020, wh ich h as h el pe d to dr ive th e in creas e in a cti ve cu stome rs . In creas ed a pp us ag e ha s dr ive n bet ter co nversi on a nd , en cour ag in gly, app co nversi on fo r the f u ll ye ar re mai ns consi stent w it h H 1 at over 9% . As a nti cip ated , as c ustom er h ab its reve r ted to pre - p and em ic tren ds , retu rns r ates h ave nor m al ise d toward s 20 1 9/20 level s thro ug h the ye ar . Avera ge o rde r va lu e (“ AOV ”) w as a hea d of 20 1 9/20 level s d ri ven by a f ul l- pr ice tr ad in g sta nce w hi ch in creas ed aver ag e se ll i ng p rice ( “ A SP ”), a lo ng wi th th e be nef i t of th ird -p ar ty b r and s. Annual Report & Financial Stat ements 2022 39 STR A TEG IC REPORT Stores 52 weeks ended 2 Ap r 22 27 Ma r 21 28 M ar 2 0 Cha ng e vs 19/ 2 0 % Footfal l , m (a verage/week) 4.0 1.9 5 .9 -32 . 2 T ra nsactio ns, m ( average/week ) 1. 7 1. 0 2 .1 -19 . 0 Avera ge b asket v al ue i nc V AT pre retur ns (£ ) 34 .9 30.6 32 . 3 8.0 Sal es ex VA T £m 2,20 9.5 1,08 8.9 2 , 4 8 7. 8 - 11 . 2 UK Cl othi ng & H om e store s ales d ec rease d 1 1 . 2%: Avera ge we ek ly foot f a ll w as b elow 20 1 9/20 level s in t he p er iod , w it h the b usi ness conti nu ing to b e ad vers ely im pa c ted by the s ha pe of t he sto re est ate. E xclu di ng M arch , s ale s in hi gh s treet s an d cit y cen tres were d own 22% an d 2 6% respe c tive ly , wh ile s al es in ret ai l pa rk s were u p c.1 % o n 20 1 9/20 level s . T o tal C lot hin g & Ho me Th e Clot hi ng & Ho me b usi nes s in tota l ge ne rate d an o pe rat ing prof i t befo re ad just ing i tems o f £3 30 .7 m com pa red w ith £223.9m in 20 1 9/20 . 52 weeks ended 2 Ap r 22 £m 27 Ma r 21 £m 28 Ma r 20 £m Cha ng e vs 19/ 2 0 % Re venue before adjusting items 3, 308. 3 2 ,19 8 . 6 3 , 2 0 9 .1 3 .1 Sa les 3 , 332 . 2 2 , 19 8 . 6 3 , 2 0 9 .1 3.8 Operatin g profit/(loss ) before adjusting items 330 .7 ( 12 9 . 4 ) 223 . 9 4 7. 7 Operating margin 9.9% - 5 .9% 7. 0 % 29 0 bp s Th e ta bl e be low sets o ut th e dr i vers o f the m ovem ent i n Cloth in g & Ho me o pe rat ing p rof it b efo re adju sti ng i tems ove r tw o year s. Op er at in g pro f it ma rg in b ef or e ad jus ti ng i te ms % 20 1 9/20 7. 0 Gross margin 1. 5 St ore staf fing 2.6 Other stor e c osts 1. 5 Distribution and warehous ing (1. 7 ) Centra l costs (1. 0 ) 2 0 21/ 2 2 9.9 – Gross margin incre ased c . 1 50 bps . T he cont inu in g be nef i t of in creas ed f ul l- pr ice tr ad ing a nd l ower sto ck into s ale m ore th an of f set cos t hea dw in ds of a dve rse cu r renc y move me nts a nd additional frei ght and war e housing costs. – Store s ta f fi ng cos ts d ecrea sed c . 260b ps , pr im ar ily d ri ven by re tail r estructuring efficiencies enabled b y t echnology impro vements in st ore and ongoing initiativ es as well as lo wer variable sta f fing co sts from reduc ed v olumes. These impacts mo re tha n of f set i nvestm ent i n col lea gu e pay r ates. – Th e de creas e in ot he r sto re cos ts of c . 1 50 b ps l a rgely re l ates to gove rn me nt bu sin ess r ates rel ief o f £35.2m , wi th lowe r de pre ciat ion c ha rges re l ati ng to leg ac y sto re mod er ni sati on s of f set by i ncre ase d ma inten an ce costs i n the s tore est ate an d red uce d r ates re bate s. – Dis tri bu tio n and w are ho usi ng i nc rea se d c . 1 70b ps , l arg ely rel at ing to th e hig he r cost s to ser ve o nl in e de ma nd , i ncl udi ng an i ncre ase d prop or tion o f ho me d el ive ri es , as wel l as in creas ed p ay rates , ha ul age i nce ntiv es an d fu el i nf l atio n . Note th e hig he r cou ri er cost s of ho me d el i ver ies we re of f set by de li ver y in come , wh ich i s rep or ted w it hin s al es. T h ese over al l hig he r cost s were p ar tly o f fs et by sav in gs f rom lowe r volu me s and c ost -reduction programmes. – Th e inc rease i n ce ntra l cos ts of c . 100 b ps w as dr ive n by inv estmen ts in t echnology , data and digital initiativ es, col lea gu e in centi ves , ad di tio nal cos ts to sup po r t b ra nds , a nd hig he r pay -p er-cl ic k ma rketi ng a ct iv it y to dr ive o nl in e grow th. Th is w as pa r tly of fs et by a redu c tio n in th e de pre cia tio n of tech no log y ass ets as t hey rea ch th e en d of the ir u sef ul l i ves. Clot hin g & Ho me o nl in e ge ne ra ted an a djus ted o per ati ng p rof it ma rgin o f c.9% , w it h the reve rsio n towa rds 20 1 9/20 retur ns rates re du cin g ma rgi n year-o n-ye ar a s anti cip ated , a s wel l as inves tme nts i n dat a an d di git al i ni tiat ives to dr iv e fu ture g row th . Th e ad juste d op er ati ng prof i t in s tores rep resen ted a ma rgin o n sa les of c . 10% , or a pp roxim ately 9% af ter excl ud ing t he b ene f it of rates relief. INTERNA TIONAL Inter n atio na l sa les i ncre ase d 1 .7% at const ant c ur ren cy ( “CC ” ) des pite th e conti nu ed i mp ac t of Cov id o n A sia n ma rket s, i n pa r tic ul a r in I nd ia du ri ng Q 1 , an d the d isr up tio n and co mp lex it y ar isin g f rom new EU b ord er p rocess es in F oo d sup ply ch ai ns , pre do min an tly in Fr an ce an d the Re pu bl ic o f Irel and . T he re wa s sol i d grow th i n the M id dle E as t an d on li ne s al es conti nu ed to grow o n both a o ne - a nd t wo -yea r con sta nt cu rre nc y ba sis , wi th bot h our o wn we bsites a nd m ar ketpl aces dr i vi ng grow t h of 1 25. 5% as we retai ne d custo me rs acq ui red du ri ng th e lo ckdow ns in 2020/2 1. Cha ng e vs 19/ 2 0 % Q1 C C Q2 CC Q 3 CC Q4 CC F Y CC FY Reported T otal sale s - 6 .1 -0.3 5 .1 7. 9 1.7 - 0.8 52 weeks ended Sales 1 2 Ap r 22 £m 27 Ma r 21 £m 28 Ma r 20 £m Cha ng e vs 19/ 2 0 % Cha ng e vs 19/ 2 0 CC % Clot hin g & Ho me 65 4 . 2 483.2 620 .7 5. 4 9 .1 Food 28 3 . 0 2 9 6 .1 32 3 . 9 - 12 . 6 - 12 . 1 To t a l 9 3 7. 2 779. 3 944 .6 - 0.8 1.7 Memo: Online sales 17 2 . 5 1 65 .7 7 7. 2 12 3 . 4 1 25.5 1. ‘ S al es’ is e qu a l to reve nu e w ith in t he I nte rn at io na l bu si ne ss . Clot hin g & Ho me s al es recovere d to above 20 1 9/20 leve l s, dr ive n by robu st g row th in o nl in e s ales a nd e xcepti on al ly stron g shi pm ent s to the Mi dd le E ast . In di a wa s heav ily i mp ac ted i n Q 1 by Covi d ( c .- 6 1 % vs 20 1 9/20) and a ga in i n Q4 (c.- 3% exc lud in g Ma rch vs 20 1 9/20), but ove r al l reta il s ales i n the m ar ket g rew 6%. Tradi ng in th e rest of A si a rem ain ed c ha ll eng in g. We saw a s imi l ar s ha pe of tr ad e in Euro pe an ow ne d ma rket s, w it h Cloth in g & Ho me per formance in the Republic of Ir el and per forming r obustly . Fo od s ale s de cl ine d du e to disr u ptio n ca use d by EU bo rde r - rel ate d proces ses i n Europ ean m a rkets . T his h as resu lted i n sig nif i ca nt cost a nd co mp lex it y i n ser vic in g the Re pu bl ic o f Irel and a nd a res tru c tur in g of ou r Fo od o pe ra tio ns in co ntin en tal Europ e. E xcl ud ing F ra nce, F oo d sa les we re leve l wi th 20 1 9/20. Op er ati ng p rof it b efore a dju stin g item s wa s dow n 33.5%, d ri ven pr in cip al ly by the a dd iti on al cos ts of n ew EU bo rder p roces ses an d ta rif fs o f £29.6m , an d ass oci ated tr ad e im pa c ts suc h as lowe r ava il a bil i t y an d hig he r wa ste, w hi ch we est ima te redu ced g ross prof i t by a fu r th er c . £ 1 5m . Ma rks a nd S pe nc er G ro up p lc 40 STR A TEG IC REPORT FINANC IAL REVIEW C ONTINUED Th e ta bl e be low sets o ut th e dr i vers o f the m ovem ent i n Int ernational operating profit mar gin befor e adjusting items over t wo ye ars . Op er at in g pro f it ma rg in b ef or e ad jus ti ng i te ms % 20 1 9/20 11 . 7 Gross margin ( 0 . 1) St ore staf fing 1. 0 Other stor e c osts 1. 0 Distribution and warehous ing (3 . 0) Centra l costs (2.7 ) 2 0 21/ 2 2 7. 9 – Gross margin decl i ned c . 1 0 b ps pr im ar ily as a res ult o f ad dit ion al t ar if fs a nd w aste d ue to in ef f ic ien ci es fro m EU bo rde r - rel a ted pro cesses fo r se r vi ng t he Re pub l ic of I rel a nd . Th is w as pa r tly of fs et by grow th o f the o nl i ne bu sin ess . – Store s ta f fi ng cos ts d ecrea sed c . 1 0 0 b ps p rim ar ily a s a resul t of ef f i cie nc y s avin gs f rom ret ail res tr uc tu ri ng in t he Re pu bl ic of Ir el and . – Th e c. 1 0 0 b ps m oveme nt i n oth er s tore c ost s l a rge ly re l ate s to gover nm ent re l ief i n own ed m ar kets a nd ren t conces sio ns in I ndi a , wh ich res ulte d in o ne - of f s avi ng s in th e pe ri od . – Distribution and warehousing inc reased c .300 bps, re flec ting hig he r op er ati on al a nd ad mi nis tr ative cos ts as soc iate d wi th EU bo rde r - rel a ted pro cesses , as we l l as hi gh er cost s to ser ve online demand. – Cent ral co st s inc rease d c .27 0 b ps , dr ive n by hi gh er m ar ketin g spe nd a sso cia ted wi th th e grow th o f the o nl in e ch an ne l and colleague incentive s. M& S BAN K A ND S E RVI CE S M&S B an k an d Se r v ices p rofi t be fore a djus tin g item s wa s dow n £3.8 m to £ 1 3.0 m . Adj usti ng i tems ch arg es of £ 1 6 .0 m h ave be en incurred relating primarily to the insurance mis- selling provi sion, resul tin g in a st atu tor y lo ss of £(3.0)m . Lower d em an d for u nse cu red cre dit a nd t ravel m on ey is th e pr im ar y dri ver f or th e lower p rof it s. T hi s was l arge ly of f set by the re lea se of b ad d ebt p rovisi on s, a s econ om ic con di tio ns pro ved mor e fav ourable than anticipat ed . NE T F IN A NCE CO S T 52 weeks ended 2 Ap r 22 £m 27 Ma r 21 £m 28 Ma r 20 £m Cha ng e vs 19/ 2 0 £ m Int erest payable ( 8 5 .1) (89 . 9) (8 0 . 5) (4 . 6 ) Int erest income 9.6 4 .7 14 . 5 (4 . 9) Net interes t payable ( 75 . 5) (8 5 . 2) (66 . 0) (9. 5) Pens ion net f inance income 13 . 2 4 7. 2 23 .6 (10 . 4) Unw ind o f dis coun t on Sco ttish Limit ed Par tnership liabil ity (4 . 4 ) (4 . 9 ) (6 .9) 2. 5 Unw ind o f dis coun t on pro visions (3 . 8) (2 .7 ) (4 . 9 ) 1.1 Ne t fi nan cia l int ere st ( 70 . 5 ) (4 5 . 6 ) ( 5 4 . 2) ( 16 . 3 ) Ne t inte res t payab le o n lease liabilities ( 11 5 . 6 ) ( 12 2 . 5 ) ( 13 3 . 4 ) 17. 8 Ne t fi nan ce cos ts b ef ore adjusting items ( 18 6 .1) ( 16 8 .1) ( 1 8 7. 6 ) 1. 5 Adjust ing it ems included in net f i na nce cost s 5.6 (6 . 8) – 5.6 Ne t fi nan ce cos ts ( 18 0 . 5 ) ( 17 4 . 9 ) ( 18 7. 6 ) 7.1 Net f i na nce cost s bef ore ad jus tin g items d ec rease d £ 1.5m to £ 1 86 . 1 m . Lowe r pe nsi on in com e du e to the red uce d IA S 1 9 pe nsio n sur p lus com pa red w it h 20 1 9/20 and th e revers al o f in ef fe c tive nes s on a cu rre nc y sw ap w ith in i nterest i nco me i n 20 1 9/20 of f set a red uc ti on in t he n et interes t pay ab le o n lease liabil ities. G ROU P PR OF I T BE FO R E T A X A N D ADJ US T IN G IT E M S G roup p rof it b efo re ta x and a dju sti ng ite ms w as £5 22.9m , up 29.7% on 20 1 9/20. Th e prof i t in creas e wa s dr ive n by adj usted op er ati ng pro fi t grow t h in Cl othi ng & H om e and F oo d an d the ad dit ion al p rof it f rom t he O ca do jo int ve ntu re, of fse t by a red uc tio n in I nter nati on al a nd M &S Ba nk o pe ra tin g prof i ts. G ROU P PR OF I T BE FO R E T A X G roup p rof it b efo re ta x was £39 1 .7 m , u p £3 24.5m o n 20 1 9/20. T his i ncl ud es net c ha rges fo r adj usti ng i tems o f £ 1 3 1.2m (20 1 9/20 : £335.9m). Annual Report & Financial Stat ements 2022 41 STR A TEG IC REPORT ADJUSTING ITEMS Th e G roup m akes ce r t ain a dju stm ent s to statu tor y p rof it me asures i n ord er to de ri ve al tern ati ve pe r fo rm an ce mea sures (APMs ) th at prov ide s ta keho ld ers w it h add iti on al h el pf ul inf or mati on a nd to ai d comp ar ab il i t y of the p er for ma nce of the b usi nes s. F or f ur the r det ail o n th ese ch arg es/gai ns an d the G roup’s po l ic y for a djus tin g item s, p le ase se e notes 1 a nd 5 to the financial s tat ements. 52 weeks ended 2 Ap r 22 £m 53 wee ks ended 3 Ap r 21 £m 52 weeks ended 28 Ma r 20 £m Chang e vs 1 9/20 £m Strat egic pr ogrammes – UK sto re esta te (161 . 4 ) (9 5 . 3) (2 9 . 3) ( 13 2 . 1) Strat egic pr ogrammes – UK logi stics 21. 9 (2 . 2) (10 . 2) 3 2 .1 Strat egic pr ogrammes – O rga ni s ati on 1 4.3 ( 13 3 . 7 ) ( 13 . 8 ) 2 8 .1 Strat egic pr ogrammes – Int ernational s tor e clo sur es, impairments and o ther 0.4 (3 . 6) ( 17.1) 17. 5 St ore impairmen ts, impairment re versal s and other propert y char ges 60 .0 6 .9 ( 78 . 5) 13 8 . 5 Am or t isa tio n and f a ir value adjustments arising fro m the i nvestm en t in Ocado Retail Limited (32. 5) ( 14 . 2 ) (16 . 8 ) ( 15 . 7 ) Directl y attributable t o Co vid 17 . 8 90.8 (16 3 . 6 ) 1 81. 4 M&S Bank charges i ncurred in rel atio n to insu ra nce mis-sel lin g pro visions (16 . 0 ) (2 . 4) ( 12 . 6 ) (3 . 4) Fr an ch ise re str uc t ure (41 . 3 ) – – ( 41. 3) Intangible as set impairments – ( 79. 9) ( 13 . 4 ) 13 . 4 Sparks l oyalty programme transition – (16 . 6 ) – – Esta bl ishing the investment in Ocado Re tail Limited – (1. 7 ) (1. 2) 1. 2 Remeas urement of continge nt consider ation including dis count unwind 5 .6 (6 . 8) (2 . 9) 8.5 Other – (1. 0 ) 23. 5 (23 . 5) Adjusting items ( 131 . 2 ) (259.7) (335 . 9) 2 0 4 .7 Adju sti ng ite ms ne t cha rges i ncu rre d in th e pe ri od we re £ 1 3 1.2m. UK store estate A cha rge o f £ 1 6 1.4m h as be en re cogn ise d in re l atio n to store closu res id ent if ie d as p ar t o f UK store es tate rot atio n pl a ns . Th e ch arge re fl ec ts a rev ise d vi ew of l ates t store ex it s an d underlyin g ass umptions ar ound es timat ed st ore cl osur e co sts, as wel l as c ha rges re l atin g to the i mp ai rm ent of b ui ldi ng s and f ix t ures a nd f it ti ngs , a nd d ep reci atio n as a resu lt of s ho r teni ng the u sef ul e cono mi c l ife o f stores . Fur t he r cha rges re l ati ng to the c losure a nd rot atio n of th e UK s tore est ate are an tici pate d as t he pr ogramme progr esses, wit h to tal futur e charge s of up to c .£20 0 m over t he ne x t ni ne f i na nci al ye ars , b ri ng ing ant ici pated tot al p rogr a mm e costs si nce 20 1 6 to c . £ 1 b n. T h e ant ici pated tot al p rogr a mm e costs d o not i ncl ud e any cost s tha t may a ris e in rel a tio n to a fur the r c. 30 s tores cur rent ly und er consi de ra tio n for clo sure w ith in th e ne x t ni ne ye ars . At thi s sta ge thes e c. 30 s tores rem ain co mm erci al ly sup po r ta bl e an d in th e event o f a de cisi on to clos e the sto re the e xi t routes a re not yet ce r ta in . In cu rre d up t o 3 Ap r 21 £m Incurred in 52 weeks ended 2 Ap r 22 £m P&L Cash P&L Cash PPE an d ROU asset imp airments (4 52 . 2) n /a ( 81 . 0 ) n /a Ac celera ted d eprec iation (1 75 . 3) n/a (50 .7 ) n /a Clos ed store re nt , rates an d on erou s leas es net of s ublet inc ome ( 2 3 . 1) ( 2 6 . 1) (16 . 4 ) (10 . 9) Redundancy (9 .9) ( 7. 0 ) (2 . 4) (0 .7) Prof it /(los s ) o r ca sh proc eeds/( out flows ) on dis posal / surrender (3 . 8) 11 . 4 (3 .7) ( 3 . 2) Closure costs, strips , dil apidations 10 . 3 (39 .7) (4 . 0 ) ( 11 . 0 ) Other (3 .6) (9 . 0) (3 . 2) (4 . 4) To t a l ( 6 5 7. 6 ) ( 70 . 4) ( 161 . 4 ) ( 30 . 2) 1 1. C as h ou tﬂ ows i n clu d e ren t, re p or te d wi th in c a sh le as e pay m en ts i n th e ca sh ﬂo w, an d pro ce ed s on d is po sa l /su rr en de r, whi ch i s ne t o ag a in st c ap ex i n th e c ash ﬂ ow. Th e refo re , th ese c as h ou t ﬂow s do n ot ti e to UK s tor e est ate c a sh ad ju st in g ite ms Ot he r adj us tin g ite ms A net c redi t of £2 1 .9 m has b ee n recog ni sed i n the p er io d rel at ing to UK log ist ic s, ref l ec tin g in l a rge p ar t a g a in on t he d ispo sa l of di str ib ut io n cen tres . A cred it o f £ 1 4. 3m h as be en re cog nise d in re l atio n to org an isa tio nal c ha ng e. T his c redi t l arg ely rel ates to an £ 1 1 .9m revers al o f an i mp air m ent as so ciate d wi th the ce ntr al isi ng o f the Group ’ s L ondon s uppor t o f fice functions, with the remai nder ref lec ti ng th e f in al is atio n of p revi ous re du nd an cy cos ts ass oci ated w ith t his p rogr a mm e. No p rovisi on re ma ins at t he yea r end a nd th ere a re no f ur the r cha rges a ntic ip ated . In resp on se to the st rong G rou p pe r fo rm an ce an d li f ti ng of gove rn me nt restr ic ti ons , a cre di t of £ 63.4 m ha s be en i ncu rre d for the reve rs al of s tore im pa ir me nts reco gn ise d in ad jus tin g item s in prev iou s pe ri ods , p ar tly of f set by a £3. 4m ch arg e pr im ar ily rel at ing to th e im pa ir me nt of as sets i n cer t ai n stores . A cha rge o f £ 4 1.3m ha s be en re cogn ise d rel ati ng to th e re structuring of c er tain In terna tional franchise op erati ons. In Sept ember 2 02 1 , the Group r estructured our Frenc h operation s af ter a n as sess me nt of th e prof i tab il i ty o f the b usi nes s un de r in creas ed EU bo rde r cost s and t ar if fs , at a cost o f £ 1 0. 3m . In Ma rch 2022, the G roup m ad e th e de cisio n to fu lly e xi t its R ussi an fr an ch ise. A s a resu lt , the G rou p ha s recog ni sed a c harg e of £3 1.0 m rep resen tin g the G rou p’s ful l e xi t costs f rom Ru ssi a and bus iness dis ruption in Ukraine. A cha rge o f £3 2. 5m h as be en re cogn ise d wi th resp ec t to the am or ti sat ion o f int an gi ble a sset s acq uire d on th e pu rch ase of o ur sha re in O ca do R eta il an d rel ate d def er red t ax ch arg es of £ 1 4.9m pre do min an tly rel ati ng to th e subs ta nti ve en ac tme nt of t he Fi na nce Ac t 202 1 dur in g the p er io d , wh ich w il l in crea se the U K ’s ma in cor po r atio n ta x ra te from 1 9% to 25 % fro m 1 Ap ri l 2023. A ga in of £1 7 . 8m h as b ee n recog nis ed as b ei ng d irec tly at tri bu ta bl e to the Cov id pa nd em ic . T his rel ates mos tly to the relea se of the remaining in ventory pro vision made in ad justing item s in 20 1 9/20 , dr ive n by the se l l-th roug h of Cl othi ng & H om e stock b ei ng g reater th an a nti cip ated . Cha rges o f £ 1 6 .0 m h ave be en i ncu rre d rel at ing to M &S Ba nk , pr im ar ily du e to the i nsu ra nce mi s-se ll i ng p rovisi on . T he tota l cha rges re cog nise d in a dju sti ng ite ms sin ce Se ptem be r 20 1 2 for PPI i s £3 26. 3m , w hic h excee ds th e total o f f set ag ai nst p rof it sha re of £25 9 .0 m to date ; this d ef ic it w il l be d ed uc ted f rom the G rou p’s sha re of f utu re prof i ts f rom M& S Ba nk . Ma rks a nd S pe nc er G ro up p lc 42 STR A TEG IC REPORT FINANC IAL REVIEW C ONTINUED TA X AT I O N Th e ef f ec ti ve ta x rate o n prof i t befo re ad just ing i tems w as 1 8 . 2% (2 0 1 9/20: 20 .7 %; 2020/2 1 : 50. 3% on a 53-we ek b asis). As pa r t of ca sh - opti mi sati on m easu res , no p aym ent s were m ad e to the Marks and Spenc er Sc ottish Limited Par tnershi p (“SLP ”) during the ye ar . A s such , t here h as b ee n no rec a pture o f prev iou s ta x rel ief, resul tin g in a lowe r ef f ec ti ve ta x rate th an p ri or ye ars . As we l l as the re be in g no rec a pture o f prev iou s ta x rel ie f un de r the S LP s tru c ture i n the p er io d , fu ture c ha ng es to the UK st atu tor y co rp or atio n ta x r ate result i n de fer red t ax a sset s be ing re cog nise d at th e hi ghe r sub sta nti vely e na cte d rate of 25 % . Re sta tin g thes e def er red ta x as sets f rom a r ate of 1 9% to 25 % resu lt s in a t ax cre di t in th e pe ri od , red uc in g the ef fec ti ve tax ra te. Th e ef f ec ti ve ta x rate o n st atuto r y prof i t bef ore ta x w as 2 1 .1 % (2 0 1 9/20: 59.3%; 2020/2 1 : 3.9% cred it o n a st atuto r y los s on a 53-wee k ba sis ) , wh ich w as h igh er t ha n the ef fec ti ve ta x r ate on prof i t befo re ad just ing i tems d ue to th e im pa ct o f dis al low ab le adjusting items. Ne x t yea r , we a nti cip ate an ef fec ti ve ta x r ate on p rofi t be fore adj usti ng i tems h igh er t ha n the U K cor po rati on t ax r ate of 1 9% , pr in cip al ly du e to the re ca ptu re of prev io us ta x rel i ef as pay me nts to th e SLP res um e. E AR N IN G S/LO SS P ER S H AR E Bas ic ea rn in gs pe r sh are w as 1 5.7 p (2 0 1 9/20: 1.3p; 2020/2 1 : loss o f 1 0 . 1 p o n a 53-we ek b asis ), d ue to the i nc rease i n prof i t year-o n-y ear. The we igh ted aver ag e nu mb er of s ha res in is sue d ur in g the p er io d wa s 1 ,958.1 m (20 1 9/20: 1,894.9 m ; 2020/2 1: 1 ,9 53. 5m). Adju sted b asi c ear ni ngs p er s ha re was 2 1. 7 p (2 0 1 9/20 : 1 6.7 p; 202 0/2 1 : 1.4p on a 53-w eek b asi s ) d ue to hi ghe r ad jus ted prof i t year-on -yea r . CASH FL OW 52 weeks ended 2 Ap r 22 £m 53 wee ks ended 3 Ap r 21 £m 52 weeks ended 28 Ma r 20 £m Chang e vs 1 9/20 £m Adjusted operating profit 7 09.0 222 . 2 590 .7 11 8 . 3 Deprecia tion and amortisation before adjusting items 510 . 7 6 0 3 .1 6 32 . 5 ( 12 1 . 8 ) C ash le ase p aym ent s ( 344.3 ) ( 316 . 6 ) (335. 7) (8 . 6 ) W o rking capital 239 .7 26 8 .1 ( 6 7. 8 ) 3 0 7. 5 Defined benefit scheme pension funding (36 . 8) ( 3 7.1) ( 3 7. 9 ) 1.1 Capex and di sposals ( 2 13 . 5 ) (203.8) ( 325 .9 ) 112 . 4 Financial int erest ( 79 . 9) ( 76 . 0 ) (79 . 5 ) (0 . 4) Ta x a t i o n ( 7. 7 ) ( 5 . 8) ( 91 . 6 ) 83.9 Acquisit ions, investments and divestments ( 41 . 4 ) 8 .7 ( 5 8 0 . 3) 538 .9 Emplo yee-related share trans ac tions 3 9 .1 18 . 5 9 .7 29 .4 Proce eds f rom r ig hts i ssu e net o f costs – – 5 74 . 4 ( 5 74 . 4 ) Sh are of ( prof i t )/ loss from associa te ( 13 . 9 ) ( 78 . 4 ) (2 . 6) (1 1. 3) C ash re cei ve d fro m settlement of derivative s – 14 . 0 7. 7 ( 7. 7 ) Adjust ing it ems outf low ( 61 . 8 ) ( 12 0 . 5 ) (88 . 0 ) 26 . 2 Free c as h flow 699. 2 29 6 . 4 20 5.7 493 . 5 Divide nds paid – – ( 19 1 .1) 191 .1 Free c as h flow a f te r shareh older retu rns 699. 2 296 . 4 14 . 6 684.6 Opening ne t debt excluding lease liabil ities ( 1 , 11 0 . 0 ) ( 1, 3 8 8 . 6 ) (1, 4 0 4 . 7 ) 294 .7 Free c ash f low a f ter shareho lder returns 699. 2 296 . 4 14 . 6 684 .6 E xcha ng e an d oth er non- cash mo vements excl uding lease s (9 . 3) ( 17. 8 ) 1. 5 ( 1 0.8 ) Closing net debt excluding lease liabil ities ( 4 2 0 .1) ( 1 , 11 0 . 0 ) ( 1, 3 8 8 . 6) 968 .5 Opening ne t debt ( 3 , 515 . 9 ) (3,95 0. 6) ( 3 , 9 81 . 5 ) 465. 6 Free c ash f low a f ter shareho lder returns 699. 2 296 . 4 14 . 6 684 .6 Decrease in lease oblig ations 216 . 0 1 84.3 2 01. 4 14 . 6 New lease commitmen ts and r emeasur ements (10 0 . 6 ) (4 8 . 3) ( 2 0 4 . 1) 10 3 . 5 E xcha ng e an d oth er non- cash mo vements 2.5 2. 3 19 . 0 (16 . 5 ) Closing net debt (2 , 69 8 . 8) ( 3 , 515 . 9 ) (3,95 0 .6) 1, 251. 8 Annual Report & Financial Stat ements 2022 43 STR A TEG IC REPORT Th e bu sin ess g en er ated f ree c ash f low of £699.2m, l arge ly dr ive n by the re cover y i n EBI TDA , wo rk in g c api ta l inf low a nd re du ced cash tax and c apital expenditure. C ash le ase p aym ent s in creas ed £8.6 m pa r tly as a resu lt o f rent al pay me nts w hi ch were d efe rre d fro m l ast y ear i nto this ye ar a s pa r t of c ash co nse r v atio n me asures e na c ted at th e st ar t o f the pa nd em ic . Ca sh le ase p aym ent s rel ati ng to stores i de ntif i ed a s pa r t of th e UK s tore est ate str ateg ic pro gr am me w hi ch are prob a ble fo r clos ure tota ll ed £54 .8 m. Fo r fu r th er d eta il o n wor ki ng c ap it al m ovem ent s, ref er to the sec tion be low . Def i ne d be nef i t sch em e pen sio n fu nd in g of £36. 8m ref le c ts the S LP i nterest d ist ri bu tio n to the pe nsi on sc hem e. Fo r ca pe x an d dis pos al s , refe r to the se c tio n be low. Th e red uc tio n in t a x pay men ts of £83.9m is du e to no UK cor po rat ion t ax b ei ng p aid i n th e pe rio d . Th is is d ri ven by th e uti l isa tio n of c ar ri ed -fo r w ard t ax lo sses f rom 2020/2 1 . Acqu isit ion s, i nvest men ts an d di vest men ts we re dri ven pr in cip al ly by the p aym en t of £33.8m o f conti ng ent co nsid er ati on rel at ing to th e inves tme nt in O c ado R eta il Ltd in t he p er iod . T he f in al cont ing en t pay me nt for O c ad o Reta il Ltd of c . £ 1 56m p lus inte rest wi l l be p aid i n f in an cia l yea r 202 4/25 if a sp eci f ie d ta rget level o f ea rn ing s in th e f in an cia l yea r end in g Nove mb er 2023 is ach ieve d . Bas ed on t he l a test f ive -yea r pl an of O ca do R eta il Ltd , the p er for ma nce t arge t is ex pe c ted to be me t. Ot her a cqu isit ion s an d invest me nts i n the p er io d inc lud e th e str ateg ic inve stm ent i n the f as t - g rowin g br an d pl a t for m “ T he Sp or t s Edi t ” , a mi no ri t y sta ke an d fu nd in g for “ N obo d y’s Chi ld ” an d a corn er ston e invest me nt in True C ap it al L im ited ’s see d - st age f u nd . Th ese i nvestm ent s were o f fs et by in come f rom t he dis pos al o f a prop er ty i nvestm en t comp any. Emplo yee-related share t ransactions cas h inflo ws inc rea sed due to a cha ng e in po l ic y to no lon ge r pu rcha se sh ares fo r issu e in colleague incentive schemes, incr eased de ferred colleague in centi ve sh are sch em e pay me nts , a nd in crea sed u pt ake of employ ee share schemes during the pandemic. Adju sti ng ite ms c ash o ut f low w as £ 6 1 .8 m. T h is in clu de d £ 1 6 .5m rel at ing to th e UK sto re esta te stra tegy, £ 1 6 .0 m re l ati ng to the M &S B an k insu ra nce m is- sel l in g provi sio ns , £ 1 5.9m o f org an isa tio nal re str uc tu ri ng cost s l arg ely rel a tin g to the Re pub l ic of Ir el and , £ 9.4m largely rel ating to the rest ructuring of our Fren ch op er ati on s, a nd £3.7m for the res tru c tur in g of th e UK Cl othi ng & H om e log isti cs n et wor k . WORKING CAP IT AL Th e bu sin ess g en er ated £508 m ca sh inf low f rom wo r ki ng c ap it al over th e pa st t wo yea rs . Mos t of th is wa s dr ive n by pay ab les , pa r tly as a re sult o f ch ang es to paym en t term s for Cl othi ng & H om e sup pl ie rs , in a dd iti on to hig he r ou tst an di ng p aym ent s over yea r en d as a resu lt of business growth. As p revi ou sly repo r ted , re ceiv ab les re ma in at a low er leve l tha n pre - Cov id , p ar t ly due to th e ad ver se im pa ct o f the p an de mi c on our Food franchise busine ss. Stock i ncre ase d sl ig htly over th e pe ri od , d ri ven p ri ma ri ly by inve ntor y b uil d in th e Fo od b usin ess a s we ap pro ach ed th e en d of M arch , as we ll a s the t imi ng o f Cloth in g & Ho me in ta ke over y e a r- e n d . As p ar t of ou r focu s on d ee pe r , str ateg ic su pp li er re l atio nsh ip s, we are i mp rovin g sup pl i er p aym ent ter ms i n bot h Cloth in g & Ho me a nd Fo od . I n Cloth in g & Ho me , we anti cip ate th e be nef i ts of lo ng er su pp li er ter ms w it hin t hese resu lt s to par tia lly reve rse in th e com ing ye ar . CAPIT AL E XPENDITURE 52 weeks ended 2 Ap r 22 £m 53 wee ks ended 3 Ap r 21 £m 52 weeks ended 28 Ma r 20 £m Chang e vs 1 9/20 £m UK st ore r emodell ing 5 0 .1 2 7. 0 60.3 ( 10 . 2) New U K stores 49 .9 14 . 9 33. 3 16 . 6 Int ernational 18 . 2 6 .7 15 . 7 2.5 Suppl y chain 28 . 6 25 . 2 39. 2 (10 . 6 ) IT and M&S.com 68. 2 4 7. 6 81. 1 ( 12 . 9 ) Pr oper ty asset repl acemen t 85 . 2 19 . 2 10 2 . 4 ( 17. 2 ) Ac quisit ion of Jaeger brand – 6.3 – – Capital expend iture before property acquisiti ons and disposals 30 0. 2 14 6 . 9 332 . 0 ( 31 . 8 ) Pr oper ty acquis itions and dis posal s (4 3 .9 ) ( 0 . 3) (2 .7 ) ( 41. 2) Capital expend iture 256 . 3 14 6 . 6 32 9 . 3 ( 73. 0 ) Mov ement in capital acc rual s (42 . 8 ) 5 7. 2 (3 . 4) (39 . 4) Capex and disposals as per cash flow 213 . 5 203 .8 325 . 9 ( 11 2 . 4 ) G roup c ap it al e xp en di ture b efore d isp os al s d ecre ase d £3 1.8m to £30 0. 2m com pa red to 20 1 9/20; ho wever, it was u p on 2020/2 1 as we in creas ed i nvestm ent i n the t ra nsfo rm ati on . UK sto re remo de ll i ng cost s rel ate d pr in cip al ly to 22 ful l l in e an d foo d ren ewa l stores , so me of w hi ch h ave not yet o pe ne d , as wel l as up gr ad es to Clot hin g & Ho me sp a ce. Sp en d on n ew UK sto res pr im ar ily rel a ted to eig ht new o r ex ten de d Si mp ly Foo ds a nd seve n new o r ex tend ed f ul l- li ne stores i n the cu r rent yea r , so me of w hi ch have n ot yet o pe ne d. Su pp ly cha in ex p end it ure ref le ct s the e xp an sio n of ou r Br ad ford wa reh ous e to supp or t o nl i ne g row th in C loth ing & H om e, F oo d eq ui pm ent p urch ases , a nd inve stm ent i n ou r Mil ton Keyn es Fo od de pot to su pp or t c ap ac it y in crea ses . IT a nd M& S .com sp en d in clu des cos ts rel a ted to techn olo g y rep l ace men t an d up gr ad es in sto res, t he d evelo pm ent o f the Fo od o rder in g an d al loc at ion s ystem a nd b uy in g po r ta l s, w ebsi te devel opment and ongoing inv estment in digital capabil ity in the support c entr e and st ores. Prop er t y a sset re pl a cem ent n or ma l ise d toward s 20 1 9/20 level s as rep l ace me nt of co re asset s acros s th e esta te, wh ic h had b ee n de - pr io ri tise d du ri ng 2020/2 1 d ue to c ash co nse r v atio n me asures , wa s re- p ri or itis ed . Th is i nclu de s roof wo rk s an d repl acem en t of fr id ges , f ree zers , b oil ers , l if ts a nd esc al ators . Prop er t y a cqu isit ion s an d disp os al s p ri ma ri ly rel ates to ca sh inf low s fro m the d isp osa l of t wo w are hou ses in t he th ird q ua r ter . C api ta l accr u al s we re hig he r at yea r - e nd com pa red to 2020/2 1 a s tr ans for ma tio n spe nd i ncre ase d in th e seco nd h al f . I t sho uld b e note d that 2020/2 1 ca pi tal e x pe ndi tu re cas h fl ow inc lud ed s om e accr ue d sp end re l ati ng to 20 1 9/20. NET DEBT G roup n et de bt d ecre ase d by £ 1 . 25bn co mp are d to 20 1 9/2 0 , dr ive n by fre e ca sh f low ge ne ra tio n , and by £0. 8b n sin ce the s tar t of th e year. Th ere w as a f ur the r redu c tio n in th e va lu e of di scou nted le ase ob li ga tio ns ou ts tan di ng si nce th e st ar t of t he ye ar . N ew le ase commit ments and remeasur ements in the period wer e £ 1 0 0.6m, l arg ely rel a tin g to 20 new UK le ases , le ase a dd iti ons i n In dia a nd UK p rope r t y a nd lo gis tic s l ia bil i t y reme asu reme nts . T his w as mo re tha n of f set by £2 1 6 .0 m of c a pit al l ease re pay me nts . Ma rks a nd S pe nc er G ro up p lc 44 Th e com posi tio n of G rou p net d ebt i s as fo llow s: 52 weeks ended 2 Ap r 22 £m 53 wee ks ended 3 Ap r 21 £m 52 weeks ended 28 Ma r 20 £m vs 1 9/20 £m Cash and c ash equivalents 1 , 19 7. 9 6 74 . 4 25 4 . 2 9 43.7 Me diu m T e rm N otes (1, 529 . 5) ( 1 , 6 8 2 . 1) (1, 5 36 . 2) 6 .7 Curren t financial ass ets and ot her 99.4 83. 2 9 6 .1 3.3 Pa r tn ersh ip l i ab il it y to the UK D B pe nsio n fu nd ( 18 7. 9 ) ( 1 8 5.5 ) (202 .7) 14 . 8 Net debt excluding lease liabilities (4 2 0 .1) ( 1 , 11 0 . 0 ) (1, 3 8 8 . 6 ) 968. 5 Lease liabil ities ( 2,2 7 8.7 ) ( 2,405.9 ) (2 , 562 . 0 ) 283 . 3 – Ful l- l ine s tores ( 919 . 5 ) (9 82 . 6 ) (1, 0 5 4 . 8 ) 13 5 . 3 – Simpl y Food st ores (7 1 2.8) ( 7 2 7. 0 ) ( 74 7. 7 ) 34 .9 – Of f ices , w are ho us es and ot her (4 4 9 . 5) (4 9 4 . 5) (52 3 .7 ) 74 . 2 – In terna tional ( 19 6 . 9 ) ( 2 01. 8 ) (235 . 8) 38.9 Group net debt (2 , 69 8 . 8) ( 3 , 515 . 9 ) (3, 950 . 6) 1, 251. 8 Ful l- l ine s tore l ia bil i ties i ncl ud e £22 5. 3m rel a tin g to stores id enti f ie d as pa r t of t he UK s tore est ate str ateg ic p rogr am me . We are see ki ng to f und t he clo sure cos ts of rot atio n of th e store es tate wi th th e real i sati on o f fu nds f rom o ur a sset management programme . Of t he rem ai ni ng f ul l- li ne s tores lea se l ia bi li t y, the aver ag e l iab il i t y-wei ghte d leas e len gt h is c .25 yea rs , alt hou gh t he ave ra ge lea se ter m to break i s sho r ter at c . 1 9 ye ar s. H owever, these aver ag e lea se le ngt hs are s kewed by f ive p ar ticu l ar ly lo ng le ases we ho ld , wi th th e lon ges t of th ese hav in g 1 3 5 yea rs rem ai nin g . Th ese f i ve lea ses , wi th a com bi ned l eas e li ab il it y o f c. £ 1 0 0 m , are no t de em ed p roba bl e for cl osure i n ou r UK sto re esta te prog r am me as t hey are c ur rently tr ad in g wel l in l oc atio ns we wis h to rema in i n. E xcl ud ing t hes e fi ve le ases , th e aver ag e lea se term to b reak i s c. 1 4 yea rs. Si mp ly Foo d store l ia bi l iti es in clu de £30 .9m rel a tin g to stores id enti f ie d as pa r t of t he UK s tore est ate str ateg ic p rogr am me . Of t he rem ai ni ng le ase l ia bi l it y, the aver ag e lea se le ng th to brea k is c . 1 0 yea rs. Wi th in of fi ces , wa reho use s and o the r , £1 4 4.9 m rel ates to th e sub let le ase o n ou r Me rcha nt Sq ua re of f i ces. Aver ag e lea se len gt h of al l oth er o f f ices a nd w areh ou ses to brea k is c .7 year s. Int ernational lea ses r el ate primarily t o India ( c. £ 85m ) and Ir el and ( c. £66m ). Aver age l eas e len gth to b reak i n In dia i s clos e to nil , a s mos t of th ese le ases a re pas t the b rea k po int , an d so we h ave the f le xi bi l it y to ex it th ese at a ny tim e on seve ra l mo nths’ n otice. Avera ge l ease l en gth to bre ak i n Irel a nd i s c. 1 0 ye ar s. LIQUID IT Y At 2 Ap ri l 202 2, th e G roup h eld c as h ba l an ces of £ 1, 1 9 7 .9m (2 0 1 9/20: £254 .2m). In add it ion , d ur in g the ye ar th e G roup a gre ed a new £850m revo lvin g cre dit f a cil i t y ex pi rin g in J un e 202 5 o n term s l in ked to del i ver y of it s net zero ro adm ap . Wi th th e f aci l it y un dr awn , th e G roup n ow ha s li qu id it y he ad room o f £2. 1 b n. T hi s l iqu id it y po siti on is a s a resul t of f ree c ash f low p er f or ma nce. As p ar t of ou r ap pro ach to l ia bi li t y ma na ge me nt we have an nou nce d a tend er o f fe r for c . £ 1 50 m of o ur n ear-term debt matu rities . DIVIDEND We did no t pay a d iv ide nd fo r 2020/2 1, and th e Bo ard h as de ci ded not to pay a d iv id en d thi s year. Th is is co nsis tent wi th th e an nou nce me nt at th e ha lf-year resu lt s tha t pay me nt of a di v ide nd t his f in an ci al yea r wou ld b e un li kely as w e foc us on r estoring s ustainable profitabilit y and r ecov ering ba l an ce she et me tri cs co nsis tent wi th inve stm ent g ra de . PEN SIO N At 2 Ap ri l 202 2, th e IA S 1 9 net reti rem ent b en ef it su rp lus w as £ 1,038.2m (20 20/2 1 : £ 63 1.4m). The i nc rease w as l a rge ly dr ive n by an i ncre ase in d isco unt r ates towa rds th e end o f the p er io d. Th e mos t rece nt ac tu ar ia l va lu atio n of th e UK D B Pensi on Sch em e wa s ca rr ie d ou t as at 3 1 Ma rch 20 1 8 a nd sh owed a fu nd in g sur pl us of £6 52m. T his i s an im prove me nt on t he prev iou s pos iti on at 3 1 Ma rch 20 1 5 (statu tor y su rp lus o f £204m), pr im ar ily du e to lower a ssu me d li fe ex p ec ta nc y. W e co ntin ue to work co nst ru ct ive ly wit h the Trustee s of th e UK DB Pe nsi on Scheme with regard t o agreein g the triennial actuarial valuat ion of th e sch em e as at 3 1 Ma rch 202 1. Conse qu ent ly , the resu lt s of the v al uat ion a re not ye t f ina l ise d , alt hou gh i t is l ike ly that t here wi ll co ntin ue to be a s ur plu s. With the p ensioner buy-in policies pur chased in Sep tember 20 20, Ap ri l 20 1 9 an d Ma rch 20 1 8 , th e sch em e has n ow, in tota l , in sure d arou nd 8 0% of t he p ensi on er c ash f low l i ab il iti es for p en sio ns in pay me nt. T h e bu y-i n po l ici es cover sp eci f ic p ensi on er l i abi l iti es an d pas s al l ri sks to a n insu rer i n exch an ge fo r a f ixe d prem iu m pay me nt , thus re du cin g th e Gro up’s ex posu re to cha ng es in lon gev it y, interes t ra tes, i nf l atio n an d oth er f a ctor s. S T ATE M EN T O F FI NA N CIA L PO SI TI O N Net a sset s were £2,9 1 7 .9m a t the p er io d end , a n in creas e of 27 .7% since th e sta r t of t he yea r l a rgely d ue to fre e cash generat ion. Eoin T onge, Chief Financial Of ficer Important Noti ce: St ate me nt s ma de i n th is a nn ou nc em en t th at lo ok f or w a rd in t im e or t ha t ex pr ess management's beliefs, expectations or est imate s regar ding future oc currences and pro sp ec t s are " f or wa rd -l oo ki n g st ate me nts" w it hi n th e me an in g of t he U ni ted S ta tes federal sec urities laws. These for ward-looking sta tements reﬂect Marks & Spencer' s cu rre nt e x pe ct at io ns co nc er ni ng f u tu re eve nt s an d ac tu a l resu lt s m ay di e r ma ter ia l ly from current expectations or historical r esults. An y forward-looking stat ements ar e su bje c t to va ri ou s r isk s an d u nce r ta i nti es , in cl ud in g , bu t no t l im ite d to, f a il ure b y Ma rk s & Spencer to predict ac curately customer prefer ences; decline in the demand for pr oduc ts oe re d by M ar ks & S p en cer ; co m pet it iv e inﬂ ue n ces; c ha n ges i n le vel s o f sto re tr a c or cons umer spending habits; eectivene ss of Marks & Spencer' s brand awarenes s and marketin g programme s; general economic conditions inc luding, but not limit ed t o, th ose r el at ed to th e Co vi d-1 9 p a nd em ic o r a do wn tu rn i n th e ret ai l or ﬁ na n ci al se r v ice s in du st ri es; a c ts o f wa r o r ter ror is m wo rl dw id e ; wor k sto p pa ge s, s low dow n s or s tr ike s; a nd changes in ﬁnancial and equity market s. For fur ther information regarding ris ks t o Marks & Sp en ce r ’s bus in es s, p le as e con su lt th e r isk m a na ge me nt s ec ti on o f th e 2022 An n ua l Re po r t (p ag es 45 to 5 4). Th e fo r w ard - lo ok i ng s tat em en ts co nt ai ne d in t hi s do cu me nt s pe ak o nly a s of t he d ate of t his announc ement, and Marks & Spencer does not undertake t o updat e an y forward- lo ok in g st ate me nt to r eﬂe c t eve nt s or c irc um st an ces a f ter t he d ate h er eo f or to re ﬂe ct the oc currence o f unant icipated events. STR A TEG IC REPORT FINANC IAL REVIEW C ONTINUED Annual Report & Financial Stat ements 2022 45 STR A TEG IC REPORT The pace and na tur e of change in the external en v ir onment, combined wit h the need t o suc cess fully implemen t both t r ansf or mat ional and c ore bus iness initia tive s int ernally , underline the impor tance of main taining eectiv e and agile risk managemen t pr oc ess es c ov er ing e very p ar t of our bus iness. AP P ROAC H TO RI S K M A N AG E M E N T Our appr oach t o ris k managemen t rem ain s sim pl e and p r ac tic al . Th e Aud it Committee, under delegated authority fro m the B oa rd , is accou nta bl e for overs eei ng t he ef fec ti ven ess of o ur risk management proc ess, including id enti f ic atio n of th e pr in cip al a nd em ergi ng r isk s f aci ng M &S . T o su pp or t the Audit C ommittee in ex ecuting on thi s re sponsibility, underlying pr o ce sses are in p l ace w hi ch are f ul ly al i gne d to the M&S operating model , with e ach busine ss an d key fu nc tio n be in g respo nsi ble f or the ongoing tracking and management of r isks . T hese p roces ses com pr ise t he identi fi catio n, asses sment and ef f ecti ve mi tig atio n of core r isk s , as wel l as mo nito ri ng fo r cha ng es tr ig gere d by th e dynamic and, some times, unpredictable env iron me nt in w hi ch we o pe rate. Ou r ri sk ma na ge me nt pro cess is un de rp inn ed by t he G rou p Ris k Ma na ge me nt Pol ic y w hic h is sub jec t to per io dic rev ie w to ensure i t remain s appr opriate for o ur bus iness needs and delivers ag ainst o ur governanc e r esponsibilitie s. Th e key ac ti vi ties fo r min g a pa r t of thi s proces s in clu de: – the devel o pment an d maint enance of Boar d- appro ved risk appetite statem ents w hic h al ig n wi th bu sin ess strat egy, thr ee-year pl an, c ore operating ac ti vi ties a nd o ur p ur pose a nd v al ues ; – identificati on, measur ement and reporting o f ris ks a ga ins t a consi stently applied crit eria cons idering bot h the likelihood of occurre nce and pot ential im pa ct to th e G roup, w it h clea r ownership sitting with rele vant members of the leadership team; – mai nten an ce of detailed risk registers and mitiga tion plans b y ea ch bu sin ess an d fu nc ti on w hic h are a pp roved by the ir le ad ers hip te ams a nd th e appropria te Execut ive Committ ee me mb ers , a nd a re al so i ncor po ra ted into re l ate d gove r na nce p roce sse s, suc h as the E nvi ronm en ta l , So ci al an d Gove rn an ce (ESG) o r Gro up Safet y Commit tees; – proa ct ive m on itor ing o f emerging ris ks whe re the f u ll e x tent a nd im pl ic ati ons m ay no t be f ul ly un de rstoo d bu t ne ed to be tr ac ked ; – swi f t ac ti on to eva lu ate ch ang es to the r isk pro fi le tr ig ge red by n ew or unexpected e vents – such as th e ra pi d asse ssm ent o f the b usin ess -wi de cons equ en ces of Ru ssi a’s invasi on of Ukraine; – Conti nu ed as ses sme nt of r isk s to refle c t ch ang es i n the b usin ess operating model, acc ountabilities and rep or ti ng – fo r ex am pl e, to in cor po rate the c ha ng es in I ris h op er atio ns pos t - Bre xi t or th e reset of P l an A ; – a for ma l half-yearl y review of a ll r isk reg ister s by the G rou p Ri sk team to pro vide independen t challenge and support cr oss-busine ss alignmen t; – dire c t re por t ing t o the A ud it Committee by each o f our b usi nes s an d fu nc ti on al le ad ers hip te ams o n a rol l ing , sch ed ule d ba sis , f lexe d to respo nd to cha ng es o r poten tia l issu es; a nd – the com pi l ati on of a n over arch in g view o f Group ri sks, combining bot h t op- down and bottom- up perspecti ves, which con sider s the im pa ct o f ch ang es in t he e x tern al envir onment, our strat egy, transf ormation programme, c ore operations and ou r engagement wi th ex te rn al p ar t ies . Th e ou tpu t f rom th e above p roces s is sub jec t to pe ri odi c revi ew an d cha l len ge wi th th e exec uti ve di rec tors a nd , subsequ ently , the principal risks an d uncer ta inties a re sub mit ted to th e Aud it Com mi t tee ah ead o f f in al rev iew a nd ap prov al by th e Bo ard . An ove r v iew of t his p rocess i s prese nted in th e di ag ra m on th e fol low in g pa ge a nd the i nter ac ti on of o ur p ri nci pa l ri sks w it h the s tr ategi c pr io ri ties is s how n in th e ta ble o n pa ge 4 8. Th e di rec tors’ as sess me nt of th e lon g- term v i abi l it y of M &S is a l so revi ewe d an nu al ly , mi nd fu l of th e pr in cip al r isk s f aced . T he a pp roa ch fo r asse ssin g lon g -ter m vi ab il it y is s et ou t on p ag e 55. RIS K MANA G E M E NT Ma rks a nd S pe nc er G ro up p lc 46 STR A TEG IC REPORT Ri s k m a n a g e m e n t p r o c e ss a n d g o v e rn a n c e o v e r v i e w Internal reporting Consolid ated Grou p -level risks – Co nso l id ati on o f sig ni f ic an t ris ks f ro m un de rly in g risk registers – Ove r l ay of G rou p - leve l ri sk s – Rev iew a nd a gre e me nt of t he p ri nc ip al r isk s by th e execut ive direct ors – Rev iew a nd a pp rov al by t he Au di t Co mm it te e Business and functional ri sk regist ers – Development and ongoing maint enance of risk regist ers, in clu di ng co ns id er ati on o f em erg in g ri sks , by t he b usi ne ss and functional leadership teams – Rev iew a nd c ha l len g e of ri sk co nten t an d qu al i t y of mi tig at io n pl a ns by t he G rou p Ri sk tea m – Rev iew a nd c ha l len g e of ri sk s at le ad er shi p fo ru ms Curr ent i ssu es an d are as of ch an ge – Mo ni tor in g em erg in g are as of c ha ng e o r issu es t hat may b eco m e sig ni f ic an t at a G rou p leve l Principal risks and unce rt ainti es – Full disclosure of Princi pal ri sks f or external reporting – Rev iew a nd a pp rov al by th e Bo ard a nd Audit Committee Ex ternal r epor ting Parties in vol ved 1 Setting risk appet ite 2 Ris k id enti f ic atio n & ow ner shi p 3 Risk assessme nt 4 Risk response 5 Monitoring, repor ting & esc al a tio n Bottom-up – G rou p Ri sk tea m – Business and functional leade rship teams – Policy and proce ss o wners T o p-do wn – M&S Board – Audit Committee – Executive Commit tee – G rou p Ri sk tea m M a i n t a i n i n g a n e ffe c t i v e ri s k fra m e w o r k In co mp lyi ng w it h th e pro cess a nd p ol i cy d esc ri b ed a bove , so me e xa m ple s of h ow ri sk m an ag em en t has dev elo pe d to rem ai n rel ev ant d u ri ng th e ye ar i ncl ud e: – a fu l l ref resh o f ou r ri sk ap p eti te sta tem en ts , le d by th e E xec uti ve Team w ith f u ll B oa rd p ar t ici pa tio n , to ens ure a l ig nm ent w it h bu sin es s str ate gy a nd t he o ng oi ng tr a nsf or ma tio n ac t iv iti es a s wel l as t he core re qu ire me nt s of b usi nes s op e rat io ns; – ref in em e nt of th e su ite of u nd e rly in g bu sin es s an d fu nc ti on a l ris k reg is ters to m ir ror c ha ng es i n ou r op er at in g mo de l , in cl ud in g th e reset o f Pl a n A an d th e ne ed to m an ag e cl im ate - rel a ted r isk s an d opportunities; – usi ng o ur e st ab li sh ed cr is is m an ag em en t resp on se to im me di ate ly ass ess t he r isk co ns eq ue nce s of Russia ’s invasion of Uk raine; and – re - eva lu ati ng t he to ol s th at su p po r t th e cont in ue d ma tur i ty a nd e f fe c ti ven ess o f th e est ab l ish ed p roce ss . 1 2 3 4 5 Ongoing communication & feedback Th e fol low in g di ag ra ms prov id e an ove r vi ew of th e ri sk ma na ge me nt pro cess a nd ac ti vi tie s un der ta ken wi th in ou r bu sin ess tha t al low th e Bo ard to fu lf i l its o bl i gati on s un der t he Co rp or ate G over na nce Co de 20 1 8. RISK MANA G E ME NT C ONTINUED Annual Report & Financial Stat ements 2022 47 STR A TEG IC REPORT O VE RVIEW O F PRINCIP AL R ISKS AND UNCER T AINTI E S Ou r pr in cip al r isk s an d un cer t ai ntie s have b een a sses se d in acco rda nce wi th th e met hod ol og y out l ine d on t he p revio us p ag es. At an ove ra rchi ng leve l , th ree o ng oi ng is sues a re hav in g a pe r va sive i mp ac t o n the r isk s be ing f a ced – th e cont inu al ly evolv in g natu re of Cov id - 1 9 , the f ur the r conse qu en ces of th e Rus sia n inv asio n of U kr ai ne , an d the cos t of l iv in g cri sis em erg ing i n th e comm un iti es in wh ich we o pe r ate. In p revio us d iscl osures we h ave ex pl ain ed h ow Covi d-1 9 h as h ad w ide r a ngi ng co nse qu ences o n ou r sui te of pr in cip al r isk s an d un cer t ai nties a nd w as n ot , the refore , pres ented a s a sin gle p ri nc ip al ri sk . T his h as n ot ch ang ed . T he s am e ap pro ach h as a l so be en use d in rel atio n to the Ru ssia n inv asi on of U k ra ine a nd th e cost o f li vi ng c risi s, w it h the co nse qu ence s of bot h be ing c a pture d in t he relev an t pr in cip al r isk s ra the r tha n show n as s ta nd al on e item s. THE C ONTINUED CONSE QUENCES O F C O V I D -19 Th e bu sin ess con tin ues to ma na ge t he ongoing c onsequences of Covid- 1 9 and wh ile t hese h ave, a nd m ay conti nu e to evolve , they h ave be come i ntr ins ic al ly linked with other pr evalent external fac t ors c ontributing to current uncertainty in the environment in wh ich we o pe r ate. Th ese i ncl ud e: – labour shortages acr oss trans port , distribution, manufacturing and ser vice industries; – thre ats to su pp l ie r resi l ie nce and viability ; – c ontinued and chang ing l ockdo wn me asures i n a nu mb er of co unt ri es; – ec onomic volatility ; – ev olving cust omer behavio urs; – disr up tio n to the sup ply o f natural, refined and manufactured reso urces ; an d – the th reat of n ew v ar ian ts . Ea ch of t hese p otent ia l ris ks a re incorporat ed, as needed, in the s uite of principal risks. THE RUSSI AN IN V ASION OF UKRAINE Rus sia’s inv asio n of Uk r ai ne h as al rea dy im pa cte d ou r busi nes s an d , wh ile t he conf l ic t cont inu es , may co ntin ue to do so . In l in e wi th ou r est ab l ishe d w ays of wor k in g , the c risi s ma na ge men t an d business continuity pro toc ol s wer e invo ked at th e tim e of th e inv asio n an d pro vided the structur e and gov ernance for o ur resp on se an d ri sk mi tig ati on pl ans inc luding: – prioritising the wellbeing and safe ty of our Ukrainian colleagues in- coun tr y and tho se w orking el sewher e in the bus iness; – work i ng w ith FI BA G roup , our f r an chi se pa r tn er in U k ra in e and R ussi a , to understand the immedia te and longer -term bu siness implic ations ; – review in g ra ng es to ide nti f y p rodu c ts tha t inc lud e m ateri al s o r in gre die nts fro m Uk ra in e, Ru ssi a or B el a ru s, t hat coul d be i mp ac ted by sh or t ag es or corpora te decisions to c hange s upply and, where needed, dev eloping alternat ive s ourcing pl ans; – pr otecting our brand and reputation; – c onnecting with our cust o mers t o under stand their perspectiv es and expectati ons; – c onfirming our trade pos ition in Russ ia; and – tracking the pot ential impact of sanctions bein g int roduc ed . As e xp l ai ne d el se wh ere in t his re po r t , we have a l so now m ad e a de cisi on to ex it fro m Rus sia . T here m ay, however, be fur ther po ten tial c onsequences from the o ng oi ng con fl ic t . T hese h ave be en incorporat ed in t he r elevant principal ris ks a nd i nclu de t he: – imp ac t o n ou r grow th s tra tegy f or fr anchise op erations; – ongoing r el ationship with FIB A; – ef fe ct o n key ma teri al s a nd p rodu c ts including s unflower oil , grains, natural ga s, f u el , f er t il ise r an d nic kel th at coul d impact the manuf acture of products, cos t and a vail abilit y; – addit ional pr essur e on suppl y chains cr eating a short age of l abour an d the p otenti al r isk o f hum a n rights exploitation; – safe ty a nd i nteg ri t y of ou r foo d as we subs titut e products f r om the countrie s of co nf l i c t ; – rel ated ef fec t s on w id er in fl atio n , en ergy a nd r aw ma teri al i np ut cost s; – potent ia l imp l ic atio ns o n cy b er security ; and – further global soc io- political t ensions and fragilit y . Du e to the evo lvin g nat ure of t he inv asio n , the re is a r isk of f ur the r im pa ct , an d the b usi ness w il l con tin ue to ass ess the implic ations. Ma rks a nd S pe nc er G ro up p lc 48 STR A TEG IC REPORT TH E COS T O F LI VI N G CRI S IS Th e com bi ned i mp ac t of C ovi d-1 9 a nd the R ussi an i nvas ion h ave, a lon g wi th oth er f ac tors , tr ig ge red a cost o f li v ing c risi s. Ris ing e ne rgy p ri ces, s up ply ch ain dif ficultie s, product shortages and l abour const raints ar e all c ontributing t o significant price infl ati on, and ass ociat ed ris es in i nterest r ates . Th is is n ow pl a cin g real p ressu re on h ous eh old b ud get s both in th e UK a nd i n othe r ma rket s , and im pa ct ing a l l asp ec ts of p eo pl e's da ily l ives – a dd ing s ign if ic a nt ch al len ge s to the c hoi ces th ey ma ke, in clu di ng w he re an d how th ey sho p. Th e im pa c t on ou r bu sin ess w il l be de pe nd ent o n a nu mb er of key fac t ors including: – th e sp ee d and s ca le of g over nm ent a c tio n; – our a bi li t y to respo nd to the i nf l ati on ar y pre ssur es on bo th i nputs and cust omer pricing; and – the duration o f the economic downt urn. KE Y C HA NG E S TO O UR RISK PR OFILE Th e ab ove issu es , an d ch ang es i n our bus ine ss in t he p ast ye ar, have resulte d in th e fol low in g key cha ng es to our risk profile: – As the ex ternal en vironment gr ows more turbulent our trading perfo rmance risk is b eco min g increa singly inf luenced by the ass oci ated h ead wi nd s. A s suc h thi s ris k has e volved f rom b ei ng p rim ar ily int ernally f ocused to the challenges of maintaining p erformance impro vement in a changing world. – While our responsibility and commi tment on saf ety has always covered a ll M &S p rodu c ts , ou r pr in cip al ris k dis closu re provi de d a sp eci f ic fo cus on fo od s afet y. As we co ntin ue to ex pa nd o ur r an ge of p rod uc ts a nd incorporat e new acqui sition s and inves tme nts , of ten in n on -fo od a reas , we have a me nd ed th e ris k to refl ec t al l prod uct safety re sponsibilities. – Th e pr inc ip al r isk as soc iate d wi th the U K ’s exi t fro m the Eu rope an Un ion ( " EU ") h as b ee n ref in ed to focu s on h ow we conti nu e to ada pt to the com ple xi t y of mov in g go ods a cros s the EU border s. – W e have ref i ne d the s oci al , ethi ca l an d env iron me nta l ri sk to focus ex pl ic itly o n climate change and environmental responsibility. Th is ref le ct s the i mp or tan ce of cl i m ate - re l ate d is su e s a nd be t te r al ig ns w ith th e reset o f Pl an A . O the r business responsibilitie s c ontinue to be ref lec te d wit hi n the corp orate compliance and responsib ility risk . – Our r isk re l ati ng to tech no log y an d digital capability had pr eviousl y been dis close d se pa rate ly . T hi s has n ow be en disaggrega ted and incorporat ed in other principal risks inc luding business transformati on, talent and capability an d information security . – The pos itive cash generation o ver the l ast t wo y ear s ( si nce t he st ar t o f the pa nd em ic) has resul ted in t he liquidit y and funding ri sk be in g less p rom in ent tha n in re cent ye ars . MONITORING OUR EMERGING RISKS Ou r ri sks w il l cont inu e to evolve as a resul t of f utu re event s an d , the refore , an awa ren ess of e me rgin g ri sks i s im po r ta nt in driving effective st rategi c planning. This wi ll a ll ow us to mo nito r and u nd er sta nd the p otent ial i mp l ic atio ns a nd b uil d thes e into ou r de cisi on - ma ki ng p rocess es at the r ig ht ti me. Key e me rgin g ri sks i ncl ud e: – the potent ial unknown and/ or unantic ipat ed c onsequenc es fr om the Russian invasion of Ukraine, including tho se covered o n pa ge 47 ; an d – the impac t o f futur e r egul at or y changes, including in UK c orpo rat e gov ernance requir ements, adding additional r espons ibilities t o our existing legal and regul at or y complianc e risk. Th e ta bl e be low show s how ou r pr in ci pa l ris ks a li gn w ith o ur s tra tegi c pr io rit ies , d escr ib ed o n pa ge 6 . M&S FOOD high- performing business and mark et share gr owth OCADO transitioning to strong capacity growt h post pandemic revers ion CLOTHI NG & HO ME o n tr ac k fo r a mo re profi table model capable of gr owth Building ST ORE R OTAT I O N pipeline driving exit fr om legac y stores INTERNA TIONAL absorbing Brexit related costs , but embryonic global strategy encouraging T rading per formance in a c hallenging envir onment      Business transformation    Ocado Retail   T alent and capabil ity     EU border challenges   Business continuity and r esilience    Produc t safety    Informa tion security    Corporat e c ompl iance and r esponsibility     Climate change and en v ironmen tal re sponsibility     Liquidity and funding     LINKING P R INCIP AL RISKS WITH OUR STRA TEGIC PRIORITIES O VE RVIE W OF PRIN CIP AL RIS KS AND UNCER T AINTI ES C ONTINUE D Annual Report & Financial Stat ements 2022 49 STR A TEG IC REPORT PRINCI P AL RISKS AND UNCERT AINTIES 1 Cont ex t – M&S operat es in an increasingl y competit ive sect o r against a ba ckd rop o f cont in ue d cost a nd p ri ci ng p res sure s, ch an gi ng co nsu me r be h avi ou rs a nd a b roa d ra ng e of macroec ono mic unc er tainties. – Ove r re cent m on ths t he co nse qu e nces o f Cov id -1 9 h ave cont in ue d to evolv e an d com bi ne w it h oth er e x ter na l ma cro factors t o contribut e to widespread, ongoing uncertainty ac ross t he co mm un iti es i n wh ic h we op er ate . Con tin u ed lock down me asur es; l abour s hortages acr oss t ransport, distribution, manufacturing and service indus tries; t hreats to suppl ier r esilience a nd viability ; ongoing changes t o cus tom er b eh av iou rs ; pr ice i nf l at io n , in clu di ng e ne rgy ; th e pote nti al f or f ur the r in teres t ra te ris es; i nc rea ses i n ta x ati on ; soc io - po l it ic al te nsi on s; an d di sr up tio n to the sup p ly of na tu ra l , ref i ne d an d ma nu f ac t ure d reso urce s, have co m bi ne d to create a c ha l len gi ng e nv iro nm ent f or o ur, and all bus in esse s, to ope rat e within. – Th e cos t of l iv in g cr isi s wi l l fu r th er i nf lu en ce cu stom e r behaviour and buying choic es which could impact our pe r fo rm a nce a nd s tra teg ic d ec isi ons a s we res po nd to thes e chan ges. – Th e po tent ia l con seq u en ces of t he Ru ssi a n inv asi on o f Ukraine fur ther highlight the fragility linked t o high-im pact "sh oc k " eve nt s. T he se in cl ud e th e lon g -te rm i mp ac t o n ou r fr a nch is e op er ati on s in t he re gi on , a nd o n key ma ter ia l s an d pro du c ts i ncl ud in g su nf lowe r oi l , g ra in s, n at ur al g as , fuel , fertiliser , nickel and micr ochips that could impact manufacture, c ost and availabilit y o f pr oducts. – Wh il e th e bus in ess h as d em on str ate d con tin ue d resi l ie nce in th e f ace o f th is r an ge o f pres su res , an d rem ai ne d rel ev ant to custome rs t hroughout the period, c ontinued t urbulence in the ex ternal en vironment c ould negativel y impact the bus iness 's ability to contin ue delivering an improv ed trading performance. – In a dd iti on , t he p oss ib il it y o f fu tu re ne w va ri an ts o f Cov id - 1 9 combin ed with restric tive governm ent inter ventions , ei the r in t he U K or o the r cou nt ri es , cou ld ne g ati vely i mp ac t future per formance. Op er at io na l ove rsig ht by E xecutiv e C ommittee Mitigations – Str ong, varied and c omplementar y senior leadership team cap abilities. – Planned senior leaders hip c ontinuity. – An e st ab li sh ed o pe ra tin g mo d el co nsis ti ng of a f a mi ly of a ccou nta bl e bu sin es ses w ho s ha re M& S br an d v alu es , support functions, techn ology and custome r data. – A cle ar t hre e -yea r pl an co nst ru c ted to rem ai n rel ev ant to the c urrent challenges. – Improv ed budgeting pr ocesse s, including detailed se nsi tiv i ty a n alys is to an tic ip ate th e po tenti a l im pa c t of external uncertainty . – Fo rm a l op er ati ng re vi ews fo r al l b usi ne ss a nd f un c tio na l tea ms to en ab le e f fe c tiv e exe cut ive o ver sig ht a nd governanc e of each busines s. – Effective busine ss c ontinuity and cri sis management pro cess es to su pp or t b us in ess- wi de re sp ons e to iss ues as th ey a ris e. – Pr io ri tis ed fo cu s an d dis ci pl in e ac ros s the b usi n ess o n cost , range, trust ed value and avail abilit y . – Ef f ec ti ve an d pro ac t ive wo r ki ng w it h cr iti c al th ird p ar tie s – for example, a structured s uppl ier en gagement pr ogramme to bot h ant ici p ate an d su pp or t m an a ge me nt of e sc al a tin g iss ues s uc h as cos t inf l a tio n . – Continued commitment to initiat ives that main tain and support impr ov ed and sustained c ust omer engagemen t including the Sparks lo y alty pr ogramme, broader digital en ga ge me nt , p ers on al i sat io n of of fer s an d sh op yo ur w ay. DESCRIPTION RISK A n u n c e r t a i n t ra d i n g e n v i ro n m e n t Ou r ab il it y to de l ive r conti nu ed i mp roveme nts i n tr adi ng p er f or ma nce cou ld b e sign if i ca ntly af fec ted by th e in di vid u al or a gg reg ate im pa ct o f an i ncre asin gly com pl ex se t of ex te rn al f ac tor s. T he o ng oi ng con seq ue nces of the p an de mi c, g eo - p ol iti c al an d eco no mic u nce r ta int ies (b oth n atio na l an d inte rn atio na l) an d the resu lt ant cos t of living crisis, ar e combining t o generate dif ficult and unpr edictable headwinds. RISK MO VEMENT N o ch an ge Ne w/ evol ving risk In cr eas ed n et r is k ex pos ur e Reduced net risk expos ure Ma rks a nd S pe nc er G ro up p lc 50 STR A TEG IC REPORT 3 Cont ex t Th e inv est me nt in O c ad o Ret ai l is p ar t o f ou r str ate gy f or improving our online reach and capabilit y . Th ere a re th ree co re as pe c ts of o ur r el at io nsh ip w it h Oc a do Ret ai l tha t th e bus in ess i s ac ti ve ly foc usi ng o n: – developing our relationship with Ocado Re tail and evol ving ou r way s of wo rk i ng to en su re al ig nm e nt of s tr ateg ies i n a way t ha t sup po r t s in nov ati on a nd g row th a nd p r io ri tis ing area s for future in vestment; – planning for our long-term st rategic relationship with the pa r tn er, in clu di ng i ts ro le i n the M &S e cosy stem ; a nd – maintaining a seamle ss s upply proces s t o support cust omer fu l f il me nt – e xi sti ng a nd i n l in e wi th f ut ure g row th – a nd seeking opportunities t o expand and r efine product ranges. Op er at io na l ove rsig ht by E xecutiv e C ommittee, representa tion on the Ocado Retail Board Mitigations – M& S no mi nate d di re cto rs a re pa r t of t he O ca do R eta il Bo ard , w it h col le c tiv e sig n- o f f of b us in ess p l an s di rec ti ng th e grow t h of th e bu sin es s. – Jo int ly ag ree d inve stm en t pl a ns to su pp or t the co nti nu e d inve stm en t in th e Cu stom er F ul f il m en t Cen tre n et wor k , to ex pa nd p rese nc e in th e ul tr a -f as t gro cer y de li ve r y ma rke t an d th e pl a nn ed m ig ra tio n to th e new O c ad o se r vi ce pl at for m . – Established da ta and techn ology in terfaces wit h Ocado Retail. – A de di c ated M &S O ca do d e li ve r y tea m , sup po r te d by senior le adership, t o coor dinate sourcing, product development, ranging, customer d ata and ma rke ting. PRINCI P AL RISKS AND UNCERT AINTIES CONTINUE D DESCRIPTION RISK 2 Cont ex t While significant c hange is ongoing across t he busine ss, the t hree crit ical proj ects underpinning our t ransformation agenda c omprise: – mo de rn isi ng o f ou r su pp ly ch ai n an d log is tic s ac t iv iti es to im prov e spe ed , o p er ati on al e f fe c tiv en ess a nd av ai l a bi li t y and r educe c osts; – improving our IT infrastructure and underlying syst ems while also adopting new t echnologies and digital pr oduc ts to support operational eff iciency , impr ov ed data-driven decision-m aking , cr eation of a cust o mer - centric " ecosyst em", in cre ase d pe rs on al is ati on a nd t he s hi f t to om ni - ch an ne l ; a nd – res haping and modernising our UK st ore estat e to be fit for t he f u ture , w ith t he r ig ht-size d store s in th e ri gh t sp aces , supporting omni-channel growth and meeting t he expectations of our c ust omers. Th e ab il i t y to ba l an ce cos t - ef fe ct ive p rog r am me e xec uti on at p ace a nd to d el iv er o n tim e , wh ile a l so m an ag i ng th e cons equences of the external pr essur es discuss ed abo ve, is key to im p rovi ng o pe r ati on al ef f ici en c y, comp eti tiv en ess an d grow th . Any si gn if i ca nt d el ay s , f ail ure to a ch ieve t he antic ipat ed out comes, or exces s implemen tation costs could also impact delivery of t he planned busine ss benefits. Op er at io na l ove rsig ht by E xecutiv e C ommittee, Property Commi ttee Mitigations – Clear pr iori tisation of the requi red transfor mation ac tiv ities as part of our three-y ear planning proc ess. – Initiat ives under pinned by function-spec ific strat egic plans and leaders hip gov ernance structur es. – Dedicated strategy and tran sformation roles to suppor t foc us , con sis ten cy a nd c ha l len g e acro ss o ur f a mi ly of busin esses. – Application of pr ogramme governanc e principle s for all core p roje c ts , w ith c lea r a ccou nta bi l iti es a nd m il esto nes in p l ace . – Ongoing benefits tracking o f initiat ives in line with spend ta rge ts a nd v al ue o utcom es . – Per io di c rep o r tin g o n key bu sin ess a c ti vi tie s to the Audit Committee . B u s in e s s tr a n s f or mat ion A f ail ure to succes sf ul ly im ple me nt th e sui te of cri tic al t ra nsfo r mati on p roje ct s coul d im pa ct m ed iu m- a nd lon ge r - ter m grow th a mb iti ons . W hil e eac h in iti ati ve is in di vid u al ly sign if i ca nt an d ha s its ow n in he rent r isk s , the a gg reg ate im pa ct o f sim ult an eo usly d el ive ri ng th ese c hal le ng in g proje c ts cou ld al s o create f ur t he r ris ks t o suc cess ful implemen tation. O c a d o Re t a i l A f ail ure to ef f ec tive ly ma na ge th e str ateg ic a nd o pe rat ion al re l atio nsh ip w it h Oc ad o Reta il cou ld si gni f ic ant ly im pa ct t he v alu e of o ur i nvestm ent , th e ach ieve me nt of o ur mu lti - ch an ne l foo d str ateg y, our Br a nd an d ou r ab il it y t o deliver s hareholder value. RISK MO VEMENT N o ch an ge Ne w/ evol ving risk In cr eas ed n et r is k ex pos ur e Reduced net risk expos ure Annual Report & Financial Stat ements 2022 51 STR A TEG IC REPORT PRINCI P AL RISKS AND UNCERT AINTIES CONTINUE D 5 Cont ex t Th e bu si nes s con tin ue s to ma na ge a r an ge o f com pl ex it ies th at hav e ar ise n fo ll owi ng t he U K ’s exi t f rom th e EU. Ke y challenges include: – cont inued unc er tainty as the requir ements o f the Nor thern Ireland Pr otoc ol evol ve and our abilit y t o implement sus ta in ab le s olu ti on s to ma na ge th e im p ac t o n ou r Ir ish bu sin es s, i nc lu di ng th e mov em ent o f go od s ac ross to t he Rep ub l ic o f Ire l an d , ou r l arg es t EU ex po r t b usi nes s; – fu r th e r in crea ses i n th e cost b as e fol low i ng th e in trod uc t io n of ch ec ks to i nb ou nd g oo ds f ro m the EU to t he U K (exp ec te d in 2022 ) an d th e cons eq ue nt p ress ure o n th e sup p ly bas e in clu d in g vi ab il it y o f su pp li er s an d th e im pa c t on pr oduct availabil ity ; – managing t he c onsequence s of introducin g mor e locally sourc ed products; and – monitoring and implementing solutions for any longer -term di verg e nce of U K a nd EU r ul es th at m ay ad d ad di tio n al cos t and c omplexity to the bus iness, particula rly in Ireland . Ope ration al oversight by Executiv e Committee Mitigations – Reg u l ar e ng ag em e nt wi th th e Bo a rd to dis cus s th e ac ti ons be in g ta ken to m an ag e evo lvi ng b ord er c ha l len g es by ou r acc ountable bus inesses. – Str engthening the management and ac countabilities of I ris h op er at io ns to su pp or t t arg ete d mi tig at io n of cos ts , including opportunities for local sourcing. – Op er at io n of a v ir t ua l cus tom s wa reh ou se e nvi ron me nt a nd im pl em en tat io n of an E U hu b to mit ig ate ta r if f co sts . – Continued eng agement with k ey government dep artments an d oth er e x ter n al e xp er t s to rep rese nt M &S v iew s an d rev iew o ur m it ig ati on s tra teg ies . T hes e in clu d e mi nis ter s, in du str y bo di es , the B ord e r an d Protoco l D el iv er y G ro up, th e De pa r tm en t for E nvi ron m ent , F oo d & Rur a l Af f a ir s (De f ra), HM Re ven ue & C usto ms , th e Fo rei gn O f f i ce, a nd t he Northern Ireland Executive. – Ongoing work with Defra and our suppl y base in readiness for t he r ul es fo r mo vi ng g oo ds f rom t he EU to G rea t Br it ai n. – Proactivel y managing our franchise arrangements with par tn ers. DESCRIPTION RISK 4 Cont ex t Th e bu si nes s em pl oys m ore th a n 65, 0 0 0 ta le nted a nd pa ssi on ate co ll ea gu es an d rem a ins a n at tr a ct ive b r an d to fu tu re col le ag ues . H oweve r, the cu rre nt l a bo ur m ar ket con di tio ns c reate a h ei gh tene d r isk a rou nd re cr ui tm ent . – The c onsequences of the pandemic, including s kill s sho r t ag es a nd w ag e in fl atio n , hav e cont ri bu ted to a ti gh t labour market in some k ey specialist areas (inc luding di gital , technol ogy and data sci ence ) and o ther c ritical operational rol es (such as i n su pp ly ch ai n an d lo gis tic s). – In addit ion, colle agues and potent ial candidat es are demonstrating a prefer ence for roles and employers that offer increas ing flexibility to support life choice s, work -life ba l an ce a nd c are er d eve lo pm en t in a dd iti on to at t ra c tiv e pay a nd b en ef i ts . Li nke d to th ese i nf lu en ces , th e ne ed fo r employ ers t o demonstrat e a cultural alignment in other are as su ch a s sus ta in ab il it y, di ve rsi t y an d eth ic al v al ue s are becoming inc reasingl y impor tant. – Th e bro a de r im pl ic at io ns o n the a va il a bi l it y of l ab ou r an d key sk il l s p ost-B rex it a l so con ti nu e to be mo ni tore d . T o s up po r t th e con tin ue d d el iv er y o f im prov ed tr a di ng pe r fo rm a nce a nd o ur tr a nsf or ma tio n am b iti on s, i t is es se nti al th at we h ave th e ri ght p ro cess es in p l a ce, u nd er pi nn ed by ef f ec ti ve tec hn ol og y, to ide nti f y, deve lo p an d ret ai n talent ed c olleagues. Op er at io na l ove rsig ht by E xecutiv e C ommittee Mitigations – Direct Exec utive Commit tee ownership of the people plan. – Co nti nu ed i nvest me nt i n inte rn a l an d ex te rn al t al ent to stre ng th en c a pa bi l it y at a ll l eve l s, d eve lo p ou r fu tu re lea d ers a nd d r ive i nter n al c ar ee r pro gres si on . – Ongoing delivery of impro vements in c ore people ma na ge m ent s yste ms a nd p roce sse s, i nc lu di ng a ref res he d pe r fo rm a nce a nd t al ent m an a ge me nt p roces s to dr ive cons istency and impro ved decision-making. – An es tablished c ol league skills framework t o support rol e-based performance, deve lopment and pr ogressi on. – On go in g rev iew a nd m ai nte na nce o f succe ssi on p l a ns fo r key ro les . – Co nti nu ed i nvest me nt i n sk il l s an d c ap ab il i tie s wi th a particular focus on driving digital lit eracy and capabilit y building. – Inve stment in pay and wellbeing benefits following com pl eti on o f a bus in ess -wi de r ewa rd rev iew. – A foc us o n ex te rn al ly b en ch ma rke d , ma r ket -r ele va nt p ay including full c onsideration of gender , et hnicity, disabil ity and age. – A wel l- es ta bl i she d Bu sin es s Invo lvem en t G rou p wh ic h is actively involv ed in business- wide colleague engagement and r epresenta tion, including at Boar d meet ings. – Improv ed usage of our M&S Alumni c ommunity to engage, energis e and re-attract grea t talent. Ta l e n t a n d c a p a b i l i t y An i na bi li t y to att ra ct , ret ain a nd d evel op th e ri ght t ale nt , sk il l s an d ca pa bi l iti es or to succes sf ul ly ad apt to th e ex pe c tati ons o f a pos t - pa nd em ic l a bo ur m ar ket coul d im pa ct t he d el ive r y of co re op er atio na l ac ti vi ties a nd longer -t erm strat egic objectiv es, includin g as pects of our tran sformat ion pr ogramme. E U b o rd e r c h a l l e n g e s A f ail ure to ma na ge th e cost co nseq ue nces a nd o pe ra tio na l fr ic tio n ar isi ng f rom th e com ple xi t y of bo rde r ar ra ng em ent s fol low in g the U K ’s exit f rom t he Euro pe an Un io n (EU) or f u r th er d evelo pm ent s in th e T r ad e an d Coo pe ra tio n Agre em ent ( “ TCA ”) , in clud in g the N or the rn I rel a nd Protoco l , cou ld have a si gn if ic a nt an d lon g- ter m impact on our Irish business and overall t rading per formance. Ma rks a nd S pe nc er G ro up p lc 52 STR A TEG IC REPORT 7 PRINCI P AL RISKS AND UNCERT AINTIES CONTINUE D Cont ex t – Th e s afet y o f ou r pro du c ts – fo od a nd a l l oth er p rod uc t ca teg or ie s - is vi t al fo r ou r bu sin es s an d we ne ed to ef f ec ti vely m a na ge th e p otent ia l ri sk s to cus tome r he al th an d sa fet y a nd co nsu me r con f id en ce th at f ace a l l reta il er s. – This include s c onsidering how ex ternal pr essur es, including eco no mi c an d env iro nm en ta l ch an ge s, co ul d im pa c t the inte gr i ty o f ou r pro du c ts a nd t he a bi li t y to ef f ec ti vely operate and maintain all ke y c ontrols t hroughout t he supply chain . – These external pressur es, including the ongoing con seq u en ces of t he p an de mi c , inf l a tio na r y cos ts , labour qualit y and availabil ity , and regulatory change s, are b eco mi ng i nc rea sin gly a cu te. W hil e so me o f the se eve nts a re ou tsi de o f ou r con trol , th ey mu st ne ver t he les s be monit ored and mitigated against. Op er at io na l ove rsig ht by E xecutiv e C ommittee, Group Safety Committee, Consumer Brand Prot ection Committee Mitigations – G rou p -wi de a ss ess me nt of a ll s af et y r isk s wi th sp e cif i c Executive Committee and business u nit o wnership. – Rel ev ant S af et y Po li c y an d Sta nd a rds , T er ms o f T ra de , pro du c t sa fet y a nd " f ro m f ar m to for k " s pe ci f ic ati on s wi th cle ar a ccou nt ab il it y s et at a ll l eve l s, i nc lu di ng p roces se s to com ply w ith o ver sea s req ui rem en ts . – Compliance standards included in c ontracts with third-part y brands. – Risk - based stor e, supplier and w arehou se audit programmes com pl eted by i nd e pe nd ent t hi rd pa r ti es a nd ow n se con d- line functions, including franchise o perations. – Established pr ocesse s for the deve lopment of pr oduc ts and the associated packaging , incl uding independent rev iew a nd a pp rov al b efo re l au nc h . – Qualif ied Food and Product T echnology t eams with acc ess to ex ternal experts where appropriate. – Regular engagement with expert bodie s and third-part y con sul ta nt s to und er st an d an d resp on d to ch an ge s in safety s tandards. – T e ste d cr isis m an a ge me nt p l an fo r s afet y i nc id en ts . – Monitoring of pr oduct qualit y and cust omer complaints. DESCRIPTION RISK 6 Cont ex t Th e bu si nes s ha s cont in ue d to de mo ns tra te resi li en ce th rou gh the pandemic and in r esponding t o other signif icant changes, suc h as th e Ru ssi an i nv asi on of U k ra in e how eve r , th reat s to business continuity remain: – As o ur o n li ne b usi ne ss g rows , th e po tent ia l ri sk l in ked to o ur sa les a nd g row t h am bi tio ns f ro m a sus ta in ed p er io d of f l in e or a n in ab il i t y to fu lf i l on l in e ord er s du e to a ma jor i nc id en t at ou r C as tle D on in gto n fu l f il me nt ce ntre i nc rea ses . – Th e lo ss of, or m aj or d isr up tio n at o the r lo ca tio ns , su ch a s pr im ar y sup p ly cou ntr ies l i ke Ba ng l ad es h , Chi na o r S ri L a nk a; t he d ed ic ate d wa reh ou ses t ha t store s pe ci fi c fo od p rod uc t s in th e UK ; or sup p or t f a cil i ti es (such a s IT ), co ul d al s o im pa c t us si gn if ic a ntly. – A spec ific, unexpected or unpl anned shortage of product or m ate ri al s su ch a s tho se b ei ng cre ate d by Rus si a’s inva sio n of U kr ai ne ( in cl ud in g sun f lowe r oi l or f er t il ise r), o r the g lo ba l shortage of micr ochips, could also impact core trading or trans formati on acti vities . – The pot ential widespr ead c onsequences fr om currentl y un k now n/n ew Cov id v a ri an ts o n bot h ou r bu sin es s an d thi rd pa r ti es cou ld a l so h ave sev ere o pe ra tio na l con se qu en ces . – In a dd it io n , ou r de pe nd en c y on m ajo r th ird p ar ties m ea ns th at sig n if ic a nt in ci de nts , l on g- ter m resi l ie nce i ssu es a nd recove r ab il it y i n th ese b usi ne sse s wou ld a l so im p ac t ou r ow n . Op er at io na l ove rsig ht by E xecutiv e C ommittee, Crisi s Managemen t T eam Mitigations – A de di c ated a nd e xp er i en ced B usi nes s Co nti nu it y (B C) tea m wi th es ta bl is he d G rou p Cr isis a nd I nc id en t Management proce sses. – Ri sk-b as ed B C ass ess me nt s for s tores , so u rcin g of f i ces a nd wa reh ou ses a nd v a li da tio n of key s up pl i er a rr a ng em ent s. – Up - to- d ate B C pl a ns fo r key a ct iv it ies a cros s ou r op e ra tio ns , in clu di ng o f f ice s, w a reh ou ses a nd I T site s, t hat co nt inu e to evolv e in res po nse to n ew th rea ts in cl ud in g , wh ere n ee d ed , wor k w ith c ri ti ca l th ird p ar t ies . – Enhanced c apabilities at Cast le Doningt on t o manage techn ology failur e and fulfil ment capabilitie s thr ough in -s tore f ul f i lm en t an d th e use o f oth er w ar eh ous es in our ne twork. – Pro ac ti ve test in g of p l an s for ke y bus in ess co nti nu it y risk scenari os. – Li ve d ig it al p l at fo rm to su pp o r t th e bus in ess co nti nu it y gov ernance programme. – Active engagement with external organisations including th e Ret ail B C A sso ci ati on , g over n me nt - led f or um s an d me mb er sh ip of t he N ati on al C ou nter Ter ror ism Infor mation E xchang e. – Enhanced incident reporting wit h live data-driven dashboar d. B u s in e s s con t in u ity an d r es il i en ce Sig ni f ic ant o pe ra tio na l f ail ures o r resil ie nce is sue s at key bus ine ss lo cat ion s, s uch a s Ca stl e Do nin gton , o ur p ri ma r y on li ne C loth ing & H om e di str ibu tio n cen tre, o r any of o ur key in tern ati on al so urci ng lo ca tio ns , coul d resul t in sig nif i ca nt b usin ess i nter ru ptio n . Mo re broa dly, an in ab il it y to ef f ec ti vely resp on d to glob al eve nts , su ch as t he pa nd em ic or R ussi a’s invas ion o f Uk ra in e, a sh or tag e of r aw mate ri al s o r othe r pro du ct s use d in o ur b usin ess , or s ignificant s upply chai n dis ruption, c ould also i mpact busine ss performance. P r od u ct s af ety a n d in teg r ity Fail ure to preve nt an d/or ef fec ti vely resp on d to a food o r prod uc t s afet y i nci de nt , or to ma int ai n the ir i ntegr it y, coul d im pa ct c ustom er co nf id en ce in ou r br an d an d bus ine ss pe r fo rm an ce. RISK MO VEMENT N o ch an ge Ne w/ evol ving risk In cr eas ed n et r is k ex pos ur e Reduced net risk expos ure Annual Report & Financial Stat ements 2022 53 STR A TEG IC REPORT PRINCI P AL RISKS AND UNCERT AINTIES CONTINUE D DESCRIPTION RISK 8 Cont ex t – T h e sop h ist ic ati on a nd f re qu en cy o f cy b er-at ta ck s in t he ret a il industry cont inue t o incr ease and highlight an escalating in for m ati on se cu ri t y th reat . T his t hre at is f u r th er e xa cer b ated by the pandemic and other e x ternal events, s uch as the increa sed th reat o f cy b er w ar f a re l in ked to cu r rent g lo ba l un ce r ta in ty. – As w e cont in ue to us e da ta m ore i ntel l ig e ntly a cros s th e bu sin es s, m ove aw ay f rom le g ac y sys tem s to new techn ology and digital solution s, transi tion t o the cloud, enhance omni- channel c ust omer experiences and build a bro ad er “ ecos yste m”, the p rof il e of i nfo rm at io n sec ur it y an d th e over al l th rea ts l a nd sc ap e wi l l cont in ue to ch a ng e. – Ou r rel i an ce on s eve ra l th ird p ar t ies h os tin g cr it ic al s er v ice s an d ho ld in g M&S a nd c us tome r d ata a l so m ea ns th at cont in ue d as ses sm ent a nd m on ito ri ng i s req ui red to e nsu re th at vu l ne r ab il it ies i n th ei r cy b er a nd d at a cont rol s d o not impact us or our cu stomer s. – Lon ge r-ter m ch an ges s uch a s th e in crea se i n cus tom er s usi ng e - co mm erce , th e grow in g nu mb e r of di gi ta l an d mobile shopping chan nels, the dev elopment of new techn ologies and digital touchpoint s, and permanent ch an ges i n th e pa t ter n of of fi ce/ h om e wor k in g , wi ll a l l cont in ue to i mp ac t th e ove ra l l ris k . Op er at io na l ove rsig ht by E xecutiv e C ommittee Mitigations – In for m atio n se cu ri t y an d da ta p rotec t io n po li ci es in p l a ce, with a m andatory training programme for colleagues. – Informat ion Security function, wit h mult idisciplinary sp eci a li st s, su p po r ted by a 24- h ou r Se cu ri t y Op er at io ns Ce ntre a nd m atu re in ci de nt m an ag em en t pl a n . – Net w or k of D ata P rotec ti on O f f i cer s in p ri or it y business area s. – Cont inued delivery of our impr ovemen t pr ogramme with pr io ri ti sed i nves tm ent i n resp o nse to a n in crea se i n sec ur it y eve nts , b rea che s an d th e pote nti al t hre at of c y be r wa r f a re. – Risk - based cyber security a ssurance programme, including as ses sme nt o f cont rol s i n over sea s lo ca tio ns . – Information security obligations inc luded in t hird-par ty cont ra c ts w it h a ri sk-b as ed a ssu ra nce p ro gr am me to monitor our exposur e. – Active monitoring o f our t hreat environment. – Focused security assuranc e, ar chitectur e and h ygiene around our digital pr oduc t lifecyc le, operat ions m odel and significant c hange activities, like o mni-channel and new technol ogies. I n f o r ma ti on s e cu r ity Fail ure to ad eq uately p revent o r resp on d to a data b rea ch or c y be r - at ta ck cou ld ad ver sely i mp ac t ou r rep ut atio n , resul t in si gni f ic ant f i nes , b usin ess d isr up tio n , loss o f info rm ati on fo r ou r custo me rs , em ploye es or b usi nes s and /or loss of stakeholder and cust om er c onf idence . 9 Cont ex t – The increasingl y broad and stringent legal and regulatory fr a mew or k for r eta il ers c rea tes pre ssu res o n bus in ess performance and m anagement of mark et sentimen t r equiring fre q ue nt ch an ge s or i mp rove me nts i n how w e op er ate. – New and ev olving r egulatory requir ements include : rest ri c tio ns o n th e pro mot io n of fo od s hi gh i n f at , sug ar an d sa lt b eco mi ng e f fe c tiv e fro m Oc to be r 2022; sa nc ti on s and export c ontr ols linked to Russia; extended producer res ponsibility for packaging plastics r ec ycling tar gets; the propos ed E U Dir ective on c orporate du e diligenc e and acc ountability in the supply chain; ant icipated changes in UK c orporate go vernance requir ements, de velopment of T ask force o n Cl i mate - rel ated F in a nci al D is clos ures ( TCFD) requir ements; and potential new reporting under the T ask force o n Na tu re- re l ate d Fi na nc ia l Di scl osu res. – The diligence required to remain c ompliant is al so impact ed by th e glo b al n atu re of a c tiv it ies , p ar ticu l a rly o ur su p ply ch ai ns , wh ere c ha ng es i n th e ex te rn al e nvi ron m ent a nd challenging ec onomic condit ions, including t he impact of Cov id - 1 9 a nd t he Ru ssi an i nv asi on o f Uk ra in e, l eave e thi c al an d so cia l res po nsi bi li ti es op e n to a hei gh ten ed r isk o f misma nage ment or exp loitatio n. – Non-compliance may res ult in fines, criminal pros ecution for M &S o r col l eag u es , li ti ga tio n , ad di tio n al i nvest me nt to rec ti f y b rea ch es , di sru pt io n or ces sa tio n of b usi ne ss a ct iv it y, as w ell as impacting our reputa tion. Op er at io na l ove rsig ht by E xecutiv e C ommittee, Group Safety Committee, C onsumer Brand Protection Commi ttee, Bank and Services Complian ce Monit oring C ommittee, Fraud Committee Mitigations – Co de of C on du c t in p l ace a nd u nd e rp in ne d by po l ic ies a nd proc edures in cor e areas of regulation and r esponsibility th at is sh a red w it h sup pl i er s an d thi rd pa r ti es w he re rel ev ant and published externally . – Group-wide mandatory training programme for higher -r isk reg ul ator y a rea s, l i ke he al th a nd s afet y, an ti -b r ib er y a nd corrupt ion, data priv acy , and inf orm ati on sec urity. – Established in-house regulatory legal t eam in place, including s pecialist solicit ors. – Dedicated subject -area leaders embedded in t he bus iness. – Continuous ho rizon scan ning, including monitoring o f sa nc ti on s an d ex po r t co ntro l s. – Ri sk-b as ed a ssu ra n ce an d mo ni tor in g sys tems i n pl ace co vering legal and regul at or y compliance, and ethical and social considerat ions, including for our over seas operations and suppliers. – Cr oss-bus iness Fraud C ommittee and c ontrols framew ork . – A Co nf id en tia l Re po r ti ng l i ne to al low co l lea gu es a nd o the r stakeholder s t o report areas of conc ern, including breaches. – Established W orker V oice programme in t he Food busine ss and transpar ency initiat ives wit hin Clo thing & Home. – Ac ti ve mo ni tor in g of cu sto me r fee d ba ck a nd p ub li c sentiment on compliance and res ponsibility, inc luding social media tr ends. – Pro ac ti ve en g ag em ent w i th reg u l ator s, l eg is l ator s, t ra de bodies and policy mak ers. C o rp o ra t e c o m p l i a n c e a n d re s p o n s i b i l i t y A f ail ure to de l ive r ag ain st ou r le ga l an d regu l ator y ob li ga tio ns or b roa de r corp or ate resp ons ibi l it y com mi tme nts wou ld un de rm in e ou r repu tat ion a s a resp onsi bl e retai le r , m ay resul t in l eg al ex p osure o r reg ul ato r y sa nc ti ons , a nd coul d ne gati vely i mp ac t ou r ab il it y to o pe rate a nd/or re ma in rel eva nt to our c ustom er s an d othe r st akeh ol der s. Ma rks a nd S pe nc er G ro up p lc 54 STR A TEG IC REPORT PRINCI P AL RISKS AND UNCERT AINTIES CONTINUE D DESCRIPTION RISK 10 Cont ex t – We op er ate in a w or ld a nd se c tor w ith i nc rea sin g pre ssu re from carbon- con scious custome rs, in vest ors and gov er nm en t bo di es to op er ate i n a mo re env iro nm en ta l ly con sci ou s ma nn er, wh ere su st ai na bi l it y fo rm s a core p a r t of d eci sio n - ma ki ng . T hi s in clu de s, f or e xa mp le , ou r res po nse to the g row th i n th e ci rcul ar e con omy, wa ste re du ct io n , low -car bon pr oduc ts and use of recycled fabrics. – Fu ture b us in ess p er for ma n ce wi ll b e im p ac ted by o u r ab il it y to ef fe c ti vely m an ag e th e tr an sit io n to a low- c ar bo n eco no my – ba l a nci ng co m me rcia l d eci sio ns w it h envir onmental re sponsibility, ag reeing business-wide decarbonisation priorities and managing changes in cust omer prefer ences. T his includes management of the incre asing cos ts ass ociat ed with sustainable ma terials, recyc ling, carbon pricing and further t echnological, pol icy and regu l atory inter ventio ns. – Early engagement and planning with partners and sup p li er s to sup po r t th ei r de c ar bo ni sin g ac t iv iti es is a l so becoming inc reasingl y impor tant in the deliver y of our net zer o c ommitment. – From a n o pe ra tio na l p ers pe c tiv e, th e p hysi ca l im pa c t of cl im ate ch a ng e on th e av ai l ab il i t y of r aw ma ter ia l s an d foo d pro du c ts , th e ge og r ap hy of th e lo ca tio ns f rom w h ich w e sou rce a nd o pe ra te, a nd th e con di ti on o f ou r bu ild in gs w il l ne ed to b e ma na ge d ef fec ti ve ly to redu ce th e im p ac t on tr ad e an d th e in com e st atem en t. Op er at io na l ove rsig ht by E SG C ommit tee Mitigations – Established P lan A pr ogramme with clear acc ountabilities for e ac h are a of th e bu si nes s rel a tin g to ou r env iro nm e nta l objectiv es. – Net ze ro ta rg ets a gre ed w it h th e Bo ard . – Alignment of carbon commitments with our rev olving credit facilit y . – Ap po in tm ent o f c.1 20 c ross -b usi ne ss c ar b on c ha mp io ns , an d l au nc h of a n inte rn al G re en N et wo rk w i th c .60 0 cro ss-business colleagues. – Established pr oduc t and raw mat erial standards and proc esses outlining envir o nmental and sustainabilit y con sid er at ion s fo r own a c ti vi tie s an d th e sup ply c ha in . – Clothing Q ualit y Charter and En vironmental and Chemical P olicy in place for all suppliers. – ESG C om mi t tee , wi th Bo a rd me mb er shi p, i n pl a ce to over se e the d e li ve r y of o ur c a rb on co mm it me nts a nd broader ESG ri sks. – Dev elo pe d ou r res po nse to TCFD i n clu di ng q ua nti ta ti ve sce na ri o an aly sis i n key are as (cot ton , an im al p rote in a nd property) t o enhance ex ternal repor ting. – In clu sio n of s pe ci fi c cl i mate - rel ated r isk s a nd m iti ga tio ns l in ked to Pl a n A in b us in ess a nd f u nc ti on al r isk re g iste rs . – L in k ag e of f in a nci ng w it h th e de li ve r y of o ur n et ze ro roa dm ap . C li m a t e c h a n g e a n d e n v i r o n m e n t a l re s p o n si b i l i t y An i na bi li t y to redu ce the e nvi ronm en tal i mp ac t of o ur b usi nes s and p rog ress towa rds o ur n et zero ta rget s, in clu din g tho se l in ked to ou r sup ply ch ai ns , as wel l as m an ag in g the co nseq ue nces o f cl im ate cha ng e on o ur bus ine ss , wou ld f ai l to meet th e ex p ec tat ion s of ou r cus tome rs , col lea gu es , inves tors an d oth er st ake ho lde rs , impacting our brand, future t rading perform ance and ot her busine ss c osts, including financing. 11 Cont ex t – Wh il e ac ti ve m an ag em en t of ou r c ash , l i qu id it y a nd d ebt po sit ion t hro ug h th e pa nd em ic a nd a n im pro vem en t in tr ad e have r esul ted i n a st ron g ca sh p er fo r ma nce , we m ai nta in a con tinued f ocus on our liquidity and funding requir ements. – Ava il a bi l it y of, an d acce ss to, a pp rop r iate s ou rces an d le vel s of f un di ng re ma in v i ta l for t he co nti nu ed o pe r ati on of bu sin es s ac ti vi t y an d th e ne x t ph ase o f ou r tr an sfo r mat io n. Our ability to repay debt and fund w orking capital , capital expenditures and other exp enses d epends on our operating pe r fo rm a nce , ab il it y to g en er ate c as h an d to ref in an ce existing debt. – We al so h ave p ens io n fu nd co mm it me nt s tha t req ui re ac ti ve management and monit oring . Mitigations – A £850m u nd ra wn , revo lvi ng c red it f a ci li t y an d £ 1, 1 97 .9m of c ash a nd c a sh eq ui v al ent s. – Revie w and refinement of our three-y ear plan, linked to str ate gi c pr io ri tie s , wi th se nsi ti vi t y an aly sis to as ses s th e im pa c t of th e ch an gi ng e con om ic e nvi ron me nt . – Co nti nu ed fo cu s on wo rk i ng c ap it al m a na ge me nt to cont in ue to i mp rove c ash f lo w an d red uce re l ia nce o n bank facilities. – Ongoing scrutin y and challenge of di scre tionar y expenditure and c apital spend cont rols that were stren gthened during the pandemic. – Clo se mo ni tor in g an d st ress tes ti ng of p roj ec ted c a sh an d de bt c ap ac it y, f in an ci al cove na nt s an d oth er r at in g met ri cs . – T rea sur y op er ati on s are m an ag e d an d mo ni tore d in l in e wi th a B oa rd ap prov ed Treasu r y Po li c y. – Frequen t engagement and dialogue wit h the market and rating agencie s. Li q ui d ity an d f u n d in g An i na bi li t y to mai nta in sh or t - an d lon g -ter m fu nd in g to meet b usi nes s ne eds o r to ef fe ct ive ly man ag e as soci ated ris ks cou ld i mp ac t ou r ab il it y to tr ans for m at p ace , as wel l as h ave an a dve rse i mp ac t on b usi nes s vi ab il it y. Op er at io na l ove rsig ht by E xecutiv e C ommittee RISK MO VEMENT N o ch an ge Ne w/ evol ving risk In cr eas ed n et r is k ex pos ur e Reduced net risk expos ure Annual Report & Financial Stat ements 2022 55 STR A TEG IC REPORT The UK Corporate Governance Code r equires us to is sue a “ v ia bi l it y s tate me nt ” d ecl ar in g wh eth er w e be l ieve t he G rou p c an co nti nu e to operate and meet its liabilities, taking int o acco un t its c ur ren t po sit ion a nd p r in cip a l ri sks . Th e ove rr id in g ai m is to en cou r ag e di rec tor s to foc us o n th e lon ge r ter m an d b e mo re ac ti vely invo lve d in r isk m an ag e me nt an d in ter na l cont rol s . In a sse ssi ng v ia bi l it y, th e Bo ard con sid ere d a nu mb e r of key f a cto rs , in cl ud in g ou r bu sin es s mo de l ( se e pa ge 9), o ur s tr ateg y (see pa ge 6) , ap pro ac h to ris k ma na ge m ent (see pa ge 45) a nd ou r p ri nc ip al r isk s an d un cer tai nti es (see p ag es 47 to 54). Th e Bo a rd is req ui re d to ass ess th e G rou p’s vi ab il i t y over a p er io d g reate r th an 1 2 m ont hs , an d in ke ep in g wi th th e w ay th at th e Bo ard vi ews t he d eve lop me nt o f ou r bu sin ess o ver t he lo ng ter m , a p er io d of th ree y ear s is co nsi de red appropriat e for business p lanning , meas uring pe r fo rm a nce a nd re mu ne ra tin g at a se ni or l eve l . Th is t hre e- yea r pe ri od a l ig ns to th e G rou p’s annual st rategic review exercis e c onducted wi th in th e bu sin es s an d rev iewe d by th e Bo ard , an d ca pt ures a l arg e pro po r ti on o f the G ro up’s inve stment into its ongoing transformat ion pro gr am m e as we ll a s th e ren ewa l of i ts De cem b er 2023 bo nd . Th e G rou p su ccess fu l ly ren eg oti ate d it s revo lvi ng cr ed it f ac il i t y (“ RC F ”) i n De cem b er 202 1 , w hic h is se t to ru n unt il J un e 2025, an d rep l ac es th e fa ci l it y w hi ch w as d ue to m atu re in Ap ri l 2023. T he n ew f ac il it y co nt ai ns a f in a nci al coven a nt , be in g the r at io of e ar ni ng s be fore interest, tax , de preciatio n and amor tis ation; to net i nte rest a nd d ep re cia tio n o n ri ght-o f - use as sets u n de r IFR S 1 6 . T he cove na nt i s me asu red semi-annually . The Group continue s t o maintain a robust financial position, pr oviding it with suf ficient acce ss to l iq ui di t y, throu gh a co mb in at io n of ca sh a nd co mm it ted f a ci l iti es , to me et it s ne ed s in th e sh or t and m e diu m ter m . At 2 A pr il 2022, the Gr oup had fur ther st rengthened its ava il a b le l iq ui di t y over t he ye ar to £2.1 bn (l a st ye ar : £1 . 8b n ). Fu r th er m ore , th e Gro up ’s stro ng f re e ca sh f low g en er at io n ha s dr ive n a red uc ti on i n ne t de bt of £8 1 7 .1 m to £2,698 .8 m at 2 A pr il 2022. Fo r th e pu rp ose o f as ses sin g th e Gro up ’s vi ab il i t y, the Bo a rd id ent if ie d th at , al th ou gh al l of t he p ri nc ip al r isk s d eta il ed o n pa ge s 47 to 54 cou ld h ave an i mp a ct o n G rou p pe r fo rm a nce , the f ol low in g r isk s po se th e gre ates t thre at to th e bu sin es s mo de l , f ut ure performance, sol vency and l iquidity of the G rou p an d are th er efo re the m os t im po r t ant to th e ass ess me nt of t he v ia bi l it y of t he G ro up: – Maintaining trading per formance in an increas ingly challenging envir o nment. – Business transformation. – Ocado Retail. – T alent and capabil ity. In a sse ssi ng v ia bi l it y, the B oa rd co nsi de red t he po sit ion p res ente d in t he a pp rove d Bu dg et an d Three- Y ear Plan. The pr ocess adop ted to pre pa re th e f in an ci al m od el f or as se ssi ng th e vi ab il i t y of th e G rou p invo lved co l l ab or at ive in pu t fro m a nu m be r of f un c tio ns a cros s th e bu sin es s to mod el a s eve re bu t pl a usi bl e downside sc enario. Th e sev ere b ut p l au sib le d ow nsi de s cen ar io include s the following assump tions: – Th ere w i ll b e a pe r io d of eco no mi c rece ssi on in th e U K in 2022/23 a nd 2023/2 4 (fol low i ng th e im pa c ts of t he Co vi d-1 9 pa nd em ic , th e unfolding humanitarian crisis following the inv asi on o f Uk r ai ne a nd th e su bse qu e nt sh ar p in cre ases i n th e cost o f l iv in g), resu lti ng in a d ec li ne i n s ale s of 4 .0 % pe r an nu m , ac ross a ll t hre e bu si nes s un it s. – Uti l iti es , f ue l an d oth er co sts i n crea sin g by over £50 m i n ag gr eg ate ac ross 2022/ 23 an d 20 2 3/ 24 . – In a dd iti on , a d el ay on tr a nsf or ma tio n benefits r esults in incr emental sales expected from the transformation declining by 1 0% , 20 % an d 40 % resp ec t ive ly ac ross t he three-y ear period acr oss both Food and Clothing & Home busine ss units. Ot he r sce na ri os l in ked to key p r in cip a l ris ks were al so c onsidered. Ho wev er , the e stimat ed f in an ci al i mp ac t of t he se ri sk s cum ul ati vely wa s com pa r ab le to th e seve re bu t pl aus ib le downsi de sc enario out lined abov e. Mor eover , the likelihood of the se risks occurring con cu rre ntly wo ul d be s o rem ote as to b e con sid ere d a “ bl ack s wa n” eve nt . As a re sul t , fu r th e r det ai le d mo de l li ng w as n ot p er f or me d . Th e Bo a rd has a l so co nsi de red t he p ote nti al im pa c t of ch a ng es to env iro nm en ta l f ac tor s wh ic h may a f fe c t the b usi ne ss m od el a nd pe r fo rm a nce i n the f u tu re. A s set o ut i n th e T ask force o n Cl i mate - rel ated F in a nci al Di sclo sur es (“ TCF D” ) se ct io n on p ag e 72, no m ater i al i mp ac t o n the G ro up ’s fi na nc ia l pe r fo rm a nce is co ns id ere d to ex ist i n th e sh or t ter m . Th e im p ac t of t he se vere b ut p l au si ble dow ns id e sce na ri o ha s be en rev ie wed a g ai nst th e Gro up ’s proje c ted c as h fl ow po sit io n and financial co venant over t he thr ee -ye ar vi ab il i t y pe ri od . In t he ev ent o f th is sce na ri o materialising, miti gating actions would be available, including, but no t limited to, a reduction in labour, technology and head of fice cost s , as we ll a s de fer r in g or c an cel l i ng discr etionar y s pend (incl uding dis cre tionary bonuses ) and reducing capital expenditure. As a re sul t , even u nd e r thi s sce na ri o, w hi ch th e Bo ard co nsi de rs to ref l ec t a pl aus ib le , bu t remo te, outcome, the Group would c ontinue to have su f f i cie nt l iq u id it y an d he ad roo m on i ts ex is tin g f ac il it ies a nd m ee t the m ea su rem ent criteria against the revol ving credit f acility financial co venant. The A udit Committee rev iew s the o ut pu t of th e v ia bi li t y as ses sm ent in a dv an ce of f i na l ev al uat io n by th e Bo ard . Th e Bo a rd have a l so s ati sf ie d th em selv es th at th ey have t he ev id e nce n eces s ar y to su pp o r t th e sta tem en t in ter ms o f th e ef f ec ti ven es s of the in ternal cont rol environmen t in place t o mitig ate risk. Reve rse s tres s test in g ha s al so b e en a pp l ie d to th e mo de l to dete rm in e th e de cl in e in s al es th at th e Gro up co ul d ab sor b b efo re bre ac hi ng a ny f in an ci al cove na nt s. S uc h a scen a ri o, a nd th e se qu en ce of eve nt s wh ic h cou ld le ad to it , is con sid ere d to be e x tre me ly rem ote , as it requir es sales r educ tions of c. 1 5 % per annum com pa red to b as e ex pe c tat io ns w it h no mi tig at io ns im p lem en ted b efo re th ere i s a bre ac h in f in a nci al co ven an ts . Wh il e the occ ur ren ce of o ne o r mo re of t he p ri nc ip al r isk s ha s the p ote nti al to af fec t f u ture p e r fo rm an ce, no ne o f the m ar e cons id ere d l ike ly eit he r in di vi du al ly o r col le c tiv ely to gi ve r ise to a trading det erior ation of the magnitude in di ca ted by th e reve rs e stre ss tes tin g an d to th reate n th e vi ab il it y o f th e Gro up o ver t he three-y ear assess ment period. Hav in g rev iew ed th e cu rre nt p er for ma n ce, forecasts, debt s er vicing r equirements, t otal f aci l it ies a nd c ur ren t li qu id it y, th e Bo ard ex pe c ts t he G rou p to have a d eq uate re sou rces to cont in ue i n op er ati on , m ee ts i ts l ia bi l iti es as th ey f al l du e, re ta in su f f i cie nt av ai l ab le c as h ac ross a ll t hre e yea rs o f th e ass ess me nt p er io d an d not b rea ch t he cove na nt u nd er t he revo lvi ng cr ed it f ac il i t y. The B oa rd th eref ore ex pe c ts t he G rou p wi l l rem ai n com me rci al ly viable and the Viability Stat ement can be fou nd o n p ag e 1 1 1. OU R AP PROACH TO AS SE S S IN G LON G - TE R M VI AB IL IT Y Th e Str ateg ic Re po r t , inc lud in g pa ges 2 to 55, w as ap prove d by a du ly auth or ise d Co mmi t tee of th e Bo ard of D ire c tors on 2 4 M ay 2022, and sig ne d on i ts b eh al f by Steve Rowe , Chi ef E xec ut ive 2 4 M ay 2022 Ma rks a nd S pe nc er G ro up p lc 56 GOVERNANCE As o utl i ne d in my Ch ai rm an’s let ter o n pa ges 2 to 3 , ma cro event s have h ad a sig nif i ca nt i mp ac t on t he bu sin ess th is yea r . My ro le, a nd t hat of t he B oa rd, h as be en to gu id e ou r way th roug h th ese varied and challenging hea dwinds; ensuring our overarching strat egy stay s the co urs e. Si mu lta ne ou sly , you r Bo ard has re ma in ed rea dy to resp on d an d to adj ust fo r ex tern al f a ctor s thre ateni ng to der ai l us . In k eeping with the demands made on the B oa rd in th ese rece nt , tur bu le nt yea rs , circu ms tan ces h ave mad e it v it al we rem ain h ig hly en ga ge d . We have be en fl ex ib le w ith o ur ti me to sup po r t a nd challenge senior leadership, t o ensur e the co ntin ue d accel er ati on of o ur transf ormation programmes, and not on ly to reac t to events , bu t have o ur eyes f ir mly f i xed on t he h or izon i nto 202 2 an d beyo nd . Na tur al ly, we contin ue to fu lf il o ur o the r core du tie s to overse e M&S’ gov er nance, culture, financial contro l s, r isk a nd c ha ng e ma nag em en t. Th e G over na nce se c tio n that f ol lows is by inten tion c oncise, in k eeping with our ap pro ach i n prev iou s yea rs. F ur t her d et ail on th e Bo ard , it s Co mmi t tees a nd ou r gov ernance framework ar e available at marksandspencer .com/thecompan y . NA VIGA TING HEADWIND S Th e Bo ard h as ha d to rema in v ig il a nt alo ng sid e ma nag em en t this ye ar a nd to st ay abre ast of c ur rent eve nts i mp ac ti ng the b usi nes s. We conti nu e to dea l wi th uncertainty in our Eur opean suppl y chain, as we e nter th e fou r th Bre xi t ex te nsio n period be for e c omplete cust oms checks are implement ed . Mean w hile, we experienced a positiv e trading r esponse wh en Cov id - 1 9 restr ic tio ns we re l if ted a t the s ta r t of 2022, but t ra din g in th e fou r th qu ar te r the n slowe d , wi th consu me rs consc iou s of cost o f l iv ing i nc reases amidst infl ationar y press ures. Th e Bo ard h as pro ac ti vely di scus sed wi th ma na ge me nt how b est to tr ad e thro ug h thes e ma cro im pa ct s , resul tin g in d eta ile d st akeh old er d isc ussi ons i n l in e wi th Se c tio n 1 72( 1 ) of the C om pa nie s Ac t 20 06 ( “s.1 7 2( 1 )”). T h ere ha s be en n o “on e size f it s al l ” ans wer a cross t he bu sin ess , and inevitabl y trade -of fs between our st akeh old er s have b ee n mad e. T he se have be en a ll i ed w ith o ur st rate gic o bje c tives an d have in clu de d me asu res such a s pr ice and mar gin pro tections, s uppl ier s upport and buying pr o ce ss impr ovemen ts. Th e inv asi on of U kr ai ne h as m ater ial ly im pa cte d the b usi nes s, a s we have franchise agr eements in bo th Ukraine an d Russ ia . Wh ile w e fel t it w as im po r t ant to supp or t coll eag ue s and co nti nue to tr ade i n Uk r ain e fo r as lon g as p ossi bl e, event s have m ad e tha t im pos sib le. T he Bo ard an d I are n on ethe les s hea r ten ed by the res po nse f rom ou r cus tome rs a nd colle agues who ha ve donat ed s ignificantl y to the ai d ef fo r t . Y ou c a n read m ore o n our respo nse o n pa ge 5 . Me anw hil e, we h ave susp en de d shi pm ent s to our Ru ssi an f ra nc his e pa r tne r an d di rec ted th em to cease t ra di ng . Th e resul t of th is de cisi on is t hat , fo llo wi ng le ga l ne goti ati ons w it h ou r fr an chi se pa r tn er, we have rea ch ed a set t lem ent to ex it f u lly ou r Russ ia n fr an chi se. W hi le ou r f ra nch ise ag reem en t was n ot c apt ure d und er t he sa nc ti ons re gi me , we stron gly b el ieve i t is ri ght a nd ju st to ensu re we are n ot tr ad ing , even i nd irec tly, in th at jur isd ic ti on w hil e the war in Uk raine is ongoing. NEW LEADERSH IP Sh are hol de rs wi l l have no ted ou r recen t an nou nce me nt of a n ew lea de rsh ip tea m str uc tu re. Be fore I o utl i ne th is , I f irs t wa nt to exp ress my a nd th e bu sine ss’ tha nk s to Steve Rowe, o ur o utgo in g Chi ef E xec uti ve Of f icer. St eve ha s be en a m ag nif i cent ser va nt of M &S , d edi c atin g 40 ye ars to th e Com pa ny, comin g fro m the s hop f lo or to lea d the b usi nes s. H is c aree r is test am ent to the op po r tu ni ties M &S c an p rovi de fo r grea t pe op le to succee d . Th e M&S h e took over w as in p a rlo us sh ap e an d throu gh ou t my tenu re as Ch ai rm an , he h as b ee n fea rl ess i n fa ci ng in to the ch al le nge s an d has de livere d mass ive pr ogress. T o re pl a ce Steve, we h ave chos en to prom ote ou r inte rn al t ale nt . Wi th ef f ec t fro m 25 May 202 2, Stu a r t Ma chi n ha s be come C hi ef E xecu ti ve Of fi cer, tak in g re sponsibility for da y-t o- day leaders hip of th e busi nes s an d the E xecu tive Com mi t tee. H e conti nu es to have overs igh t of his c ur rent p or t fo l io of re sponsibilities, incl uding leadership of the F oo d bu sine ss , Op er ati ons , P rope r t y, St ore Dev elopment and T echnology , an d wi ll a l so ta ke respo nsi bi li t y for H R and C orporat e Commun ications. K ati e Bic kers taf fe ha s be come C o - Ch ief E xecu ti ve Of fi cer, with a p ar t icu l ar fo cus on d ri vi ng th e f utu re of Di gi ta l & Dat a , and o f our global omn i-channel bus iness. Sh e reta ins h er e xis tin g po r t fol i o of re sponsibility for Cl othing & Home , MS2 , Int ernational and Financial Ser vices. Eoi n T on ge h as b eco me G rou p CFO & Chi ef Str ateg y O f f ice r . I n add iti on to hi s cur rent re spo nsi bil i ties , h e wil l p l ay an en ha nced ro le in l ead in g the f u ture deve lop me nt of th e bu sin ess a nd w il l al so t ake o n overs igh t of Pl a n A . C HAIRMAN ’ S GO VE RNANCE O VE R VIE W THE BOARD’S ROL E HAS BE E N TO GUIDE T HE BU SINE SS THR OUGH CHALLENG ING HE AD WINDS . Archie Norman, Chairman ‘‘ ’’ Annual Report & Financial Stat ements 2022 57 GOVERNANCE M&S i s now e mb ar ki ng o n the s econ d phase of i ts tran sformat ion pr ogramme “ Sh ap ing t he Fu ture ” . T he B oa rd ’s view is th at , und er t he le ad ers hip o f Stu ar t , K atie a nd Eo in , th e busi nes s ha s ma de remarkable progr ess and tha t c ontinuity of str ateg y a nd le ad ersh ip i s the b est approac h f or the Company . Bringing t ogether these three o utstanding l eaders wi ll p rovi de th e st abi l it y, pace a nd bandwidth r equired t o acc elerate the pa ce of ch an ge. I wou ld al s o li ke to note the co ntr ibu tio n An dy H al fo rd has m ad e to the Bo ard . Noti ng t hat h is tenu re ha s now rea ch ed ni ne yea rs , he w il l b e step pin g dow n as Cha ir o f the Au di t Com mi t tee, w it h Evelyn Bourke r epl acing him a s Chair . Ha ving revi ewed a nd con f ir me d that A nd y remains indep endent, t he Nominati on Com mi t tee ag rees th at h is role a s Se nio r In de pen de nt D irec tor ( “ SI D”) i s an important con stant whil e ne w Boar d me mb ers s et tle i nto thei r roles . He w il l the refo re rema in as S ID a nd a m em be r of the Audit Committee for a t r ansi tionary pe ri od , an d wi ll l eave th e Bo ard by th e en d of 202 2. Board and E xec utive Committee bio gr a phi es c an b e fou nd o n pa ges 6 0 to 6 2 . Ful l de tai l s of th ese B oa rd and exec utive changes, our asse ssment of th e ba l an ce of le ade rsh ip sk i ll s a nd ex pe ri en ce, an d ou r ta len t and s uccessi on proce sses , c an b e fou nd i n the N om in atio n Com mi t tee Rep or t on p ag es 66 to 6 9. BOA R D AC T I V IT I E S A N D CONSIDERA TION OF ST AKEHOLDERS Th e Bo ard ’s focu s du ri ng th e yea r has b ee n to accel er ate the Co mp any ’s pu rsu ance o f its s tr ategi c pr io ri ties , while st eer ing t hrough macr o -induced headwinds. In our meetings, w e hav e con tinued our approach of c onsidering “str ateg ic d ee p di ves” prese nted by a ll area s of th e busi nes s , wh ich we h ave the n de ba ted an d cha l len ge d. A ll w hi le be ing m in df ul o f the i mp ac t of a ny de cisi ons m ad e on t he bu sin ess’ v ar iou s stakeholders and on its long-t er m, sust ai na ble s uccess , i n li ne w ith s . 1 72 (1 ). An ove r v iew of t he r an ge of m at ters t hat the B oa rd dis cuss ed a nd d eb ated at i ts me etin gs d ur ing t he yea r c an b e fou nd on p ag es 63 to 64. Th e Co mp any ’s s. 1 7 2( 1 ) st ateme nt is ava il a ble o n pa ge s 3 2 to 34 . EMBEDD ING ESG As e xp l ai ne d in l a st yea r ’s Ann ua l Rep or t, the B oard’ s En vironmen tal , Social & Governanc e (“ESG”) Sub- Committ ee wa s est abl i she d to assis t the B oa rd in prov idi ng fo cus a nd ove rsig ht of th e Pl a n A pr ogramme, both in its rein vigoration and its ongoing effectiveness. The r e port of th e ESG Co mm it tee fo r 202 1 /22 is ava il a ble o n pa ge s 7 0 to 77 . In demon strat ion of our commi tment t o em be dd ing E SG ac ross th e org an isat ion , sust ai na bi li t y is now o ne o f the f i ve strat egic pillars c omprising our corporat e purpose. Furthermore, the business negotia ted and ent ered a su stainability linked financing agr eement for the first tim e. W hil e we have s tri des to t ake on o ur Pl a n A ag end a st il l , th e Bo ard , wi th th e sup po r t of th e ESG C om mit tee , are focus ed on delivering tan gible pr ogress in th e yea r ah ead . FUTURE SHAPING GO VERNANCE Th e Co mp any ha s ma de a n um be r of str ateg ic inve stm ent s du rin g th e cour se of the ye ar, foll owi ng th e acqu isi tio ns of 50 % of O ca do Ret ai l Li mi ted in 20 1 9 a nd of t he Jae ge r br a nd in 2020. In p a r tne rsh ip w ith T r ue C a pi tal , we be c am e the co rn ers tone inves tor in a D irec t -to - Cus tome r (“ D2C” ) focu sed f u nd . We have al so a cqu ire d a minority stake in No body’s Child Limit ed , an ex citing ec o -conscious, a f fordable f ash ion b ra nd , a nd h ave be come t he maj or it y ow ne r (with a ro ute to 1 0 0% own er shi p ) o f Th e Sp or t s Edi t Li mi ted , an a ct ivewe ar p l at for m w ith p roven capabil ity in brand curat ion and emerging brand identification. Ea ch of t hese i nvestm en ts is u niq ue a nd , as s uch, the governanc e arrangements sup po r ti ng th em a re besp oke fo r the nat ure of th e inves tme nt a nd l ife c ycle of th e busi nes ses . Th is h as req ui red th e Bo ard to ensu re we have t he ap pro pr iate contro l s in p l ace , not o nly to mit ig ate ris k , bu t al s o to be a sup po r ti ve an d productiv e st rategi c in ves tor . DIVIDEND While the bal ance shee t is str engthening , the B oa rd an d I bel i eve on b al a nce , an d in l in e wi th ou r ap pro ac h l ast ye ar, that non-payment of a dividend is appropria te for t he 202 1 / 22 fi na nci al ye ar . Th is conti nu es to be on e of th e pro ac ti ve steps w e are ta k ing to en sure th e bu sin ess is set u p for su ccess i n the f u ture. AG M : S TAY I N G D I G I TA L The Annual General Meet ing (“ A GM ”) prov ide s investo rs wi th a v alu ab le opportunity to communicat e with t he Bo ard . We have lea rnt i n rece nt yea rs th at digital meetin gs are more engaging, more de mo cra tic , an d al low u s to commu ni ca te an d hea r f rom mo re of ou r sh areh old er s , wi th pa r ti cip ati on leve l s treb le d at l as t yea r’s me eti ng com pa red w ith t he l a st physi ca l me eti ng . In reco gn iti on , we w il l be co ndu c tin g thi s year ’s AGM d igi ta lly on ce ag ain . We stron gly b el ieve d ig it al ly- enabled mee tings should become the def a ul t acros s the F TSE a nd I e ncou ra ge oth er com pa ni es to fol low ou r ex am pl e. In a ddi tio n to bei ng a bl e to vote and submit questions electr onically in ad va nce , al l sha reh old er s wi ll b e ab le to join t he m eeti ng o nl in e to hea r fro m Stu ar t , K ati e, Eo in an d me , ask q ues tio ns an d vote on ou r reso lut ion s. We wil l be j oin ed by A ni ta A na nd w ho w il l be a ct ing a s you r sha reh old er a dvo ca te, sha ri ng yo ur v iews a nd q ue stio ni ng m e an d the B oa rd on you r be ha lf. If you wou ld l ike us to he ar f rom yo u di rec tly, you a l so have th e op tio n of di al l in g in an d ask in g your q ue stio n l ive o n the d ay, or su bm it ti ng a v ide o qu est ion to b e pl aye d to the Bo ard fo r resp ons e du ri ng the m eet ing . I lo ok fo r w ard to he ar ing fro m you a ll th en . Info r mati on o n how to pa r ti cip ate ele c tron ic al ly , bo th in a dv an ce an d on th e day, ca n be fo un d on p ag es 208 to 209. Archie Norman, Chairman Th e UK Co r po rate G over na nce Co de 20 1 8 (the “ Cod e” ) wh ich i s ava il a ble to view o n th e Fi na nci al Re po r ti ng Cou nc il ’s websi te is the s tan da rd ag ai nst w hi ch we me asu red ou rse lves i n 2 0 21/ 2 2 . Th e Bo ard con f ir ms th at we com pl ie d wi th al l of th e prov isio ns se t out i n the C od e for th e pe ri od u nd er rev iew. Det ai l s on h ow we have a pp li ed th e pr in cip les se t out i n th e Cod e an d how g over na nce o per ates at M &S h ave been s ummarised thr oughout t he Direct ors’ Repor t. Our full Corporat e Governance Statement outlining ou r comp l ia nce is av ai l ab le o nl in e at marksandspencer .com/thecompan y . UK C ORPOR A TE GO VERNANCE CODE Ma rks a nd S pe nc er G ro up p lc 58 GOVERNANCE LEADE RSHIP AND O VERSIG HT SENIOR L EADERSHIP FORU MS Underlying t his gov er nance feedback loop be tw ee n th e Bo ard , i ts su b - com mi t tees a nd the ExCo, ther e are forums compris ing s enior ma na ge m ent s up po r ti ng e ach o f th ese governing bodies. Pr im ar ily, ea ch of t he G ro up’s key b usi nes s units ha ve “Operating Review” meetings with streamlined membership s. Their main remit is ma na ge m ent o f key tr ad in g an d op er at io na l ma tte rs , w ith d e cisi on - ma k in g de le ga ted to th em by th e G rou p De le ga tio n of A uth or it y and underpinned b y busine ss unit Delegations of A uthority. Additi onal forum s support on specific proj ects, busine ss needs, or stra tegic priorities, meeting as and when requir ed. Examples include : Property Commi ttee For r eviewing and ap pro ving pr oper ty inves tm ent s. Digital Bo ard Fo r dr iv i ng th e Co mp any ’s “ Di gi ta l F irs t ” ag en da a cro ss th e G rou p. Brand Forum Fo r rev iew in g us e of th e M& S br an d , as we l l as co nsi de ri ng u se of t hi rd- p ar t y b r an ds . People Forum Fo r dr iv i ng th e pe o ple a nd c ul tu re ag en da ac ros s the Gro u p. Fra ud a nd L oss Co mm it te e Fo r pu l li ng to get he r al l f ra ud re l ate d governance ac tivities, r epor ting directl y int o the Audit Committee. Compliance Monitoring Commi ttee Oversight of credit broking activitie s within th e Gro up , as re gu l ate d by the F i na nc ia l Conduct A uthority . Pl an A ( Ne t Ze ro) Ste eri ng G ro up Fo r mo bi l isi ng a ct io n ac ross t he b usi nes s on o ur n et ze ro roa dm ap, u p da tin g th e ESG Committee on progres s. EXECUTIVE C OMMIT TE E The Execut ive Committee (“ ExCo”) i s our leadership team r esponsible for executing strategy . It manages, monit ors an d prov id es th e ex ecu ti ve in pu t underlying M&S’ st rategic and operational decisions, en suring str ong executiv e alignment on business priorities, inve stm en ts a nd a ct io ns . Du ri ng t he ye ar, the E x Co co nsi ste d of th e CEO, C FO, C hi ef O pe ra ti ng O f f ice rs , a nd the Managing Directors of each bus iness un it . Au tho ri t y is co nfe r red o n th e E xCo by th e Gro up D e leg at io n of Au th or it y, as a pp roved b y the B oa rd . The ExCo r eviews strat egic opportunities an d in iti at ives f ro m th e Gro up ’s key business es and centralised functions, ensuring t hese c ontribute t o and el eva te the B oa rd ’s over a rchi ng s tr ateg y. In a dd iti on , a nd i n su pp or t o f th e Bo ard ’s pu rp os e, v al ues a nd c ul tu re set ti ng , th e E xCo i s resp on si ble f or a ll co l lea gu e ma tte rs , i ncl ud in g th e str uc t ure a nd operation of the HR function throughout th e bus in ess , th e d evel op me nt a nd monitoring of cult ure and va lues, and r eviewing talen t and leadership deve lopment and s ucc ession plans be low E x Co l evel . BO ARD C OMMIT TEES Th e Bo a rd is su pp or te d by it s su b - com mi t tees i n di sch arg in g it s du ti es. At ea ch B oa rd me eti ng , t he Ch ai rs o f th e Com mi t tees p rov id e an u pd ate o n their C ommittee activities. Audit Committee S e e p7 8 - 8 4 Respons ible for monitoring the integrity of t he financial sta tements, revie wing th e Gro up ’s risk f r am ewo rk a nd internal cont rols and main taining the audit or relationship. Remunerati on Co mmittee S e e p 8 5 -10 7 Respon sible f or r emuneration policy , performance- linked pa y schemes and share-based incent ive plans. Nomination Committee Se e p6 6 - 69 Resp o nsi bl e for re vi ewi ng B oa rd compos ition and diversity , pr oposing new Boar d appointments and mo nit oring th e Bo ard ’s succ essi on n ee ds . ES G Com mi t tee S e e p7 0 -7 7 Res ponsible for ens uring th e Compan y ’ s ESG s tr ateg y re ma in s fi t fo r pu rp os e, a nd pl a ns a re in p l a ce an d rep or te d on . Ad v ise s th e Aud it C om mi t tee o n ESG -re l ate d ris ks , including c limate-related iss u es. Disclo sure Committee Respons ible for determining the disclosure treatment of materia l information and identifying con fi de nt ia l an d ins id e informat ion for t he purpose of maintaining project lists com pl i ant w i th th e UK M ar ket Abuse Reg ul ations . BOA R D The Boar d is respons ible for establishing th e pu rp ose , v alu es a nd s tr ateg y fo r th e M& S Gro up , en sur in g ou r cu lt ure is a l ig ne d , over seeing our conduct and af fairs, an d for p ro mot in g the s ucces s of M &S for t he b en ef i t of ou r m em be rs a nd st ake ho ld ers . T he B oa rd di sch a rges s om e of its responsibilities directly and others thr ough its sub- committ ees. T e r ms of R efe ren ce fo r the B o ard a nd it s sub - co mm it te es are av a il a bl e in o ur gov ernance framework, published on marksandspencer .com /thecompan y . E xec uti on o f th e M& S str ate gy a nd day -to - d ay ma na ge me nt i s de leg ate d to the E xe cu ti ve Co mm it te e, a nd sub se qu en tly to sen io r le ad er shi p fo ru ms where r elevant, with the Board re taining res ponsibility for o verseeing, guiding and holding management to acc ount. Our go vernanc e frame work facilita tes responsiv e and effective deci sion-making , ens uri ng t hat t he Bo ard a nd it s Com mi tt ees , t he E xec ut ive Com mit t ee an d se nio r ma nag em ent a re able to collaborate proactivel y, consider issue s and r espond. Gov er nanc e at M &S BOA R D COMMI T TEES BOA R D EX ECUTIVE COMMI T TEE SENIOR LEADE RSHIP FORUM S Annual Report & Financial Stat ements 2022 59 GOVERNANCE BO ARD MEETING A T TENDANC E AND DIRE CTOR RESPONSIBILITIES IN 2 02 1 /2 2 Du ri ng t he ye ar, the B oa rd he ld 1 2 sc he du le d meetings for which indi vidual att endance is set o ut b el ow. Su f f ic ie nt ti me i s prov id ed , p er io di c al ly, for t he C ha ir ma n to me et p ri va tely w ith t he Senior Independent Director (“SID”) and the non-executive directors to dis cuss any matters arising. F or i nfo r mat io n on w ha t th e Board did during the year , se e p63 - 64 . CHAIRMAN Attended Maximum possible Independent Responsibil ity in 20 2 1 /22 Linked to remune ration Arc hi e No rm an * 12 12 Board governance and performance. Shareholder engagement. * Consider ed independent on appointment. EXECUTIVE DIRECTORS Chief Executiv e Stev e Row e 12 12 Group performance a nd management. Executive Committee leaders hip. Chief Financia l Off icer Eoin T onge 12 12 Group financial performance, risk m anagement and inve stor relations. S trategy and transformat ion planning. NON-E XECUTIVE DIRECTORS Ro le at B oa rd m ee ti ngs Full Y ear Independent non-executive directors asse ss, challenge and m onitor the exe cu ti ve d ire c tor s’ de li ve r y of s tr ate gy w it hi n th e ri sk a nd g ove rn a nce st ru c tur e ag ree d by th e B oa rd . As B o ard C om mi t tee m em be rs , d ire c tor s al s o rev iew t he i nte gr it y o f the Company's financial informa tion, c onsider ESG iss ues, r ecommend appropriat e suc cess ion plans, mon itor Board dive rsity and set the director s’ remuneration. Evely n B ou rke 12 12 Andrew F isher 12 12 An dy H a lfo rd 12 12 T amara Ingram 11 * 12 Justin King 12 12 Sapna Sood 11 ** 12 Ap po in ted i n 2021 /22 Fiona Da wson 11 *** 10 * Un ab le to a tte nd o n e me eti ng d u e to pa r ti ci pa tio n i n resi de nt ia l cou rs e on b eh a lf o f M& S. ** Una bl e to at ten d on e m eet in g du e to e x ter na l b oa rd com m it me nts . ** * At ten de d 24 May m ee tin g as a n o bse r ve r pr io r to a pp oi nt me nt . ST ANDING A T TENDEES Responsibility Ni ck Fo l l an d – General Counsel & Company Sec retary 12 12 Ad vi sin g th e Bo a rd on a ll l eg a l an d cor p or ate g ove rn an ce i ssu es , including s ustainability and Plan A. E XE CUT IV E COM M IT T E E – ATT EN D ED BY I NV ITATIO N Ro le at B oa rd m ee ti ngs Sacha Ber endji 4 Th e E x Co co mp ri ses t he C om pa ny ’s se ni or l ea de rsh i p tea m be low B oa rd lev el a nd i s ta ske d wi th r un ni ng t he d ay- to - da y op er at io ns of t he b us in ess an d f ac il it at in g de l ive r y o f the s tr ate gy a s ap p rove d by th e Bo ar d. Me mb e rs of t he E x Co a tte nd B o ard m ee tin gs b y inv it at io n to pre se nt and dis cuss matters of strat egic importance. Di rec t re p or t s to E xC o me mb er s al s o at ten d Bo a rd me eti ng s by i nvi ta ti on as a nd w he n in p ut is r eq ui red o n th ei r sp ec if i c are as o f ex pe r ti se . Katie Bic kerstaf fe 11 Paul F rist on 5 Stuar t Mach in 10 Richard Price 5 No te: T he t ab le s ab ove p rov id e de ta il s o f sc he du le d me et in gs h el d in th e 202 1 /22 ﬁ na nc ia l ye ar. BO ARD C OM PO SIT ION AND M E E TIN G A T TE ND AN C E Monitoring non- executive director independen ce Th e Bo a rd revi ews t he i nd ep en de nc e of it s no n- e xe cut ive d ire c tors a s pa r t o f its a n nu al Bo ard Ef fe ct ive ne ss Rev i ew. The n o n- e xec uti ve di rec tor s al s o me et an nu a lly, le d by th e SI D, to con du ct t he C ha ir ma n’s ap pr ai sa l . T he resu lt s of th e me eti ng a re th en f ed b ac k to the C ha ir ma n by th e SI D. Th e Ch ai rm a n wa s cons id ere d to be independent on appoint ment and is com mi t ted to en sur i ng th at th e Bo a rd com pr is es a ma jo ri t y of in d ep en de nt non- execut ive dir e ctors w ho obj ectively challenge management, balanced against th e ne ed to en su re cont in ui t y on th e Bo ard . Th e Co mp an y ma int ai ns c lea r reco rds o f th e ter ms of s er v ic e of th e Ch ai rm an a nd no n- e xe cut ive d ire c tors to e nsu re th at th ey cont in ue to m eet t he re qu ire me nt s of th e UK Co r po ra te Go ver na nce C od e. Ne ith er t he C ha ir ma n no r a ny of th e non-executive directors have ex ceeded the ma x im um n in e- yea r reco mm en d ed ter m of se r vi ce set o ut i n th e Co de , wi th th e exce pt io n of our longest -ser ving non-executive director , An dy H a lfo rd . Wh il e An d y’s ten ure h as now reached nine years, t he Nomination Co mm it tee h as re vi ewe d an d ag ree d he remains independent, and his role as SID is an impor tant c onstant while new exec utive Bo ard m em b ers s et tle i nto th ei r rol es. As s uc h, t he B oa rd con sid er s th at al l of i ts non -e xecutive direc tors continue to demonstrat e independence. Fo r in fo rm ati on o n th e skills and experience o f ea ch d ire cto r, see p60 -62 . For more inf or mation on direc tor tenure s e e p 6 7. Ma rks a nd S pe nc er G ro up p lc 60 GOVERNANCE 2 . Steve Rowe Chief E xecu tive Appointed: April 20 1 6 Career an d external appointments: Steve j oin e d M&S i n 1 989 a nd w or ked i n se nio r rol es ac ross a l l are as of t he b usi nes s pr i or to his appoint ment as CEO, including Director of Home, Dir ec tor of Retai l , Dir ec tor of Retail and E-commer ce, Executive Director , Food, and Executive Director , General Merchandis e. Steve s tep pe d dow n f rom t he B oa rd on 25 M ay 2022 and , w it h hea r t fe lt t ha nk s fo r his m a ny yea rs o f de di ca tio n to the C om p any, wi ll for m al ly le ave M& S at th e AGM o n 5 Ju ly 2022. 3. Eoi n T on ge G rou p CFO & Chi ef Str ateg y O f f ice r Appointed: Ju n e 2020 Career an d external appointments: Eoin joined t he busi ness fr om Greenc o re, w here he h ad b ee n CF O sin ce 20 1 6 . At G re en core , he over sa w the d iv est me nt of t hei r US o p er ati on s, stren gthening the company’ s balance shee t, ret urning capital t o shar eholders and sim pl i f y in g th e bus in ess . Pr io r to th at he w as MD o f Gre en cor e’s Gro cer y bus in ess a nd a l so wor ke d in a v ar ie ty o f rol es ac ross s tr ate gy, finance, t reas ury and capital mark ets at G ree nco re an d pre vi ous ly G old ma n S ac hs . Eoi n be c am e G rou p CFO & C hi ef St rate g y Of fi cer o n 25 May 2022, t ak i ng o n over sig ht o f Pl a n A an d pl ay i ng a n en ha nce d rol e in l ead in g th e fu tu re dev elo pm e nt of th e bu si nes s. OUR BO ARD Th is is o ur B oa rd as it o pe rate d du ri ng th e year. T o see c ha ng es for th e new f i na nci al ye ar p lea se se e pa ge 62. 1 4 6 2 3 5 1. Archie Norman Chairm an Appointed: September 20 1 7 Career an d external appointments: Arc hi e is a n ex pe ri en ced C ha ir m an a nd for m er C hie f E xec ut ive h avi ng l ed m aj or transf ormation programme s at IT V , Lazard, As da , E ne rgi s an d Ho bbyc ra f t . He w as previous ly Deputy Chairman of Col es Limit ed an d wa s Lea d Di re cto r at th e De p ar t me nt fo r Bu sin ess , E ne rgy & I nd us tr ia l Str ate gy f rom 20 16-202 0 . Arc hi e is al s o the C ha ir m an of Si gn al A I , No n- E x ecu ti ve V ice Ch ai r ma n of the Global C ounsel and Se nior Independent Di rec tor o f Br id ge p oi nt G rou p pl c. N R 4 . And y Ha lfo rd Senior Independent Non-E xecut ive Dir ec t or Appointed: Januar y 2 0 1 3 Career an d external appointments: Andy’s st rong finance backgr ound and bro ad k n owl ed ge o f th e UK a nd i nter na tio na l con sum er m a rket w as g a in ed f rom C FO po sit ion s he ld i n glo b al l is ted co mp an ie s. He i s Chi ef F in an ci al O f f i cer o f Sta nd a rd Ch ar te red , w hi ch h e joi ne d af ter 1 5 ye ar s at Vod afo ne , ni ne o f wh ich w ere s pe nt as Chief Financial Off icer . A N 5. An drew F ish er O BE Independen t Non-Execut ive Direct or Appointed: December 2 0 1 5 Career an d external appointments: Andrew was instrumental in establishing mobile l ife st y le a pp S ha za m , w he re he w as E xe cu ti ve Ch ai rm an u nti l Oc to be r 20 18, as a l ea di ng mobile cons umer brand, and bring s o ver 20 years’ experience leading and gr owing numerou s t echnology-f ocused ent erprises. He i s No n- E xe cu ti ve Ch ai r of b oth R ig htm ove pl c an d Epi de mi c So un d , an d is a l so a m em be r of th e UK A dv iso r y B oa rd fo r Sp en cer S tu ar t . R N Commi t tee C h a ir s 6 . T amara Ingram OBE Independen t Non-Execut ive Direct or Appointed: Ju n e 2020 Career an d external appointments: T amara has a l ongstanding leadership career in ad vertising, market ing and digital communications, having held leadership r oles at WP P sin ce 20 02 an d as No n - E xec uti ve Ch a ir of Wu nd er ma n T ho mp son . Pr io r to th is , sh e wor ke d at S aatc hi a nd S aa tchi w h ere sh e he ld th e role s of CEO a nd C ha ir. T a ma ra h as l ed renowned marketing c ampaigns for household br an ds a rou nd t he wo rl d an d de l ive re d cul tu ra l an d bu sin es s tra ns fo rm ati on a t pa ce wi th in h er own b us in ess es as we l l as o n be ha lf o f cl ie nt s. Sh e is a l so a no n - exe cu tiv e di rec tor o f Ma rs h MacLennan and Int er tek Group. E N R Annual Report & Financial Stat ements 2022 61 GOVERNANCE 13 . Nick Folland General Counsel and Compan y Secr etar y Appointed: Februar y 2 0 1 9 Career an d external appointments: Nick has extensive legal and gov ern ance ex perience, hav in g be e n Ge ne r al Co un se l an d Com p any Se cret ar y in F T SE 100 b usi ne sse s sin ce 20 0 1. He h as h eld p os iti on s as Ch ie f E xec uti ve of t he Crow n Pros ec uti on S er vi ce an d Chi ef E x te rn a l Af f a ir s Of fi cer a nd C hi ef of S ta f f to the C EO of th e Co - o p. Ni ck i s the S en io r In de pe nd e nt Me mb er o f th e Nat ur al E nv iro nm ent R ese arc h Cou n cil – t he U K ’s lea di ng p ub li c f un de r of env iro nm en ta l sci en ce. H e jo in ed H MPP S as a no n- e xe cut ive m em b er of i ts A ud it a nd Ri sk A ssu ra n ce Com m it tee i n May 202 1. Jo i n e d t h e B o a rd o n 2 5 M a y 202 2 11 . Katie Bick erstaf fe Co - Ch ief E xe cu tive O f f ice r Career s ummary : Kati e ha s he ld a n um be r of ro les at M &S i nc lu di ng N on - E xec ut ive Direct or , Chief Strategy and T ransformat ion Di rec tor a nd m os t rece ntly, jo int C hi ef Op er at in g Of fi cer. On 25 May 2022, s he re -jo in ed t he B oa rd as C o - Chi ef E xe cu ti ve Of f icer . K atie is currently a non- executi ve di rec tor o f Ba r rat t D eve lo pm ent s PLC an d th e Eng l a nd a nd Wa les C ri cket B oa rd , an d wa s pre vi ous ly E xec uti ve C ha ir of S S E En erg y Ser vices and Chief Execut ive, UK a nd Ir el and of D ixo ns C ar p ho ne p lc , w ith e x ten si ve ex pe r ie nce of d ig it al r eta il a nd o pe r ati ons and leading consumer -focused bus inesses. 12 . Stuart Machin Chi ef E xec uti ve O f f icer Career s ummary : Stua r t too k ove r as Ch ief E xe cu ti ve Of f ice r on 25 Ma y 2022. Having j oined M&S as Food Managing Di rec tor i n A pr il 201 8 wi th ne ar ly 30 ye ar s’ ex pe r ie nce i n the f oo d , f ash io n an d ho me re tail sect ors , S tuart was appoint ed joint Ch ief O p er ati ng O f f i cer i n May l a st ye ar. In hi s new C EO rol e, S tua r t w il l con ti nu e to ser v e as a Di rec tor o f Oc a do Re ta il Ltd . Pr io r to jo in in g M& S , Stu ar t wa s CEO at S tein ho f f U K an d sp ent 10 year s in A ust ra l ia wo r ki ng at Wesf ar m er s as COO a nd C EO of Co le s an d T arg et res pe c tiv ely. Stu ar t h as a l so h eld senior op erati onal and commercial positions in UK retailer s Sainsbury’s, T esc o and ASDA. Committees key Committee C hair Audi t No minati on A N ESG Remunerat ion E R 7. Eve ly n B o u rke Independen t Non-Execut ive Direct or Appointed: Februar y 2 02 1 Career an d external appointments: Evely n reti re d fro m he r rol e as CEO o f Bu pa G ro up i n De cem be r 2020 wh ere s he l ed tr an sfo rm at ive c ha ng e du ri ng h er n ea r f iv e- yea r tenur e. She also has ex tensiv e experience in financial services, ris k and capital management an d me rge rs a nd a cqu isi ti ons ; hav i ng sp en t th ree a nd a h al f yea rs a s Bu pa’s CF O an d in lea d ers hi p rol es at th e Ba n k of Ire l a nd , St an da rd Li fe a nd F ri en ds Prov id e nt. Ev ely n joi ne d Ad mi ra l PLC as a n on - exe cu ti ve di rec to r on 30 A p ri l 202 1 an d A J Be ll PLC o n 1 Ju ly . Sh e is a l so a Truste e of t he I rel a nd F un d of Great Britain. A N 8 . Fion a Dawso n CBE Independen t Non-Execut ive Direct or Appointed: M a y 2 0 21 Career an d external appointments: Fi on a le f t he r po sit io n as p ar t o f th e Lea de rs hip T e am o f Ma rs I nc . in J uly 202 1 a f ter m or e th an th re e de ca de s at th e bu sin es s. F io na ha s a stro ng t ra ck re cord i n sus ta in ab il i t y, he al th an d we ll b ei ng , p ar t icu l a rly wo me n’s ent rep ren eu rs hi p an d hu ma n ri gh ts a nd h as alw ays b ee n a st ron g ad voc ate fo r e qu al i ty a nd di ver si ty i n th e wor k pl a ce. I n M ay 202 1 , Fi on a wa s awa rd ed a CB E fo r ser vi ces to wom e n an d th e eco no my. Fio na i s al so a n on - e xec uti ve di rec tor o f LEG O a nd jo in ed Ke r r y G rou p pl c as a no n- e xe cut ive d ire c tor i n Ja nu ar y 2022. S he i s a T ru ste e of T he S oc ia l Mo bi l it y Fo u nd ati on a nd Ch ai r of th e Wome n’s Bu sin ess C ou nc il . N 1 0 . Sapna Soo d Independen t Non-Execut ive Direct or Appointed: Ju n e 2020 Career an d external appointments: Sa pn a re cent ly jo in ed T he A de cco G rou p as a Se ni or V ice P resi de nt a nd Ch ie f of St af f to t he G rou p CEO. S he h as i n- d ep th k now le dg e of running complex supply chains, including in foo d a nd cl oth in g , as we ll a s ex pe r ie nce of leading large transf o rmation programmes and is p ass io nate a bo ut s ust a in ab il it y. Sh e ha s al s o held le ading operational r oles in t he building ma ter ia l s an d in du str ia l g as se c tors i n Euro pe an d As ia - Pa ci f ic , l at te rly a s CEO an d Pre sid en t of L af a rge Ho lc im i n the P hi l ip pi nes . Mo re rece ntly, S ap na w as a s en io r exe cu tiv e at Compass G roup and a non-exec utive director at Ke ri ng SA a nd i s cu rre ntly a n Ad vi so r y Bo ard member of Imperial College Business School . E N 9. Justin King CBE Independen t Non-Execut ive Direct or Appointed: Januar y 2 0 1 9 Career an d external appointments: Ju sti n ha s over 3 0 yea rs of e x pe ri en ce in l arg e ret ai l op er at io ns an d tr an sfo r mat io ns , an d now a c ts as a n ad v ise r to a ra ng e of grow in g bu si nes ses . Be t wee n 20 04 a nd 201 4, he w as t he CEO o f S ai nsb ur y ’s , le ad in g the bu sin es s thro ug h a ma jo r tu rn aro un d. H e h as al s o prev io usly h el d se ni or p osi tio ns at M &S , as H ead o f Fo od , a s wel l as a t As da , Haagen-Dazs, Pep siCo and Mars. A N 8 7 9 10 13 11 12 Ma rks a nd S pe nc er G ro up p lc 62 GOVERNANCE OUR BO AR D C ONTINUED Re c e n t c h a n g e s: O u r B o a rd fo r t h e c omi n g ye a r Eoin T onge G rou p CFO & Chief Strategy Of f ice r Katie Bickerstaffe Co- Chief E xecu tive Of f ice r Stuart Machin Chief E xecu tive Of f ice r Nick Folland General Counsel & Compan y Secretary Justin King C BE Independent No n- E xec uti ve Director Fi ona D awso n CB E Independent No n- E xec uti ve Director Sapna Sood Independent No n- E xec uti ve Director Eve ly n Bo u rke Independent No n- E xec uti ve Director An dr ew Fis he r OB E Independent No n- E xec uti ve Director T amara Ingram OBE Independent No n- E xec uti ve Director Andy Halford Senior Independen t No n- E xec uti ve Director Archie Norman Chair man N R R E A N N N N R A E A N N N Committees key Committee C hair Audi t Nomi nation A N ESG Remuneration E R O u r E x e c u t i v e C o m m i t t e e Pau l Fris ton Managing Direct or of I nt ernational Career s ummary : Paul began hi s M&S c a ree r on t he F in an ce graduat e pr ogramme in 1 996 an d qu al i f ie d as a m an ag em en t acco un ta nt in 20 0 0 . H e he ld a va ri et y of ro le s du ri ng h is ti me a t M&S, including In terim C FO and E xec uti ve A ss ist an t to for me r CEO , Ma rc Bo l l an d. P au l w as a pp oi nted to his c ur ren t pos iti on i n Ma y 20 1 6 and became Executive Committee sp ons or f or I ncl usi on & D iv ers it y in A pr il 201 8. Sacha Berendji Group Pr oper ty , St ore Devel opment and IT Director Career s ummary : Sacha joined M& S in 1 9 94 th rou gh th e G r ad uate training pr ogramme. He undertook various appointments including G en er al M an ag e r of M ar bl e Arc h St ore, Regional Manager for London, Head o f Pr oper ty Planning & S tor e Devel opment, Exec utive As sis ta nt to th e Ch ief E x ecu ti ve, and Dir ector of Merchandising. Sa ch a too k up h is cu r rent p osi ti on in No vember 2 0 1 2. Richa rd Price Clot hin g & Ho me Managing Direct or Career s ummary : Richar d joined M& S on 7 J uly 2020 as Cl oth in g & Home Managing Director . Richar d sp ent t hre e yea rs a s MD of B HS be fore b e com in g CEO of F& F Clo thi ng a t T e sco PLC in 201 5 . Pr io r to thi s Ri cha rd w as at M &S fro m 20 05 to 20 1 2, f ir st a s He ad of M e rcha nd is e an d the n as Menswe ar T rading Dir ec tor . Earlier in h is c are er h e wo rke d fo r Ne x t in a r an ge o f me rch an di sin g rol es ac ross wo m ens wea r an d me ns wea r fro m 1 989 to 20 05 . R ich ard ’s c are er sp an ni ng so m e of th e UK ’s top clot hing brands demonstrat es hi s prove n tr ac k reco rd of delivering gro wth through st y l ish , g reat v al ue p rod u ct . Th e E xecu ti ve Committee is e stabl ished and led by t he CEO, an d is resp onsi bl e for execut ing strat egy an d th e d ay-to - d ay management of the bus iness. Richar d, Paul an d Sacha wer e members du ri ng th e yea r , alo ng sid e the CEO , CFO a nd Ch ief Operatin g Off ice rs. Th ey wi ll co nti nue serving as members into 2022/23 with t he exec utive direct ors. Annual Report & Financial Stat ements 2022 63 GOVERNANCE Th e fol low in g pa ges o utl i ne th e key t opics r eviewed, mon itor ed , c onsider ed an d de bate d by the B oa rd in 202 1 /22. Meeting agendas, agreed in advance by the C ha ir ma n, C EO and C om pa ny Secre tar y, combine a balance of regular st and in g item s, su ch a s repo r ts o n cu rre nt trading an d financial performance, wi th t wo or t hree d et ail ed “ d ee p di ves” . Al l item s for d iscu ssio n are g ui de d by, and ma pp ed a ga ins t , the Company’s st rategic priorities which are hi gh l igh ted in th e key be low. The Boar d r ecogni ses the importance of understanding and c onsidering the v iew s an d interes ts of a ll t he Company’ s stake holders, and this forms a cruc ial c omponent of direct ors’ disc ussion and deci sion-making. Th e icon s be low hi gh li ght t he stakehol ders c onsidered and imp acted in ea ch key a rea of a cti v it y, t og eth er wi th an e xa mp le d em ons tr atin g the dis cha rge o f dut ies u nd er S ec tio n 1 72( 1 ) of th e Com pa ni es Ac t 20 06 ( “s . 1 72” ). Fo r mo re i nfo rm ati on , s ee p32 -34 for o u r Se ct io n 1 72 (1 ) st atem en t. BO ARD A C T IVITIE S – A s th e bu sin es s mov ed i nto th e n ex t p ha se of tr an sfo r ma tio n , th e Bo ar d dis cu sse d a “ No r th S ta r ” un de r w hi ch a ll t he G ro up’s a c tiv i tie s cou ld b e collective ly focused, guided and galvanised. Th is to ok t he s ha pe o f an u pd at ed G rou p p ur po se wh ic h wa s rel au nch e d inte r na ll y in O cto b er. Th is re in vi go ra ted a r ti cu l at io n of ho w an d wh y we serve our stakeholders has been the overarching ba ckd ro p ag ai ns t wh ic h al l su bse q ue nt B oa rd discuss ion and decis ion -making t ook place during t h e y e a r. – I n sha p in g th e Gro up p u rp os e, th e Bo a rd ag re ed this should be aspirational, excit ing and engaging, pa r ti cu l ar ly fo r co ll ea gu es . Th e Bo a rd em ph as ise d th e ne ed to b al a n ce th is w ith l ang u ag e an d concep ts which colleagues would find relatable, an d al s o to en sur e the i nte gr at io n of su st ai n ab il it y as a key s tr ate gi c pi l l ar. – Crucially , dir ectors consider ed shar eholder returns and agr eed the updated purpos e should remain grounded in commer cial reality . – D ur in g di scu ss io ns , th e Bo a rd an d E xec ut ive Co mm it te e (“ E x Co” ) ex p lo red M &S ’ r ic h he ri ta g e an d ou r pl a ce i n th e com mu ni ti es we s er v e wi th th e he l p of ou r M &S A rch ive . – F ee db ac k w as so ug ht f ro m le ad er s ac ross t he bu sin es s an d a w id er “ Tal k St ra ig ht S ur v ey ” inv ite d th e vi ews o f al l e mp loye es . T he re sul ts i de nt if i ed clear communication as an ar ea for improv ement, an d as a re sul t , al ig n me nt w it h ou r wi de r “ Pe op le Pl a n” an d co ll ea gu e com m un ic at io n str ate g y we re key fo cu s are as i n th e rel a un ch . MS2 3 5 Th e Bo a rd ha s mo ni tor ed p rog res s of M S2, the C ompany’s digital and online change pro gr a mm e, w h ich w a s l au nc he d l as t yea r w ith th e am bi ti on to b ri ng M &S . com f ro nt an d ce ntre of our business propos ition. Decisions and s.1 72 c onsiderations – I n rev iew in g re gu l ar u p da tes on M S2 ’s pro gre ss , the Boar d monit ored and encouraged ad va n cem en t of g row t h pl a ns , in cl ud in g appropriat e inv estmen t in talent. En d -to - e nd s up ply cha in 1 3 5 The Boar d r eviewed regular updates on modernising s upply chain s acr oss Food, Clothing & Home and Intern ational . Decisions and s.1 72 c onsiderations – G ui da n ce wa s of f ere d o n th e rol l- ou t of Va ng u ard e an d con si de ra ti on g ive n to th e im p ac t of l a b ou r sh or t ag es a nd g lo ba l d el ay s on o ur p ar tne rs , s tore colleagues, agency work ers and shareholders. Rot ati ng th e sto re es tat e 4 En sur i ng th e sto re es ta te is f i t for t he f u tu re con ti nu ed to b e a key p ri or it y d ur i ng th e ye ar. Decisions and s.1 72 c onsiderations – In addition to reviewing d evel opments and visiting sto res , th e Bo ar d con sid e red h ow ch a ng es in t he community post -Covid- 1 9 had impact ed plans for sto re lo ca ti on s an d en cou r ag ed m an ag e me nt to focus on stor e geography during budget planning. Strat egic in vestments 3 CEO a nd C FO u pd ate s in clu d ed re po r t s on p rop os ed and in-flight strat egic invest ments and acquisitions, in cl ud in g on N ob od y ’s Ch il d, T h e Sp or t s Ed it a nd True C a pi ta l II I Fu nd . Decisions and s.1 72 c onsiderations – A s pa r t of t he B r an ds st r ateg y, th e Bo ard challenged management on int egration with M& S col le ag u es an d cu lt ure , lo ng - ter m ret ur ns fo r inve sto rs , a nd a dd in g va lu e to th e cu stom e r propos ition. Dig it al & Dat a 1 2 3 4 5 Th e “ Di gi t al F ir st ” ag e nd a ha s rem a in ed a f oc al p oi nt in t he tr a ns for m ati on . T he B oa rd h as m on ito red progr ess of pr ogrammes t o enhanc e M&S’ utilisation of d at a in clu d in g Sp ar k s, P er so na l is ati on a t Sc al e an d B E A M A c a d e m y. Decisions and s.1 72 c onsiderations – T he B oa rd su pp o r ted i nves tm en t in t he Tru e Capital III F und t o enrich M&S’ understanding of c hanging c ust omer priorit ies, s uch as sustainability and c o nv enience, thr ough access to emerging t echnology . – Reviewed and challenged the personalisation pl a ns i n rel ati on to m ore f oc use d cu sto me r engagement. Pl an A 1 2 3 4 5 Wh il e Pl a n A me tr ic s are p r im ar il y eva lu ate d by th e ESG C om mi t tee , th e Bo ar d rev iew ed p rog res s ag ai ns t key o bje c ti ves a nd co ns id ere d Pl a n A factors through out Boar d dis cussi ons. Decisions and s.1 72 c onsiderations – T he B oa rd co nsi de re d an d ap pr ove d the a d di tio n of s ustainability metrics in a r enewed r evolving cre di t f ac il i ty. – A newl y ov erhauled and strengthened go vernance proc ess on charity partnerships and dona tions wa s ag re ed . G ROU P PU RP OS E UP DA TE 1 2 3 4 5 STR A TEGY AN D TRANSFORMA TION Stakeholder groups: Shareholders Colleague s Suppliers Customer s Communities Par tners Strategic priorities: M& S Foo d high-per forming business and market share gro w th Ocado transitioning to str ong capacity growth post pandemic rever sio n Clothing & Home on tr ac k for a m o re profitable model capable of g row t h Building s tore rotatio n pipeline, driving exit from le g a cy sto re s International absorbing Br exit rel ate d cos ts , but embryonic glob al strategy encouraging 3 4 5 2 1 Ma rks a nd S pe nc er G ro up p lc 64 GOVERNANCE Budget and f inanci al performance 1 2 3 4 5 Financial performance was monit ored by t he Bo ard a t eve r y m eet in g , wi th d ee p di ve s on f i na nc ia l resu lt s an n ou nce me nt s , in -ye ar b ud g et an d th e three-y ear plan. Decisions and s.1 72 c onsiderations – Management r e -forecas ts w ere robust ly scr u ti nis ed b y the B o ard , l ea di ng to t wo m ar ket announcements increasing profit outlook guidance. – T he B oa rd d eb ate d th e Co mp any ’s co st b ase , pa r ti cu l ar ly i n li gh t of m ac roe co no mi c f ac tor s su ch as i nf l at io n. D is cus si ng t he i mp ac t o n cu sto me rs an d pa r tn e rs in te r ms of p r ic in g an d sup p ly st ra teg y, it w as a gre ed a n em p ha sis o n in ter n al ef f i cie n cy wo u ld re ma in v it al . Balance sheet management 1 2 3 4 5 As t he b us in ess r ecov ere d f rom C ovi d , ba l a nce sheet management r emained a critical c o mponent in su st ai n ab il it y o f th e Co mp an y’s p er f or ma n ce. Decisions and s.1 72 c onsiderations – T he B oa rd co nsi de re d bro ad s ta ke ho ld er s up po r t in agr eeing the new £ 850m r evol ving cr edit facility, wh ic h wa s l in ked to n et ze ro su st ai na bi l it y m etr ic s . – T he d ec l ar at io n of a d iv id e nd w as d eb ate d by th e Bo ard , co nc lu di ng p r io ri tis at io n of b al a n ce sh eet a n d de bt m an ag em e nt du r in g 202 1/22 remained in the best int erest of shareholders an d th ei r lo ng -te r m retu r ns . Invas ion o f Uk rai ne 5 Fo ll ow in g th e inv as io n of U kr a in e by Ru ssi a , th e Bo ard r a pi dly e ng ag e d in c ri sis d is cus si on s and cl osely mo nitor ed the unfol ding situat ion. Decisions and s.1 72 c onsiderations – T he B oa rd u na ni mo us ly ag re ed th at co l le ag ue wel f a re wa s th e Co mp an y’s m ai n pr io r it y a nd encouraged management’s plans to support the h umanitarian cris is. – D eta il ed d is cu ssi on s too k pl a ce o n th e ch al le ng es invol ved in s uspending shipments to the Turkish franchisee’ s Russ ian busine ss, and c o ntinuing to su pp ly fr a nc hi se sto res i n Uk r ai ne . Th e Bo a rd con ti nu e to rece iv e reg u l ar u pd ate s on h ow th e con fl i c t is im p ac ti ng o ur f r an ch is e pa r tn er, suppliers, c olleagues, charity partners an d inv esto rs . Brexit and Covid- 1 9 1 2 3 4 5 De spi te th e ea si ng o f rest ri c tio ns , t he c ha ll en ge s an d op po r t un iti es a ri si ng f rom C ov id -1 9, a nd t he ongoing impact and management of Brexit, r emained regular t opics in the boardroom during 202 1 /22. Decisions and s.1 72 c onsiderations – D ee p di ve d isc us sio ns o n th e ma r ket s mos t he avi ly i mp ac te d by Br ex it , mi n df ul o f th e di ve rsi t y of cu sto me r p erce pt io ns . Th e Bo a rd ag ree d w ays to be st m eet c us tom er a nd co m mu ni t y ne ed s, in str u ct in g th at p ar t ne rs w it h st ron g lo ca l knowledge should be sought and local sour cing should be engag ed wher ever possible. – Re gu l a r up da tes o n Cov id -1 9 c ase s , rest ri c tio ns an d tr ad in g p at ter ns w ere m on ito re d ac ross a l l ma r kets a nd s ou rci ng l oc at io ns . Th e B oa rd consider ed colleague welfare and continuity ri sk s, i ns tr uc t in g a ren ew al o f con ti ng en cy pl a ns f or t he C as tl e Do ni ng ton d is tr ib ut io n cen tre . Third -par ty bra nds 3 5 The Boar d r eviewed brand proposals and received progr ess reports on third-part y brand per formance against a balanced scor ecard, disc ussing potential structuring models, with bot h short -term and long-term objectives, and ho w th ey w ould support th e M& S “eco sy ste m”. Decisions and s.1 72 c onsiderations – T he B oa rd co nsi de re d how c us tom er a nd b r an d pa r tn er p ro po sit io ns s ho uld b e b al a nc ed . In d oi ng so , di rec to rs rev i ewe d th e resu lt s of C usto m er Pu l se Su r ve ys a nd a gre ed t he n ee d to t ake a simplified and well -ar ticulated position t o impro ve cust omer understanding. Agr eeing also t hat a cle ar s t an ce wou ld a l so s up po r t b ra nd p ar tne rs to cu ra te the ir o wn o f fe r in g. Ris k ap pe tite 1 2 3 4 5 G rou p -w id e ri sk a pp eti te is s et by t he B oa rd th rou gh a se ri es of a ss es sme nt s at i nd iv id u al b usi ne ss u ni t le vel , fo ll owe d by col l ec ti ve B oa rd de b ate. S ee p a ge s 45 to 46 fo r f ur t he r in fo rm ati on . Decisions and s.1 72 c onsiderations – D ata - re l ate d ri sk w as d eb ate d , wi th th e Bo a rd con cl ud in g to se pa r ate ri sk s as so ci ate d wi th cus tom e r da ta ve rs us u til i sin g te chn o log y to d ri ve th e di gi ta l an d d ata a g en da m ore b ro ad ly. It w as ag ree d th er e wou ld b e no r is k ap p eti te in t he former category . – T he B oa rd a gre ed t ha t th e glo b al co nte x t of t he Clo th in g & Ho me s up ply c ha in n e cess it ate d a se pa r ate ri sk a pp eti te f rom t ha t of th e Fo o d bu sin es s. Business Invol vement Group ( “BIG” ) 1 2 3 4 5 Th e Ch ai r of N at io na l BI G wa s in vi ted to s eve ra l Bo ar d me eti ng s th rou g ho ut t he ye ar, wi th t wo “ de ep d iv e” discuss ions dedicated to c olleague engagemen t and feedbac k. Decisions and s.1 72 c onsiderations – Co l le ag ue f ee db ac k w as co nsi de re d in re l ati o n to pay r evi ew s, t he h ol i day b u y pro gr a mm e an d th e Sa ve As You E ar n sh ar e sch e me. – T he B oa rd e nco ur ag e d th e pl a ns to m od er ni se th e BI G net w or k an d su pp or t ed a gi li t y in communica tions between colleague s and management. – I n an a dd it io na l ses si on d ed ic ate d to th e Co l lea gu e En ga ge m ent S ur vey, th e Bo ard d e bat ed th e th em es b eh in d th e resu lt s , sup p or te d th e de l iv er y of c onsequent action pl ans, and agreed to focus on driving momentum fr om an inclusion and diversit y perspective. T alent 1 2 3 4 5 Following discussi on at the Remuneration Commit tee, th e Bo ard co ns id ere d a n up da te on t al en t acq ui si tio n , developm ent and retention. Decisions and s.1 72 c onsiderations – T he B oa rd su pp o r ted t he “ i nte rn al f i rs t” a p pro ac h to growing talent and improving diversity in the workforc e. – Ch a ng es i n bot h cu rre nt a nd p ote nt ia l col le ag u e’s priorities w ere consider ed, including w ellbeing and flexibility. MyHR 1 2 3 4 5 In Sept ember 20 2 1 , M&S l aunched a new sys tem d es ig ne d to pu t di gi ta l at t he h ea r t of peop le activ ities. Decisions and s.1 72 c onsiderations – The Board reviewed regular updates leading t o th e l au nc h of M yHR a n d con sid e red f ee db ac k f rom listening groups of c.300 c olleagues t o simplify an d em be d th e sy ste m. Board evaluat ion L as t yea r ’s ex te rn al e va lu ato r he ld re gu l a r ses si on s wi th t he B oa rd , in cl ud in g an a l l- Bo ard d ee p d ive , to mo ni tor a nd r evi ew B oa rd ef f ec t ive ne ss , as w el l as p rog res s wi th l a st y ea r’s B oa rd a ct io n pl a n . Se e pa g e 65 for f u r th er i nfo r ma tio n . Decisions and s.1 72 c onsiderations – Co ns id er at io n wa s gi ve n to the C ol l eag u e En ga ge m ent S ur vey res ul ts , i n li ne w i th th e Bo a rd ’s ac ti on to e ns ure t ha t pe op le a nd c ul tu re ar e at th e he ar t o f th e Co mp any ’s tr a ns for m ati on . W it h th e Board agreeing it should focus o n de velopment of ot he r se ni or l ea de rs hi p in a dd it io n to E xC o. Board committees Th e p ri nc ip al C om mi t tee m ee ti ngs a re a l ig ne d to th e ca de n ce of th e Bo a rd c ale n da r, wit h th e Ch ai r of e ac h Com m it tee p rov id in g th e Bo a rd wi th t he ir latest updates and rec ommendations for appro val . Decisions and s.1 72 c onsiderations – The Board debated the Remuneration Commit tee rec ommendation on an inflationary pa y rise ac ros s the G ro up , con si de ri ng co st o f li v in g pres sures . Y ear - end con trols and appr ovals Af te r a se ri es o f br ie f in gs o n pl a nn in g , an d fo ll ow in g revi ew and recommendat ion fr om the princ ipal Co mm it te es , th e Bo ard c on sid er ed th e ye ar-e n d appro val mat rix. Decisions and s.1 72 c onsiderations – D eta il ed s es sio ns o n th e Fu ll Yea r Resu lt s an d th e An nu al R ep or t in clu de d r ig oro us d eb ate a nd scrutin y on principal risks, inv estor return s, more cust omer -centric me ssaging, and communicat ing colleague recognition. Shareholder analy sis a nd engagemen t Th e Bo a rd rev ie wed re g ul a r up d ates o n an a lysi s of th e M& S sh are re gi ste r an d re po r ts o n th e pr io r it ies of ins titutional in vestors and pr oxy vot ing agencies. Decisions and s.1 72 c onsiderations – Co ns id er at io n wa s gi ve n to inve sto rs’ i nc rea se d fo cus o n ES G ac ti v iti es a nd t he C om pa ny ’s reco rd o n pl a st ic w as a gre ed a s a fo cu s are a for management. AG M Up da tes o n pl a nn in g fo r bo th th e p ra c tic a l an d le ga l as pe c ts of t he AG M we re rev i ewe d by the B oard, foll owed by post -meeting f eedback. Decisions and s.1 72 c onsiderations – T he B oa rd rev i ewe d pl a ns to re du ce t he no mi na l v al ue o f the C om p any ’s sh ar es an d am en d it s A r tic le s of A sso ci at io n , an d sup p or te d th e evo lu tio n of t he d ig it al f or m at as a method demonstrating impr oved sharehol der engagement. Conf l ic ts o f inte res t Any p ote nt ia l or a c tu al d ire c tor co nf l ic t s of i nter est are m o ni tore d by th e G en er al C ou ns el a nd C om pa ny Secre tary and r eported t o the Board. Decisions and s.1 72 c onsiderations – A n um be r of e x ter n al a pp oi nt me nts w ere con si de red b y the B o ard , i nc lud i ng Eve ly n Bo ur ke’s appointmen t t o Admiral Gr oup, Fiona Da wson’ s Ker r y G ro up d ire c tor sh ip a nd A rch ie N or m an’s ro le at B ri dg ep oi nt . In a l l in st an ces , it w a s ag ree d th ere wa s no e vi de nt co nf l ic t . EX ECUTIVE U PD A TE S CUL TURE AND OR GANISA TION LEGAL AND GOVERNANCE Annual Report & Financial Stat ements 2022 65 GOVERNANCE BO ARD EFFECTI VENESS REVIEW : Af te r t wo ye ars o f ex te rn al ly f a cil i ta ted Bo a rd Effectiveness an d Dev elopmental R eviews, conduct ed by Gurnek Bains of Global F uture Pa r tn er s (“ GF P ”) , it w as d ete rm in ed th is ye ar ’s rev iew wo ul d be co nd uc te d inte rn al ly a nd le d by th e Cha ir m an , A rch ie N or ma n , an d sup p or te d by th e Ge n er al Co u nse l & Co mp any Secre tary, Nick Folland. Last y ear’s ex ternally f aci l it ate d Bo ard Re vi ew wa s de ta ile d i n ou r 2020/2 1 A nn ua l Rep o r t on p ag e 70. I MPAC T O F T H E 2021 /22 BOA R D AC T IO N PL A N: Th e ac t io n pl a n resu lti ng f ro m l as t yea r ’s revi ew ha s be en a co re fo un dat io n of th e wo rk con du c ted by th e Bo a rd du ri ng th is f i na nc ia l yea r . Fo r ex a mp le , the l eve l , d ept h an d frequency of eng agement between the Board and senior executives significantly increas ed bo th fo rm al ly a nd i nfo rm al ly, in clu di ng v ia t he ExCo ment oring pr ogramme. This proce ss cle ar ly bu il t th e Bo ard ’s tr us t an d conf i de nc e in s en ior m a na ge me nt , as i t ha s cul m in ate d in th e pro mot io n of t wo m em be rs o f the E x Co to the B oa rd in a n ex ecu ti ve di rec to r ca p aci t y ; th e ap po int me nt of S tu ar t M ac hi n as CE O an d K ati e Bic ker st af f e as Co - C EO. Eoi n Tong e al so ha d hi s du tie s in crea se d. As e vi de nce d in t he ES G Co mm it tee ’s Rep or t on p ag es 70 to 77 , the Co m pa ny ha s wor ke d hard on buil ding capability and f ocus acr oss th e org an is ati on i n rel a tio n to ESG . T h is ha s in clu d ed th e rese t of Pl an A , new n et zero ambitions, and the inclu sion of sustainabilit y- rel a ted p er f or ma nce m et ri cs b ui lt i nto th e Co mp any ’s £850m rev olv in g cre di t f aci l it y. Ag ai nst t he b ac kdro p of Cov id -1 9, ou r pe o ple res ponded admirabl y and the Board has rem ai ne d fo cus ed o n en sur in g th at th e cu ltu re an d pe op le a ge nd a is a t the h ea r t of t he Co mp any ’s tr an sfo rm at io n. T hi s yea r th ere h as be en a g rea ter fo cus o n i nd iv id ua l pe r fo r ma nce monitoring, the introduction of leadership and management t rainings as well as wider inve stment in learning and dev elopment acr oss th e org an is ati on . T he B oa rd is h ea r ten ed th at af te r f ive y ear s , the C om pa ny ’s pe r fo rm an ce ha s pro du ced a G ro up -w id e b on us , ha l f of wh ic h ha s be en d efe r red fo r th ree ye ar s an d wi ll b e aw ard ed i n e qu it y – to f ur t he r stren gthen the al ignment be tween c olleagues and shar eholders. TH E PR OC ES S Th e Bo a rd an d Com mi t tee rev i ew too k the f or m of a se ri es o f str uc t ure d inte r v iew s con du c ted inte r na lly a nd l ed by t he Ch a ir ma n , Arc hi e No rm a n, a nd s up po r ted b y the G e ne ra l Co un sel & Co mp any S ec reta r y, Ni ck F ol l an d , w ith e ac h of th e no n - exe cu tiv e di rec tor s an d E xC o members. These interviews wer e conducted in a ccord an ce w ith t he p ri nc ip les o f th e UK Co rp or ate G ove rn an ce Co de 201 8 an d the supporting Guidance on Board Ef fectiveness. Th ese m e eti ngs a l so p rovi de d Bo a rd me mb er s wi th th e op p or t un it y to di scu ss f ur the r th em es th at ha d em erg e d fro m l as t yea r ’s Boa rd a ct io n pl a n , as we l l as ad dr essi ng to pi cs e me rgi ng fro m ses si ons h el d th is yea r. BO ARD REVIEW INSIGHTS Fo ll owi ng t he i nter vi ews , a B oa rd revi ew re po r t wa s f in al is ed a nd c ircu l ate d to me mb er s an d be c am e a dis cus si on too l fo r th e Bo ard , h el pi ng th em to de vi se th e ac ti on p l an f or t he ye ar ahead. The main points highlight ed are summa rised below. Board pe rf orman ce – In general, members w ere v er y posit ive ab ou t th e Bo ard a nd h ow it f u nc ti on s, f ee l in g th at th ere h ad b ee n no tice ab le i mp rove me nt fol lo wi ng th e b oa rd revi ew p rog ra m me i n th e prev io us ye ar. Mem b ers a gre e d tha t the re is a g oo d bl en d of ex p er t ise a rou nd t he t ab le an d a hi gh l evel o f en erg y. – Th e Bo a rd fel t un iv ers a lly t hat d ia lo gu e is op en a nd t ra ns pa ren t, a nd t hat S teve Row e an d oth er E x Co m em be rs d ese r ve d cre di t for t hi s. – Th e ex ecu ti ve Bo ard m e mb er s were con sid ere d to be wo r ki ng we l l wi th th e Board, c ontributing openl y and without defen siveness. – New er B oa rd me mb er s ha d set t led i n we ll an d al l Bo a rd me mb er s ha d dev oted t im e to und erstanding t he busine ss. Discussing the critical iss ues and balancing the agenda – Bo ard m em b ers a gre e d tha t me eti ng ag en da s ad dre sse d th e mo st im p or t an t iss ues , w it h a go od b al an ce an d ra ng e of issues discussed . – How ever, the re w as a p erce ive d ne ed f or im prov em ent i n th e fr a mi ng of i ssu es fo r di scu ssi on , a d esi re for m or e str ate gi c di scu ssi on , a nd a d esi re to clos e ou t ret urning issue s. – Gi ve n th e hig h le vel o f Bo ard a ct iv it y, Board members felt that k ee ping mee ting sch ed u les ti gh t wa s a go od d isc ip l in e to forc e cho ice s an d to pr io ri tis e the a ge nd a . Ge t tin g th e bes t ou t of Bo ard m em be rs – Th e Bo a rd ag ree d the y al l ha d go od opportunities to c ontribute and th at th e ex pe r ti se a rou nd th e ta bl e is curren tly appr opriate. – Th ere w a s a hig h le vel o f resp ec t fo r pe op le around the table. – Although discuss ions w ere some times con sid ere d to be ro bu st , th ey we re al so resp ec t f ul w it h a go od l eve l of de b ate. Th e lev el of c ha l le ng e to ma na ge me nt wa s vi ewe d as co nst ru c ti ve. – Sometimes d iscus sion felt time- constrained, wi th m em be rs e xp res sin g a ne ed to balance more app ropriat ely c overing all issues ag ainst examining them in depth. It w as fe lt t he re wa s a ten de nc y a mo ngs t th e exe cut ive te am to p rese nt is su es al re ad y set o ut i n Bo ard p ap e rs , ca us in g som e minor frustration. Board papers and information – The Board papers generally c o ntained a compr ehensive overview of bu siness performance. The mon thly m anagement rep or ts esp e cia l ly were o pe n a bo ut th e iss ues , p rov idi ng re al i nsi gh t into w h at th e exe cu tiv e were t ac kl i ng a nd w ha t the ir con cer ns are . – Howe ver , members agreed t hat t he framing of op tions could be impr ov ed, with some pa pe rs p rese nt in g a na rr ati ve o n a sub je ct and the steps being taken, without outlining th e cho ice s cle ar ly. It wa s fel t th is so me tim es led t o less -focus ed disc ussion. Chairman – The Chairman rec eived feedback fro m al l B oa rd me mb er s on h is pe r fo rm a nce , as we ll a s on t he ef fec t ive ne ss of th e G en er al C ou nse l & Co mp a ny Se cret ar y, wit h a pa r ti cul ar fo cus o n th e onboarding of new director s, and t he Board invol vement programme. – Th e Bo a rd ag ree d th at th e Ch ai rm an’s st y le and appr oach had been appropriat e and ne cess a r y to dr iv e cha n ge d ur in g th e cr iti ca l f irs t st ag e of t ra nsf or m atio n . Me mb er s al s o ag ree d th at hi s st y le wo ul d in evi ta b ly evolve with the leadership changes and with the dif fering demands of the nex t stage of transfo rmatio n. Senior Independent Dir ector (“SID”) – An dy H a lfo rd w as p ra ise d fo r hi s role on t he B oa rd , wi th m em be rs co mm ent in g he has play ed an important rol e in articulating ha rd tr ut hs , an d ha d be en p i vota l w ith n ew direct or onboar ding. – Th ere w a s an aw are ne ss th at w he n A nd y lea ves th e Bo ard a nd h is ro le as S ID by t he en d of 2022, he w il l b e le avi ng a g ap a nd h e wi ll b e h ard to re pl a ce. BO ARD RE VI E W – Pos t - p an de mi c, a nd w i th th e ant ic ip ati on of a n ew exe cu ti ve lea d ers hi p tea m in pl a ce, i t h as be e n ag ree d th at it i s tim e to re vive the Board’s in formal engagement opportunities outside of formal Boar d meetings, with break fasts and dinners. It w as a l so ag re ed th e Bo ard I nvo lvem en t Pro gr am me s ho uld b e ref res he d , wi th th e Bo ard e xp res sin g a de sire to m eet i n stor es , dis tr ib ut ion c ent res an d at O c ad o, to in crea se th e Bo ard ’s v isi bi l it y in th e bus in ess a nd to e ng ag e f ul ly wi th a wide range of c olleagues. – Af te r an i nte nse p er io d of B oa rd inv olvemen t and focus o n operat ional iss ues , t he B oa rd ’s focu s sh ou ld be re - or ie nted o n st ra teg ic is su es , pa r ti cu l ar ly in t he lo ng - ter m; w it h tec hn olo gy a nd M & A a ct iv it y f l a gg ed a s po ssi bl e are as fo r di scu ssi on . T he B oa rd ha s ag ree d to cons id er f ut ure t ren ds on t wo o r th ree o cc asi on s du ri ng th e coming year . – A key fo cus f or th e Bo a rd wi ll b e en su ri ng th at th e cus tom er i s at th e he ar t o f al l th at M &S d oes , w it h hei gh ten ed at ten tio n pa id to th e M& S br a nd a nd cons umer behaviour . – Th e Bo a rd ’s comp osi tio n w il l con tin ue to be rev ie wed , b ut w it h pa r ti cu l ar em ph asi s th is yea r o n the i de nti f ic at io n of a su cces sor f or A nd y H al for d as Senior Independent Dir ec tor , and on the Audit Committee. 2022/23 AC T I O N P L A N : Ma rks a nd S pe nc er G ro up p lc 66 GOVERNANCE RE V IE W O F TH E Y E AR Fo llow in g a pe ri od o f non - e xecu tive direct or changes, the Committee’ s ac ti vi ties i n 202 1 /22 we re focu sed o n embedding the newly bal anced Boar d and pr eparing for exec utive succ ess ion. Si nce th e out brea k of Cov id - 1 9 , the p ace of ou r tr ans for m atio n has i nc rease d significant ly . T o support thi s es cal ati on wi th th e ap prop ri ate sk il l s an d ex pe ri ence , we have se en a n um be r of no n - exec uti ve di rec tor ap po int me nts over t he l a st t wo yea rs. A s su ch , the C om mit te e focu sed on o vers ight of a thor ough induction for Fi on a Daws on in t he ea r ly par t of thi s year. As t he yea r pro gres sed , at ten tio n tur ne d to the ta le nt pi pe li ne a nd i n pa r tic ul a r , exec utive suc ce ssion pl anning. As an nou nce d on 10 March 2022, and a s I ’ve ou tl in ed i n my Gove rn an ce Ove r v iew on p ag es 56 to 5 7 , th is ha s cul m in ated in th e ap po intm en t of Stu ar t Ma chi n as CEO a nd K ati e Bic kers taf fe as Co - CEO o n 25 May 202 2, fo ll owi ng Steve Rowe st an di ng dow n as C EO. In a ddi tio n to the ir cu rre nt ac ti vi ties , St ua r t wi ll b e resp onsi bl e for th e d ay-to - day lea de rsh ip of t he bu sin ess a nd E xe cuti ve Committee, also taking on responsibility for HR and Corporate Communicat ions. K atie w il l have a p ar ticu l ar fo cus o n driving t he global omni- channel, digital an d dat a f utu re for th e bu sin ess . Th e Bo ard ’s exec uti ve di rec tors w il l conti nu e to incl ud e Eoi n T on ge , w hose role h as al so ex pa nd ed to G roup CF O & Chi ef Str ateg y O f f ice r . Eo in’s new re sponsib ilities i nv olv e an enhanced role in le ad ing t he f ut ure de velo pm ent o f the b usi nes s and ove rsi ght o f Pl an A . In making the se ex ecutive chang es, the C o mmittee appointed and work ed with an independent execut ive s earch f ir m , wh ich is a si gn ator y to th e Volunt ar y Cod e of Co nd uc t fo r E xecu ti ve Sea rch NOM INA T ION C OM MIT TEE R E POR T THE C OMMI T TEE’ S A CTI VI TIES WER E FOCUSED O N EM BE DDI NG TH E NE WL Y BAL A NCED BOARD AND PRE P ARIN G FOR THE E XECUTI VE TR ANSITIO N. Archie Norman, Chair of the Nomination Committee ‘‘ ’’ COMMI T TEE ROL E AND MEMBE RSHIP The Nomina tion Committee is re sponsibl e for ensuring the compo siti on and structur e of th e Bo ard r em ai ns ef fec ti ve , ba l an ce d an d op tim al ly su ite d to the C om pa ny ’s str ate gic priorities. In p ractice this in volves overseeing the nomi nation , indu ctio n, evalu ation an d ord er ly su ccess io n of d ire cto rs . Th e Co mm it te e al so e ns ures t he G rou p’s governanc e facilitat es the appointment and develop ment of ef fec tive mana geme nt that can deliver shar eholder value o ver t he lo ng ter m . T he f ul l Term s of Ref ere nce for t he C om mi t tee c an b e fo un d at marksandspencer .com /thecompan y . The Commi ttee c omprises t he non-executiv e di rec tor s an d is c ha ire d by Arc hi e No rm a n. Individual meeting attendance and changes to me mb er shi p are d is pl ay ed i n the b el ow ta bl e. M ore i nfo rm at io n on th e sk il l s a nd experience o f all C ommittee members ca n b e fou nd o n pa g es 60 to 6 1 . Th e Co mm it te e’s pe r fo rm an ce w as rev iew ed as p ar t o f th e 202 1 /22 in ter na l Bo ard R evi ew, wh ic h is cove red o n pa ge 65 . Th e rev iew e st ab l ish ed t hat t he Co m mi tte e fu n ct io ns we ll i n ter ms o f pl a nn in g su ccessi on to Bo ard ro les a nd ot he r se ni or p osi tio ns . ME E T IN G S HE L D IN 202 1 /22 Member sinc e Number of meetings attended Maximum possible meetings Archie Norman 1 Se p 20 1 7 7 7 Eve ly n Bo u rke 1 Fe b 202 1 7 7 Andrew Fisher 1 De c 20 1 5 7 7 Andy Halford 1 Ja n 20 1 3 7 7 T amara Ingram 1 Ju n 2020 7 7 Justin King 1 Ja n 20 1 9 6 * 7 Sapna Sood 1 Ju n 2020 7 7 No n -e xe cu ti ve di re ct or s wh o se r ved o n th e Com mi t te e fo r par t o f 2021 /22 Fiona Daw son 25 May 202 1 4 * 5 * U n ab le to jo i n du e to pr io r bu si ne ss co mm it me nt s. More information on the Nom ination Committee i s a v ailable in our fu l l disc losu re of com pl ia nce w ith t he U K Cor po ra te Gove rn an ce Cod e at marksandspencer .com/thecompan y . Fi rm s. T og eth er, we reviewe d the B oa rd and Execut ive Committee ’ s balance of sk il l s , ex pe ri en ce and k n owle dg e and c onsidered the busine ss ’ immediat e and longer -t erm requir e ments. In recog ni tio n of th e prog ress m ad e un de r the cu r rent le ad ers hip tea m , as wel l as th e rece nt pe ri od of b oa rdroo m changes, the C ommittee agreed t hat the c ontinuity and stabilit y pr ovided by thi s new exe cu tive tr io wo ul d be va lu ab le du ri ng th is n ex t st ag e of o ur transf ormation, i n “Shaping t he Fut ure” . These appoin tments also bring female repr esentat ion in th e Compan y ’ s mos t sen io r exec uti ve to 3 3% , and to 45 % over al l at th e Bo ard , su pp or ti ng the Committee ’s ambition t o surpa ss int ernal and external divers ity targets. Annual Report & Financial Stat ements 2022 67 GOVERNANCE In l ig ht o f the C om mi t tee’s m ost re cen t ac ti vi ti es , we ha ve ta ken t he o pp or t un it y to p rovi de an i nsi gh t into o ur a pp roa ch to su cces sio n an d in du c tio n of o ur n ew CEO a nd C o - CEO. Th e pro ces s is d esi gn ed to en su re the a pp o int me nt of o ur e xec ut ive d ire c tors i s str ate gi c , ord er ly a nd com p reh en siv e. Si nce t he n ew ex ecu ti ves h ave be en p a r t of th e bu si nes s fo r a nu mb er o f yea rs , th ei r in du c tio ns a re pr im a ri ly foc use d on p rov id in g a rob ust u nd e rst an di ng of th ei r ne w resp on sib il i tie s as st atu tor y di rec tor s of a p rem iu m li ste d com pa ny. Howeve r, both K ati e an d Stu ar t wi ll u nd er ta ke som e d ee p di ve in trod uc t ion s to are as of t he b usi ne ss no t previous ly under their remit. CEO SUCCE SSI ON PRO CES S The talent pipel ine for all senior rol es is p rep are d , id en tif yi ng t he emergency c over , medium-term (1 -3 year s ) a nd l on ge r-term (3-5 ye ars) ca nd id ates w ho m ee t cu rre nt bu si nes s ne ed s. T h is in cl ud es con sid er at ion o f wh et he r a role c a n be filled int ernal ly , or whether external se arch is requir ed. Th e f in al s tep i s to prov id e the n ew d ire c tors w it h a com pre he nsi ve in du c tio n . So me of t he a c tiv i tie s in clu de d in S tu ar t a nd K at ie’s in du c tio ns h ave b ee n: – Board procedure s and team dyna mics – Li ste d com pa ny ma t ters a nd corporat e gov ernance – Direct ors dut ies – Corporat e communicat ions and media t raining – Shareholder and invest or relations analysis and briefing – Ex ternal Auditor introduction – Nation al BIG introduc tion – Bu sin ess a rea d e ep d ive s (Clot hin g & Ho m e, F oo d , Store s & Pro pe r t y, Ban k & Se r v ice s, Digital & Data, Plan A) – St ore vis its, including renewal stores – Su pp ly ch ai n de po t vi sit – Cus tom er s er v ice s cent re vi sit – Castle Doningt on distribution cent re vis it DIRECTOR TENURE In Ja nu ar y 202 2, A nd y Ha lfo rd reac he d ni ne yea rs of s er v ice o n ou r Bo ard . L ast ye ar, the Co mmi t tee rep or ted that Andy remained independent, and wou ld prov id e a key poi nt of s tab il i t y du ri ng 202 1 /22. In li ght o f the e xecu ti ve cha ng es m ad e at the s ta r t of 2022/23, the C om mit tee h as a gre ed A nd y’s sk il l s an d ex pe ri ence re ma in v it al to the Bo ard ’s comp osit ion d ur in g thi s pe ri od of tr an siti on . Th e Co mm it tee h as al so discu ssed his independence in dep th an d , in ag ree me nt wi th th e inter n al Bo ard Revi ew (see pa ge 65), we have est ab l ish ed that Andy remains independent in bot h cha ra c ter an d jud ge me nt . He has n o oth er si gn if ic an t li nk s to the Com pa ny an d conti nu es to make a n effective and v aluable cont r ibution. In l in e wi th ou r succes sio n pl a ns a lre ad y in p l ace , An dy s teps do wn as C ha ir of th e Aud it Co mm it tee o n 7 Ju ne , wi th Evelyn Bourke r epl acing him. Andy will r emain a me mb er of t he Au di t Com mi tte e an d our Senior Independent Dir ec tor until he leaves t he Bo ard by t he en d of 2022. T ALENT MANA GE MENT Fo llow in g th e cha ng e fro m the O p er atin g Committ ee int o the E xecut ive Committee (“E xCo”) in 20 20, eac h Nomina tion Committ ee member became a men tor to a mem be r of th e E xC o. Th is gu id an ce has c o ntinued and dev eloped during the ye ar, with p ar ticu l ar fo cus o n broader HR and talent management. Disc ussion s ar ound the con tribution of talent management t o the Compan y’s transf ormation have principally taken pl a ce at th e Boa rd an d Rem un er atio n Committ ee. The Committe e supports the s tronger g ov er nance con trols and impr oved s ucce ssion pl anning wh ich h as b ee n ta ki ng pl ace. L ast ye ar, our rev iew p rocess es focu sed on se ni or le ad ers . In 202 1 /22 the rev iew an d deve lop me nt of o ur m ost se nio r individual s pr ogress ed, in addition t o new arrangements for the ac quisition, ass essm ent a nd n ur t ure of t al ent thr oughout t he entir e organisa tion. The Committee acknowledges the impor tant r ole gr owing talen t int ernal ly pl ay s in M&S’ div ersity ambitions, aligning wi th th e Boa rd ’s own di ver sit y p ol ic y, which enc ourages dir ectors t o con tribute to the d evelo pm ent o f a di vers e ra ng e of fut ure leaders. Internall y pr omoting ta len t in ou r CEO su ccessio n is , we b el ieve , an important de monstrat ion of our commi tment t o talen t de velopmen t. Success ion planning The candidate s in t he pipeline ar e me ntore d by m em be rs o f the Co mm it tee . In p ar ticu l a r , th ose identified for medium- or longer -term plans are pr ovided with training and sup p or t to a id th e Co mp any ’s ab il i t y to pro mote i nter n al c an di d ates , in l i ne wi th th e Bo ar d Di ver sit y Po l ic y. Identify and dev elop Hav in g cons ide red t he re qui rem en ts of th e bu sin es s, i t w as ag re ed th at bo th Stu a r t an d K ati e wou ld b e rec ommended for appointmen t t o th e Bo ard as C EO an d Co - C EO, w ith Eoin remaining in pl ace t o complet e the ex ecutive leadership trio, and wi th th e G en er al C ou ns el & Co mp a ny Secre tary tasked with the formalities. Rev iew o f th e succe ssi on p l an s fo r th e mos t se nio r rol es t akes p l a ce periodically . Immediat ely follo wing notif icatio n of an incumb ent direc tor’s upcoming depar ture, pl ans are cons idered and scrutinised in-depth by th e Com m it tee a nd a n exe cu ti ve sea rch f i rm , t ak i ng in to acco unt th e pros pe c tiv e CEO’s e xp er t ise , lea d ers hi p st y le , an d the c ur ren t com po sit io n of th e Bo ard . T hi s in clu d es bo th an a ss ess me nt of in terpersonal d ynamics and a sk il l s ma tr ix re fl ec ti ve of t he on e on p ag e 68 . Appoint Rev iew Induct Ma rks a nd S pe nc er G ro up p lc 68 Ba l a n c e d l e a de r s hi p GOVERNANCE S h a p i n g t h e f u t u re It is o ur b e li ef, sup po r te d by ex te rn al e vi de nce , th at a Bo a rd wh ich i s di ve rse i n ge nd er, eth ni c an d soc ia l ba ckg rou nd co rre l ates w i th a wea lt h an d di ver si ty o f sk il l , e xp e ri en ce an d pe rs pe ct ive s ha red i n th e bo ard roo m . Th e Bo a rd sk il l s an d ex p er ie nce m atr i x be low d em on str ates t his b e li ef. Th e m atr ix i s reg ul a r ly revi ewe d to ens ure i t me ets c ur ren t bu sin es s ne ed s an d wa s an es se nti al to ol i n the C EO su ccess ion p ro cess . T he o ng oi ng con sid er at ion o f th e com pe tenc ie s hig hl i gh ted i n the m at ri x an d , cr uc ia lly, it s al ig n me nt wi th o ur s tr ateg ic p ri or i tie s, h as a l so e nsu red t he B oa rd is f ul ly e qu ip pe d to dr ive t he n ex t s ta ge o f th e tr ans fo rm ati on . BOA R D Skills and experienc e Archie Norman Steve Ro we Eoin T onge Andy Halford Andrew Fisher T amara Ingram Eve ly n Bo u rke Fiona Daw son Justin King Sapna Sood Stuart Machin Katie Bickerstaffe Nick Folland Newly appoin ted Outgoing General Counsel & Company Secretary Evidencing effec tiveness Th rou gh ou t 2020/2 1 a nd u nti l th e pu bl ic at io n of l a st yea r ’s repo r t , th e Co mp any to ok s teps to e nsu re, i n l in e wi th o ur B oa rd Di ver si ty P ol ic y (th e “ Pol i cy ” ), t hat B oa rd appointments contribut ed to our Group-wide ambition of driving inc lusion and divers ity (“I&D”). Consolidating th e im prov in g tre nd l in e, 202 1 / 22 the n fo cus ed o n embedding our ne west non- execut ive dir ectors and ha rn es sin g th e va lu e of a n ef f ec ti ve bo ar dro om dy n am ic . As d ir ec tor d ive rs it y in cre ase d , so to o di d the fre q ue nc y of th e I& D ag en d a as a con sid e rat io n ac ross ma ny top ic s at B oa rd leve l . I n ad di tio n , th e Bo ard Eva lu ati on e st ab li sh ed th e Bo a rd as con tin ui ng to de mo ns tr ate ef f ec ti ve d eb ate an d de ci sio n -m a ki ng ; a key ou tcom e th e Pol i cy s ee ks to p rod uce . Fi gu res a s at p ub l ic at io n da te. Organis ational design and corporate culture Marketing and media Dat a an d di gi ta l T ransformation and strategy Finance Risk m anagement Property and real estate Sustainabilit y Corporate transactions, legal and regul atory Retail and cons umer Food and beverage Supply chains 1 1 1 1 3 2 2 3 4 3 5 5 1 2 3 4 5 1 2 3 4 5 1 3 4 5 5 1 2 3 4 5 1 2 3 4 5 5 1 2 3 1 2 3 4 5 1 2 3 4 5 4 Female (45%) Male (55%) All Board gender identity Female (50%) Male (50%) Non- executive director gender identity Female (33%) Male (67%) Executive director gender identity Ethnic minority (9%) Whit e (91%) Board ethnicity Strategic priorities: M& S Foo d high- performing business an d ma rke t sh are g row th Ocado transitioning to st rong capacity grow th po st p an de mi c reve rsi on 1 2 Clo th ing & H om e on t ra ck f or a m ore profitable model capable of gro w th Building s to re ro tat io n pipeline, dr iv i ng ex i t fro m le ga c y store s 3 4 International absorbing Brexit relat ed c osts, but embryonic global strat egy encouraging 5 NOMINA TION C OMMIT TEE REPORT C ONTINUED Annual Report & Financial Stat ements 2022 69 GOVERNANCE Ou r ob je ct ive o f dr i vi ng th e be n ef it s of a d ive rse B o ard , se ni or m an ag e me nt tea m an d wi de r wor k fo rce is u nd er p in ne d by th e Pol i cy, wh ic h ca n be v i ewed o n o ur cor po r ate web site a t marksandspencer .com / thecompan y . In a dd iti on to t he a bove m en tio n ed commitmen ts t o promot e gender divers ity, ethnic diversity and succ ession planning , the P ol icy c over s other inclusion ini tiative s ta ki ng p l a ce wi th in th e Co mp any w h ich a re sp ons ore d an d en do rs ed by t he B oa rd. Du ri ng t he ye ar, the se ha ve in clu de d: – A rese t, i nc lud in g bu d get a l loc at io n , for t he sev en emplo yee-led networks on gender , eth ni cit y, se xu al o r ie nta tio n (LG BTQ+ ) , and disabilities and health conditions. – Co nti nu ed i nvolve m ent i n th e 30% C lu b, an o rga ni sa tio n com mi t ted to i ncre asi ng fe ma le re pres en tat io n on U K bo ard s th rou gh developing our junior leaders. This ye ar , op po r tu ni t y to joi n w as ex tend ed to a l l under -repre sent ed groups. – The Marks & Star t pr ogr amme, which con tinues to s upport young people, the ho me les s , lon e p are nts a nd t hos e wi th disabilities in f inding work at M&S. – Th e K ic kst a r t Sc he me , th rou gh w hi ch M &S pro v ides six-month employment contracts an d he l ps to dev elo p sk il l s i n 1 6 -2 4 -y ea r - ol ds on U ni ve rs al C red it w ho a re at r isk o f long-term unemployment. – Co nti nu ed a ct ive i nvo lvem en t in key campaigns including L GBT Q+ Pride celebr ations , Internatio nal Women’s Day, Black Hist o ry Month, Nat ional Inclu sion W eek , Mental Heal th A wa rene ss W eek and W orld Internat ional Day of Disability, rais ing awa re nes s an d ou r pro f ile a s an i nc lus ive pl a ce to wor k . – Ad de d ou r f irs t LGBTQ+ c ha ri t y pa r tn er sh ip to Sp ar ks f or o ur c usto me rs a nd co ll ea gu es to sup po r t AK T, a cha ri t y sup po r ti ng LG BTQ+ you ng p eo p le ag e d 1 6 -25 in the U K wh o a re facing or experiencing homelessness or living in a hostile environment. – Co nti nu ed to d ri ve an d im pro ve ma nd ato r y I&D t raining acro ss the business, with a pa r ti cu l ar fo cu s on l i ne m an ag er s. Read more in our Sustainabilit y R epor t EXECUTIVE COMMITTE E OUR COMMIT MENT F TS E Wome n Lea de rs Rev iew Targe t: 33% fe m al e Bo ard M&S Ta r g e t M&S Ta r g e t Parker Review Targe t: O n e Bo ard m em b er f ro m an et hn ic m in o ri t y ba ckg ro un d by 202 1 Expanding goals In 2020 , we me t bot h ou r in ter na l ta rge t set o ut in th e Po li c y an d the e x ter n al t arg et l a id o ut i n th e F TS E Wome n Le ad er s Rev iew (fo rm e rly th e Ha mp ton -A le xa nd er R evi ew), e nsu ri ng a 33% fe ma le Bo a rd. Towa rds th e en d of l a st ye ar, we sur p ass ed t hes e go al s w it h th e ap po int me nt s of Eve lyn B ou rke a nd F io n a Daw son . S in ce th en , we ha ve ex pa nd e d scop e an d , in re cog ni ti on o f th e di f fe ren t role s of no n - exe cu tiv e an d exe cu tiv e di rec tor s , we hav e al so a ch ieve d a 3 3% fe male ex ecutive p opulation. In addition, we are f u lly co m pl ia nt w it h the P a rke r Rev iew ’s ta rge t to app oi nt a t lea st o ne B oa rd me mb er from an ethnic minority backgr ound . How ever , th e Bo ard re cog ni ses th e im p or t an ce of a ll for m s of di ve rsi t y an d rem ai ns co mm it ted to str i vi ng fo r f ur t he r pro gre ss i n thi s sp ace . Skills and experienc e Steve Ro we Eoin T onge Stuart Machin Katie Bickerstaffe Richard Price Paul F riston Sacha Berendji Newly appoin ted Outgoing Wider lea dership As re p or te d ab ove , the i mp rove d ge nd er d iv ers it y of ou r exe cu ti ve di rec tor s ha s be en a p osi ti ve ou tcom e of th e CEO su cces sio n . Se pa r ately, the b a l an ce of individual s r epor ting into E xCo members who id entify as fe m ale h as a l so se e n im prove me nt t his ye ar. In reco gn it io n of th e im po r t an ce of th e ta le nt p ip el in e , we ha ve al so o u tl in ed th e et hn ic di ve rsi t y of se ni or lea d ers hi p be low E x Co l evel f or th e f ir st ti me . We are p le ase d to rep or t t ha t ou r sen io r le ad er shi p is rep rese nt ati ve of t he w id er o rg an isa tio n , of w hi ch 1 2% are f rom et hn ic m in or it y b ac kgro un ds . How ever, we rem a in co mm it ted to e nh an ci ng th e q ua l it y of t he talent pipeline while driving change. Mo re de ta il o n di ver sit y i n th e wi de r org a nis at io n ca n b e fou nd o n pa g e 2 7 . Organis ational design and corporate culture Marketing and media Dat a an d di gi ta l T ransformation and strategy Finance Risk m anagement Property and real estate Sustainabilit y Corporate transactions, legal and regul atory Retail and cons umer Food and beverage Supply chains 1 3 4 1 2 5 1 3 1 2 3 5 5 1 1 1 2 2 2 3 3 3 4 4 4 5 5 5 1 2 3 4 5 1 3 4 5 1 2 3 4 5 1 2 3 4 5 4 5 1 2 3 Female (14%) Male (86%) ExCo gender identity Female (46%) Male (54%) ExCo direct reports gender identity ExCo ethnicity Ethnic minority (14%) Whit e (86%) Ethnic minority (14%) Whit e (86%) ExCo direct reports ethnicity Ma rks a nd S pe nc er G ro up p lc 70 GOVERNANCE the Gro up’ s accoun table busine sses, challenging management to ensure they a re relev an t to all s ta keho ld ers . Th is cu l min ated i n ou r reset of P l an A wi th a sin gu l ar f ocu s; to cut o ur c ar bo n foot pr int by o ne - thi rd by 20 25 and to be come a n et zero b usin ess by 20 40 . We hav e dev eloped a mul ti-stak eholder plan spanning cus tomers, c ol leagues and sup pl ie rs to de l ive r on th is ta rget . Important progr ess has been made wi th ou r Pl a n A reset , wh ich i ncl ud ed th e retur n of o ur i coni c “ Loo k be hin d the L ab el ” c am pa ig n to eng ag e cus tome rs in th e stor ies b eh in d our res po nsib ly sou rced , eve r yday p rod uc ts , f rom cof f ee to cotton . We have al s o intro du ced ne w propos itions inc luding our partnership with Hir estr eet (the clothing hiring business ), and our Sparking Change Challenge encouraging cust o mers t o live mor e sustainabl y by r educing food wast e and exploring mor e pl ant - based prot ein. Bringing cust omers along on our su stainabilit y journey is and will in creasi ng ly be come v it al ; to ensu re, alongside our own s ust ainabil ity ef for ts, we ar e positiv ely influencing the sustainability of our wider community . Th is ap p roac h wi ll b e ne cess ar y f or us to ach ieve o ur S cope 3 n et zero emi ssion s target s. Th e Co mmi t tee ha s be en co nsci ous thi s year t hat u nl ess we h old o urs elves acc ountable agains t our actions plans an d ta rgets , o ur ef for t s to reset Pl a n A will ult imat ely become futil e. E mbedding sustainability throughout the bus iness, ensu r ing a ll d ec isio ns a re al ig ne d to Plan A , str engthening our governance to man ag e cl im ate -re l ated r isk s an d opportunities, and monit oring pr ogre ss wi th ou r net ze ro targ et , have a ll the refo re bee n key area s of fo cus fo r the Comm ittee. E SG C O MM IT TE E R E POR T INTRODUCTION Last year , we e stablished our Envir onmental , Social & G overnanc e (“ ES G” ) Co mm it tee to prov id e the b usi ness with rigour , support and challenge on ESG m at ters . Th rou gho ut t he cou rse o f 202 1 /22, o ur p rio ri t y ha s be en th e reinv ig or ati on of P l an A – o ur mu lt i-ye ar susta inability programme – ensuring our leaders hip posit ion is upheld and sust ai na bi li t y rem ain s at th e ver y h ea r t of M&S’ cus tome r pr oposi tion. This report ou tl in es ou r ac tiv it ies i n sup po r t of th is ai m, a nd h ow we have d isc harg ed t he re sponsibilities delegated to the Com mi t tee by the B oa rd. Do ing t he r igh t thi ng by ou r pl ane t, p eo pl e an d the p l aces we s er ve , is a v al ue th at ha s be en core to M& S ’ cul ture si nce i ts in cep tio n. In reco gn iti on of t his , th e Com mi t tee an d I wou ld l ike to tha nk Steve Row e for h is consi stent l ead er shi p in th is reg ard . He has e nsu red th is yea r , as a st an di ng at tend ee , th at thi s was f oref ront o f the Committee’ s minds, and in turn confirmed sustainability, in particul ar climat e change, as a key str ateg ic p il l ar i n the C om pa ny’s pu rp ose as i t moves t hrou gh th e ne x t stage of its t ransform ation. In l in e wi th th e inten tio n we set l a st yea r , t he Co mm it tee h as revi ewed t he sust ai na bi li t y str ateg ies o f eac h of OUR PRI OR IT Y HAS BE E N E NSUR ING SUST AINABI LIT Y RE MAINS A T THE HE AR T OF M& S’ C USTOMER PR OPOSITION. Tamara Ingram, Chair of the Environmental, Social & Governance Committee ‘‘ ’’ COMMI T TEE ROL E AND MEMBE RSHIP Th e Co mm it te e is res po nsi bl e for e nsu r in g th at th e Co mp any h as a n ESG s tr ateg y (“ P l an A”) th at is b ot h ins pi ri ng a nd di f fe ren ti ates M& S f rom i ts com p eti tors , while also r e maining fit f or purpose. Th e Co mm it te e wi ll a l so rev i ew th e ef f ec ti ven es s of Pl a n A , in clu di ng t he governanc e arrangements for en suring th e succe ssf u l de l ive r y of t he s tr ateg y and monit o ring its overall perform ance. In a dd iti on , t he Co m mi tte e ad v ises t he Aud it C om mi t tee o n ESG -re l ate d ri sk s, including c limate-related iss u es. Th e f ul l T er ms o f Ref ere nce f or th e Com mi t tee c an b e fo un d at marksandspencer .com /thecompan y . The Commi ttee c omprises T amar a In gram as Ch ai r an d S ap na S oo d , wi th A rch ie N or ma n , Steve Ro we, Eo in Tong e a nd Ni ck F ol l a nd standing att endees at Commit tee meetings. Individual mee ting a ttendance is display ed in th e ta bl e be low. Mo re inf or ma tio n o n the s ki l l s and experience of Committee members can be f ou nd o n pa ge s 60 to 6 1. ME E T IN G S HE L D IN 202 1 /22 Member sinc e Number of meetings attended Maximum possible meetings T amara Ingram 1 6 D e c 2020 6 6 Sapna Sood 1 6 D e c 2020 6 6 By standing invite Archie Norman N /A 6 6 Steve Ro we N /A 6 6 Eoin T onge N /A 6 6 Nick Folland N /A 6 6 Annual Report & Financial Stat ements 2022 71 GOVERNANCE We recogn ise we m ust n ever b e complacen t. The w orld is unpredictable, com ple x an d cha ng in g fa st . As a cons equence, t he Committ ee will conti nu e to cha ll eng e th e busi nes s pro ac tiv ely to tac kle re lev ant sustainability topics, climat e -related risks and opportuniti es, r espond to stakeh older expectati ons, and en sur e the busine ss has appropriat e con tr ols in pl a ce to meet o ur P l an A t arg ets . WH A T WAS ON T H E COM M IT TE E ’ S AG E N DA 2021 /22 Th e Co mmi t tee’s tim e du ri ng th e year wa s devote d to the fol low in g inte rlo ck in g key area s of foc us: – Strategy – Embedding – Controls Strat egy Th e Co mmi t tee rece ive d up dates f rom the Executiv e Commi ttee (“ExCo”) on the s ustainabilit y st rat egies f or the Food, Clo thing & Home and In terna tional bus ine sses , as we l l as the co mm on the mes a cros s the G rou p on cl i mate change, communi ty, human rights and ethical t rading. E xCo and senior leadership were ch al le ng ed to deve lo p thes e str ateg ies w ith a f ocu s on key cus tome r conce rn s, o ur m ar ket po siti on o n sustainability and upcoming regul at or y issu es . Th ese rev iews co ncl ud ed w ith th e reset of P l an A , un de r a un if yin g G roup com mit me nt to be a net ze ro busi nes s (i ncl ud ing S cop e 3 ) by 20 40 . A s an i nteri m bu t mea ni ng fu l step , we have a l so ma de a public c ommitment t o cut our carbon foot pr int by o ne - thi rd by 20 25 and th e team s acros s the b usi nes s have b een task ed with de veloping operational pl a ns to de l ive r ag ain st th is. Th e Co mmi t tee w as al s o prese nted wi th “ d ee p di ves” on th e fol low ing a reas , to aid i ts thi nk in g an d deve lop me nt of sustainability objectives : – Cust o mer insights on sustainabil ity conce rn s an d pe rcepti on of M &S ’ sustainability per formance. – M&S’ market positi on on s ustainabilit y . – Clim ate chang e. – Animal welfare. – Plastics . – Community i nv estmen t. Embedding The Commi ttee ha s emphas ised during the ye ar th e im po r ta nce o f creati ng a nd embedding a s ustainabilit y cultur e within the b usi nes s, to en sure a ll d ec isio n - ma ki ng is a l ig ne d wit h Pl a n A obj ec ti ves. As su ch , a nd to prom ote the a l ig nm ent of Pl a n A wi th inve stm ent a nd f in an ci ng de cisi ons , th e Co mmi t tee revi ewe d, ad vis ed o n an d sup po r ted th e prop os al to l ink a n ew £850m revolv in g cred it f a cil it y to the d el ive r y of n et zero t arget s. F ur th er det ai l ca n be fo un d on p ag e 7 4. The Committee al so c o nsider ed aligning colleague mindset with Plan A by incorporating sustainability obj ec ti ves in p er f or ma nce - rel ated p ay, rec ommending tha t the Remuneration Com mi t tee inves tig ate thi s fu r th er . Mo re info rm ati on is g ive n on p ag e 7 6 . Contr ols In addition to reviewing and ad vising the Au di t Co mmi t tee on E SG ri sks a nd opportunities (fur ther d etail on page 7 6), the C ommittee has chal lenged t he bus ine ss to im prove it s contro l s on ESG -re l ated rep or tin g and P l an A progr ess. A t the Committee’ s dir ec tion to enha nce a cc ountabilit y , the business now com pi les a nd tr ac ks p rogres s wi th met ri cs sp an ni ng a ll ES G ac ti vi ties . Prog ress w ith t he ne t zero road ma p is al so ove rse en v ia a n ew Pl a n A (Net Ze ro ) St eering Group, pro viding the C ommittee wi th as sur an ce that p rog ress is con sist entl y monit ored. Ou ts ide I n – Ro lli ng p rog ram me Th e Co mmi t tee ha s be en ke en to hea r fro m as m any sig ni f ic ant vo ices in t he sust ai na bi li t y wor ld as p ossi bl e. A s such , it h as he ard f rom a ho st of e x ter na l spe ake rs an d wi ll co ntin ue t his p ra c tice in th e com ing ye ar : – CEO of a le ad ing co nsu mer g oo ds business, on em bedding sus tainabilit y thro ug h contro l s and c ult ure , and t he market’ s re sponse . – Chief Sustainabili ty Of ficer of a global fashion c ompany , on th e importance of innovat ion , s upplier rel ationships , transp arenc y through global suppl y chai ns, and changing con sumer sent iment. – A scie nti f ic ad vi ser o n an im al we lf a re, farming sub sidie s , agric ultural aut omation, and labour sh or tages. ESG C OMMIT TEE EFFE CTIVENESS REVIEW The Committee ’ s performance was revi ewed a s pa r t of th e 202 1 /22 in tern al Bo ard Eva lu atio n , wh ich i s covered o n pa ge 65. T he C om mit te e al so p roa cti vely dis cus sed i ts ow n ef fe c tive nes s an d prog ress a ga in st ob jec ti ves in i ts f ir st fu l l year o f op er atio n . Th e revi ew fou nd t hat th e Co mm it tee wa s consi de red to be o pe rat ing w el l . T he fre qu en cy o f me etin gs , wh ile m ore o f ten tha n th e Boa rd ’s othe r sub - com mi t tees , wa s not co nsid ere d over ly one rous g ive n the n ee d to mai nta in m om ent um w ith the C om mit tee ’s obje cti ves . It is fe lt th at hav in g the Co mm it tee m eet f req ue ntly and pr oviding l eadership is having a posi ti ve and g a lvan isi ng ef fec t on t he bus ine ss w hil e we are tr yi ng to em be d sustai nabilit y mor e deeply . Th e leve l of ch al le ng e provi de d by the C om mit tee to m an ag em ent w as deemed appr o priat e, and Committ ee me mb ers a l so fe lt th e qu al i ty o f in pu t fro m ex ter n al gu est s pe aker s wa s valuable. The Committee agreed tha t a key focu s for n ex t ye ar wo uld b e enhancing custome r c ommunicat ion of ou r Pl a n A pr ac ti ces. 2022/23 a c ti on p l an : – De mon str ate vi sib le ch an ge to cus tome rs an d col lea gu es al ig ne d to ou r Pl a n A obj ec tive s, o n cus tome r focu s po int s such a s ca r rie r ba gs , hangers and plastic packaging. – Agr ee st rategi es f or su stainability focus area s, incl uding on Community, Circular Fashi on a nd Low I mp ac t Far mi ng . – Revie w our exi sting st rategie s on H um an R ig hts , He alt h an d Animal W el fare. – Monit or deliver y against our net zer o targe ts, ensuring accoun table busine sses have tar gets in tegrat ed int o their t hree-y ear plans. – Str engthen ESG skill s and t alent acr oss t he busine ss. Ma rks a nd S pe nc er G ro up p lc 72 GOVERNANCE E SG C OM MIT TE E RE P OR T C ONTINUED Ta s k F o rc e o n C l i m a t e -re l a t e d F i n a n c i a l D i sc l o su re s re p o r t INTRODUCTION Th is re po r t se ts ou t o ur cl i ma te- re l ated f i na nc ia l di scl osu res , wh ic h M& S be li eves d e mo nst ra te ou r al ig nm e nt to the Task F orce o n Cl i mate - rel ated Fi na nc ia l Di scl osu res (“ TCFD” ) reco mm en d ati on s. F or e ase , an i nd ex t ab le o f pa ge re fe ren ces fo r ou r TCFD - al i gn ed d isc losu res c an b e fo un d on p ag e 77 . Ma rk s a nd S pe nce r G rou p pl c has co m pl ie d w ith t he re qu ire me nt s of LR 9 .8 .6 R by in clu di ng c l im ate -re l ate d f in an ci al d isc losu res co nsi ste nt wi th th e TCFD reco mm en d ati ons a nd re co mm en de d di sclo su res. F ur t he r de ta ile d in fo rm ati on c a n be fo un d in o ur S us ta in ab il i t y Rep or t, a su pp le me nt to o ur A nn ua l Rep o r t wh ic h en ab les t he G ro up to prov i de m ore d et ail ed a nd co mp re he nsi ve rep o r ti ng of o ur c l im ate st rate g y an d pro gres s ag ai ns t ou r Pl a n A me tri cs i n al ig n me nt w ith t he TCFD re com m en da tio ns a nd re com me nd ed d is clos ures . T he S us ta in ab il it y R ep or t w as p ub l is he d on 7 J un e 2022 and is a va il a bl e at corporat e.marksandspencer .com/ sustainabilityrepor t20 22 . In o ur re po r t l a st ye ar, we set ou t th e ac ti on s req ui red f or u s to dis clo se f ul ly ag ai ns t al l TCFD re com me nd at io ns. O u r pro gre ss a ga ins t th is p l an is se t ou t be low : 2021 /2022 Ac ti ons Update Publish the delivery r oadmap t o underpin our ne w net zero ambition wi th cl ea r ta rge ts a cro ss ea ch o f the three scopes. In S ep temb e r we rel a un ch ed o ur P l an A s ust ai n ab il it y p rog r am me , sup p or te d by a de ta ile d roa dm ap w h ich i de nti f ie s the i mm ed i ate pr io ri t y are as t hat w e mus t fo cus o n now a s we m ake ou r jo ur ney tow ar ds ne t zero.  Con ti nue t o tr ack o ur p er f or man ce against the baseline. Ou r Sco p e 1 an d 2 gre en ho use g as e mi ssi on s con tin ue to b e tr ac ked i n li ne w i th th e G ree nh ou se G as Pro tocol a nd c a n be f ou nd o n pa ge 75. T hi s yea r we h ave ch ose n to dis clo se ou r Sco pe 3 e mi ssi on s , reco gn isi ng th at o ur a bi l it y to tr ac k Sco pe 3 e mi ssi on s is st il l ve r y l im ited d u e to the co mp le xi t y of m eas ure me nt . Im prove m ent i n Sco pe 3 e mi ssi on s me asu rem en t ha s be en i de nti f ie d as a cl ea r en ab le r to de li ve ri ng o ur s tr ateg y.  Conduct scenario analysi s. We have u nd er t a ken sce n ar io a na lysi s on th ree k ey are as of o ur b usi n ess – P rotei n, C ot ton a nd Pro pe r t y – se e pa ge 7 4 .  Publis h the climate -re lated risks and opportunities over the shor t, medium and long term. Th is d isc losu re a r tic ul a tes how w e have co ns id ere d the c l im ate -re l ate d ri sk s an d op po r tu ni ti es we f ace , ove r th e sho r t ( <3 ye ars), me di um (3-1 0 ye ar s ) , an d lo ng ter m (> 1 0 ye ar s ) .  S TR A T EGY A N D RI S K MA NAG E ME N T Si nce i ts l a un ch i n 20 07 Pl an A , ou r sustainability programme, has underpinned th e resil i en ce of o ur o rga ni sa tio n’s str ate gy, en sur in g th at we a re ma n ag ing t he env iro nm en ta l an d eth ic al r is ks a nd oppor tunities we face as a business, incl uding cl im ate - rel a ted is su es. I n Se pte mb er 202 1, ou r E xec ut ive C om mi t tee an d th e Bo ard ’s ES G Co mm it tee re set P l an A to fo cu s excl usi vely on o ur n ew G rou p go a l of be in g a ne t zero business by 2040, int egrating this ambition int o our core strat egic planning pr ocesses, bu dg eti ng a nd co mm erc ia l st ra teg y. Led by th e CEO, ove r th e cou rse o f 202 1 th e E xec uti ve Committee reviewed and updat ed the sustainability strat egies of the Group and acc ountable bus inesses. An independent ex pe r t rev ie w wa s com mi ssi on ed to id e nti f y th e mos t ma ter ia l sus ta in ab il i t y issu es f or o ur bu sin es s an d ass ess o ur p er for m an ce rel a tiv e to com pet ito rs. T h is rev iew h ig hl i gh ted th e im po r t an ce of cl i ma te cha ng e as a n is sue for m u lti pl e st ake ho ld ers a nd f or th e M& S bu sin es s over t he sh or t, m ed iu m an d lo ng ter m , an d le d to the i nc lus ion o f cl im ate ch an ge a s a st an da lo ne e me rgi ng r isk i n l as t yea r ’s An nu al Re po r t . Ou r res po nse to TCFD l as t yea r ex pl ore d th is em erg i ng r isk a nd id en tif i ed th e n ee d to bet ter u nd e rst an d th e tra ns iti on al a nd p hys ic al r isk s a nd op po r tu ni ti es we f a ce as a bu si nes s. As w e have f u r th er d eve lop ed o u r understanding of our climat e-rel at ed risks an d op po r tu ni ti es , we ha ve move d cl i mate ch an ge f rom a n e me rgi ng r isk a nd h ave discl osed “Climate change and en vironmental resp on sib il i t y ” as an e vol uti on o f th e prev io usly discl osed “Social , et hical and environmental resp on sib il i t y ” pr in ci pa l ri sk to em ph asi se th e importance of cl imat e -related issue s, and ac kn ow le dg e ou r sho r t te rm re qu ire me nt to de li ve r ra pi d de c ar bo ni sa tio n by 2025. In l i ne w ith t he i de nti f ic ati on o f th is pr i nci pa l ri sk , e ach o f ou r acco un ta bl e bus in ess es an d key f un ct io na l are as h ave con sid e red r isk s relating t o climate chang e, and more broadly th e de li ve r y of o ur n et ze ro com mi tme nt , as pa r t of t he G rou p r isk m an ag e me nt pro ces s. Th is h as a ll owe d the b usi ne sse s to cons id er how c li m ate -re l ate d is sue s may i mp ac t th ei r str ate gy b ot h in th e sh or t te rm a nd b eyo nd , and t heref ore to implement the requir ed cont rol s to m an ag e th ese . Fu r th er i nteg ra tio n of c li m ate ch an ge i nto ou r ri sk m an ag em en t pro cess , a s a pr in ci pa l ri sk , h as i ncre as ed th e v isi bi li t y of h ow th e businesse s ar e decarbonising t heir activities. Th is a pp roa ch h as a l so p rovi de d bro ad e r over sig ht t hro ug h the r is k rev iew s ta ki ng p l ac e at bus in ess leadership and execut ive t eam leve l , a s wel l as to th e Au di t Co mm it tee thr ough Gro up ris k r eporting. More informat ion on our risk management proce ss ca n b e fou nd o n pa g e 45, w hi ch i ncl ud es th e cons id er ati on o f cl im ate - rel a ted r isk s. Annual Report & Financial Stat ements 2022 73 GOVERNANCE Climate risks and op por tunit ies Th e b elow t ab le p rov id es a hi gh - lev el su mm ar y of th e ri sk s an d op po r tu ni ti es we h ave id en tif i ed ove r th e sh or t , m ed iu m an d lon g ter m ac ros s the bu sin es s, a nd t he p oten tia l im p ac ts t hes e cou ld h ave. Policy and regulator y landscape S M L Cur re nt an d f ut ure p ol ic ie s an d reg ul a tio ns co ul d im pa c t the f i na nc ia l pe r fo rm a nce of o u r bus in ess a nd a f fe c t ou r ab il it y to tra d e. G over n me nts , i ncl ud in g th e UK ’s , are e xp ec te d to int rod uce c ar b on p ri ci ng m ech a nis ms to cu t em is sio ns i n l in e wi th ta rg ets s et ou t in t he P ar is Ag re em ent . Po li ci es th at co ntro l the p rod u ct io n an d use o f raw m ate ri al s co ul d in cre ase cos ts o f key com mo di ti es in o ur s up ply c ha in . T echnological chang es M L T o a ch iev e the t a rget s set o ut i n th e Pa ri s Agre e me nt , new te ch no log ie s wi ll b e re qu ire d to sup po r t a lo w- c ar bo n fu tu re. A n um be r of t hes e tech no lo gi ca l ch an ge s cou ld a l so be d r ive n by reg u l ati on . Fo r M &S , th ese co ul d in clu d e the req ui rem en t to move aw ay f rom i nte rn al co mb us tio n en gi ne v eh icl es an d to move to l ow- c ar bo n ref r ig er ati on s yste ms . Changing consumer preference s S M Ou r con tin ue d su cces s as a bu sin es s is re li an t on o ur a bi l it y to ad a pt an d me et th e ch an gi ng e x pe ct at io ns an d ne ed s of o ur cu sto me rs . As p ub l ic aw are ne ss o f cl im ate ch an ge g rows , co nsu me rs a re se ek in g mo re su st ai na bl e pro du c t choice s, embracing plant -b ased alternativ es, and c hoosing r eusable packaging options. Impact of extreme weather on raw material suppl y chain L We are rel i an t on r aw m ater ia l s as i ng red ie nt s in o ur fo od a nd f i bre s in o ur c loth in g an d ho me p rod u ct s. E x trem e wea th er an d th e ef fe c ts o f cha ng i ng tem p er atu re an d pr eci pi ta tio n c an i mp ac t t he g row th o f raw m ate ri al s su ch a s cot ton a nd pro du ce. A ny im p ac t in s up ply co ul d in crea se th e cos t of r aw mate ri a l s. R is k key Sh o r t te rm S Medium t erm M Lo ng te r m L Bu ild in g on t he se ri sk s an d op po r tu ni ti es , we be l ieve i t is h ig hly l ik ely th at f a cto rs su ch a s th e cost o f ca rb o n an d sus ta in ab le co nsu me r ch oic e wi ll b eco me t he n or m . It is t he refo re im pe r ati ve th at we a ct n ow to be a h ead o f th e cu r ve an d m an ag e th e im pa c t of th ese r isk s an d op po r tu ni ti es , so we c an d e li ve r lon g - term, s ustainable, pro fitable gr owth for our inve stor s, colleagues a nd wider communities, an d avoi d ma ter ia l f in an ci al r isk i n th e fu tu re. Ou r ag re ed G rou p go a l , de vel op ed i n resp on se to the l on g ter m cl im ate - rel a ted re gu l ato r y pre ssu res we f a ce, i s to be a ne t zero b usi ne ss ac ross o ur e nti re su pp ly ch ai n an d pro du c ts by 204 0 , 1 0 yea rs a he ad of t he U K G over n me nt ’s str ate gy. T o sup p or t t his , we h ave s et a me di um - ter m ta rget (2030), a l ig ne d to the Paris A greement. T o b e o n tr ack to m ee t thi s ta rge t, we k n ow th at ra p id d ec ar bo n isa tio n of o ur e nti re bu sin es s is es sen tia l to en sure w e mi tig ate me di um - ter m ri sks s uch a s c ar bo n pr ic in g in hi gh e mi ssi on s ac ti vi ti es. I n th e sho r t te rm , we have s et ou rs elve s an i nter im g o al of re du ci ng em is sio ns by a l mos t 2 mi ll i on to nn es by 2025 and hav e set out a detailed r o admap outlining th e im me di ate pr io r iti es we w il l fo cu s on as w e ma ke ou r jo ur ney tow a rds n et zero . T A SK F OR CE ON C LI MATE- RE L ATE D FI NA NCI AL D IS CLOS UR E S RE P OR T CONTINUED OUR RO ADM AP TO W AR DS NE T ZE RO OU R BA SE LI N E 5. 7 m tonnes of c arb on em it ted i n 2016/1 7 Net zero across entire value chain 55 % reduc tion in carbon emiss ions versus our baseline 2030 T ARGET Net zero across our own busine ss 2035 T ARGET Rapid carbon reduction 204 0 T ARGET 2025 T ARGET Change driven in collaboration with supplier partners, stakeholders and customers Reduced waste and emissions P L A N A Because there is no Plan B Zero emi ssions transport Moving t o low-carbon logi stics with r educed dependency o n di ese l an d in crea se d use o f ne w technologi es and cleaner fuels. Contribu ting to cross-industr y action t hrough c oll aboration. Reduce food waste - 100% o f ed ib le su rp lu s to bere di str ib ute d by 2025. - Food waste reduced by 50% by 2030 . Suppliers and business par t ne rson n et ze ro j our ney Looking be yond our own op er ati on s to sp ar k cha ng e an d support decarbonising across our fu ll v al ue c ha in . Zero emi ssions pr operty De li ve r a mo re ec ie nt store estate. Reduce and recycle packaging - 100% o f pa ck ag in g to be re cy cl ab le by 2025 . - 30 % reducti on in volume of plastic food packaging b y 2 0 2 7. Zero deforest ation - 100% o f soy to b e sou rce d from v eriﬁed defore station and conv ersion-free regions by 2 025/ 26. - 1 00% segregat ed re sponsibly sou rce d pa lm o il b y 2025/26. Circular econ omy Enhancing our clothes recycling scheme wit h new inc entives for Sparks members. Increasing the range of plant-based protein Double the sales of v egan and vegetarian products b y 20 24. Sustainable sourcing 1 0 0% veriﬁ ed recyc led polye ster by 2 025/ 26. Low-impact farming We suppor t our f armers t o enable them to gro w lo w carbon, respons ible f ood, use f ewer pesticide s, enhance their s oil, pro tec t na tur a l reso urce s an d drive innov ation. TEN IMMEDIA TE P RIORIT Y AREAS FOR TRANSFORMA TION 34% reduction in carbon emiss ions versus our baseline Ma rks a nd S pe nc er G ro up p lc 74 GOVERNANCE E SG C OM MIT TE E RE P OR T C ONTINUED Quantitative scenario analy sis We are cl ea r on th e im p or t an ce of understanding climat e risks and opportunities over t he s ho r t , me di um a nd lo ng te rm . Recogni sing climat e -related ris ks and op po r tu ni ti es is a n em erg in g are a bu t cr it ic al iss ue , we com p li me nte d ou r ex is tin g ri sk ma na ge m ent p roce ss o utl i ne d on p ag e 45 wi th a b esp oke s cen ar io a na lysi s to ass ess potential im pli cations of cl imate- rel ated ri sks i n th e me di um te rm . 2030 ref le c ts a m ed iu m- ter m ti mef r am e fo r cl im ate r isk s an d op p or t un iti es to em erg e , wh il s t al s o al low in g fo r the i nte gr ati on o f ri sk management int o our busines s planning cy cles . We ch ose a n ar row sco pe f or o ur quantitat ive scenario analysis, focusi ng on an im al p rotei n , cot ton a nd U K pro pe r t y. Th ese are as we re se le cte d fo ll owi ng a m ate ri al i ty as ses sme nt w hi ch co nsi de red b oth t he potential cl imate- rel ated impac t and the im pa c t on f i na nc ia l pe r fo rm an ce to M& S , whilst ensuring fair and b alanced reporting acro ss the accountable businesses. E xp osu re w as d eter mi ne d b ase d on pe rcen ta ge o f prof i t , pe rcen ta ge of to ta l cons umption and total emissions. Our anal ysis loo ke d at th e im pa c t of t wo p l au sib le f u ture st ates – ave ra ge g lo ba l tem p er atu re in cre ase s of 1.5˚C and 4˚C d ue to c li m ate ch an ge by 2 100 . Th e tr an sit io n an d phy sic al r is ks id en tif i ed a re ou tl in ed i n th e ta bl e on p ag e 75 (I mp a c t in 203 0). Fo r th e pu rp ose o f th is ri sk as ses sm en t an d an aly sis , we h ave as sum e d tha t M& S ’ bus in ess ac ti vi ti es re ma in st at ic , th at we d o not i n nov ate or m it ig ate th e im pa c ts o r ch an ge o ur sou rci ng s tr ateg y ; a nd i ncr eas es in co sts a re ab sor b ed by M &S . T hi s is a wo rst-c as e scen a ri o ap pro ac h , foc usi ng o n th e ri sk ex p osu re in th ese a reas . O ur f i na nc ia l mo de ll i ng h as n ot included quantitat ive anal ysis o f opportunities, how ever, the se ar e cons id ere d qu al i ta tiv ely in our mitigating strategie s. T A SK F OR CE ON C LI MATE- RE L ATE D FI NA NCI AL D IS CLOS UR E S RE P OR T CONTINUED Wh il s t it i s cle ar th at t he i mp ac t of r is ks un de r a 1.5°C an d 4° C sce n ar io co uld h ap p en sim ul ta ne ou sly, for t he p ur po ses o f ou r sce na ri o an aly sis we h ave as su me d th em to be m ut ua lly e xcl usi ve. T hi s yea r we h ave ch ose n to dis clo se ou r im p ac t qu a li ta ti vely. Mov in g fo r w ard , we w an t to ex pa nd o ur quantitat ive scenario analysis to ot her ar eas of th e bu sin es s, a nd co ns id er lo ng e r - ter m ho ri zon s to hel p u s cont in ue to b ui ld a be tte r pi ct ure o f th e cl im ate - rel ate d r isk s an d oppor tunities f acing M&S. As w e ex pa nd o ur s cen ar io a n alys is to develop a more de tailed understanding of th e f in an ci al r isk o n o ur b usi nes s , we w il l share the qua ntitative imp ac t. Wh a t d o e s a 4˚ C s c e n a ri o l o o k li k e? Th e ph ysic a l cl im ate i mp ac t sc en ar io ( kn ow n as p hysi ca l ri sk) as su mes l i mi ted p ol ic y o r reg ul ator y su p po r t fo r em iss io n red uc ti on , l ea di ng to a wo rld w i th in cre asi ng p hysi c al cl i ma te ch an ge i mp ac t s. T he s cen ar io s how ca ses a f u ture w or ld w he re th ere a re gr ad u al , c hro ni c ch an ges i n tem p er atu re an d pr eci pi ta tio n p at ter ns , as we l l as mo re f req ue nt a nd i nten se extreme w eather even ts. We have u nd er t a ken o ur sce n ar io a na lysi s on th e fo ll owi ng r is k are as , fo cusi ng o n th e mo st ma ter ia l ri sks f or w hi ch cl i ma te dat a f rom c red ib le so urc es is av ai l ab le : – Chronic climate change – changes in temperatur e and precipitation. – E x tre me w eat he r even ts – f lo od s, d rou g hts , h eat w aves a nd co ld w aves . Wh a t d o e s a 1. 5 ˚ C sc e n a ri o lo o k li k e? A low- c a rb on t ra nsi ti on sc en ar io ( kn ow n as tr an si tio n ri sk) fo cus es o n the r a pid p ol i cy, regulat or y , technol ogical and market changes that will be requi red by 2 030 to r estrict em is sio ns to a lev el w hi ch l im it s gl ob al w ar m in g to 1 . 5°C . E x am p les o f the t y p es of ch a ng es in clu d e the a pp l ic at ion o f c ar bo n pr ic in g sch em es i n bo th ad v an ced a nd e me rgi ng eco no mi es to red uc e em iss ion s ac ross v a ri ou s sec to rs , an d an i nc reas in g awa ren es s within soc iety on climat e change re sulting in a c hange in lifestyle c hoices a nd habits. Ba sed o n th e cl im ate r isk s a nd o pp or t un it ies o ut li ne d o n pa ge 73, w e have i de nti f ie d th e ex pe c ted i ntro du c tio n of c a rb on p ri ci ng m ec ha nis ms to cu t em is sio ns i n li n e wi th ta rg ets s et ou t in t he P ar is Ag ree me nt a s the g rea test r is k we f ace i n th e me di um te rm . T his i s al s o a transit ion ris k tha t is suitable for quantitative scenario anal ysis, as we hav e quant ifiable data wh ic h is l in ked to d et ail ed m ea sure s set o ut by t he U K Cl im ate C ha ng e Co mm it tee re qu i red to de li ve r UK e mis si ons n et ze ro by 2050 . We have t he refo re fo cus ed o ur sc en ar io a na lysi s on th e im pa c t of a c ar bo n ta x o n the t hre e sco pe a rea s. Th e 10 work st rea ms id en tif i ed i n ou r roa dm a p towa rds n et ze ro cover e mi ssi on s red uc ti on s in ou r pro pe r t y es tate a nd l og ist ic s ne tw or k , as wel l as s ou rci ng lo wer i mp ac t r aw m ater ia l s fo r our pr oducts and engaging s uppliers and bu sin es s pa r tn er s to redu ce e mis sio ns f ro m th eir o wn o pe r ati ons . A s an ow n b ra nd re ta ile r, we are u n iqu e ly pos iti on ed to i nf lu en ce up stre am to ef fec t c ha ng e wi th o ur tr uste d su pp l ie r pa r tn er s, a nd d ow nst rea m to incen tivise c hanges in c ust omer beha viour th an ks to th e un iq ue re l at io nsh ip s we hav e. T o s up po r t o ur n et zero a mb it io n, w e are rese tt in g ou r inve stm en t ap pro ac h to ens ure Pl a n A sit s at th e ve r y cen tre of i nves tm ent de cis io ns . We have b eg un to i nteg ra te the climate-related risks and oppor tunities into our thr ee -y ear financial planning proc ess by , for example, including the c apital expenditure req ui red to m an ag e th e im pa c t of o ur cl im ate - rel a ted r isk s in o ur o p er ati on s an d the pro fit impact fr om climat e -linked products an d se r vi ces . As p a r t of o ur b roa de r f in an ci al str ate gy, we h ave al s o l au nc he d ou r f ir st sustainability-l inked loan facility. £ 8 5 0 m S u s ta in ab il ity - l in ke d l o a n f acil ity In D ece mb e r , we ag re ed a n ew £850m R evolv in g Cre di t Fac il it y, di re ct ly li nke d to th e de l ive r y of n et zero t arg ets . U nd er th e ter ms o f ou r ne w fa ci l it y, wh ich w il l r un to J un e 202 6 , we w il l be ne f it f rom a lowe r in teres t ra te for d el i ver y ag ai ns t fou r me tri c s tha t de l ib er ately f oc us on m ate ri al e mi ssi on s hot sp ots a l ig ni ng to o ur ro ad ma p towa rds n et ze ro, a nd a reas o f cus tom er co nce r n. T he se cove r zero defore station, s ustainable fibre s ourcing, packaging r ed uction and reducing our property emissions. We have e ng ag ed D el oi t te to und er ta ke an I SAE 3 0 0 0/34 0 1 l im ite d ass ur an ce en g ag em ent i n res pe ct of M &S ’ rep o r ted i nfo rm at io n al ig ne d to th e met ri cs a sso ci ate d wi th ou r Revo lv in g Cred it Fa ci l it y. Y o u c an re ad mo re f rom o ur G ro up Treasu rer o n ou r co rp or ate we bsi te: corporate.marksandspencer . com/ stories/blog/ driving-net-z ero-with- our -first-sustainability-linked-loan-facility Annual Report & Financial Stat ements 2022 75 GOVERNANCE T o e ns ure th e resi l ie nce o f ou r org an is ati on al s tr ate gy a cros s th ese d if f ere nt cl i ma te- re l ate d scen a ri os , ou r pl a ns fo r m iti ga tio n hi gh l ig hted i n ou r qu an tit at ive s cen ar io a na lysi s are i nteg r ated w it hi n Pl a n A an d de l ive red v i a ou r roa dm ap w or ks trea ms (see p a ge 73). The o utco me s of th e sce na ri o an aly sis we re th en e mb ed d ed i n the r is k reg iste rs o f ou r va ri ou s bu sin es ses , v ia th e ri sk ow ne rs . Ou r m iti ga tin g st ra teg ies o ut li ne d on t he r ig ht-ha nd sid e of t he t ab le b elo w are fo ur o f th e 1 0 w or ks trea ms i de nti f ie d in t he ro ad ma p. M ore d et ai l s of th e on go in g pro gre ss w it hin t he se wo rk str eam s c an be found in our Sustainability Report under the r elevant headings. Im pac t i n 2030 Business area Scope T ransition risk (1 . 5˚C scenario) Phys ic al r is k (4 ˚C scenario) * Im pa c t of cl im at e ris ks o n ou r organisation ’s f inancial performance Net Zero Workstream mitigating strateg ies to ensure resili ence In 2030 , th e hi gh est f i na n cia l ri sk a ri ses fro m mo d el le d tr an siti on r is k , no t mo de ll ed physical risk . * Protein UK and Ireland sou rce d be ef, lamb, pork, chicken and turke y products Carbon tax on agric ultural emissions (t o t h e f a r m - g a t e) Ex treme weat her eve nts a nd chronic cl imate change impact on agric ultural producti on Be ef h as th e l arg es t cost i mp a ct d ue to the h ig h c ar bo n em is sio ns as so ci ated with its pr oduc tion. Low -impac t farming – to reduce agricultural emissions Increas ing our range of p l an t - b ase d pro tein – to encourage plant -based diets for our cust omers Cot ton G lob a lly sou rce d raw ma terial use d in o ur clot hing Carbon tax on agricult ural ( seed t o farm- gate ) and manufac turing ( al l st eps in cot to n producti on ) emissions Ex treme weat her eve nts a nd chronic cl imate change impact on agric ultural producti on Cost impac ts from manufacturing emissions are higher than agricul tural em is sio ns , as m an uf a c tur i ng is a m ore carbon int ensive pr ocess. The f inancial ex po sure i s gre ates t on cot to n sou rce d and manufactured in India and China, du e to ou r rel i an ce on cot to n pro du c ts fro m th es e cou nt ri es . W orking with s upplier an d bu sin es s pa r tn er s on net ze ro jo ur ne y – Sustainable Apparel Coal ition – to sup po r t p ar t ne rs to red uce e mi ssi on s in manufac turing Property UK P rop er t y Es t ate Carbon tax on Sco pe 1 a nd 2 emissions Flood ri sk T he financial impact ma y manifest itself in an incr eased c ost of c ompl iance. Zer o emiss ions pr oper t y – Ou r Sco p e 1 an d 2 greenhouse gas emissions – to red uce S cop e 1 an d 2 em is sio ns * F i na nc ia l ex p osu re f rom p hy sic a l ri sk a na lysi s to 2030 i s low a nd t he ref ore n ot co ns id ere d as p a r t of th e m iti g ati ng s tr ate gi es o ut li n ed a bov e. M ovi ng f or wa rd we w il l co nsi de r lo ng er-te rm h o ri zon s wh en a ss es sin g ph ysi ca l r isk s . METR ICS AND T ARGETS Ou r ne t zero a mb iti on b ui ld s on o ur a bso lu te sci en ce - ba sed t arg et , al i gn ed to th e UN am bi tio n to l im it g lo ba l wa rm in g to 1 .5˚C . Behind thi s ambition is a roadmap with clear mi lestones: – 2025 targ et – 34% re du c tio n in c a rb on emissions versus our baseline 1 . – 2030 ta rge t – 55 % r ed uc ti on i n ca r bo n emissions versus our baseline. – 2035 targ et – N et zero a cros s ou r ow n business. – 204 0 ta rg et – Ne t zero a cros s ou r ent ire va lu e su pp ly ch ai n. T o a ch iev e the se t arg ets , o ur ro ad ma p includes 1 0 ke y workstr eams outlining the im me di ate p ri or it ies we w i ll fo cu s on a s we ma ke on o ur j ou rn ey tow ard s net ze ro. T he se wor k stre am s are a t di f fe ri ng l evel s o f ma tu ri t y. Th os e mo re ma ture w or ks trea ms h ave t arg ets (see roa dm a p on p ag e 73 ) w i th as so cia ted met ri cs to m ea sure p er for m an ce. T he remaining workstreams have mor e formativ e go al s . Pe r fo rm an ce ag a ins t th ese m etr ic s , an d up da tes on t he re ma in in g wo rk stre am s c an b e found in our Sustainabilit y Report under t he rele vant headings. 1. O ur b as el i ne i s 5.7 m il l io n ton ne s of c ar bo n e mi t ted i n 2 016/ 2 017 . Greenhouse gas emissions Ou r Sco p e 1 an d 2 ca rb o n em iss ion s , rep or te d in l i ne w it h the G re en ho us e G as Proto col a re ou tl in ed i n th e ch ar t b el ow. Th ese a re as sure d by DN V Bu sin es s As sur a nce S er vic es UK L im ite d – mo re in for m ati on c an b e fo un d in t he S ust ai na bi l it y Re po r t I nd ep en de nt A ss ur an ce St atem e nt. T A SK F OR CE ON C LI MATE- RE L ATE D FI NA NCI AL D IS CLOS UR E S RE P OR T CONTINUED 0 1 00,000 2 00,000 300 ,000 400, 000 500 ,000 600, 000 7 00,000 2022 2 0 21 2020 2 019 2 018 2 0 17 2 016 2 015 2 014 2 013 2 012 Original Basel ine ** Location based Market based M& S oper ati ona l emis sio ns (Scop e 1 an d 2 ) * Base year for our net zero reset required by SBTi ** { * Pl eas e note , in accor da nc e wit h GHG pro toco l gui d el in es , an d in the abs en ce of app ro pr ia te rene wa bl e sou rci ng in ou r 20 15-1 6 rep or t in g yea r and pr io r, o u r loc ati on - b ase d emi ss io ns were eq u al to mar ket-b as ed em is sio ns . Si gn iﬁ ca nt re du ct io ns in ma rk et-ba se d per for m an ce in 20 1 7 is pri ma r ily du e to th e proc ure m ent of ren ew ab l e el ec tr ic it y. All ﬁg ur es rep res ent sco p e 1 a nd 2 dat a only so as to pr ese nt a fai r an d like - fo r-l ike tre nd fo r comp a ri son . ** Ou r or ig in al b ase l in e wa s 200 6/ 07 . Th is ha s bee n use d con sis ten tly as ou r ba se li ne ye ar i n ann ua l Pl a n A pe r fo rm a nce re po r ts . Fo ll ow in g the res et of Pl a n A , our b as e year is n ow 20 1 6/1 7 . Th is is us ed fo r our Sc ie nc e Ba se d T a rg et su bm is sio n an d wil l be us ed fo r our su b mis si on s to the Ca r bo n Dis clo su re Proj ec t (CDP). 10-y ear perf ormance snapshot Ma rks a nd S pe nc er G ro up p lc 76 T A SK F OR CE ON C LI MATE- RE L ATE D FI NA NCI AL D IS CLOS UR E S RE P OR T CONTINUED E SG C OM MIT TE E RE P OR T C ONTINUED GOVERNANCE METRICS AND T ARGETS C ONTINUED Integrating sustainability metrics in remuneration Du ri ng t he ye ar, the E SG Co mm it te e rec ommended the inc lusion o f a sustainability- rel a ted m etr ic i nto pe r fo rm a nce sh a re pl a n aw ard s sho ul d be i nves tig ate d. T h e Remuneration Commit tee consider ed this, instructing a review of feasibility with input fro m ou r re mu ne ra tio n ad vi se rs , P wC , on t he m ar ket p osi tio n . Mo re in for m atio n on t he o utcom e of t his i s prov id e d in th e Remunerat ion C ommittee Report on page 88. Scope 3 emissions 2016/2017 5.5 million tonnes CO 2 e Sour cing Manufact uring Packaging Operations Franchise Inv estments Streamlined energy and carbon reporting Energy and transport fuel c onsumed Th is ye ar 2 0 21/ 2 2 ( G W h ) L ast y ear 2020/2 1 (GW h) ^ % Ch an ge UK Ope rations 1 , 13 2 1, 072 6% Internati onal Op erati ons 25 18 35% Grou p 1,1 57 1, 0 91 6% ^ En erg y co nsu m pti on (G Wh) fo r 2020/21 has b ee n re -s ta ted to a cco un t for a hist orical reporting error that ha s been identiﬁed, c oncerning reported energy from di ese l f ue l . Co ns um pti o n of d ies el f u el h as b ee n re po r ted a ccu r ate ly in l i tres , w it h fu e l ca rds b e in g use d to co ll ec t d at a. A c onv ers io n f ac to r use d to c al cu l ate e ne rgy (GW h) from f u el co ns um pt io n (l it res) ha s pre vi ou sly b ee n ap p li e d in cor re ct ly, an d as such, t he ener gy reported l ast y ear has been re-stat ed. The c onversion f actor u sed to ca lc ul a te gre e nh ou se g as e mi ssi on s (tC O 2 e) fro m di ese l f ue l con su mp tio n ( li tre s) was applied correctl y and repor ted as such. In 202 1 / 22 op er ati on s wer e not i mp ac te d by na tio na l lo ckd own s in th e way t hey h ad b ee n in 2020/2 1 . A s a resu lt , en erg y an d f ue l con sum pti on i nc rea sed t hi s yea r , as co mp ar ed to th e prev io us y ear, by 6% , retu rn in g to sim il ar le vel s of co ns um pti on a s see n in 201 9/20 ( +4% ). Loc at io n- b ase d S cop e 1 an d 2 gre en ho us e ga s em iss io ns ha ve go ne up i n l in e wi th th e in cre ase i n en erg y co nsu mp tio n , bu t al so r ef le ct in g a rep or ted in cre ase i n em is sio ns f rom r ef ri ge ra nt l eak a ge , as m ai nten a nce of ref r ig er an t sys tem s an d top - up s resu me d thi s yea r fo ll owi ng Cov id - rel a ted d isr up tio n l as t yea r. Mar ket - ba sed S cop e 1 a nd 2 em is sio ns h ave in cre ase d by a sm al le r a mo unt , d ue to a g reate r po r ti on of e lec t ri cit y b ei ng p urc ha se d vi a a gre en t ar if f . Me asu res t ake n to im prov e en erg y ef f i cie nc y th rou g hou t th is ye ar h ave in cl ud ed t he insta ll ation of LED lig hting in our Intern ationa l divisio n, introdu ctio n of ISO 50 00 1 in our C lothing and Home war ehouses and improved metering in UK and R OI pr oper ties. G ree nho use g as ( “G HG ” ) em iss ions Th is ye ar 20 2 1 /2 2 ( 000 tonnes ) L ast y ear 2020/2 1 (000 tonnes ) ^^ % Cha ng e Di rec t e mis si ons (S cop e 1 ) 174 15 7 11 % of w hi ch UK & R OI : 17 2 15 6 10 % Indirect emiss ions fr om pu rch ase d el ec tr ic it y (Sco p e 2 ) 14 0 141 -1% of w hi ch UK & R OI : 12 4 12 9 - 4% T otal gross location-based method Sc ope 1 + 2 GHG emissions 314 29 8 5% of w hi ch UK & R OI : 296 285 4% GH G in te nsi t y pe r 1,0 0 0 sq f t of sale sfloor 16 15 6% Proc ured renewable energy 124 12 0 3% T otal gross mark et-based method Sc ope 1 + 2 GHG emissions 19 0 17 7 7% of w hi ch UK & R OI : 17 2 16 5 5% ^^ G H G em is sio ns (0 0 0 t CO 2 e) for 2020/ 2 1 h ave b e en re st ate d to acco un t fo r th e Mo th er w el l wa re ho us e com in g in to M& S ’ bo un da r y o f op er at io na l con tro l in 2021 /22 , si nce o pe r ati on s be g an a t the s ite d ur i ng 2020 . GOVERNANCE Th e Bo a rd has u lt im ate res po nsi bi l it y fo r bo th ri sk m an ag em en t an d ESG m at ter s, i n clu di ng tho se r isk s an d op p or t un iti es re l ated to climate change. Re sponsibilities in relation to ESG m at ter s are d isc ha rge d to th e ESG Committee. Responsibilitie s in relation t o risk ma na ge m ent a re di sch a rge d to the Au d it Co mm it tee . Bo ard m em b ers a re o n bot h of th ese Co mm it te es . Th e CEO i s acco unt ab le for t he d el i ver y of th e Co mp any ’s ESG programme including cl imat e change. Cl im ate c ha ng e an d th e de li ve r y of o ur n et zero g oa l are a s tr ateg ic p r io ri t y as ou tl i ne d in th e ES G Com m it tee R ep or t ( pa ge 70). Executive acc ountabilit y f or ov erseeing th e str uc t ure of t he G ro up’s ove ra l l ri sk ma na ge m ent f r am ewo rk s its w i th th e CFO , sup p or te d by th e Gro up R is k tea m. At a ma na ge m ent l evel , th e lea de rs hi p team s of th e bus in ess a rea s (Fo od , C lot hi ng & H om e, Inte rn at io na l , Ret ai l & Pro pe r t y a nd B an k & Se r v ices) are resp o nsi bl e for t he ir b usi nes s’ ri sk regist er, and for managing and resourcing mitig ating ac tiviti es. ESG risks, including those climate c hange ri sks i d ent if ie d v ia o ur TCFD s cen ar io a n alys is , are co nsi de red a s pa r t o f the b usi ne ss’ r isk regist er . The Executive Committee members are individually re sponsible for r eviewing and con fi r mi ng r isk s in t he ir ow n are as , w ith t he exe cu tiv e di rec tor s rev iew in g th e ent iret y o f th e pr in ci pa l ri sks a t th e ha lf ye ar a nd y ear end, pro viding the Audit Committee with as sur an ce th at si gn if i ca nt r isk s a re appropriat ely monit ored and managed . As re q ui red by t he U K Cor p or ate G ove rn an ce Co de , the A ud it C om mi t tee is t ask ed w ith en sur in g th e ef f ec ti ven es s of th e ri sk ma na ge m ent p roce ss , as we l l as co nf ir mi ng th at th e pr in ci pa l ri sk s an d un cer t ai nti es o f the busine ss ar e appr opriatel y addr essed. Th e Au di t Co mm it tee re vi ew th e pr in ci pa l ri sk s t wi ce a yea r, of wh ich c li m ate ch an ge a nd envir onmental re sponsibility is one. In addition to thi s, a s pa r t of o ur g ove rn a nce a nd non-financial cont rol arrangements, the ESG Co mm it tee h ave ove rsi gh t of o ur cl i ma te change and environmental responsibility pr in ci pa l ri sk a nd co nti nu e to sup po r t th e ri sk ma na ge m ent p roce ss by rev ie wi ng a nd pro viding the Audit Committee with rec ommendations on all ESG-related risks, including c limate change. Fur ther details on th e Gro up ’s over al l ri sk m an ag em en t pro cess an d gov er na nce a re av ai l ab le o n pa ge 45 . In a dd iti on to S cop e 1 an d 2 em is sio ns , we have c ho sen to d isc los e the S cop e 3 e mis sio ns th at fo rm t he b asi s of ou r sc ie nce - ba se d ta rget . Mov in g fo r w ard , th is b ase l in e wi l l be u sed to tr ac k the e mi ssi on s red uc ti on t ha t for m ou r rapid decarbonisat ion plan t o reduc e our foo tp ri nt by 34% by 2025. Annual Report & Financial Stat ements 2022 77 GOVERNANCE T A SK F OR CE ON C LI MATE- RE L ATE D FI NA NCI AL D IS CLOS UR E S RE P OR T CONTINUED Fo ll owi ng co nf i rm ati on o f ou r G rou p go al , we set u p a Pl a n A (N et Zero) Stee ri ng G ro up to mo bi l ise a c tio n ac ross t he b usi ne ss i n li ne w it h th e roa dm ap tow ard s ne t zero. Th is S teer i ng G rou p is fo r me d of b usi nes s repr esentat ives across t he leaders hip t eam an d sp ons ore d by th e CF O an d Ni ck Fo l l an d , ou r G en er al C ou nse l & Co mp any S ec ret ar y, wh o are re sp ons ib le fo r Pl a n A . T h e Gro up meets bi -monthl y to drive pr ogres s alon g our roa dm ap a nd w or ks trea ms , e nsu ri ng t ha t ta rge ts a re de li ve red to m iti ga te ou r cl im ate risks, including those identified in our sc enario an aly sis . Th e Ste er in g G rou p al so e ns ures suitable considerati ons ar e inc luded within the financial planning cycle . The St eering G rou p up da tes th e ESG Co m mi tte e, a sub - co mm it te e of th e Bo ard , o n a qu a r ter ly ba sis o n pro gre ss a ga in st ou r n et zero t arg et s. ACT I ON S WE W IL L TAKE I N 2022/2 3 – Un de r t ake a d eta il ed b usi ne ss- wi de re vi ew of cl i ma te ris ks a nd opportunities over t he sh or t, medium and long term. – E x ten d ou r sce na r io an a lysis to fo cu s on a dd it ion a l bus in ess a rea s. – De velo p a f in an ci al f r am ewo rk to su p po r t ou r roa dm a p towa rds n et zero . – Rev iew t he i nc lus io n of su sta in a bil i t y- l in ked p er for ma n ce met ri cs i nto share pl an awar ds. – Up da te on p rog res s for t ra ck in g Sco pe 3 e mi ssi on s da ta w it h in iti al f ocu s on ow n b ra nd p rod uc t s ac ross F oo ds a nd C loth in g & Ho me . INDEX Se c ti on (as p er T CFD recommendation s) Page 1a Pa ge 76 and 77 1b Pa ge 76 an d 77 2a Page 73 , 7 4 a nd 75 2b Pag e 73, 74 and 75 2c Pa ge 72 , 7 4 an d 75 3a Pag e 72 3b Page 7 2 (Risk Management Se c tio n – pa ge 4 5) 3c Page 7 2 (Risk M anagement Se c tio n – pa ge 4 5) 4a P ag e 75 and 76 Sustainabilit y Report 4b Pag e 75 and 76 4c Pa ge 73 , 75 and 76 Boa rd – Ul tim ate res po nsi bil it y f or bo th R isk M an age me nt an d E SG mat t ers , inc lu din g th ose ri sks a nd op po r tun iti es re la ted to c li mate c ha nge . – Res po nsi bl e for e ns ur in g the e f fe c ti ven ess o f th e ri sk m an ag em en t pro cess , a nd co nf ir m ing t ha t the pr in ci pa l ri sk s an d un cer t ai nti es o f the b usi ne ss a re appropria tel y addre ssed. – Rev iew s th e pr in ci pa l ri sk s t wi ce a yea r, of whi ch climate change and environmental responsibility is one. Audit Committee – Res po nsi bl e for e ns ur in g the C om pa ny ’s ESG s tr ateg y rem ai ns f i t for p ur p ose , an d pl a ns a re in p l a ce an d reported on. – Ad vi ses th e Au di t Co mm it tee o n ES G - rel a ted r isk s an d oppor tunities, including climat e-rel at ed iss ues. ESG Comm ittee – T he CEO i s acco un ta bl e for t he d el i ver y of th e Com p any ’s ESG p rog r am me i nc lud in g cl i mate c ha ng e. – T he E xe cu tiv e Com mi t tee m em be rs a re in di v id ua lly re sp ons ib le fo r rev iew in g an d con f ir mi ng r is ks i n the ir ow n a reas , including c limate ris ks. Executive Committee – Res po nsi bl e for t he ir b usi ne ss’ ri sk re gis ter, an d for managing and r esourcing mit igating activitie s. – Res po nsi bl e for e ns ur in g cl im ate - rel a ted r isk s are con sid ere d as p ar t of th e bu sin ess’ r is k reg iste r . Business and Functional Leadership T eams – Res po nsi bl e for d r iv in g pro gre ss a lon g ou r Ne t Zero Work st rea ms , w hic h mi ti gate o ur c l im ate ri sk s. – Up da tes th e ESG C om mi t tee o n a qu ar te r ly bas is o n pro gre ss a ga ins t ta rg ets . – En sure s net ze ro st rate g y cons id er ati on s are i nc lud e d within financial planning cycle s. Pl an A (N et Z ero) Ste eri ng G ro up – Res po nsi bl e for i m ple me nt in g the G ro up r isk m a na ge me nt pro cess , t hro ug h wh ic h the b us in ess m an ag es cl i ma te- relat ed risks. – Se e ri sk m an ag em en t pro cess a nd g ove rn a nce ove r v iew on p ag e 45. Group Ri sk Managemen t Ma rks a nd S pe nc er G ro up p lc 78 GOVERNANCE INTRODUCTION As C ha ir of th e Au dit C om mit te e (the “ Com mi tte e”) , I am p lea sed to pres ent my nin th an d f in al rep or t. T hes e pag es ou tl in e how th e Com mi t tee dis cha rge d the res po nsib il it ies d ele ga ted to it by the B oa rd over th e cour se of th e yea r en de d 2 Ap ri l 202 2, an d the key top ic s it c o nsider e d in doing so . Du ri ng th e yea r , t he Co mm it tee’s core duties remained unchanged and the usu al c ad en ce of ac ti vi ties re l ati ng to ris k , as sur an ce and i nter na l contro l s remained in pl ace . While many immediat e cha l len ges a ri sin g fro m Covi d-1 9 a nd Brex it h ad d om in ated th e pr io r yea r , t he ba ckdro p of thi s yea r conti nu ed to be characteris ed b y change and unc ertainty. In p ar t icu l ar, navig ati ng th e ri sks associa ted with macroecon omic factors were key com po ne nts o f disc ussi on i n ever y area of t he b usin ess , i nclu di ng th e Rus sia n inv asio n of Uk r ai ne in t he l a tte r pa r t of th e f in an cia l yea r . D eta il o n our ris k mi tig atin g ac ti vi ties c a n be fo un d on pa ges49 to 54 . Th e Co mmi t tee cont inu ed i ts wo rk to str engthen non-financial c o ntr ol s and gov ernance arrangements including: updating and impro ving policies, metrics an d assu ra nce p rocess es to ensu re com pl ia nce w ith o ur Co de o f Con du c t; refr eshing acc ountabilities o f the Financial Services C ompliance Monit oring Com mi t tee to enh an ce overs igh t of du ties re l ati ng to M&S B an k an d Se r v ices; and driving pr ogress w ith bu siness unit level i mp rovem ent s to risk re po r tin g and monit o ring. A UD IT C O MM IT TE E R E POR T THI S YE AR CONTIN UE D TO BE CHAR ACTE RI SE D B Y CHA NG E AND UNCERT AINT Y . NA VIGA TING THE RISK S ASSO CIA T ED WI TH MAC ROECONOM IC F ACTORS WE RE KE Y COMPON EN TS OF DI SC USS ION . Andy Halford, Chair of the Audit Committee ‘‘ ’’ COMMI T TEE MEMBERSHIP The Committee solely c omprises independent non- execut ive dir e ctors. Detailed in formation on t he e xp er ie nce , q ua l if ic at io ns a nd sk il l s ets of a ll C om mi t tee m em be rs c an b e fo un d on p ag es 6 0 to 6 1. INDEP ENDENC E A ND E XPER IENC E Th e Bo a rd has co nf i rm ed t ha t it is s at isf i ed a ll Committee members poss ess an appr opr iat e level of independence and rele vant financial and c o mmercial exper ience across various industries, incl uding the retail sec tor . Th e Bo a rd has a l so co nf i rm ed t hat i t is sa tis f ie d bot h An dy H al fo rd an d Eve lyn Bo ur ke po sse ss re cen t an d rele va nt financial experience. ME E T IN G S HE L D IN 202 1 /22 Th e Co mm it te e he ld f iv e me eti ng s du ri ng th e yea r, with m em b ers o f se ni or m an ag em en t inv ite d to at ten d an d to pres ent a s an d wh en specialist techni cal knowledge was r equired. The Committee met without m anagement pre sen t be fore a n um b er of m ee tin gs . It a l so met p r iv ately w i th th e lea d au di t p ar t ne rs , an d se pa ra tely w ith t he H ea d of In ter na l Aud it & R is k , af ter a nu mb e r of me eti ng s. It is i mp o r ta nt fo r th e Co mm it tee C ha ir to un de rs ta nd f ul ly a ny top ic s of con ce rn to facilitate meaningful dialogue during Committee mee tings. T o support him in f ulfil ling this role during th e yea r , An d y Ha lf ord m et re gu l ar ly, on a on e -to - on e ba sis , w it h the C EO an d CF O, th e Di rec tor o f G rou p Fi na nce , th e He ad of Inte rn a l Aud it & R is k , me mb er s of s en io r ma na ge m ent a nd t he l ead a ud it p a r tn er from Del oitte. More infor mation about the A udit Com mi tt ee i s avai la bl e in o ur f ul l disclos ure of compliance with the UK Co rp or ate G ove rna nce C od e at marksandspencer .com /thecompan y. Member sinc e Number of meetings attended Maximum possible meetings Eve ly n Bo u rke 1 Fe b 202 1 5 5 Andy Halford 1 Ja n 20 1 3 5 5 Justin King 4 Nov 201 9 5 5 Th e Co mmi t tee f ul f il s a v it al rol e in the Company’ s gov ernance framew ork , pro viding valuable independent c hallenge and o vers ight acr oss all financial r epor ting and in ternal con tr ol pr ocedur es. Ultimat ely , it ensure s our s hareholders ’ inte rests a re protec ted , th e Co mp any ’s acc elerated transformat ion i s supp or t ed an d lon g- ter m va lue i s create d. As ref ere nced i n the C ha ir ma n’s Over v ie w and t he Nomina tion Committee Repor t, I have se r ve d as a no n - exec uti ve di rec tor of M& S an d cha ire d this C om mi tte e for n in e year s. I a m the refo re step pin g dow n as Ch ai r of th e Com mi t tee on 7 Ju ne an d , hav in g ensu red a s moo th tr ansi tio n , wi ll reti re f rom the B oa rd an d as a Co mm it tee m em be r by the e nd of 2022. Evelyn B ou rke w il l ta ke over as C hai r of the Au di t Co mmi t tee, b ri ng in g a weal th of kn owl ed ge f rom a v ar iet y o f fi na nc ial a nd risk - related leadership rol es, including at the B an k of Ire l an d , Adm ir al a nd A J B el l . I leave th e Co mm it tee in g oo d ha nd s. Annual Report & Financial Stat ements 2022 79 GOVERNANCE CORE DUTIES Th e Co mm it te e un de r too k th e fol lo wi ng co re ac ti vi ti es du r in g the y ea r: – Mo ni tore d th e inte gr it y o f th e an nu al a nd int erim financial stat ements and any formal announcements relating t o the Compan y’s f in an ci al p er f or ma nce , w ith a f ocu s on revie wing the significant financial reporting policies and judgements within them. – Rev iew ed i nter n al co ntro l s an d ri sk ma na ge m ent p roce sse s pa r ti cu l ar ly in t he conte x t of c ha l len ge s po sed b y Cov id - 1 9 and Br exit. – Rev iew ed t he Bo a rd ’s app roa ch to a sse ssi ng the C ompany’s long-term viability . – De b ated a nd a gre ed c ha ng es to th e principal risks. – Maintained the relationship with the external auditor , inc luding monit oring their independence and ef fectiveness. – Rev iew ed t he ef fec ti ve nes s of t he Company’ s whistlebl owing, fraud , gifts and hos pitalit y pr ocedures. – Revie wed and approv ed the Company’s st atem en t of co mp li a nce w it h the G ro cer ie s Su pp ly Co de o f Pr ac ti ce (“ GS COP ” ). – Assessed whether the Annual R ep ort, ta ken a s a wh ol e, w as f a ir, bal an ced a nd understandable. – Rev iew ed t he ef fec ti ve nes s an d independence of the Internal A udit & Risk function. – Revie wed r elevant financial and climate- related scenario analysi s, identifying future climate risks an d opportunitie s wi th th e su pp or t o f th e Env iro nm en ta l , Social & Gov ernance (“ESG”) Committee, for t he p ur p ose of a l ig ni ng w it h the rec ommendations fr om the T ask For ce on Clim ate-rel ated Financi al Disclosures (“TCFD”). INTERNAL CONTR OL S FRAMEWORK Th e Co mm it te e rece ive d up d ates o n inte rn a l cont rol m at ter s fro m th e In ter na l Aud it te am at ea ch m ee tin g , as p ar t o f it s key du t y to revi ew th e Co mp any ’s in ter na l con trol pro cess es . Th is re gu l ar m o nito ri ng o f th e int ernal c ontrol f ramework ensured timely id en tif i ca tio n of i ssu es a nd fo rm a l tra ck i ng of remediat ion plans. Instance s where the effectiveness of int ernal cont rol s we re d ee me d to be i nsu f f ic ie nt were d is cus se d du ri ng t he ye ar, eit he r by th e Aud it C om mi t tee o r th e fu l l Bo ard , a nd th e re sulting improv ement plans wer e monit ored by th e Com m it tee . In p ar t icu l a r , th e Co mm it tee d e bate d M& S ’ resp on se a nd a pp roa ch to th e BEI S w hite pa pe r on r esto ri ng tr us t in a ud it a nd co rp o ra te gov er na nce . Wh il s t ou r ga p an a lysis i nd ic ate d th e bus in ess wo u ld be i n a st ron g pos iti on to com ply w ith e ac h of th e po tent ia l req ui rem en ts , it w as a g ree d tha t ste ps sh ou ld be t ake n to stre ng th en t he Co m pa ny ’s int ernal con trol environment, r eg ardle ss of the outc ome of the B EIS proposals. The progre ss of th e Co ntro l Str ate gy d el i ve r y pl a n w as then monit ored b y the Commit tee . Ris k an d cont rol u pd ates In l i ne w ith t he G ro up R isk Po l ic y, our acco unt a ble b us in ess es an d key f un c tio ns remain r esponsible f or managing and reporting their ris ks, as w ell as main taining their internal cont rol e nvi ron m ent . T he o utp ut o f th ese ac ti vi ti es is rev i ewed b y the A ud it Co m mi tte e thr ough annual update s pr ovided directl y b y management, and summarised belo w. Ex ternal audit The Committee al so no ted the in ternal c ontrol findings highlighted in the ex ternal audit or’s rep or t and co nf i rm ed t ha t it is s at isf i ed th er e is n o mate ri al m is st atem en t an d th at rel ev ant ac ti on s are b ei ng t ake n to reso lve any co nt rol matters raise d. MAN A GEMENT U PD A TES The Committ ee r eceiv ed detail ed updat es fro m on e o r mo re bu sin ess a rea s at e ach o f it s me eti ng s. E ac h up d ate in clu d ed a rev ie w of th e ris k reg is ter, noti ng p rog res s ma de to implement k ey mitigating actions, emerging risks being mo nit ored and outstanding actions fro m In ter na l Au di t revi ews co m ple ted . Ma na ge m ent h as a l so co nf ir m ed h ow it cont inues t o maintain k ey c ontrol and assur ance acti vities . These presentatio ns are sch ed u led o n a rol l in g 1 2-m ont h ba sis , w ith ad di tio n al m at ter s id ent if i ed by I nter n al Au di t ad de d th rou gh ou t th e yea r as th ey ar is e. Retail , Pr oper ty and Business Continuity – Eva lu ate d the p l a ns to rot ate th e store estat e , c onsidering risks r el ating t o in fl a tio n ar y p res sure s on re new a l cost s , sustainability factors, and the potential ne ed to e xp an d hu ma n res ou rces to maintain and acc elerate p ace. T he acco un tin g trea tm ent o f th e store programme was also deba ted and agreed wi th th e ex tern a l au di tors . – Monit ored res ults and a greed actions from business continuity exer cises and assurance rev iew s wh ich h a d ta ken p l ace g lo ba l ly. As ses sm en t are as in cl ud ed d is aste r recove r y p l an s at d ist ri bu tio n ce ntres a nd the manufacturing and s ourcing model . Cloth ing & Home – Eva lu ate d the r is ks a ri sin g f rom d el i ver y of Pl a n A com mi tm ent s in l i ght o f th e sc al e an d com pl ex it y o f the n et ze ro ch al le ng e, an d ri sk s ar isi ng f rom t he i ntro du c tio n of thir d-par ty brands. Cons idered and agreed cont rol s to m an ag e th ese a nd o the r ch an ges , i nc lud i ng cre ati on o f a new Finance r ole. – Discussed post -Covid cust omer behaviour and uncertainties arising from infl ationary pre ssu res i n raw m ate ri al , l ab ou r an d fre ig ht . – Monit ored complianc e in the supply ch ai n wi th e mp ha sis o n mo de rn s l ave r y, child l abour , chemi cal s and product sa fet y re gu l ati on s , in clu di ng a re tur n to in-p erson audits. Food – Rev iew ed a nd a sse sse d ri sk s rel a tin g to Oc a do Re ta il , f ro m the l aun ch o f new products on the platform thro ugh t o f in an ci al a nd s tra teg ic i mp ac t s of th e joint venture. – Considered GSCOP compliance, agreed on additional training for s uppliers and monit o red th e sup ply c ha in t ra nsf or m atio n r isk . – Discuss ed and agreed str onger cont rols and pr ocess adher ence in food product dev elo pm e nt an d fo od s afe t y. International – Monitor ed risks arising fr om macroec onomic c onditions, including delivering gro wth in priority markets, end-to-end supply chain and brand inv estment by franchise par tners. – Evalu ated the mitigating ac tions prese nted by management against Br ex it and dif fering resp on ses to Co vi d-1 9 in lo c al ju r isd ic ti on s. Bank & Ser vices – Consider ed the r egul atory r espons ibilities an d ri sk s ass oci ate d wi th h avi ng co mm erc ia l pa r tn er s op er at in g un de r the M &S b r an d. – Ex amined updat es from the Financial Ser vices Compl iance Monitoring Committee, including an annual r eview of th e f ra me wor k an d acco un ta bi l iti es . Dig it al & Dat a – Di scu sse d r isk a pp eti te an d eth ic s aro un d da ta u se. – A sse sse d c yb er s ecu r it y r isk a nd i nst ig ate d a rev iew o f ex ist in g in sur an ce p ol ic ies . L ate r in th e ye ar, the Co m mi tte e ev al uate d th e po tenti a l sec ur it y i mp ac t o f the i nv asi on of Uk r ai ne a nd rev ie wed a c tio ns to m an ag e th e in crea sed t hrea t. – Monitored the t echnology t ransformati on and di scu sse d key a reas o f ri sk in cl ud in g ava il a bl e ta le nt res ou rce, q ua r ter ly i nvest me nt asse ssments, cloud migration and compliance with pa yment data s tandards. HR – Co nsi de red t he l a un ch o f the M yH R sys tem a nd re com me nd ed a p roj ec t im pl em en tat io n revi ew w ith r eg ard s to colleague onboarding, particular ly during the C ompany’s peak-trading p eriod. WH A T WAS O N TH E COM MI T T E E ’ S AGE N DA IN 202 1 /2 2 Ma rks a nd S pe nc er G ro up p lc 80 GOVERNANCE A UDIT C OM MIT TE E REPO RT C ONTINUED At the re qu est of t he Bo a rd, t he Committee has c onsidered whe ther , in i ts op in ion , t he 2022 Ann ua l Rep or t & Financial Sta tement s are f air , balanced and unders tandable, and whether they prov ide t he i nfor ma tio n ne cess ar y f or sha reh old er s to asses s the G rou p’s positi on and performance, busine ss model and strategy . Th e str uc tu re of th e An nu al Re po r t focu ses st rong ly on th e key str ateg ic mes sa ges i n the S tra tegi c Rep or t . It w as ther efor e important for the Committ ee to ensu re thes e mes sa ges a re fa ir ly sum ma ri sed a nd le ad to the ove r al l transp arenc y of the disclosures made thro ug hou t th e repo r t , wh ich i t k nows st akeh old er s f ind u sef ul , an d that t he mes sa ges p rese nted by th e busi nes s are bot h clea r an d ref lec ti ve of th e Com p any as a w hol e. Th e Co mmi t tee rece ive d a fu ll d r af t of the re po r t an d prov id ed fe ed ba ck on i t , hig hl i ghti ng th e are as th at wou ld be ne fi t fro m fu r th er cl ar it y. The d ra f t rep or t wa s the n am en de d to incor po r ate this fee db ac k ah ead o f f ina l ap prov al . When forming its opinion , the Committee ref lec ted o n the i nfo rm ati on i t had rec eived and its dis cuss ions thro ug hou t th e year. In pa r ticu l a r , the C ommittee c onsidered: IS T H E RE P OR T FAI R? – I s the w ho le sto r y pres ente d and h as any sensit ive material been omitted tha t sho uld h ave be en i ncl ud ed? – I s the n ar r ative i n the re po r ti ng o n the bus ine ss pe r fo rm an ce in th e f ront of the re po r t cons isten t wi th tha t use d for t he f in an cia l rep or t ing i n th e financial stat ements ? – A re th e key mess ag es i n the n ar ra tive re flected in the financial r eporting? – A re th e KPIs d isc lose d at an a pp rop ri ate level b as ed o n the f i nan ci al rep or tin g? IS T H E RE P OR T BA L A NC E D? – I s the re a go od lev el of con siste nc y bet we en th e na r rati ve rep or ting i n the f ron t and t he f in an ci al rep or ting in th e ba ck of t he rep or t; a nd d oes the me ssaging pre sent ed within e ach pa r t rem ai n consi stent w he n on e is read independ entl y of the other? – I s the A nn ua l Rep or t prop er ly con sider ed a documen t f or sharehol ders ? – A re th e sta tutor y and a dju sted me asures e xp l ai ne d cle ar ly wi th appropria te pr ominence ? – A re th e key jud ge me nts refe rre d to in the n ar r ative re po r ti ng an d th e sig nif i ca nt is sues re po r ted i n this Audit Committ ee Rep or t c onsist ent wi th th e disc losu res of key esti ma tio n uncertainties and critical judgement s set ou t in t he f in an ci al st atem ent s ? – H ow do t he sig ni f ic ant i ssu es id enti f ie d com pa re wit h the r isk s th at De loi tte pl a ns to in clu de i n its re po r t? IS THE R EPORT UNDERST ANDABLE? – Is ther e a c lear and unders tandable fr am ewo rk to the re po r t? – A re th e im por ta nt mes sa ges highlight ed appropria tel y thr oughout the document ? – I s the l ayout cl ea r wi th go od l in k ag e thro ug hou t in a m an ne r tha t refl ec ts the w ho le sto r y? CONC LUSION Follo wing its revi ew , the Comm ittee was of t he o pin io n tha t the 2 022 An nua l Rep or t & F ina nc ial S tate me nts are represe ntative of the year an d pres ent a f ai r , b al an ced a nd understandable o ver view , pro viding the nece ssary information for sha re hol de rs to as sess t he G ro up’s positi on, performance, b usiness model and stra tegy . F AIR , BALANCED AND UNDERST ANDABLE The Committee ’ s performance was revi ewed a s pa r t of th e 202 1 /22 in tern al ly f aci l ita ted Bo ard Ev alu ati on , w hic h is covered o n pa ge 65. Th e revi ew fou nd t hat th e Co mm it tee fu nc ti ons e f fe ct ive ly , wi th stro ng lea de rsh ip f rom A nd y Ha lfo rd. I ssu es are de alt w it h in a th oug ht f ul , clea r an d ri go rous m an ne r . Fe ed ba ck o n the l evel of ch al le ng e and q u al it y of u pd ates prov ide d by th e Com mi tte e to the Bo ard w as po siti ve. Th e Co mmi t tee w as cons ide red to be operating w ell in t er ms o f meeting str uc tu re. T he re is an aw are nes s and acc eptance tha t the demands on members t ime are significant but ne cess ar y. Th e remi t an d du ties o f the Committ ee we re cons idered c orrect, pa r tic ul a rly w ith i ts e xp an de d oversi ght o f ris k , wi th a g reater fo cus o n no n- f in an cia l contro l s an d cy be r thre at , both o f wh ich are o nly ex pe c ted to inc rease . Th e ra ng e of as sur an ce provi de d to the B oa rd by the Committee w as deemed appr opriate, and its i nter ac ti ons w it h the ES G Com mi t tee were con sid ere d to be wor ki ng we ll . It w as agreed more work w as r equired t o tackle bus ine ss ac ti ons , s tru c tur al i ssu es , and topi cs th at f req ue ntly rea pp ear o n th e Committee’ s agenda. The Commi ttee made good progr ess on the 202 1 /22 ac tio n pl a n , pa r tic ul a rly i n rel at ion to in crea sin g the fo cus o n technol ogy , with ri sk r epor ting and compliance monit oring becoming em be dd ed i nto the bu sin ess i n a mo re robu st w ay . Th e Co mp any ’s busi nes s uni ts are b ecom in g mo re accou nta ble f or r isk ma na ge me nt, b ut f u r the r wor k is re qu ired in th is are a to contin ue to im prove. 2022/23 AC T I O N P L A N : – Sup po r t th e tr ansi tio n of th e Committee C hair , and relat ed Committ ee c omposition. – Prep are fo r the n ex t e x ter na l au dit tender , and Partner ro tation the following year . – Re view t he effectiveness of the Internal Aud it f un c tio n an d its a c tiv iti es. – Cont inu e revi ew of th e G roup ’s c ont rol s fr am ewo rk as w el l as mo ni tori ng th e impl ications of t he BEIS R estoring T rust in Au di t and C or po ra te Gove rn an ce refor ms w he n the y are pu bl is hed . – Contin ue t o push the ac countabilit y ag en da fo r ri sk rep or ti ng at a b usi nes s unit le vel. – Cont inue to assess w hat impro vements are required in the Company’s inf or mati on s ecu ri t y , sys tems a nd tec hnology . – Dr ive a nd e ncou ra ge m an ag em ent to ta ckl e str uc tu ra l or re occu rr in g ris k an d iss ue ar eas. A UDIT C OMMIT TE E EFFECTIVENE SS REVIEW Annual Report & Financial Stat ements 2022 81 GOVERNANCE Th e Aud it Co mmi t tee ha s ass ess ed whether suitable ac counting policies hav e been adopted and whether management has made appropria te judgements and est imate s. Th rou gho ut t he yea r , the F i na nce team has w or ked to ensu re tha t the b usi nes s is t ransparen t and pr ovides the requir ed lev el of dis clos ure r egarding significant issu es con sid ered by t he Co mm it tee i n rel at ion to th e f in anc ia l sta teme nts , as we l l as how t hese i ssu es were a dd resse d , wh ile be ing m in df ul o f mat ter s tha t may b e business -sensit ive. Th is se c tio n out li nes t he m ai n area s of judgement that ha ve been c onsider ed b y the Committee to en sur e tha t appropria te ri gou r h as be en a pp l ied . Al l a ccounti ng po li cie s ca n be fo un d in n ote 1 to the financial stat ements. Where fur ther inf or mati on i s provi de d in th e notes to th e financial stat ements, we ha ve included the note re fere n ce. Ea ch of t he a reas of j udg em en t has be en id en tif i ed as a n area o f foc us an d there fore the Commit t ee has also rec eived detail ed r epor ting on these matters from Deloitt e. PRESENT A TION OF THE FINANCIAL ST ATEMENTS Th e Co mmi t tee g ave consi de rati on to th e pres entati on of the financial s tatemen ts an d , in pa r ti cul ar , th e use of a lter na tive pe r fo rm an ce mea sures a nd th e pres entation of adj usting it ems in acc ordance with the Group a cc ounting polic y . This pol icy state s that adjust ments are o nly ma de to rep or ted prof i t befo re ta x wh ere i ncom e an d ch arge s are sig nif i ca nt i n va lue a nd /or natu re. T he Committee receiv ed deta iled r epor ts from management outlining the j udgements ap pl ie d in re l atio n to the d iscl osure of adj usti ng i tems . In th e cur ren t year, ma na ge me nt ha s inc lud ed i n thi s cat egor y: the implementa tion and exec ution of s trat egic programme s; directl y attributable gains res u lting from the C ovid- 1 9 pandemic; impairments, im pa ir me nt revers al s a nd w ri te- o f f s of the c a rr y in g va lu e of stores a nd ot he r prop er t y cha rges ; Oc ad o Ret ail L im ited rel ate d cha rges ; the re du ct ion i n M& S Ba nk ch arg es in cur red i n rel a tio n to the insurance mis-selling provis ion; and franchise restructuring charges. S ee n ote 5 o n p 1 43. PROP ERT Y MA T TERS (INCL UDING ASSET WRITE-OFFS, ONEROUS LE A S E CHA RG E S A ND U SE F UL ECONOMIC LIVES) Th e Co mmi t tee ha s consi de red th e ass essm ent s ma de i n rel at ion to th e acc ounting associa ted with the Group’ s UK sto re esta te str ategy. Th e Com mi t tee rec eived detail ed r epor ts fr om management outlining the acc ou nting treat men t of th e relev ant c ha rges a nd re versals, including impairment, acc elerated deprecia tion, dilapidations, red und a nc y an d one rous l eas e costs (including v oid periods ). T he Committee has rev ie wed th e ba sis fo r the key assu mp tio ns use d in t he est im atio n of cha rges /revers al s (most n ota bly i n rel ati on to the cost s ass oci ated w ith p rop er t y e xi t/ sub - let cos ts , th e sa le pro ceed s ex pe c ted to be recove red on e xi t, w h ere rel eva nt , an d the c ash f low s to be ge ne ra ted by eac h ca sh - ge ne rat ing u ni t in th e pe ri od to clo sur e ). The Committe e has challenged ma na ge me nt an d is sa tisf i ed th at th e assump tions made are appropriat e. Th e Co mmi t tee is a l so sa tisf i ed th at appropria te co sts and associat ed prov isio ns have b ee n reco gni sed i n the c urrent f inancial ye ar . Se e no tes 1, 5, 1 5 a nd 22 on p1 30 , p 1 43, p 1 59an d p 1 75 respe c ti vely. IMP AIRM ENT OF GOODWILL , BR ANDS, AND T ANG IBLE AND INT ANGI BLE ASSETS Th e Co mmi t tee ha s consi de red th e ass essm ent s ma de i n rel at ion to th e impairment and impairment rev ersa ls of goodwill, brands, and tangibl e and intangible fixed assets, inc luding land an d bui ld ing s , store as sets a nd so f t wa re asse ts. The C ommittee rec eived detailed reports from management outlining the treat men t of im pa ir me nts a nd reve rsa l s , va lu atio n met hod ol og y, the bas is for key assu mp tio ns ( e.g . di scou nt ra te and lon g -ter m grow th r ate) and th e key dri ver s of th e ca sh f low fore c asts . T he Co mm it tee has c ha ll en ge d ma na gem en t and i s sati sfied tha t the se are appropriat e. Th e Co mmi t tee ha s al so u nd er stood t he sen siti vi t y an alysi s use d by ma na ge men t in i ts revi ew of i mp air m ent s and reve rs al s , in clu din g cons ide ra tio n of th e spe cif i c sen siti vi t y dis closu res in th e rel eva nt not es. In addition, the bus iness pl ans detailing management’s expec tations of fu tu re per for ma nce of t he b usin ess a re Board-appr ov ed. The Committ ee is sati sfied tha t appr opriate impairments and r eversals of tangible and intangible asse ts ha ve been r ecogni sed. Se e no tes 1, 5, 1 4 a nd 1 5 o n p 1 30 , p 1 43 an dp 1 57 - 1 59 resp ec ti vely. INVENTORY V ALUA TION AND P ROVISIONING As a d ire ct re sult o f the res tri c tio ns on non-essential retail imposed in r espons e to the Cov id - 1 9 p an de mic , t he G rou p’s abilit y t o sell thr ough existing Clothing & Ho me sto ck wa s de em ed to be significantly im pacted, and additional Clot hing & Home inv ent or y pr ovisioning wa s requ ire d at th e end o f 20 1 9/20. Howeve r , stro ng tr ad e ha s al lowed t he G roup to cont inu e to sel l mu ch hi gh er volu me s of stock t ha n assu me d ver sus the C ovid - 1 9 scen ar io o n wh ich t he prov isio n wa s create d. A s a resu lt an d supported b y the vacc ines and removal of Cov id - 1 9 res tri c tio ns , a net cre di t has be en re corde d. A f ter t ak in g into acco unt thi s relea se, t he Cov id - rel ate d inven tor y prov isio ns reco rde d in th e 20 1 9/20 financial stat ements hav e no w been fully r eleased and inv entory provis ioning metho dology ha s r eturned to pre-pandemic methodol ogy . Incremen tal pr ovis ions r em ain in pl ace on ly in rel a tio n to the prov isio n ag ai nst excess s low- mov in g pe rso nal p rotec ti ve equipment, c ommit t ed t o during the peak of th e f irs t Covi d-1 9 lo ckdow n a nd in cur red d irec tly i n respo nse to th e Covid- 1 9 pandemic. Th e Co mmi t tee con sid ered t he G rou p’s cur rent p rovi sion in g po l icy, the i mp ac t of ex p ec ted f utu re ex pe c tati on s of sell-thr ough impac ting t he r eco verabilit y of th e cost of i nventor ies h eld a t the ba l an ce she et d ate and t he n ature a nd cond iti on o f cur rent i nventor y . W hen calculating invent or y pr ovision s, the G roup h as con sid ered t he n atu re and cond iti on o f inven tor y, as wel l as ap ply in g assump tions ar ound future trade. The Committ ee has concluded that such ar e appropria te. The assumpti ons ha ve been dis close d int he f in an cia l st atem ent s. Se e no tes 1 an d 5 on p 1 30 a nd p 1 43 re spectivel y. SIGNIFI CANT ISSUES Ma rks a nd S pe nc er G ro up p lc 82 GOVERNANCE A UDIT C OM MIT TE E REPO RT C ONTINUED SIGNIFI CANT ISSUES C ONTINUED GOING C ONCERN AND VIABILIT Y ST A TEM ENT Th e Co mmi t tee ha s revi ewed t he G rou p’s ass essm ent o f vi ab il it y ove r a pe ri od grea ter th an 1 2 mon ths . In as sessi ng vi ab il it y, the Co mm it tee h as con sid ered the G rou p’s posi tio n prese nted i n the appro ved budget and t hree-ye ar plan. In th e contex t of the c ur rent ch al le ng in g env iron me nt as a resu lt of C ovi d-1 9, t he unfol ding humanitarian crisi s foll owing t he inv asio n of U kr ai ne , a severe b ut p l au sib le dow nsi de sce na ri o was a pp l ie d to the pl a n . Th is in clu de d assu mp tio ns suc h as a sustai ned ec onomic r ecessi on, incre ased costs a nd a n in ab il it y fo r the G ro up to exe cute th e tra ns for mat ion p l a n. T he Committ ee has concluded that these assump tions ar e appropria te. Th e Co mmi t tee ha s al so rev iew ed th e G roup’s revers e stres s test th at wa s ap pl ie d to the m od el . T he C om mit te e has rev ie wed th is wi th m an ag eme nt an d is sa tisf i ed th at th is is a pp ropr ia te in sup po r ti ng th e Gro up as a G o in g Con cer n. In a ddi tio n , the C om mi tte e recei ved reg ul a r up dates o n the s teps t ake n by management r egarding liquidity , including the su ccess fu l ren eg otia tio n of it s revolvi ng c redi t f aci l it y, whi ch is se t to run unt il Ju ne 2025, an d rep l aces t he f ac il it y wh ich w as d ue to ma ture i n Ap ri l 202 3. Th e Co mmi t tee is s atis f ied t hat t hese measur es hav e reduc ed liquidity ris k . S ee n ote 1 o n p 1 30 . RETIR EMENT BENEFITS Fo llow in g th e sig nif i ca nt in crea se in th e pe nsio n sur p lus d ur ing t he ye ar , th e Com mi t tee ha s revi ewed th e ac tu ar ia l assump tions, suc h as discoun t rat e, inf l at io n rate , ex pe cte d retur n of sc he me asset s and mortalit y , which det ermine the p en sio n cost an d the U K de f ine d benefit scheme valuation, and has conc luded that they ar e appropria te . Th e as sum ptio ns h ave be en di sclos ed in the financial s tatemen ts. S ee n ote 1 1 o n p 1 49. REVENUE REC OG NITION IN REL A TION T O REFUNDS, G IFT CA RD S AN D LOY ALT Y SC HE M E S Reven ue a ccru al s for s ales re tur ns a nd def er red in com e in rel atio n to loya lt y sch em e red emp tio ns an d gi f t c ard a nd credi t vo ucher r edem pti ons ar e estima ted ba sed o n his tori ca l retu rns a nd redemp tions. T he C ommittee has consi de red th e ba sis of th ese a ccru al s , alo ng w ith t he a naly sis of h istor ic al ret ur ns an d rede mp tio n rates a nd h as ag ree d wi th the j udgements r eached by management. S ee n ote 1 9 o n p 16 3. SUPPL IER INC OME Th e Co mmi t tee is s atis f ied t hat t his conti nu es to be mo ni tored cl osely by ma na ge me nt an d contro l s are in p l ace t o ens ure appr opr iat e rec ognition in the corr ect period. The financial sta tement s in clu de sp ec if ic d isclo sures i n rel at ion to the a ccoun tin g po li cy a nd of t he ef fec t of su pp li er i ncom e on ce r ta in b al a nce sheet acc ounts. S ee n ote 1 o n p 1 30 . V AL UA T IO N O F MA RK S AN D SP E NCE R G R OU P PLC CO M P AN Y ONL Y INVES TMENT Ma rk s an d Sp en cer G rou p plc h old s inves tme nts i n G roup co mp ani es w hic h are rev iewe d an nu al ly for i mp air m ent . Management has pr epared an impairment revi ew ba sed o n esti ma ted va lu e in us e of th e Gro up. A n im pa ir me nt ch arg e has be en re corde d ( see n ote C6 Invest me nts on p ag e 1 86). Th e Com mi t tee ha s re viewed management papers outlining the key a ssum pti ons u se d in c alcu l at ing the v al ue i n use a nd is s atis f ie d that t hese are appropriat e. Annual Report & Financial Stat ements 2022 83 GOVERNANCE TENURE Deloitte was appointed by shar eholders as th e G rou p’s statu to r y aud ito r in 201 4 fol low ing a f orm al te nd er p roce ss . T he lead a udit partner , Richard Muschamp, has b ee n in po st si nce t he s ta r t of the 20 1 9/ 20 audit. The ex ternal audit con tra c t wil l be p ut ou t to te nd er at leas t ever y 10 years . T he Co mmi t tee consi ders tha t it w ould be appropriate to conduct an external aud it tender by no l ate r tha n 2024 . The Commi ttee r ecommends that De loi tte b e reap po inte d as th e Com pa ny ’s stat utory audit or for the 20 22/ 23 financial yea r . It b el i eves the i nd ep en de nce an d obj ec ti vi t y of the e x ter na l au di tor an d the e f fe ct ive nes s of the a ud it p rocess are s afeguar d ed and remain st rong. Th e Co mp any is i n comp l ia nce w ith th e requir ements of the S tatut or y Audit Se r vi ces fo r L arge C om pa nie s Ma rket Inves tig atio n (M and ator y Use of Com pe titi ve T e nd er Pro cesses a nd Au di t Committee R esponsibi lities ) Order 20 1 4 an d the Co r por ate G over na nce Co de . Th ere a re no cont ra c tua l ob l ig atio ns th at restr ic t th e Com mi t tee’s choi ce of external a udit or . EFFECTIVE NESS Th e ef f ec ti vene ss of o ur e x ter nal a ud itor is as sess ed in a ccord ance w it h a proces s ag reed by t he Au di t Com mi tte e, w hi ch involves t he Co mm it tee’s own v iew s , as w ell as pr oviding opportunity t o c omment, via c ompletion of a questi onnaire, from a tar get ed gr oup that have re gul ar in tera c tio ns w ith th e ex te rn al au dito r . T he t arg eted gro up in clu de : the Chi ef F in anc ia l Of fi cer, Direc tor o f Gro up Fi na nce , the fo ur F in an ce Di rec tors fo r Clot hin g & Ho me , Fo od , In tern ati on al an d Reta il & Pro pe r t y, the He ad of I nvestor Relations, the G roup F inancial C ontr oller an d Hea d of F in an ce Busi nes s Se r vi ces. Th e Co mmi t tee w as prov id ed w ith a sum ma r y of t he resp on ses rece ive d fro m ma na ge me nt to assis t wi th it s own considerations. Fe ed ba ck f rom th e ta rget gro ups w as over al l po siti ve. It w as a gre ed th at the a ud it tea m ha d conti nu ed to be respo nsi ve an d coop er ati ve an d ha d ag ai n demonstrat ed flexibilit y and adaptabilit y in w orking with management day -to-day t o ov ercome the challenge s faced thro ug hou t th e year a s restr ic tio ns o n wor ki ng f rom h om e be ga n to li f t . Th e au dit p ar tne rs cont inu e to have a g ood understanding of our busine ss. Early engagement thr oughout the year on ke y acc ounting j udg ements conti nues t o be a pp reci ated a nd a llow s a nu mb er of item s to be ad dres sed i n ad va nce of t he yea r end . A com mon t he me ref le cte d a desi re for more focus on planning and comm unication during certain as pec ts of th e aud it c ycl e wi th op po r tu nit ies fo r im provem en t avai l ab le , as wel l as m ore engagement, including ins ights , outs ide of th e pea k yea r - e nd p er io d. NON-AUDIT FEES T o safeguard the indepe ndence an d obj ec ti vi ty o f th e ex te rna l aud ito r , th e Comm it te e has p ut in p l ace a robust auditor engagemen t policy which it review s annuall y. The p olicy is di sclo sed o n ou r webs ite at marksandspencer .com/thecompan y . Th e Co mmi t tee is s atis f ied t hat t he Company was compliant during the year wi th bo th the U K Co rp or ate Gove rn an ce Code and the Financial R epor ting Council ’s Ethical and A uditing Standar ds in resp ec t of t he sco pe a nd m ax im um pe rm it ted le vel of fe es in cu rre d for non-audit ser vice s pr ovided b y Deloitte . Wh ere n on -a ud it wo rk is p er for me d by Deloitte, bo th the Company and Deloitt e ensu re ad he ren ce to r ob ust p roces ses to pre vent the ob jectivity and independence of t he audit or fr om being compromi sed. All non-audit work performed b y De loi tte , wi th fe es in e xcess of £50 ,0 0 0, wa s pu t to the Aud it Co mm it tee f or prior c onsiderat ion and approval. For no n- au di t wor k wh ere fe es we re bel ow £ 50,00 0, appro val was obtained fr om the C hie f Fi na nci al O f f i cer an d the A ud it Com mi t tee not if ie d of al l wo rk f a ll i ng withi n this threshold. Fur th er detail s on n on -a ud it se r v ices p rovid ed by De loi tte c an b e fou nd i n note 4 to the financial stat ements. Th e no n- au di t fee s to aud it fe es ra tio fo r the f i na nci al ye ar e nd ed 2 A pr il 2022 was 0. 09 : 1 , co mp are d wi th the p rev iou s year ’s rat io of 0 .0 9: 1. The m ajo ri ty o f the £0. 2m in n on -a ud it fe es pa id i n total to D elo it te du ri ng 202 1 /22 was in cu rred f or as sur an ce ser vi ces provi de d du ri ng th e yea r . T hes e com pr ised f ees i n resp ec t of th e Ha lf Y ea r revi ew, tur nover ce r ti fi c ates and E SG assu r ance . It is n or ma l pr ac ti ce for su ch assu r ance s er v ices to b e provi de d by the Compan y’s statut or y audi tor . No addit ional rec urring or one-of f no n- au di t ser vices w ere prov id ed d ur ing t h e y e a r. In a ddi tio n , the C om mi tte e revie wed a nd ap proved t he au di t fe e for th e yea r , ma ki ng su re any fe e in creas e wa s underst ood and r easonable . EX TE RNAL A UDITOR Ma rks a nd S pe nc er G ro up p lc 84 GOVERNANCE A UDIT C OM MIT TE E REPO RT C ONTINUED The Board assumes ultima te respons ibility for the ef fective man ag em ent o f risk a cros s th e G roup , de term in ing i ts ri sk ap pe tit e an d ens uri ng t hat ea ch bu sin es s area implements appropria te i nternal con trol s . T he G ro up’s risk m an age me nt syst ems a re d esig ne d to su ppo r t th e business in ac tivel y managing r isk to achiev e business ob jectives, and can on ly provid e reas on abl e an d not absolu te assurance aga inst materia l mis st atem en t or los s . Th ese s yste ms ar e al so d esi gne d to be s uf f ic ie ntly ag ile to res po nd to ch an ges i n cir cum sta nce s , suc h as th e evolu tio n of Cov id - 1 9 , EU- UK border r egulations and more recent ly managing the implicat ions o f Rus sia’s invas ion o f Uk rai ne . Se e p 4 7-54 of th e Str ate gi c Rep or t for more information on our principal risks and uncertainties. Th e key feat ures of t he G rou p’s inter na l contro l an d ris k ma nag em en t system s th at underpin the ac curac y and reliabilit y of financial reporting include c learly defined lines of acc ountabilit y and delegation of au tho ri t y , th e Gro up’s Cod e of Co nd uc t , an d policies and pr ocedures that c ov er financial pl anning and reporting , pr eparing cons olidated ac counts, capital expenditure, pro ject go vernanc e and inf or mati on sec ur ity . SO UR CE S OF A S SU R A NC E Th e Bo ard h as de le gate d respo nsi bil i t y for rev iew in g the e f fe ct ive nes s of the G roup’s sys tems of i nter na l contro l to the Audit Committee, which in cludes financial , operational and complianc e con tr ols an d ris k ma na gem en t syste ms. T h e Committ ee is suppor te d b y a number of sou rces of in tern al a ssu ra nce f rom w ith in the G rou p to comp lete th ese rev iews: 1. Inter nal A udi t Th e G roup’s pr im ar y sou rce of inte rn al assu r ance i s de li ver y of th e Inter na l Aud it Pl a n, w hi ch is s tru c ture d to al ig n wi th the G roup’s str ateg ic p ri or iti es an d key risk s an d is deve lop ed by I nter na l Aud it w ith in pu t fro m ma nag em en t. T he p l an h as been r eview ed periodically t hroughout the ye ar to conf i rm i t rem ain s relev an t for new and emer ging circ umstanc es, bot h int ernal and external. The findings and ac tio ns f rom I nter na l Aud it rev iews a re ag reed w it h the re lev ant b usin ess a rea , comm unicat ed t o the Audit C ommit t ee and t racked through t o c omplet ion. Th e wor k com pl eted by Inte rn al Au di t du ri ng the ye ar fo cus ed on key r isk s in clu di ng corporat e complianc e and res po nsi bilit y , informa tion security , our pr oper ty estat e ASSUR ANCE AND I NTERNAL C O NTROL ENVIRONME NT and ne w legal and r egu latory requi rement s, l ike Na tas ha’s L aw and TCFD. 2 . Ma nag em ent u pd ates a nd ri sk deep div es As p ar t of the C om mi tte e’s annu a l ca len da r , it rece ives u pd ates o n ris k ma nag em en t, wh istl eb lowi ng a nd f ra ud , a nd th e ma tur it y of cont rol an d assu r an ce ac tiv it ies f rom individual business areas and func tions. Th ese u pd ates are co mp lem ente d by Int ernal Audit’s indep endent audits pe r fo rm ed w ith in th ese a reas . 3. Functional assuranc e A bro ad r ang e of a ssur a nce ac ti vi t y has b ee n de sig ned a nd d ep loyed a cros s the b usi nes s to targ et key ris k area s, su ch as e thical sour cing r esponsibilities, food sa fet y an d f ire, h ea lth a nd s afet y. Whi le rep or ti ng l i nes fo r the se ac ti vi ties a re di rec tly to busi nes s area s, t he p rocess es an d contro l s of the se f unc ti on s are pe ri od ic al ly tested by Inte rn al Au di t an d dis cus sed w ith t he Au di t Com mi tte e. 4. Op erational o versight Senior management f orums and commi ttees provide overs ight and cha l len ge o n key ris k area s wi thi n individual business areas, cr oss-business programme s and activiti es, s uch a s business continuity , fire, he alth and sa fet y, ESG respo nsi bil i ties , f ra ud r isk management, pr oper t y e stat e, t echnology an d othe r are as of ch an ge . Th e ou tpu t fro m thes e dis cus sion s for ms p ar t o f the c ycl ic a l up dates p rovid ed to th e Audit Committ ee. GOVERNANCE The Group was complian t thr oughout the ye ar w ith t he p rovisi ons o f the U K Cor po r ate Gove rn an ce Cod e rel a tin g t o int ernal contr ol s and the Financial Rep or t ing C ou nci l ’s revise d Gu id an ce on Aud it Co mm it tees a nd G u id ance o n Ri sk Management, Int ern al C ontr ol and Related Financial and Bus iness R epor ting. Th e Co mmi t tee ha s consi de red th e contro l s findings raised in the independent auditor’ s rep or t o n pa ges 1 1 3 to 1 23. No ot her sig nif i ca nt f ai l ing s or we ak nes ses we re id enti f ie d du ri ng th e Com mi tte e’s review i n respe c t of th e yea r end ed 2 A pr il 2022 and up to the d ate of th is A nn ua l Rep or t . Wh ere th e Co mmi t tee ha s id enti f ie d area s requiring impr ovement, pr ocess es ar e in pl a ce to ensu re that t he n ecess a r y ac ti on is ta ken a nd th at pro gres s is mo ni tored . Fur the r det ai l s of the se pro cesses ca n be f oun d wi thi n ou r fu l l dis closu re of com pl i ance w it h the UK Co rp or ate G over na nce Co de at marksandspencer .com/thecompan y . INTERNAL ASSUR ANCE F R AMEWORK Source of infor mation Frequency /nature of reporting Internal Audit – In ter na l Aud it P l an – Regular reports agains t Plan – Follow-up of r emediation – Updates on fraud , whistl eblowing and other ir regularity – Ad hoc eng agement with the business in res po ns e to new/eme rg ing r is ks o r ma jor i nc id en ts – e. g. C ovi d - 1 9/B rex it Formal up dates pr ese nte d to t he Committee at each meeting. Updates to the Audit Committee Chair as required. Audit Committee Management updates and risk deep di ves Pa pe rs su b mi tte d on a r a ng e of issues including: – Infor mation secu rit y – Briber y – Co de o f Con du c t – G SCOP – Financial c ontr ol – Business continuity – Ri sk d ee p di ves f rom i nd iv id u al b usi ne ss are as a nd f un c tio ns Formal up dates pr ese nte d to t he Committee annually and a s needed. Functional assuran ce Func tiona l audit ac tivi ties under taken, incl uding: – Food safe t y and int egrity – Ethical audits – T rading safely and legally Updates provided to the C ommittee as p art of annual business updates where appropria te and a s request ed. Operational ov ersight – Compliance Monit oring C ommittee – Fi re , Hea lt h & Sa fet y C om mi t tees – Cus tom er & B ra nd P rotec t io n Committee – Business Continuity Committee – Business Unit Operating Revie ws Updates prese nted to the Committee annuall y and as needed. Annual Report & Financial Stat ements 2022 85 GOVERNANCE INTRODUCTION On b eh al f of th e Bo ard , I a m ple ase d to pres ent our 20 2 1 /22 Remuneration R epor t. The Remunerat ion Report pr ovides a compr ehensive picture o f the structure an d sc ale o f our re mu ne rat ion f r am ewor k an d its a l ign me nt w ith th e bu sin ess str ateg y an d the res t of th e wor k fo rce. It al s o det ai l s de cisi ons m ad e by the Com mi t tee as a resu lt of b usi nes s pe r fo rm an ce for th is yea r an d the int ended arrangemen ts f or 2 02 2/23, including t he appointment of Stuart Ma chi n as Ch ief E xe cu tive O f f i cer (CEO) an d Ka tie B icker st af fe a s Co - Ch ief E xecutive O f f icer . CON TEX T OF BUSINESS PERFORMANC E As a nti cip ated i n l ast ye ar ’s repo r t , th e Com mi t tee foc use d mu ch of it s ac ti vi ties REMUNE R A TION O VE RVIEW REMUNER A TION THE COMM IT TE E EN SUR ES TH E P A Y FR AM E WORK APPRO PRI A T E L Y RECOGN ISE S AN D RE W ARDS HARD W ORK AND FINANC IAL PERFORMANC E Andrew Fisher, Chair of the Remuneration Committee ‘‘ ’’ I n t h i s se c t i o n REMUNER A TION Remuneration overview p 85 Rem un e rat io n in co ntex t p 89 Summar y R emuneration P ol icy p9 1 ANNU AL REPORT ON REMUNER A TION Remunerat ion s tructure p9 5 T o ta l sin g le f ig ure re mu ne r ati on p95 Sa l a r y an d be ne f it s p96 Annual Bonus Scheme p9 7 Per for ma n ce Sh are P l an p99 Di re c to rs’ sh ar e i nte res t s p 102 Ch an ges to B oa rd me mb e rsh ip p 1 0 4 Non-executive directors ’ remunerati on p 104 Remuneration Commit tee remit p 1 0 6 du ri ng th e yea r , o n en sur ing M &S ’ p ay frameworks and practic es s uppor t M& S’ fundamental values of fairness where col lea gu es ac ross th e busi nes s are appropria tel y rec ognised and rewar ded for h ard wo rk a nd f in an ci al resu lts . T he Committ ee ens ures t hat any payment s ma de d o not “ rewa rd fa il ure” o r po or performance; and targe ts se t are challenging y et mo tivational. Any discuss ion invol ving executive director incen tive payments cons iders the ap prop r iaten ess o f the p aym ent i n th e con text of the s hareholder experience, the general health o f the business as wel l as p ay ou tcomes e xp er ie nced by colleague s acr oss the business. Bas ed o n the s tron g fi na nc ia l pe r fo rm an ce of M& S du rin g th e year, wi th PBT of £5 22.9m , the m a xi mu m paymen t opportunity under t he corporat e financial performance element of the An nu al B onu s Sc hem e (AB S) was tri gg ere d ( s ee p ag e 9 7). Th is w il l be th e f irs t bo nus p aym ent m ad e to col lea gu es or e xecu tive s sin ce 20 1 7 . T his a bove - ma xi mu m prof i t pe r for m an ce was de li vere d th roug h a mi x of stro ng F oo d sa les g row th , an i mp rovin g ma rgi n mi x an d the p er f or ma nce of th e new Oc ad o an d Cost a ch an ne l s, tog eth er w ith 3. 8% sa les grow th in Cl othi ng & H om e, significant impr ovements in the onl ine of f er an d f ul f il me nt tog ethe r wi th impro ved pr of itability , cash c onvers ion an d net d ebt . Fu r the r de tai l on t hese an d othe r asp ec t s of the b usi nes s’ s pe r fo rm an ce over th e l ast ye ar is explained earlier in t his annual repor t. As e xp l ai ne d l ater i n thi s Rem un er atio n Rep or t (see p ag e 9 7 an d 1 0 0), the C om mit tee w as m in df ul o f this per formance w hen di scuss ing and appro ving incen tive out comes, espec ially when c onsidering the unc er tainty of pe r fo rm an ce ca use d by glo b al macro events. BO ARD CHANGES On 10 March we a nn ou nced t hat a f ter nea r ly 40 yea rs of loy al s er v ice to M& S , Steve Rowe wou ld b e step pi ng dow n f rom his ro le as th e CEO o n 25 May , a role h e has h el d for th e l as t six ye ars . He w il l cea se full-time emplo y ment with the business at t he c onclus ion of the Annual General Me etin g (AGM) on 5 J uly. In vi ew of hi s wis do m an d for mi da ble k n owle dg e of the b usi nes s, S teve has a gre ed to rem ain as an a dv ise r to the n ew lea de rsh ip fo r up to 1 2 m on ths . I wou ld l ike to take t his opportunity to ex tend my pers onal tha nk s to Steve for h is unw aver in g de di cat ion a nd co mm itm ent to M& S , its co ll eag ue s and t he Bo a rd. When setting Ste ve’ s exit arrangements, the Re mu ne ra tio n Pol ic y prov id ed an ef fe c tive a nd c lea r fr am ewor k , w hi le al s o pro viding appropriat e levels of f lexibilit y for t he ap pl i ca tio n of dis creti on by th e Remunerati on Committee . Final pa y ar ra ng em ent s for S teve are ou tl in ed on p ag e 1 0 4 of th is rep or t . Du ri ng h is tenu re, Steve ove rs aw fa r - reaching changes in or ganisational structure and ma nagement, lea ving be hi nd a ver y stron g lea de rsh ip tea m. As a resu lt o f robu st su ccessio n pl a nn in g , the B oa rd wa s del i ghte d to be ab le to sel ec t Steve’s success ors f rom w it hin the exist ing leaders hip t eam, which not only demonstrat es str ong internal talent dev elopment but also pr ovide s for st abi l it y an d cont inu it y as w e move to the ne x t st age o f ou r tra ns for mat ion j ou rn ey . I wa rm ly welco me St ua r t Ma ch in a nd K atie B icke rst af f e to the Bo ard as C EO and Co-Chief Exec utiv e Off ic er r espectivel y wi th ef f ec t f rom 25 May 2022, and I lo ok for wa rd to work in g mo re close ly wi th bot h of th em i n the ir new ro les . As d et ail ed o n pa ge 6 1, both St ua r t and Katie are outstanding leaders wi th ver y stron g tr ack re cords a nd experience of leading bus inesses through Ma rks a nd S pe nc er G ro up p lc 86 REMUNER A TION tr ans for ma tive c han ge . Th e Bo ard is conf i den t in th ei r abi l it y to ta ke M&S thro ug h the n ex t s tag e of tr a nsfo rm ati on . Th e Bo ard is a l so cog nis an t tha t our lea de rsh ip st ru ct ure is u nu sua l so it h as ensu red c lea r accou nta bi li t y of rol es bet we en S tua r t an d K atie . Stu ar t h as re sponsibility for da y-t o- day leaders hip of th e busi nes s an d the E xecu tive Com mi t tee. H e conti nu es to have overs igh t of ou r Fo od b usin ess , as w el l as Operations, Pr opert y , St ore Deve lopment and T echnology , and has tak en on respo nsi bi li t y for H R an d Cor po ra te Communicat ions. Upon appo intmen t, Stu ar t w il l rece ive a n an nu al s al a r y of £80 0, 0 0 0 . K atie h as resp on sib il it y fo r Clot hin g & Ho me , MS2, I nter nati on al a nd Financial Services. She al so has a pa r tic ul a r foc us on d ri vi ng t he gl ob al omni-channel , data and digital future of the b usi nes s. U po n ap poi ntm ent , K ati e wi ll re cei ve an an nu al s al ar y o f £7 50 , 0 0 0 , ref lec ti ng h er d if f eren t wor k pat ter n . Both Stu ar t a nd K ati e cont inu e to be en titl ed to pe nsio n ar r ang em en ts on t he s am e term s as al l col le ag ues a nd w il l be e li gi bl e to pa r tic ip ate in th e AB S and P er fo rm an ce Sh are Pl an (PS P) on th e sa me b asis a s al l exe cuti ve di rec tors . T he re was c a refu l de li be r atio n wh en se tt ing t he p ay arrangements f o r S tuart and Katie, during wh ich a n um be r of f ac tor s were ta ken i nto cons ideration, including their different wor k pa tte rns , th ei r ex pe ri en ce and s ki ll an d the resp on sib il it ies of e ach , a s wel l as external marke t factors. In addition to his finance re sponsibilities, Eoi n T on ge h as t ake n on an e nh an ced rol e in le ad ing t he f ut ure de velo pm ent o f the bus ine ss str ateg y a nd over sig ht of Pl a n A , be comi ng o ur G rou p CFO & C hie f Str ateg y Of f icer w ith e f fe ct f rom 25 M ay 20 22. We be li eve th e accou nta bi li tie s of his n ew rol e go si gn if ic an tly beyo nd th ose n or ma lly ass oci ated w ith t he CF O posi tio n . In l ig ht of th is , Eoin’s sa l a r y wi ll i nc rease to £ 66 0 ,0 0 0 f rom 25 M ay in reco gni tio n of his incr eased re sponsibilities, inclusiv e of any s al a r y rev iew fo r 202 2/23. Fut ure Bo ard s al a ri es are co nf ir me d on p ag e 96 , an d fu r th er d eta il s o f the con tra c tu al prov isio ns fo r exec uti ve di rec tors w il l be summaris ed in the Direct ors’ Remunerat ion Rep or t i n ne x t yea r ’s Ann ua l Rep or t & Financial Sta tement s. SINGLE FIGURE AND INCENTIVE SCHEME OUTC OMES As s how n in th e ta ble o n p age 95 , the tot al si ng le f ig ure fo r the e xecu tive di rec tors is h ig he r tha n pr io r year. This c a n be w ho lly at tr ib ute d to the ou tcome of the A BS a s no bo nu s wa s pai d l as t year. As i n prev io us yea rs , th e 20 2 1 /22 ABS rem ain ed fo cus ed o n restor in g the bus ine ss to prof it ab le g row th w ith pe r fo rm an ce focu sed o n G roup P rof it Befo re T a x b efore a dju stin g ite ms (PBT ) (70%) and i nd iv idu a l mea sures se t ag ain st key area s of de l ive r y of th e tr ans for ma tio n (30%). In di vi du al p er fo rm an ce wa s me asure d in de pe nde ntly of PBT per formance, but no individual element coul d be ea r ned u nti l a thres hol d level of PBT w as ac hieve d . It w as w ith c au tio us op tim ism th at we welco me d the 202 1 /22 fi na nci al resu lt s, recog nis ing t his a s an in di ca tio n of not only str ong underlying performance in a ver y c ha ll en gin g cl im ate, b ut a l so th e impact of the suc ce ssful tran sformat ion to date. T he PBT o ut tu rn o f £5 22.9m was abo ve the maximum financial tar get, meaning t he financial elemen t of the bo nus w as a chi eved i n fu l l an d the in di vid u al me asu res coul d pay ou t to the e x tent t hat e xecu tive d ire c tors achiev ed between tar get and s tre tch per formance against their stre tching personal objectives. Th e Co mmi t tee c aref ul ly revi ewe d the achiev ement of t he individual obj ectives set at th e be gi nn ing o f the ye ar to al i gn wi th th e str ateg ic pr io ri ties to f ul f il i ts remit and enable tran sparen t dis clos ure t o sha reh old er s. Fu ll d isc losu re ca n be se en on p ag e 9 7 , bu t the Co mm it tee n oted i n pa r tic ul a r the s tep ch an ge i n Cloth in g & REM UNER A T IO N O V ER VI EW C ONTINUED S TR A T EG I C AL IG N ME N T OF R E MU N E R A TI O N FR AM EWO R K WIT H K PIS KPI/Strategic priority As m ea sur ed by Performance Sh ar e Pl an ( PS P) Annual Bonus Scheme (ABS ) KPI See K PIs o n p35 Adju sted e ar nin gs p er sh are (EP S) Financial results Retu rn o n ca pi ta l em ploye d (ROC E) G roup PBT b efo re adju sti ng ite ms (PBT ) Strateg ic priorit y See Strategic priorities on p6 M&S F oo d hi gh - pe r for mi ng b usi nes s and m ar ket sh are g row th Achiev ement against objectives Oc ad o tr ans itio ni ng to stro ng c ap aci t y grow t h pos t pa nd em ic rever sio n Clot hin g & Ho me o n tr ack fo r a mo re prof i ta ble m od el c ap ab le of g row th Building st ore r otation pipeline driving exit fr om legacy st ores Ab sor bi ng Bre xi t rel a ted costs , b ut e mb r yon ic g lob al strat e gy enc ouraging 2021 / 2 2 p e rf o r m a n c e ADJUSTED EARNINGS P E R SHARE 21 . 7 p Adj uste d EPS i n 202 1 /22 w as 2 1 .7p. Thi s wa s be low th e 22.7p thresh ol d req ui red f or a ny vest in g un de r th is el em en t of th e 20 1 9 PSP a w ard. RE T UR N ON C API TAL EM PLOYE D 8 .7% Av erage three-y ear R OCE performance wa s 8.7% . T his w as b el ow th e req ui red 10. 2% th resh old f or a ny ves tin g un de r th is e lem en t of th e 20 1 9 PS P aw ard . GR OU P PB T BE FO RE A DJ US TI NG I TE MS £ 5 2 2 .9m G rou p PBT wa s ab ove th e “m a xi mu m” ta rge t for b o nus p ay me nts to b e ma d e un de r th e 2 0 21/ 2 2 A B S . Annual Report & Financial Stat ements 2022 87 GOVERNANCE Fixed 2 2% 33% PSP Annual Bonus CEO single ﬁgure as a percentage of maximum opportunity PSP Fixed pay Total bonus £2,630 Total £000 £1,601 £1,029 Steve Rowe 202 1 /22 Bon us pay men t tim in gs (£0 0 0) Ju ly 2022 2025 Steve Ro we £80 0 .7 £80 0 .7 Eoin T onge £575 . 7 £575 . 7 One-year performance period Three-y ear de ferral period Home performance and action tak en t o str engthen the balance s heet i n the challenging en v ir onment. The Committ ee was in agreement that it was appr opriate to award 83% ag ain st th e ind iv id ua l obj ec ti ves for t he CEO a nd CF O. Ev en when cons ider ing t he str ong financial res u lts and strong individual pe r fo rm an ces, t he d eci sion to p ay 95 % of maximum bonus opportunity was not taken lightl y . Financial and strat egic targets were examined t hroughout t he f in anc ia l year a nd a t year-e nd to ensu re they ret ai ne d the s am e leve l of stretch envisaged when originally set. The Com mi t tee wa s sat isf i ed th at thi s wa s the ca se, a nd th e AB S op er ated a s inten de d. No ne of t he 20 1 9 PS P wi l l vest in re spe c t of th e thre e -year p er for ma nce p er io d up to 2 Apr il 2022. Pag e 1 0 0 of thi s repo r t prov ide s fu r th er d eta il on t he 20 1 9 me asures a nd t arg ets a nd th eir res pe ct ive ach ieve me nt. W hi le ves tin g of th e PSP rem ain s low, the Co mm it tee re ma ins sat isf ie d th at thi s level o f vesti ng is re flective of the s hareholder experience in the challenging business envir onment in wh ich t he 20 1 9 p l an o pe rate d , pa r tic ul a rly the f i rst t wo ye ars o f the t hree -ye ar per formance per iod. APPLICA TION OF DISCRETION A nu mb er of m ec ha nism s are av ail abl e to the Co mm it tee to ens ure p ay out come s appr opriatel y reflect individual and bus iness per formance, toge ther with the w id er e cono mi c an d soc ieta l cl im ate. Th is in clu de s the a bil i t y to app ly ma lus , cl aw ba ck an d resp onsi bl e dis cretio n to ov erride f ormulaic out come s under the incen tive schemes. Througho ut the year , the Committee ha s carefull y c onsider ed pay arrangemen ts an d wh ere it m ay, or ind ee d may n ot , be appr opriate to apply di scr etion. Af t er meaningful deliberation, the Committ ee c oncluded it was appr opriate to award Steve Row e a bo nus d esp ite hi m bei ng u nd er n otice at t he d ate of paymen t. As d et ail ed a bove , not o nly wi ll S teve be wor ki ng b eyon d the e nd o f the 202 1 /22 f in anc ia l year a nd fo r up to 1 2 mon ths as an a dv ise r to the new l ea de rshi p team , h e has w or ked ti reles sly an d deter mi ne dly to deliver on the trans formati on pr omise, as d emo ns tra ted in o ur st rong 202 1 /22 bus ine ss pe r fo rm an ce. Steve w il l not b e el ig ib le fo r a bo nus i n respe c t of th e 20 22/ 23 financial y ear . As i ll ust rate d in th e ba r ch ar t at t he bot tom o f this p ag e, h al f of S teve’ s bo nu s wi ll b e de fer red i nto M&S sh ares a nd w il l be re leas ed to hi m af ter a t hree -ye ar ho ldi ng p er iod ; thi s treatm en t ensu res a long-term alignment with sharehol ders’ inte rests fo ll owi ng th e en d of Steve’s tenu re as CEO. Consi dering the ABS further , the Committ ee debat ed the appropria ten ess of th e or igi na l 202 1 /22 b onu s PBT ta rget s in l ig ht of th e ac hie veme nt of a bove “m ax im um” PBT t arget p er for ma nce. T o geth er w it h the i nd iv idu al o bje c tive s, the C om mit tee rev iew ed th e ta rgets s et thro ug hou t th e year a nd at y ear-en d to ensu re they re ma ine d rel eva nt an d appropria tely stre tc hing, rec ognising that wh en th e ta rget s were set a he ad of t he st ar t of t he f in an ci al yea r , th ere wa s sti ll a hig h de gre e of u ncer tai nt y as to how t he cha l len ges o f Covi d - 1 9 wou ld i mp ac t the b usi nes s throu gh ou t the y ear. The Com mi t tee wa s sat isf i ed th at th e or igi na l targe ts se t requir ed st ret ching P BT per formance . The Committ ee also t ook int o acc ount t he experience of wider stakeholders, inc luding our c olleagues, cust omers and shar eholders, when appro ving the final out come . It w as dete rm ine d th at the o utcom e is ref le c tive of a stro ng ye ar in b usi nes s pe r fo rm an ce and r ecov er y , toge ther wit h individual outstanding c ontributions, and in this contex t it is im po r t ant t hat col le ag ues are recognis ed for this performance. Th e Co mmi t tee di d not a pp ly any dis cretio n to the o utcom es of th e 20 1 9 PS P , whi ch rea che d th e end o f its pe r fo rm an ce per io d on 2 A pr il 2022 an d wi ll l a pse i n fu l l . De spi te the rob ust bus ine ss pe r fo rm an ce in 202 1 /22, wh en co nsid er in g the f ul l th ree -yea r pe r fo rm an ce per io d of th e pl a n , the Com mi t tee wa s sat isf i ed th e f ina l vest ing ou tcome is ref le c tive o f the s ha reho ld er experience during the period and t he sch em e ha d op er ated as i ntend ed . As s how n in th e pi e cha r t at th e bo tto m of the p ag e, S teve Rowe’s sing le f ig ure p ay is 55 % of t he m ax im um p ossi ble f or 202 1 / 22. S TR A T EG I C A LI G NM E NT O F PA Y Th e Cov id - 1 9 p an de mic i ncre ase d the fo cus on tr an sfo rm ati on at M &S , w hic h conti nu ed thro ughout this l ast financial y ear . During the ye ar, the me asures a nd t arg ets us ed i n M&S ’ i nce nti ve sch eme s, n am ely th ose of the P SP a nd AB S , we re review ed to ensu re alignment with the k ey performance indicat ors (KPI s ) and identified s trat egic pr io ri ties a cross t he bu sin ess . Th e il lu str atio n op posi te on p ag e 86 de mo nstr ates th e stro ng l in k bet we en th e KP Is an d str ateg ic prioritie s with executiv e remunera tion at M&S . T hi s stre ngt h of al i gn men t en ab les the C om mit tee to e nsure p ay ar ra ng em ent s support the del ivery of transf ormation an d fu lf i l M&S ’ p otent ia l for lo ng -te rm sust ai na ble g row th . T he Co mm it tee w il l conti nu e to review t horo ug hly th e pay structure s and i ncent ive arrangements for t he se nio r le ade rsh ip tea m to ensu re stro ng al i gn men t bet we en th e de l ive r y of busine ss performance and the associat ed remunerat ion arrangements, as the bus ine ss move s into the ‘ sha pi ng th e fu tu re’ phase of o ur trans formati on jo urney . P A Y A RR AN G E ME N TS F O R 202 2/23 Du e to the ti mi ngs o f Stu ar t ’s and K at ie’s ap po intm ent s to the B oa rd and Eo in’s role cha ng e, a s wel l as th e accom pa nyi ng sig nif i ca nt a na lysis an d consi de ra tio n of both external and in ternal fac t ors when set tin g th eir res pe ct ive s al a ri es , Stu ar t , K atie a nd Eo in w il l not b e el ig ib le to pa r tic ip ate in th e 202 2 sa l ar y revi ew. They wi ll n ex t b e el ig ib le to be co nsid ere d for a sa l ar y revi ew in Ju ly 202 3. Fu r th er d eta il s of th e wi de r wor k force 2022 sal a r y rev iew ca n be f oun d on p ag e 88 . Reflecting on the exist ing variable remune ration framework, it was agr eed tha t in 202 1 / 22 the str u ct ures of t he PS P an d ABS wo r ked wel l a nd as i ntend ed . As a resu lt , no c ha ng es have b ee n propo sed for 2 02 2/23 . Once a gain, per formance under the AB S wi ll b e me asure d ag ai nst co rp or ate financial tar gets (7 0%) and individual obj ec ti ves (30%). T he Co mm it tee b el ieve s it rem ai ns a pp ropr ia te for PBT to conti nu e to represe nt th e l arg est e lem en t of bo nus p otent ia l as M& S see ks to retu rn to signific ant le vel s of p r ofitabil ity. Ma rks a nd S pe nc er G ro up p lc 88 REMUNER A TION REM UNER A T IO N O V ER VI EW C ONTINUED Th e ma x imu m op po r tu ni t y wi ll re ma in at 20 0% of b ase s al a r y. Th e Co mmi t tee cont inu es to ens ure that the rem uneration f ramew ork for execut ives is aligned with s hareholder inte rests . Fo ll owi ng c aref ul d eb ate, i t has b ee n ag ree d tha t the 2022 PSP w il l ma int ai n mea sures a pp l ied to th e 202 1 PSP awards, being 30% adjusted EPS, 30% RO CE , 20% rel a tive tot al sh are hol de r retur n ( TS R) an d 20% str ateg ic me asu res. T a rget s have b een s et to be st retchin g yet mot iv ati ng an d are d eta ile d in f u ll o n pa ges 100 a nd 1 0 1. Wh ile n o ch an ge h as be en p rop osed to the s tru c ture a nd m easu res of th e 2022 PS P , this b el ie s the si gn if ic an t and d et ail ed con versati on and analysi s tha t t ook pl a ce arou nd t he ap pro pr iate nes s of th e intr oduc tion of en vironmental, social and gove rn an ce (ESG) me asure s and t arg ets into th e PSP . T he re is no d ou bt th at M&S takes its ESG r esponsibility seriously . Ou r sus tai na bi li t y com mi tme nts si t at th e hea r t of o ur b usi nes s op er atio ns a nd inf or m de cisio ns at a l l level s a nd a cross a ll de pa r tm ent s ( s ee p ag e 7 0 for o ur ESG Co mm it tee Rev ie w). M&S w as an e ar ly pioneer of championing sustainability and conti nu es to hol d a lea din g po siti on in t his f iel d. O ne o f the w ays we b el ieve w e ca n im prove ou r wor k in t his a rea is to foc us on c ommunication with c onsumers to en ga ge th em o n thi s im por ta nt topi c, a nd to be sure we i mp rove awa ren ess of t he wor k we do . As su ch , w hen t he Co mm it tee consi de red th e int rodu c tio n of a mo re tr adi tio na l ca r bo n metr ic i n the p ay fr am ewo rk , i t dete rm in ed th at a me asu re which charts an impr ovemen t in cust omer sen tim ent wo uld b e mo re al ig ne d to the s tr ategy f or th e bu sine ss . T o tr ac k thi s cred ib ly and ro bus tly, a base ca se fo r cur rent s enti me nt mu st f ir st be es tablished. This forthcoming year the C om mit tee w il l rev iew th e ba se meas uremen t line t hrougho ut the year wi th th e inten tio n of int rodu cin g a me tri c to show im prove me nt f rom th at ba sel in e fo r 2 023. Hav in g redu ced aw ard l evel s in 2020 to acknowledge t he shar eholder experienc e of Cov id - 1 9 a nd to mi tig ate ag ai nst wi nd f al l ga ins , sh are p ri ce recover y led th e Com mi t tee to dec id e that f or th e 202 1 PS P awa rd it wa s ap pro pr iate to retur n PS P awa rd perce nta ges to 250% of s al a r y. Mi ndf u l of th e nee d to ince nti vis e exe cuti ves a nd en sure th at th ey rem ain al ig ne d wi th th e lon g- ter m interes ts of sha reh old er s, we i nten d to once a ga in gr ant P SP aw ard s of 250% of s al a r y in J un e 202 2. T he Co mm it tee ret ain s the r ig ht to revi ew awa rd level s i n th e event of significant share pri ce mov ement prior t o the d ate of g ra nt. F ur t her m ore, i t sho ul d be n oted th at w hen t his aw ard rea ch es the p oi nt of ves tin g , ca ref ul con sid er atio n wi ll n ot on ly be a pp l ied to ac hi evem ent ag ai nst th e rele va nt pe r fo rm an ce cond iti on s, b ut a l so to ensu re the ve sti ng va lu es are ref le ct ive of t he sh are ho lde r experience ac ros s the term of t he plan . Sh ou ld the C om mit te e bel i eve thi s not to be th e c ase , it ret ain s its r ig ht to ap ply dis cretio n to the f i na l out tu r n. WIDER W ORKFORCE P A Y ARRANG EMENT S Th e Co mmi t tee cont inu ed to rece ive , and indeed welcome, regul ar and v aried up dates d ur in g the ye ar re l atin g to M&S ’ pay a rr an ge me nts . In ad di tio n to thos e already outlined in the Committ ee’ s r emit, ava il a ble o n th e M&S we bsi te, di scus sio ns in clu de d hou rly p ay for s tore col lea gu es and car eer pr ogre ssion thr ough the org an isa tio n. T he C om mit tee w as a l so informed of the outc ome of the c ompany- wi de T ota l Rew ard Rev iew t hat too k pl a ce in th e pr io r yea r . M ore th an 1 4 ,0 0 0 col lea gu es gave u s the ir v iews a nd sug ges tio ns o n pay ar r an ge men ts at M &S . As a resu lt o f this f ee db ack i n 202 1 /22, we saw t he im pl em ent atio n of V ir tua l GP , wh ich a ll owed col le ag ues u nl i mite d 2 4/ 7 access to a G P , Che ck4C an cer, whic h prov ide s fre e scree ni ng s to all co ll eag ues for h ig h- r isk c an cers , a nd s al a r y f in an ce opt ion s to hel p con sol id ate d ebt , sav e and prot ec t thr ough inc ome pro tect ion ins urance. T o b ri ng M& S in l i ne w ith m ar ket pr ac ti ce, an d in di rec t resp on se to coll eag ue fee db ac k as a resu lt of th e com pa ny-w ide T ot al Rew a rd Revi ew, from 1 A pr il 2022 the Com pa ny ha s intro du ced a 5% paym ent i n l ieu o f pe nsio n al low an ce for col le ag ues im pa cte d by eit he r the A nn ua l or L if etim e Allowanc e limits. The C ommittee recog nis es thi s prov isio n al ig ns w ith ma rket p ra c tice. To main tai n al ig nm en t between ex ecutive direct o rs and col lea gu es in th e wi de r po pu l ati on , it is i nten de d to introd uce a si mi l ar arrangement int o the ne w Remuneration Pol ic y w hic h wi ll b e bro ugh t for sha reh old er a pp rova l at the 2023 AGM . The Commi ttee w elcomes conti nued col l ab or ati on w ith th e Bu sin ess Involve me nt G roup ( BIG). At Co mm it tee meeting s we receiv e direct feedbac k on col lea gu es’ view s fro m the N ati on al Ch ai r of BI G an d in tu rn t he He ad of E xecu tive Rew ard an d Pay G over n ance a tte nds Nationa l BIG Committ ee meet ings t o sha re an d dis cuss t he e xecu tive p ay fr am ewo rk a nd it s rel at ion shi p wi th th e wi de r wor k force . Suc h di alo gu e for ms th e ba sis of a tr us ted an d va lu ed col l a bo rati ve wor ki ng p ar tne rshi p an d en sures a clo se l ink b et we en th e pay p hil oso phi es at th e mos t sen io r level s a nd th ose fo r th e wider populati on. T o demonst rate the impor tance the Com mi t tee gi ves to the a l ign me nt of exe cuti ve pay w it h the w id er wo rk fo rce, in th e 202 1 Re mu ne rat ion R epo r t we ex pa nd ed o ur d isclo sures o n suc h pay ar ra ng em ent s. We are p leas ed to conti nu e thi s ap proa ch i n this ye ar ’s repo r t ; see p ag es 89 an d 90 . Given the economic en vironment in wh ich we a re op er ati ng cu rre ntly, it is unsurpri sing that significant time was taken in discus sing t he appropriat e ap pro ach to th e ann ua l pay rev iew. As i s to be e xp ec ted , th is top ic ge ne ra ted a rob ust de bate , an d we be li eve th e end resu lt o f sa l ar y inc rease s ra ng ing f rom 3% fo r ou r sen io r po pu l atio n to 4%- 6 .5% for th e wi de r workforc e balances the need for financial restr ai nt wi th su pp or t fo r ou r col lea gu es gi ven th e in creas es to cost of l iv in g be in g ex pe ri en ced by al l . F ur th er d eta il s c an b e fou nd o n pa ges 89 a nd 96 . LOOKING AHEAD We look a he ad to wh at wi l l be a n ew and dy na mi c cha pter i n the M &S s tor y. This w il l be th e f in al ye ar u nde r th e cur rent remu ne ra tio n fr am ewo rk , a nd at t he 2023 AGM we w il l be s eek i ng you r sup po r t a nd ap prov al fo r a new Re mu ne rati on Po l ic y . Du ri ng th e com ing ye ar, the Com mi t tee wi ll b e wor k ing to e nsure a ny new Rem un er atio n Pol i cy is v al i d and e f fe c tive in driving and suppor ting t he busine ss strat egy while remaining appropriate when c onsidering the o verall M&S remunerat ion framework and the external r egul at or y envir onment. I wou ld l ike to tha nk o ur sh are ho lde rs fo r the ir con tin ue d sup po r t du ri ng th e yea r . I wi ll b e ava il a bl e at the AG M on th e 5 Ju ly 202 2 to answe r any q ues tio ns in re l ati on t o this Remuneration R epor t. Andrew Fi sher Annual Report & Financial Stat ements 2022 89 GOVERNANCE CONSIDERA TION OF COLLEAGUE PA Y Th e Co mmi t tee mo ni tors a nd rev iews the e f fe ct ive nes s of the e xecu ti ve rewa rd policy and its impact and compatibility with r emuner ati on policies in the w ider workforc e. Thr oughout t he y ear , the Com mi t tee revi ews th e fr a mewo rk s an d budgets for ke y componen ts of c olleague pay arrangements, toge ther wit h the broader structure of Gr oup bonu s pro visions, whic h ens ures a ppropria te alignment with senior pa y arrangements. The Commi ttee i s pr ovided th roughout the ye ar w ith i nfo rm ati on d eta il in g pay in th e wi de r wor k fo rce, wh ich g ive s it th e ad di tio na l contex t n ee de d to ma ke info rm ed d ec isio ns . Th e He ad of E xecu ti ve Rewa rd & Pay G over n ance ad vis es th e Com mi tte e on th e ap pro ach to be ad opte d in th e for thcom in g UK pay rev iew, an d the Co mm it tee t hen consi de rs th e exe cuti ve di rec tors’ p ay in l in e wi th th ese a rr an ge me nts . In a pp rovin g the b ud get f or th e an nu al bo nus , th e Co mmi t tee revi ews a ll b on us costs f or th e Com pa ny ag ai nst th e op er ati ng pl an . Th e Co mmi t tee al s o revi ews an d ap proves a ny PSP aw ard s made t o execut i ve directors and direct ors be low th e Boa rd pr io r to thei r gr an t. Th e Co mmi t tee rece ives u pd ates on a va ri et y of col le agu e en ga ge me nt in iti ative s. Al ong sid e ou r an nu al su r vey, bi-annual pulse and qu arterly focused sur veys prov ide d y na mic a nd re lev ant col lea gu e fee db ac k . Th e pu l se su r veys have h el pe d us to bet te r und er st and , an d ta ke ac tio n on , th e thi ngs w hi ch mat ter m ost to ou r col le agu es . Th ese have fo cuse d on to pic s suc h as Inclusi on & Div ersity , W el lbeing and ov erall colleague engagement. Col le ag ues a re enco ur ag ed to ra ise qu esti ons a t the p er io dic a l l-co ll eag ue an nou nce me nts l ed by th e CEO. Al l questi ons rais ed ar e ans wer ed, and commen ts made during the year through sur veys or o ur n et wor k of el ec ted col lea gu e rep resent ati ves vi a BI G are consi de red . T he He ad of E xecu tive Rew a rd & Pay G over na nce t y pi ca lly p rovid es an a nnu a l up date to thes e col lea gu e rep resent ati ves w ith a n ex pl a nat ion o f the exec utive direct ors’ pa y arrangements du ri ng th e yea r , a nd th ese re prese nta tives in tu rn a re ab le to ask q ues tio ns on the a rr an ge me nts a nd th ei r f it w ith th e oth er rew ard po l ici es at th is tim e. CONSIDERA TION OF ST AKEHO LDER VIEW S Th e Co mmi t tee is d ed ic ated to an open and transpar ent dia logue with sha reh old er s on th e issu e of e xecu tive remune ration. Where appropria te, the C om mit tee w il l a ct ively e ng ag e with s hareholders and shareholder repr esentat ive bodie s , seeking v iew s wh ich a re consi de red w he n ma ki ng any d eci sion s ab ou t cha ng es to the direct ors ’ Remunerat ion Policy . Th e Co mmi t tee se ek s the v iew s of th e largest sharehol ders individuall y, and others through shar eholder repr esentativ e bodies, when cons idering making an y sig nif i ca nt ch an ges to th e Rem un er atio n Pol ic y. This m ay be d on e an nu al ly or o n an ad h oc b asis , de pe nd ent u po n th e issu e. Th is yea r , the C om mi tte e consu lted o n the propo sed st rat egic mea sure s and tar gets to be ap pl i ed to the P SP . Th e Co mm it tee , led by t he Ch ai r , a nn ua l ly eng ag es in a p rocess o f investo r consu lt atio n , wh ich i s t yp ic al ly in w ri tte n for ma t, b ut has incl uded face-to-face meetings, tele ph one o r v ide o c al l s. T he C om mit te e Cha ir i s avai l a ble to an swer q ue stio ns at th e AGM , an d the a nswe rs to sp eci ﬁc qu esti ons a re po sted o n our w ebsi te. As p ar t of ou r rep or ti ng a pp roa ch , an annual shareh older mee ting is no rm al ly he ld an d vi ews o n a variety of t opics , including execut ive pay, are ta ken i nto accoun t. PE RCE N TA G E CHA N GE I N CE O’ S R E MU N E R ATIO N Th e ta bl e be low sets o ut th e ch an ge in th e CEO’s rem une r atio n (i .e. s al ar y, taxable beneﬁt s and annual bonus ) com pa red wi th th e ch ang e in t he av erage non- execut ive dir ec tor and our UK- bas ed col le agu es’ pay. Thi s grou p has b ee n ch ose n as the m ajo ri t y of ou r wor k fo rce are ba sed i n the U K . Fu r th er det ai l s of th e non - e xecu tive d ire cto r pay ch an ges a re sho wn o n pa ge 1 04 . % ch an ge 20 20/21 – 2021 /22 Base salar y/fees Benefits Annual bonus CEO (Steve Rowe ) 1% -20 % % 10 0 % A verage non-executive direct or 1% 0% – UK col le ag ues (avera ge p er F TE ) 4% 0% 10 0 % REMUNE R A TION I N CO N T E X T Share ownership acr oss our colle agues M& S is a p roud a d voc ate of e m ploy ee sh a re own e rsh ip. T h e Bo ard b el i eves t his s up po r ts col le ag ue s not o nly to sh a re in M &S ’ su ccess bu t al s o to beh ave a s own er s of o ur business, aligned with our shar eholders ’ inte res ts . Acros s ou r UK a nd I r ish co ll ea gu es , M& S ha s a sig ni f ic an t nu mb er o f pa r ti cip a nts in a ll e mp loy ee sh ar e sch em es; co l lea gu es ho ld ove r 1 0 1 m s ave as y ou ea r n opt io ns in o ur S ha reS ave sc he me a nd o ver 2 ,0 0 0 col le ag ue s ho ld sh ares i n ou r sh are i nc ent ive plan ShareBuy . Direct engagement with our colle agues Si nce 201 8, t he C ha ir of B IG , ou r col le ag ue rep rese nt ati ve b od y, has b ee n inv ite d to attend a Remuneration Committee mee ting ea ch ye ar to en g ag e an d cont ri bu te on a fu l l ra ng e of to pi cs a nd a c tiv it ies . D ur in g th e yea r, repres en tat ive s fro m BI G have b e en en ga ge d on a n um b er o f pay- re l ate d topi c s, beyond the ex e cutiv e lev el , inc luding pro viding feedback on, and agreeing with, the ShareSa ve communica tion materials an d fu nd in g o pti ons o f ou r sh are s che m es. Th ey a l so di scu ss ed th e op e rat io n of a tax-advantaged Share Save in Ir el and, which ha s be en p au se d wh il e alte r nat ive o pti on s are i nves tig ate d du e to the a bs en ce of a n appro ved savings carrier . The c oll aborative relationship we ha ve with BIG strongly ref le c ts ou r b el ie f in th e key ro le th at col le ag ue vo ice p l ays i n en sur i ng th e Co mm it tee h as g rea ter v isi bi li t y of t he thi ng s th at rea l ly ma tte r to ou r col le ag ues . Th is a l so g ive s the C om mi t tee th e oppor tunity t o explain and disc uss our pay pr ac t ices a nd h ow exe cu ti ve pay a l ig ns wi th p ay ac ross t he w id er wo r k fo rce. In ad di tio n , th e He ad of E xecu ti ve Rew a rd & Pay G ove rn a nce p rovi de s up da tes to the Committee as appr opriate on pay and people-related issues during the y ear . Pa y budgets Under the remit of the Remuneration Committee, total b udgeted sal ar y ex pe nd it ure a cros s M& S fo r sa l ar y revi ew is n oted , a s are b on us a nd sh ar e sch em e budgets, ensuring principles f or r eward al lo ca tio n a re al ig ne d ac ros s the f u ll wor k fo rce , in clu siv e of se ni or l ead e rs. Th e ave ra ge p ay i ncre as e for o ur U K Sto re Cust omer Assistant s and T eam Support Ma na ge rs aw a rde d in A pr i l 2022 was 5 .3% . Ef f ec ti ve Ju ly 2022, sa l ar y in crea ses r a ng in g from 3% for our senior population t o 4% - 6. 5% for th e wi de r s al a ri ed w or k fo rce hav e been awarded. COLLEA GUE ENGAGEMENT Ma rks a nd S pe nc er G ro up p lc 90 Th e CEO a nd th e non - e xecu tive di rec tors we re awa rde d a 1 % pay in creas e in resp ec t of t he 2020/2 1 f in anc ia l year, whi le cu stom er assi sta nts re cei ved a 5 .6% inc rease to £9.50 pe r hou r . S a l ar ie d col lea gu es recei ved o n aver ag e a 2% inc rease . The ov er all structur e of the bene fits pa ck ag e has n ot ch an ge d; h owever, as prev iou sly ag ree d, i n ord er to br in g the pe nsio n sup pl em ent i n l ine w it h the bro ade r col le agu e of fer by 202 4 , th e pe nsio n sup pl em ent p ai d to Steve Rowe wa s redu ced f rom £202,50 0 to £ 1 35, 0 0 0. In 2020/2 1 S teve Rowe retur n ed to usin g the c ha uf f eur s er v ice i n contr as t to 20 1 9/20 whe n , du ri ng p er iod s of n atio na l loc kdow n, S teve Rowe drove hi mse lf, to ensu re the s afet y o f his d ri ver a nd maintain the r equired soc ial dis tancing. As p revi ou sly disc lose d , the b on us sch em e for 2020/2 1 was c an cel le d , so no aw ard w as m ad e to eith er the C EO or a nyone e l se w ith in th e wi de r wor k force ; a bo nus p aym en t wa s ma de i n respe c t of the 202 1 /22 f in anc ia l year to th e CEO an d jus t un de r 5,0 00 bonus-eligible c ol league s. CH IE F E X E CUT IV E ’S PA Y R ATI O Ye a r Methodology 25th percentile ratio 50th percen tile ratio 7 5th per centile ratio 2022 Option A 1 28 : 1 1 1 7 : 1 99 : 1 2 0 21 Opt ion A 55 : 1 50 : 1 4 2 : 1 2020 O ptio n A 64 : 1 5 9 : 1 5 1 : 1 As re po r ted l a st yea r , the C om mit te e ap proved t he us e of Me tho do log y A , a s set ou t in t he reg ul atio ns , as we b el ieve i t to be th e sim ples t an d mos t ap prop ri ate an d robu st w ay to calc ul a te the r atio. Op tio n A requ ires t he p ay and b en ef it s of al l U K coll eag ue s to be c alcu l ated to ide ntif y the t hree co ll eag ue s at the 25th, 50 th a nd 75th percen tile s as at 2 Ap ri l 202 2. T his is c a lcu l ated o n the sa me b asis a s the CE O total si ng le f ig ure of rem un er atio n exce pt in th at th e individual performance element of the AB S that i s ap pl ic a ble to th e relev ant colleague s ( when operating ) is the esti mate d ac tu al v al ue. T hi s requ ires : – sta r ti ng w ith co lle ag ue p ay tha t wa s ca lcu l ated b ase d on a c tua l ba se pay, be nef it s , bo nus a nd lo ng - term incen tives for the 1 2 monthl y pay rol l s wi thi n the f u ll f i na nci al ye ar . Earnings for part -time c olleagues ar e annualised on a full-time equivalen t ba sis to al low eq ua l com pa ris ons . – adju sti ng th e va lu e of any b on us so tha t it on ly ref lec t s the a mo unt e ar ne d in resp ec t of t he 202 1 /22 fin an ci al yea r an d do es not i ncl ud e the v al ue of a ny def er red sh ares ves tin g in th e yea r . – add in g in th e em ploye r pe nsi on con tributi on fr om the Y our M&S P ensi on S avi ng Pl an . Joi ne rs an d le avers i n the ye ar h ave be en e xclud ed f rom t he c alc ul at ion s. Th e p erce nti le f i gu res a re the refo re repr esen tative of the whole colleague population b ut do n ot in clude a ll col lea gu es as at 2 A pr il 2022. Th e ta bl e ab ove shows t he r atio o f CEO pay i n 202 1 /22, usi ng t he sin gl e total f i gu re remu ne ra tio n as di sclos ed i n Fi gu re 7 (page 9 5), t o the comparable equivalent total rew a rd of thos e col lea gu es wh ose pay is r an ked at t he rel eva nt p ercent iles i n ou r UK wo rk fo rce. We bel i eve the m ed ia n pay r atio t his ye ar is co nsis tent w ith p ay, rewa rd an d prog ressi on p ol ic ies fo r UK col lea gu es , as it ref le c ts th e consi stent ap pro ach to pay a lon g wi th M& S ’ po l ic y to pay for p er for ma nce. T h e inc rease in p ay rat io th is yea r is as a resu lt of bo nus p aym en ts be in g ma de a cross the b usi nes s, i ncl ud in g to the CEO. Pay d ata Salary ( £000 ) T otal pay and benefits ( £000 ) Salary ( £000 ) T otal pay and benefits ( £000 ) 2020/2 1 2020/21 2 0 21/ 2 2 2 0 2 1/ 2 2 CEO remuneration 83 4 1, 0 6 8 8 41 2 , 630 UK c ol league 2 5th percent ile 18 20 19 21 UK c ol league 5 0 th per centile 20 21 21 22 UK c ol league 7 5 th per centile 24 25 25 26 Th e M& S me di a n ge nd er p ay g ap fo r th e yea r to Ap ri l 202 1 is 4 . 8% , com pa re d wi th a n aver a ge of 9 % for t he W ho les a le a nd Ret ai l se cto r . Th e M& S me an g a p for t he s am e pe ri od i s 1 2.5% . Th rou gh ou t th e yea r we’ ve con tin ue d to ta ke ac ti on s th at f ur t he r pro mo te and en ha nce i nc lu sio n an d di ver si ty ( I&D) at M &S so th at a ll o f ou r rem ar k ab le co ll ea gu es a re able t o feel comf ortable being th emselv es an d ex pe r ie nce a cu lt ure t hat ’s in cl usi ve an d di ver se , wh ere e ver y on e is res pe c ted a nd fe el s v al ue d an d th at th ey be lo ng . A da ta - le d reset o f th e I&D s tr ateg y h as resu lte d in a cl ea r an d foc use d p l an fo r th e ne x t thr ee ye ar s to bui ld b et ter repre sentation through tar geted hiring, int ernal de velopmen t and progre ssion initi atives, and bet ter educ ation and awa re nes s ac ti v iti es w hi ch w il l bu ild o n th e im pa c t ar isi ng f ro m over 9 0% o f col le ag ue s com pl eti ng th e f ir st t wo I &D m od ul es. M& S is cl ea r tha t any fo r m of d isc ri mi nat io n , bu lly i ng , h ar as sme nt , or v i ct im is ati on w il l not b e tol er ate d in a ny pa r t of t he b usi ne ss , an d thi s is u nd er pi nn ed b y a new ‘ Re sp ec t Ma tte rs’ p ol ic y, l au nc he d in O c tobe r 202 1. Ou r col le ag ue n et wo rk s co nti nu e to br in g ou r di ver se co mm un it ies to get he r an d he l p cre ate a sa fe sp ace f or co ll ea gu es to sp ea k ou t an d sha re th ei r vi ews , a s wel l as i nf lu en cin g ou r p l an s an d cul tu re, cel eb ra tin g key eve nt s in th e in cl usi on calendar , and rai sing important matters thr ough the online social communities. Th is ye ar, the G e nd er Eq u al it y N et wo rk celebrat ed Interna tional W omen’ s Da y by hos ti ng th e f ir st eve r Id ea tho n to ge ne r ate id eas a nd s ug ge sti on s on h ow M& S ca n ‘ b reak th e bi as’ wh en i t com es to g en de r eq ua l it y. We rem ai n pro ud th at n ea rly 73% of ou r cus tom er a ssi st ant s are wo m en , bu t w hi le we’re se ei ng so m e pro gres s in d i ver sit y i n mo re se ni or ro les , m ore s til l ne e ds to be do ne to d ri ve b et ter re pres en tat io n. I &D rem ai ns a s tr ateg ic p ri or it y f or M &S , a nd we’ l l con tin ue to fo cu s ou r ef fo r t s to bui ld on t he su cces s of pr evi ou s yea rs . Gender pay gap (median ) 4 . 8% G EN D E R P A Y G AP REMUNE R A TION IN C ONTE X T C ONTINUED REMUNER A TION Annual Report & Financial Stat ements 2022 91 GOVERNANCE SU M MA RY E XE CUT I VE D IR EC TO R S’ R E MU NE R A TI O N PO LI CY (AS A PP ROVE D O N 3 JU L Y 2020) Th is rep or t sets o ut a su mm ar y o f M& S ’ pol i cy o n rem une r atio n for e xecu ti ve and n on - exe cu tive d ire ctor s. T he f u ll Po l ic y was ap proved by s ha reho ld ers at t he AGM o n 3 Ju ly 202 0 an d ca n be fo un d on o ur we bsite at m ar k sa ndsp en cer.com/t he comp any. Th e Pol ic y too k ef fe c t fro m thi s date a nd is d esig ne d to att ra ct , ret ai n and m oti vate o ur le ad ers w it hin a f r am ewor k de sig ned to prom ote th e lon g- ter m success o f M&S a nd a l ign ed w it h our s ha reho ld ers’ in terest s. FIGURE 1 : EXECUTIVE DIRECTORS’ RE MUNER A TION P OLICY T ABLE ELEMENT OPER A TION OPPORTUNITY Base sa lar y Sa l a ri es are p ay ab le i n ca sh a nd a re rev iewe d an nu a lly by t he Co m mi tte e con sid e ri ng a nu mb er o f f ac tor s, i n clu di ng e x ter na l m ar ket d ata , h is tori c in cre ase s gi ven to t he in di vi du al a nd s a l ar y revi ew p ri nci pl es a pp l ie d to the res t of t he o rga ni sat io n. No rm al ly i n l in e wi th th ose i n th e wi de r wor k fo rce, a lt ho ug h no m ax i mu m is set . Benefit s In l i ne w ith o ur p o li ci es , di rec tor s are e l ig ib le to rece iv e be ne fi ts w hi ch m ay in cl ud e: a ca r o r ca sh al lo wa nce a nd a d r ive r, lif e ass ur an ce an d rel oc at ion a n d ta x eq ua l is ati on al low a nces i n l in e wi th o ur m ob il it y p ol i ci es. As w i th al l co ll eag u es , di rec tor s are a l so o f fe red o the r be ne f it s, i nc lu di ng co ll ea gu e di scou nt , sa l a r y s acr if i ce sc he mes a nd p a r tic ip ati on i n al l- e mp loye e sh are s che me s. Th ere i s no s et ma x im um ; how ever, any p rovi sio n wi l l be c ommensurate with local markets and for all-employ ee sh are sc he me s is in l i ne w it h loc a l st atu tor y l i mi ts . Pensio n benefits Di rec tor s may p a r tic ip ate i n the Your M &S Pe nsi on S av in g Pl a n (a def in ed co ntr i bu tio n ar r an ge me nt), on t he s am e ter ms a s al l oth er co l lea gu es . Th e d ef in ed b en ef i t pe nsi on s che me i s clo se d to new m em be rs . Di rec tor s wh o a re me mb er s of th is s che m e wi ll co nti nu e to acc ru e be ne f it s as a de fe rre d me mb e r . Cur re ntly a m ax i mu m em pl oyer cont ri bu ti on o f 1 2% of sa l ar y where the emplo yee cont ri bu tes 6% of s al a r y. From 3 J uly 2020 , p ens io n ca sh supplements were r emoved for future direct ors. ABS including Deferred Share Bon us Plan ( DSBP ) Di rec tor s are e l ig ib le to p ar t ici pa te in th is n on - con tr ac tu al , di scret io na r y sc he me . Performance is mea sured against one-year f inancial and individual performance ta rge ts l in ked w i th th e de l ive r y of t he b usi ne ss p l an . At le as t ha lf o f awa rds a re me asu red a ga in st f i na nc ia l me asu res , wh ic h t yp ic al ly i ncl ud e G rou p PBT b efo re adjusting items (P BT ). Co rp or ate a nd i nd iv id ua l el em en ts m ay be e ar ne d in de p en de ntly, bu t no p ar t of th e ind i vi du al o bj ec ti ves m ay be e ar ne d un le ss a th resh ol d leve l of PBT h as b e en ac hi eved , a f ter w hi ch u p to 40 % of th e ma x im um m ay be p ay ab le fo r th e ac hi evem e nt of in dividual objectiv es. Not l es s tha n 50 % of any b o nus e ar n ed is p ai d in s ha res w hi ch a re def er red f or three years. Th e Co mm it te e reta in s th e ri ght to e xerc ise d is creti on , b oth u pw ard s an d dow nw ard s , to ens ure th at t he l evel o f awa rd p aya bl e is a pp rop ri ate. Ma lu s prov isi on s ap ply to th e d efe rre d sh are aw a rds . Ca sh b on us p aym en ts a re sub je ct to tw o -yea r cl aw b ac k prov isi on s. C l awb a ck wo uld b e tr ig ge re d in sp ec if i ed ev ent s suc h as , bu t no t l im ite d to, a ma ter ia l mi sst ate me nt of t he Co m pa ny ’s aud ite d resu lt s, an e rro r in c a lcu l ati on o f th e awa rd , gro ss m isco nd uc t , or e vent s or b e hav io ur t hat have a d et ri me nt al i mp ac t o n the re pu t ati on of a ny m em be r of th e G rou p. T otal maximum annual po tenti a l of up to 20 0 % of sa l ar y for e ac h di rec to r . PSP Di rec tor s are e l ig ib le to p ar t ici pa te in th e PS P . T his i s a no n -co nt ra c tua l , d is creti on ar y pl a n an d is M &S ’ m ai n lon g -te rm i nce nti ve sc he me . Per for m an ce may b e me asu red against appropriat e financial , non-financial and/ or stra tegic measures. Financial me asu res m ust co mp r ise at l ea st 50 % of aw ard s. Ma lu s an d cl aw ba ck p rovi sio ns a pp ly to th ese aw ard s. C l aw ba ck tr i gg er s in clu de , bu t are n ot l im ite d to, a m ater i al m iss ta tem ent o f the C om p any ’s au di ted resu lt s , an e rro r in c a lcu l ati on o f th e awa rd , gro ss m isco nd uc t o r even ts o r be hav i ou r tha t ha s a det ri me nt al i mp ac t o n th e rep ut ati on o f any m em be r of t he G rou p. Awa rds a re sub je c t to a fu r th er t wo -y ear h ol di ng p er io d af ter th e vest in g da te. Th e m ax im um v al ue o f sh ares at g ra nt is c a pp ed a t 30 0% i n resp ec t o f a fi n an cia l ye ar. Shareholding requirement Di rec tor s are re q ui red to ho ld s ha res eq u iv al ent i n v alu e to a mi ni mu m pe rcen ta ge of th ei r sa l a r y wi th in a f i ve -yea r p er io d fro m th ei r ap po in tme nt d ate. Di rec tor s are re q ui red to con tin u e to hol d the ir s ha reh ol di ng re qu ire me nt , or, if th ei r leve l of s ha reh ol di ng is b el ow th e req ui rem en t, t he ir a ct ua l sh are ho ld in g , for t w o yea rs after lea ving M&S. Fo r th e CEO, t his re qu i rem ent is 250% o f sa l a r y. For a ll o th er execut ive direct ors, the requir ement is 2 0 0%. S U M M A RY REMUNE R A TION POL IC Y Ma rks a nd S pe nc er G ro up p lc 92 REMUNER A TION SUMMA R Y REMUNER A TION POLIC Y C ONTINUED FIGURE 2 : RECRUITMENT POLICY & SERVIC E C ONTR ACTS Th e ta bl e be low sum ma ri ses th e Com pa ny ’s pol ic y on th e rec ru itm ent o f new e xecu tive d ire cto rs. S im il a r consi de rat io ns may a l so ap ply w here a d ire cto r is pro moted to th e Bo ard . In a ddi tio n , the C om mi tte e has d isc retio n to incl ud e any oth er re mu ner ati on co mpo ne nt o r awa rd wh ich i t fee l s is ap pro pr iate , consi de ri ng th e spe ci f ic ci rcums ta nces of t he i ndi vi du al , subj ec t to the l i mit o n va ri ab le re mun er ati on se t out b el ow . T he r atio na le for any such component would be appropria tel y disc los ed. ELEMENT A PP ROACH Service contract – Al l exe cu ti ve di rec to rs ha ve rol l in g cont ra c ts fo r se r v ice w hi ch m ay be te rm in ate d by M& S gi vi ng 1 2 m on ths’ no tice a n d the individual giving six months ’ notice. Base sa lar y – S al a ri es a re set by t he Co mm it te e, t ak i ng in to cons id er ati on a n um b er of f a c tors , i ncl ud in g th e cu rre nt p ay for o th er exe cu tiv e di rec tor s , the e x pe ri en ce, s ki ll a nd c ur re nt pay l eve l of th e in di vi du a l an d ex te rn al m ar ket f orces . Benefit s – T he Co mm it te e wi l l of fe r a b en ef it s pa ck ag e i n li ne w it h ou r be ne f it s po li c y for e xec ut ive d ire c tors . Pensio n benefits – Ma x im um co ntr ib ut io n in l in e w ith o ur p o li cy f or f u ture e xe cut ive d ire c tors (cu rre ntly u p to 1 2% of sa l a r y). ABS – El ig ib le to t ake p ar t in th e AB S wi th a m ax im u m bo nus o f 20 0% o f sa l ar y in l in e wi th o ur p ol i cy f or e xec uti ve d ire cto rs . PSP – A ma x im um aw ard o f up to 30 0 % of s al ar y i n l in e wi th ou r p ol ic y. Buy- out awar ds – T he Co mm it te e may o f fe r com p ens ato r y p aym en ts o r bu y- ou t aw ard s, d e pe nd ent o n th e in di v idu a l circ um st an ces of rec ru it me nt , dete rm in e d on a c as e- by -c a se b asis . – T he sp ec if i cs o f any b uy - ou t awa rds wo ul d be d ep e nd ent o n th e in di vi du a l circ um st an ces of re cr ui tm ent . T he C om mi t tee’s inte nti on w ou ld be t ha t the e x pe c ted v alu e aw ard ed i s no g rea ter th an t he e xp ec te d va lu e fo r fe ited b y the i nd iv id u al . FI G UR E 3: TERMI NA TION POLICY Th e Co mp any m ay cho ose to term in ate the co ntr ac t of a ny exec uti ve di rec tor in l i ne w ith th e ter ms of t hei r ser vi ce agre em ent , eit he r by mea ns of a p aym en t in l ie u of not ice or t hrou gh a se ri es of p ha sed p aym ent s sub jec t to mi tig atio n . Ser vi ce agre em ent s may b e term in ated w ith ou t noti ce an d , in cer tai n circu ms ta nces su ch as g ross m iscon du ct , w ith ou t pay me nts . Th e ta bl e be low sum ma ri ses ou r T e rm in atio n Pol i cy fo r exe cuti ve di rec tors u nd er t hei r se r vi ce ag reem en ts an d the i nce nti ve pl a n ru les . ELEMENT A PP ROACH Base sa lar y , benefits and pension benefits – Pay m ent m ad e u p to the te rm in ati on d ate i n l in e wi th con tr ac tu al n oti ce p er io ds . ABS – T he re is no co ntr a ct ua l en tit le me nt to pay m ent s un d er th e AB S . If th e di re cto r is u nd er n oti ce or n ot i n ac ti ve se r v ice at ei th er t he re lev an t yea r en d or o n th e da te of pay m ent , aw ard s (and a ny unve ste d def er red b o nus s ha res) may l ap se. Th e Co mm it te e may u se it s di scr etio n to ma ke a bo nu s aw ard . Long -term incentive awar ds – T he tre atm en t of o ut sta nd in g aw ard s is d eter mi ne d in a ccord a nce w it h the p l a n ru les . Repatriat ion – M& S may p ay fo r rep at ri ati on w he re a di re cto r ha s be en re cr ui ted f rom o ver sea s. Legal expenses & outplacement – Wh er e a di rec tor l eave s by mu tu al co nse nt , M& S may re im bu rs e reas on ab le l eg al f ee s an d pay fo r p rofes sio n al outplacement s er vice s. Th e f ul l Pol ic y set s ou t fu r th er d eta il o n the tre atm ent of t he exe cu tive d ire ctor s’ pay ar r ang em ent s , in clud in g the t reatm ent o f sha re sch em es in th e even t of a ch ang e of co ntrol o r wi nd ing u p of th e Co mp any. Annual Report & Financial Stat ements 2022 93 GOVERNANCE Th e ch ar t s be low prov id e an il lu str ati on of w ha t could b e rece ive d by eac h of th e exec uti ve di rec tors i n 202 2/23 un de r th e Pol ic y. Th ese ch ar ts are i ll ust rati ve , as the a c tu al v alu e wh ich w il l u lti mately b e recei ved w il l d ep end o n bu sin ess p er f or ma nce in t he yea r 202 2/23 (for th e c ash e lem ent o f the A BS) an d in th e thre e -yea r pe rio d to 20 2 4/25 (for th e PSP), a s wel l as sh are p ri ce per for ma nce to the d ate of the ve sti ng of th e PS P awa rds in 2025 DIRECTORS Maximum + 50% Maximum Ta r g e t Fi xed Stu ar t Mac hin £ 000 £896 10 0 % 43% 20% 36% 44% 16 % 29% 55% 19 % 38% £2, 09 6 £4,496 £5, 496 Maximum + 50% Maximum Ta r g e t Fi xed £787 10 0 % 41% 39% 19 % 36% 45% 16 % 29% 55% 20% £1 , 912 £ 4 , 162 £5 ,10 0 Katie Bickerstae £ 000 Fixed Fixed r emuneration onl y. No ve sti ng u nd er t he A BS a nd P SP . Ta r g e t Includes the f ol lo wing ass umptions for t he ve sti ng o f th e in cent ive components of the pac kage: – AB S: 50 % of m ax i mu m, a ssu m es no sh a re pr ice g row th . – PS P: 20 % of 250% o f sa l a r y, as sum es n o sha re p ri ce grow t h . Maximum Inc ludes the f ollowing assumption s for t he ve sti ng o f th e in cent ive components of the pac kage: – AB S: 100 % of m ax im um , a ssu me s no sh a re pr ice g row th . – PS P: 100 % of 250 % of s al a r y, as sum es n o sha re p ri ce grow t h . Maximum +50 % share price grow t h Include s the following assump tions for t he ve sti ng o f th e in cent ive components of the pac kage: – AB S: 100 % of m ax im um , a ssu me s no sh a re pr ice g row th . – PS P: 100 % of 250 % of s al a r y w ith 50% s ha re pr ice g row t h. – G ra nt sh a re pr ice fo r th e pu rp os e of d em on str ati ng t he 50 % gro w th ta ken a s clo sin g sh are p ri ce at 202 1 /22 ye ar e nd . BASIS OF CALCULA TIONS AND KEY APPLIC A TION OF REMUNE RA TION POLIC Y Fixed remuneration Includes al l elemen ts of fixed r emuneration: – Ba se s al a r y (ef fe c tiv e 25 May 2022 ) , as sh own i n th e ta bl e on p ag e 96 . – Pen sio n b en ef it s , as d eta il ed on p ag e 96 . – Benefits ( using t he value for 202 1 /22 i ncl ud ed i n th e sin gl e f ig ure t ab le o n pa ge 95). ABS Repre sents the po tent ial t otal value of th e an nu a l bo nus f or 2022/23 . Ha lf o f any b on us wo u ld be d ef er red into s ha res fo r th ree ye ar s, a nd t hi s is i ncl ud ed i n th e va lu e sh own . PSP PSP r ep re sents the po tent ial value of th e PS P to be aw ard e d in 2022, wh ic h wou ld ves t in 2025 su bje c t to th e rele va nt p er f or ma nce t a rget s. Awa rds wo ul d the n b e he ld fo r a fu r th e r tw o yea rs . FIGURE 4 : SUMM ARY OF REMUNER A TION POL ICY Th e di ag ra m be low il lu str ates the b al ance o f pay a nd ti me p er iod o f eac h ele me nt of t he Re mun er ati on Po li cy f or exe cu tive d ire ctor s , ap proved i n Ju ly 202 0 . T he Co mm it tee b el i eves thi s mi x ture o f sho r t - a nd lo ng -te rm i ncen tives f i xed to pe r fo rm an ce -re l ated p ay is cur rent ly app rop ri ate for M &S ’ st rate gy a nd r isk p rof ile . Ye a r 1 Ye a r 2 Ye a r 3 Ye a r 4 Ye a r 5 T O TA L P AY Fixed pa y – Ba se s al a r y – Benefits – P ension benefits ABS – Up to 10 0% s al a r y (def er re d sh are s) – Three-y ear deferral period – No f urther performance conditions – Ma lu s pro vi sio ns a p ply – U p to 100% s a l ar y (c a s h) – One-year performance – Claw back provi sions apply PSP – T wo-year holding period po st -vesting – No f urther performance conditions – Cl aw b ac k pro vi sio ns a pp ly – Ma x im um 3 0 0% of s a l ar y – Three-y ear performance – Ma lu s pro vi sio ns a p ply Maximum + 50% Maximum Ta r g e t Fi xed £739 10 0 % 43% 38% 20% 36% 44% 16 % 29% 55% 19 % £1,7 29 £3 ,70 9 £4 , 534 Eoi n T o nge £ 000 Ma rks a nd S pe nc er G ro up p lc 94 FI G UR E 5: NON-E XECUTIV E DIRE CTORS’ RE MUNERA TION POL ICY Th e ta bl e be low sets o ut o ur Po li cy f or th e op er ati on of n on - exe cut ive d irec tor f ees a nd b ene ﬁts a t the Co mp any. Th e Pol ic y w as ap proved i n Ju ly 202 0 a nd m ay op er ate for u p to thre e year s. ELEMENT OPER A TION AND OPPORTUNITY Chairman’ s fees – Fe es a re revi ewe d an nu a lly a nd a re de ter mi ne d by th e Rem un er at io n Com m it tee . – T ot al fe e com p ri ses th e no n - exe cu tiv e di rec tor b as ic fe e an d th e ad di tio na l fe e fo r un de r ta k in g th e role . – T he m ax im um a gg re ga te non - e xec uti ve d ire cto r ba sic f ee , in cl ud in g the C ha ir m an’s ba sic f ee , is £750, 0 0 0 p. a , a s set o ut i n ou r Ar ticl es of A s soc ia tio n . Non- executive director’s basic fee – Fees ar e revie wed annually and ar e determined by the Chairman and ex ecutiv e dir ectors. – T he m ax im um a gg re ga te non - e xec uti ve d ire cto r ba sic f ee , in cl ud in g the C ha ir m an’s ba sic f ee , is £750, 0 0 0 p. a , a s set o ut i n ou r Ar ticl es of A s soc ia tio n . Additional fees Ad di tio na l fe es ar e pa id fo r un de r t ak in g th e ex t ra re spo ns ib il it ies o f : – Board C hairman. – Senior Independent Dir e ctor . – Committee Chair . Benefit s – In l i ne w it h ou r oth er co ll ea gu es , th e Ch ai rm an a nd n on - e xecu ti ve di re cto rs a re ent itl ed to re cei ve col l eag u e dis cou nts . – T he Co mp a ny may re im bu rs e the C ha ir ma n a nd no n - exe cu ti ve di rec tor s fo r reas on ab le e xp e nses i n p er fo r mi ng th ei r du ti es an d may s et tle a ny t ax i ncu r red i n rel a tio n to th ese. – T he Ch ai r ma n may a l so b e en tit led to t he u se of a c ar a nd d r ive r . Share ownership – Al l no n - exe cu tiv e di rec tor s, i nc lu di ng th e Ch ai r ma n , are re qu ire d to bu ild a nd m ai nt ai n a sh are ho ld in g of at l eas t 2, 0 0 0 sh ares upon joining M&S. – T his s ha reh ol di ng m ust b e he ld fo r th e pe r io d of th ei r tenu re. REMUNER A TION FRAMEWORK FOR THE REST OF THE OR GANISA TION M&S ’ p hi loso phy is to p rovid e a f air a nd co nsis tent ap pro ac h to pay . Remunerati on is det ermined by level an d is bro ad ly al ig ned w it h thos e of the e xecut ive di rect ors. Base sal aries are re viewed annual ly and re flect the l ocal labour market. Al l UK col le ag ues a re el ig ib le to pa r tic ip ate in th e Y ou r M& S Pens ion Sav in g Pl a n on th e sa me ter ms a s the exec utive direct ors. Colleagues af fected by the H MRC A nn ua l an d/or L ifet im e Al lowa nce l i mit s , ca n now ch oo se to opt ou t of th e pe nsio n an d recei ve a c ash pay me nt in l i eu of th is. I n ad di tio n , al l UK col le ag ues a re provi de d wi th l ife insurance a nd c ol league dis count s, an d may ch oos e to par t ici pate i n the Compan y’s al l-emplo yee shar e scheme s and salar y-sacrifice arrangements. A sig nif i ca nt nu mb er o f col lea gu es are el ig ib le to be con sid ere d to par t ici pate in a n ABS w hi ch is p ar tia lly d eter min ed by G roup PBT p er f or ma nce. P ar t o f the b on us is d efe rre d into sh ares fo r thr ee ye ars. Aro und 1 70 of M&S ’ top se ni or exe cu tives may b e inv ited to pa r ti cip ate in th e PS P , and w il l th en b e mea sure d ag ain st the s am e pe r fo rm an ce cond iti on s as exec utive direct ors. Awar d lev els granted are d eterm in ed to be a l ig ned w it h ma rket pr ac ti ce and ref l ec t an i nd iv idu a l ’s level of sen io ri t y as wel l as th ei r pe r fo rm an ce and pot ential within the business. REMUNER A TION SUMMA R Y REMUNER A TION POLIC Y C ONTINUED Annual Report & Financial Stat ements 2022 95 GOVERNANCE REMUNE R A TION RE POR T T o tal p ay for 2 02 1 /22 PSP Annual bonus Fixe d pay Each ye ar , the R emuneration Committee asses ses the curr ent senior r emuneration framework t o det ermine whether the existing incentiv e arra ngements r emain appropriat ely challenging in t he c ontext of th e busi nes s str ateg y, ful f il c ur rent ex ter n al gu id el i nes a nd are a l ign ed w it h a ra ng e of in tern al f a cto rs , in clu din g the p ay ar ra ng em ent s an d po li cie s thro ug hou t th e rest of th e org an isa tio n. In i ts di scus sio ns , the Re mu ne ra tio n Com mi t tee ai ms to ensu re not o nly th at the f r am ewor k is st rate gic a lly a li gn ed to the d el i ver y o f bus ine ss pr io ri ties , b ut a l so tha t pay me nts m ad e du ri ng th e year f a ir ly ref lec t th e pe r fo rm an ce of th e busi nes s an d ind iv id ua l s. A si gn if ic a nt pro po r tio n of the p er for ma nce m easu res use d in th e in centi ve sch em es are i nteg rate d wi th M&S ’ K PIs a nd s tra tegi c pr ior it ies d eta ile d in th e Str ateg ic Re po r t , as il lus tr ated on pa ges 35 an d 6 respe c tive ly . Th e di ag ra m be low (F ig ure 6) det ail s the ac hievemen t of each execut ive di rec tor un de r the C om pa ny’s in centi ve sch em es as a resu lt of sh or t - an d lon g - term p er for ma nce to the e nd o f the reported financial ye ar and summarise s the m ai n ele me nts o f the s eni or remunerat ion framework. Further details of p aym ents m ad e du ri ng t he yea r are set ou t in t he t abl e be low (F igu re 7) an d l ater i n thi s repo r t . FIGURE 7 : T OT AL SINGLE FIGURE REMUNER A TION (A UDITED) Direct or Ye a r Salary £000 Benefits £000 To t a l bonus £000 To t a l P S P vested £000 Pensions benefits £000 To t a l R S P granted £000 To t a l pay £000 To t a l fi xe d pay £000 To t a l variable pay £000 Steve R owe 2 0 21/ 2 2 8 41 53 1, 6 01 0 13 5 0 2 , 630 1, 02 9 1, 6 01 2020/2 1 834 31 0 0 203 0 1, 0 6 8 1, 0 68 0 Eoin T onge 2 0 21/ 2 2 605 24 1 ,151 0 73 0 1, 8 53 701 1 ,151 2020/2 1 489 10 5 0 0 39 1 , 316 1, 9 4 9 1, 9 4 9 – Th e in crea se in Steve’s be nef i ts is a resu lt o f the resu me d use o f his d ri ver, whi ch wa s pa use d du ri ng p er iod s of lo ckdow n in 2020/2 1 , an d the u pg ra de o f the c ar u sed to a lowe r CO2 emit ti ng ve hic le. W hi l st th e cha ng e in ve hic le is b et ter for t he e nviro nm ent , it d oe s have a h igh er m ar ket va lu e wh ich i nc rease d the l evel of t a x pay ab le by Steve. N o add it ion al b en ef it w as re ceive d by Steve. Eoi n T on ge re cei ved a n awa rd und er t he Res tri c ted Sh are Pl an (RS P) to comp ens ate hi m , on a f ai r va lu e bas is , for sh are aw ard s gr ante d un de r his p ri or e mp loyer ’s sha re sch em es. T he f a ce va lue o f thi s awa rd is show n in t he 2020/2 1 row o f the a bove t ab le. D eta il s of t he ca lcu l ati on m etho d were d iscl osed o n pa ge 9 4 of l as t year ’s an nu al re po r t. FIGURE 6 : REMUNER A TION STRUCTURE 2 02 1 /2 2 1 % i ncr ease i n li ne wi th other m anagement position s Paym ent s ma de ar e 95% of maximum bon us opportunity 0% of awa rd ves ted T o tal p ayme nt s are c . 55% of max im um potent ial EXECUTIVE DIRECTORS’ RE MUNER A TION For mor e information see p 99 For mor e information s e e p97 Bas e sa l ar y Benefits Pens ion benefits 20 0% of s al a r y m ax im um bonus oppor tunity (with 5 0% de fer ra l) Me asure d ag ai nst a b al a nce of G rou p PBT befo re adjusting items and individual performance 250% of s al a r y aw arde d i n 2 0 19 Measured against adjust ed EPS , ave ra ge RO CE an d TSR ach ievemen t was 0% ag ai ns t targ ets s et Ma rks a nd S pe nc er G ro up p lc 96 SALARI ES Wh en rev iew in g sa l ar y level s , th e Com mi t tee ta kes into accou nt a nu mb er o f inte rn al and external factors, incl uding Company per formance dur ing t he ye ar , external ma rket d at a, h isto ric i nc reases m ad e to the i nd iv id ua l and , to en sure a co nsiste nt ap pro ach , th e sa l ar y revi ew pr in cip les ap pl ie d to the res t of the o rga nis ati on . As d et ail ed i n l ast ye ar ’s repo r t , for sa l ar ies e f fe ct ive J uly 202 1, in l ine w it h incr ease s f or management position s, the C om mit tee aw a rded S teve Rowe an in creas e of 1 % , m ak in g his s al a r y £842,845. Eoi n T on ge a l so rece ive d a 1 % sa l ar y in creas e, m ak in g his s al a r y £606 , 0 0 0. As s et ou t on p ag e 1 0 4 wh en Steve Row e steps d ow n fro m CEO on 25 May, Stu ar t Ma chi n wi ll b eco me CEO , an d his s al a r y on a pp oin tme nt w il l be £80 0 ,0 0 0. O n the sa me d ay, Kati e Bic kers taf fe wi ll b eco me Co - Ch ief E xe cu tive O f f ice r on a s al ar y o f £7 50 , 0 0 0 ; Eoi n T o ng e wi ll b ecom e G rou p CFO & C hie f Str ateg y Of fi cer, and hi s sa l ar y wi ll i ncre ase by 8 .9% to £ 660 , 0 0 0. Th e ne x t an nu al s al a r y rev iew fo r th e exe cuti ve di rec tors w il l b e ef fe c tive i n Ju ly 2023 . Th e ta bl e be low det ai l s the e xecu ti ve di rec tors’ sa l ar ie s as at 2 A pr il 2022 an d sa l ar ies w hi ch w il l ta ke ef fe ct f rom 25 May 202 2. FIGURE 8 : S AL ARIES Annual salar y as o f 2 Ap ri l 2022 £ 000 Annual salar y as o f 25 May 2022 £ 000 Change in salar y % increase Steve R owe 8 42. 8 – – Eoin T onge 606.0 66 0. 0 8 .9% Stuart Machin N /A 80 0.0 N /A Katie Bick erstaf fe N /A 750 . 0 N /A BENEFITS (A U DITED) The Remunerat ion P olicy permits that eac h exe cuti ve di rec tor m ay recei ve a c ar or c ash a l lowa nce as w el l as be in g of fe red the b en ef it o f a dr ive r . D ur in g the ye ar, in l ie u of a c ar a llow a nce, S teve Rowe recei ved a c a r and t he b en ef it of a d ri ver. Eoi n T on ge d oe s not re ceive a c a r or ca sh al low an ce. A s dis close d l as t year, to facilitate E oin T onge’ s recruitmen t and relo ca tio n, h e w as prov id ed w ith tr avel a nd acc ommod ation al lowanc es. The taxable va lu e of the se be nef i ts i n ki nd w as det ai led i n Fi gu re 7 on th e prev io us p age . In l in e wi th al l ot her co ll eag ue s, e xecu ti ve direct ors rec eive life a ssurance, colleague dis coun t and a re el ig ib le to pa r tic ip ate in sa l ar y sa cri ﬁce sc hem es su ch as Cyc le2W or k . PENSION BENEFITS (A UDITE D ) Du ri ng th e yea r , S teve Rowe recei ved a ca sh pay me nt in l i eu of p ar tici pat ion i n an M &S pe nsi on sc he me. A s p revio usly dis close d , he h as ag ree d th at his p en sio n ca sh sup pl em ent b e red uce d to zero over a thre e -yea r pe rio d . Fo r 202 2 /23, th e CEO’s total a nn ua l c ash su pp lem ent w il l b e red uced by o ne - thi rd to £ 67 , 50 0 un til Steve Rowe cea ses em ploy me nt w ith th e bus ine ss at th e AGM o n 5 July. Det ail s o f thes e fu tu re pay me nts w il l be ref le c ted in the si ng le f ig ure t ab le in n ex t ye ar ’s repo r t . Steve Rowe is a d efe rre d me mb er of th e Marks & Spenc er UK Pensi on Scheme. Det ai l s of th e pe nsio n accr ue d du ri ng th e yea r end ed 2 A p ril 2022 are sh own i n Fi gu re 9 be low. Eoi n T on ge i s a me mb er of t he Y o ur M&S P ensi on S avi ng s Pl an , a s desc ri be d on p ag e 9 1 . Eo in co ntri bu tes 6% of his sa l ar y into the s che me , an d the C om pa ny match es th is wi th a 1 2% contri bu tio n. Th e va lu e of th e Com pa ny ’s c on tri bu tio n in th e yea r is sho wn i n Fi gu re 7 on pa ge 95 . Th is is th e ma xi mu m leve l of cont ri bu tio n of fe red by M &S an d is consi stent w it h the ter ms av ai l ab le to all other colleagues. FIGURE 9 : P ENSION BENE FITS ( AUDITED ) Normal retire me nt age Accr ue d pensi on entitlem ent as at ye ar e nd £ 000 Additio nal va lu e on e a rly retire me nt £ 000 Increase in ac crued value £ 000 Increase in accrued value (n et of inﬂ ation) £ 000 T ransfer value of to ta l accrued pensi on £ 000 Steve R owe 60 16 4 . 6 0 0.5 0 5 , 32 0 Th e accr u ed p ensi on e ntit lem en t is the d efe rre d pe nsio n am ou nt th at Steve Rowe wo uld re ceive a t ag e 60 if h e lef t the Co mp any on 2 A pr il 2022. All t ra nsfe r va lu es have b ee n ca lcu l ated o n th e basi s of ac tu a ri al ad v ice in a ccorda nce w ith t he cu rre nt T r a nsfe r Valu e Reg ul a tio ns. T h e tra nsf er v alu e of th e acc ru ed e ntit lem ent re pres ent s the v alu e of th e as sets th at th e pe nsi on sc hem e wou ld tr an sfe r to anot he r pe nsio n prov ide r on t ra nsf er ri ng th e sch eme ’s lia bi li t y in res pe ct o f a dire c tor ’s pens ion b en ef it s. I t do es not re prese nt sum s pay ab le to a dire c tor an d the refore c a nno t be a dd ed m ean in gf ul ly to ann ua l remu ne r atio n. AN N UAL BO N US S CH E ME 202 1 /22 (AUDI TE D) An nu al p er f or ma nce fo r the ye ar w as measur ed against pre-d et er mined Group PBT befo re ad just in g items ( PBT ) (70%) and individual p erformance ( 30%) targets. PBT is use d as a core b on us m easu re, as i t is con side red to be a n im po r t ant m easu re of over al l p er fo r ma nce an d is con siste nt wi th how b usi nes s pe r for m ance i s ass esse d inte rn al ly by the B oa rd and Executiv e Committee . Individual performance was meas ured ag ai nst a sco rec ard of i nd iv id ua l mea sures set ag ai ns t the a reas of d el i ver y o f the transf ormation plan t hat w ere deemed mos t cri tic a l to the f utu re succes s of M& S . Ind iv id ua l pe r fo rm an ce wa s me asure d in de pe nde ntly of PBT per formance; no individual element could be e ar ne d unti l a thres ho ld ne ed ed to secur e payment under the corporat e element was similarly achiev ed. REMUNER A TION REMUNE R A TION REPORT C ONTINUED Annual Report & Financial Stat ements 2022 97 GOVERNANCE AN N UAL BO N US S CH E ME 202 1 /22 (AUDI TE D) CONTINUED PBT ou tt ur n for t he yea r wa s £5 22.9m , wh ich w as a bove th e ta rget s et to trig ge r pay me nts u nd er b oth th e cor por ate an d individual elements of the s cheme. As show n in F ig ure 1 1 be low, the st rong PBT performance during the y ear exc eeding the m a xi mum t arg et set at t he st ar t of th e year m ea ni ng th at exe cut ive di rec tors we re awa rde d 1 0 0 % of ma x imu m opportunity under the corporat e element of th e sch em e and c . 83% of the ma x imu m for i ndividual performance. T otal bonu s achie vement was 95 % o f opportunity . Wh en d iscu ssi ng th e pay me nts to exec utive direct ors , t he Committ ee noted tha t un der t he ter ms o f sche me , Steve wou ld not te chn ic al ly be e l igi bl e for a pay me nt du e to bei ng u nd er n otice bef ore th e pay me nt da te. Howeve r , the C om mit tee co nsi dere d hi s dire c t im pa ct o n de l ive ri ng th is f ir st ph ase o f tr ans for ma tio n and h is a chi evem ent s ag ai nst th e in di vi du al o bje cti ves set for 202 1 /22. Gi ven th ese a nd Steve’s agreeme nt t o c ontinue to s uppor t M&S b eyo nd th e end o f his te nure , the Committ ee deemed it appr opriate t o ap ply th eir d isc retio n an d agre e a bo nus paymen t c ommensura te with his per formance over t he ye ar . The Committee review ed achie vement to ensu re that tot al p aym ent s were ap prop r iate in t he conte x t of seve ra l fac t ors. These included M&S’ ov er all financial performance, the outturn of in di vid u al ob jec ti ves , an d the l evel of bo nus p aya bl e el sew he re in th e bu sin ess . Fi gu re 1 1 b el ow sets o ut th e G roup PBT ta rgets co mp ri sin g 7 0 % of aw ards a nd il lus tr ates the e x tent to wh ich e ac h direct or achiev ed their four individual obj ec ti ves. Total p aym ent s show n be low di rec tly cor respo nd to th e f igu re in clu de d in th e sin gl e fi gu re ta ble o n pa ge 95 . FIGURE 1 0: INDIVIDUAL OBJ ECTIVES (A UD ITED) Director Individual Steve R owe Crea tion and implementation of r evised Executive Committee str ucture and r oles and the devel opment of strong succes sion plans. Stre am l in ed a nd s ha rp en ed t he E xe cu ti ve Co mm it tee , cre ati ng a co he sive to p tea m , sup po r te d by the C EO th rou gh co ac hi ng a nd cou nse l li ng . S up po r ted t he B oa rd in t he d el i ver y of a stro ng s ucce ssi on p l an , a s de mo ns tr ated by t he i nter n al a pp oi ntm en t of th e new l eadership t eam . Delivery of the transform ation pr ogramme in Clothing & Home. Clo thi ng & H om e d el iv ere d sa les g row t h of 3. 8% vs 201 9/20 wi th th ree co nse cu ti ve qu ar ters o f un de rly i ng g row th . O nl in e s ale s grew 55.6% wi th s tron g g row th th rou g hou t th e yea r ou tp er for mi ng p ure p l ay p ee rs a nd g ai ni ng 6 0 bps o f ma r ket sh are . Store s al es d ecl i ne d 1 1 . 2% wi th pe r fo r ma nce co nti nu in g to be i mp ac te d by le ga cy H ig h St reet a nd C it y Ce nt re store s wh ic h is be in g ad dr ess ed th rou gh t he stor e ren ewa l p rog ra mm e. O pe r ati ng p rof it b ef ore a dju sti ng i tem s of £330.7m, co mp a red to £224.0 m i n 20 1 9/20 ref le c ted th e be ne f it of s al es grow th com bi ne d w ith a m uc h stro ng e r fu l l pr ice s al es mi x . B ra nd s tr ateg y es ta bl is he d an d mo de l ref in e d, w i th th ird p ar t y br an ds a cros s Cl oth in g & Ho me a nd B ea ut y g en er ati ng c . £ 1 0 0 m of o rde rs i n 202 1 /22. Reset the strat egic relation ship with O cado regar ding platform int egration, data sharing, infrastructure and categor y stra tegy . Significant impro vement in working relationships with Ocado Group . Great er “omni-channel ” join t w orking , with upcoming t rial s on d ata sh ar in g an d ca teg or y a p pro ac hes . A s ex pe c ted 202 1 / 22 saw a re du c tio n in av er ag e ba sket s ize resu lt in g in a d ec li ne i n reve nu e, how ever, Oc ad o su bst an ti al ly ou tp er f or me d th e on l in e gro cer y m a rket . M& S br a nd ed p rod uc t s cons iste ntly m a ke up ove r 25% of Oc a do Re ta il ’s sa les , g en er ati ng su bs ta nti al b u yi ng g ai ns fo r bo th M& S Fo od s an d Oc a do Re ta il . Rev ita li se Pl a n A . Pl a n A ha s alw ays b ee n an i mp or ta nt pi l l ar w it hi n the M &S b usi ne ss , a nd th is ye ar s aw a rel aun ch o f a stre ng th en ed P l an A m is sio n prov id in g ne w over sig ht , en erg y a nd m om ent um , a nd a si ng u l ar fo cu s on cu t ti ng th e M& S c ar bo n fo otp ri nt by o ne t hi rd by 2025 and to be f ul ly n et zero by 20 4 0. Ag re ed a n ew £850m R evolv in g Cre di t Fac il it y l i nke d to the d e li ve r y of t he n et zero ro ad ma p. Eoin T onge Dr ive a f ocu s on f in an ci al d el ive r y of cr iti c al tr an sf orm at ion s t rate gi es i n Pro pe r ty a nd s up ply c hai n . Step p ed u p the n ew s tore p ip el in e to en ab le a d ri ve i n rota tio n w ith c .1 5 n ew f ul l l in e sto res a nd a f ur t he r 32 store clo su res in t he pi pe l in e over t he n ex t t hre e yea rs w it h ex pe c tat io n th at th is w il l bu il d fu r th er. T r ia l s im pl em en ted to tes t an a ccel er ated “ clos e an d rec a ptu re” mo d el d el i vere d pro of o f con cept , e xp an di ng p os sib il i tie s aro un d est ate rot ati on c a pa bi l iti es . Stro ng res ul ts f rom re cen t op en in gs w it h sa les av er ag in g 1 1 % a bov e pl a n wi th p ayb a ck at a rou nd 1.5 yea rs (- 44% a ga in st p l an). Wi th re g ard to su pp ly ch ai n, E oi n pl aye d a key ro le in t he re set ti ng o f the G is t rel atio ns hi p. Pu t a st rong t hre e -ye ar p l an i n pl a ce fo r Clo thi ng & H om e su pp ly ch ai n an d succe ss fu l ly de li ve red i n -sto re fu l f il m ent . De sig n an d de li ver c ri tic al G ro up i nves tm en t eval uat io n pr oce sse s an d mo de ls . Fu r th er ti gh teni ng o f ou r c ap it al d isc ip l in e an d ap pr ai sa l pro ces ses . De l ive red co r po ra te deve lo pm en t thro ug h pu rch as e of str ate gi ca l ly id ent if i ed b usi nes se s, su ch a s No bo d y’s Ch il d , Th e Sp or ts Ed it a nd o ur i nvest me nt i n the Tru e inve stm en t fu nd . Su ccess f ul ly in teg ra ted Ja eg e r into th e M& S f am ily. Shape and strengthen the balance sheet. Ba l an ce sh ee t stre ng th en ed w it h net d eb t do wn t wo - thi rds f ro m t wo yea rs a go , th roug h p ru de nt c as hf low m an ag em en t, capex discipline and work ing capital init iative s. Critically renegotia ted bank re volving credit facilit y . Deliver st ep change in the control environment. Improv em ent in all int ernal governance mechanisms including r epor ting t o and engaging wit h the Audit Committ ee and ESG C om mi t tee. N ew b usi nes s mo d el co ntro l fr a mewo r k pu t in p l ace . FIGURE 1 1 : AN NUA L BO N US S CH EM E 202 1 /22 (AUDI TE D) Director COR PO R ATE G RO UP P BT ( 70%) INDIVIDUAL (30%) TOT AL P A YMENT T arget/performance P erformance Achi eveme nt % of s al ar y £ 000 M i n £ 315 m M a x £ 361m Steve R owe 100 % of m ax b on us 83. 3% of m ax b on us 19 0 % £1, 6 01 £5 2 2.9m Eoin T onge 100 % of m ax b on us 83. 3% of m ax b on us 19 0 % £ 1, 151 £5 2 2.9m ANNU AL B ONUS S CHEME Ma rks a nd S pe nc er G ro up p lc 98 REMUNER A TION REMUNE R A TION REPORT C ONTINUED AN NUA L BO NU S SCH E ME CONTINUED DEFERRED SHARE BONUS PLAN (A UDITE D ) Cur rent ly 50% of a ny bo nus p aym ent i s compulsoril y deferr ed int o a c onditional sha re awa rd. T h ese aw ards ves t af ter t hre e yea rs , subj ec t to conti nu ed em pl oym ent as wel l as m al us p rovisi ons . A s the A BS d id not o pe ra te in 202 0/2 1 , no s hare aw ard s un de r the DS BP we re ma de d ur in g the yea r . T he t ab le be low p rovid es th e va lue o f the s ha re awa rds to be ma de i n resp ec t of the 202 1 /22 bon us . Th is v alu e ref lec t s hal f of th e va lue s how n for t he 202 1 / 22 bon us pay me nts i n the si ng le f ig ure t ab le on page 9 5. FIGURE 1 2: DSBP AW AR DS IN R E SPE C T OF 2 0 21/ 2 2 Basis of awar d Face value of award £000 En d of deferral period Steve R owe 50% of bonus £8 0 0 .7 30 /6/2025 Eoin T onge 50% of bonus £575 .7 30/6 /2025 AN N UAL BO N US SC HE M E FO R 2022/23 Du ri ng th e yea r , t he Co mm it tee rev iewe d the 2 02 2/23 scheme, c onsidering the accel er ated N ever th e Sa me A ga in transf ormation programme t ogether wi th bo nu s ar ra ng em ent s el sew he re in the bus iness. Th e Co mmi t tee w as sa tisf i ed th at th e str uc tu re of th e AB S , as ap prove d by sha reh old er s at the 2020 AGM , rem ai ns appropria te. S ubject t o the achie vement of stre tchin g ta rget s, s et in l in e wi th the 2 02 2/23 financial plan , the scheme pro vides for a compe titiv e bonus opportunity with a strong focus on stretch ing PBT p er for ma nce. Executiv e dir ectors are eligible to receiv e a bo nus p aym en t of up to 20 0% of s al ar y. Per f or ma nce w il l be fo cus ed on G ro up PBT befo re ad just in g items ( PBT ) (70%) wi th in di vi du al m easu res set a ga ins t key area s of de l ive r y of t he tr an sfor m atio n pl a n . Ind iv id ua l pe r fo rm an ce wil l a ga in b e me asure d in de pe nde ntly of PBT per formance; no individual element may be e ar ne d unti l a thres ho ld leve l of PBT is achie ved. Th e rem ai nin g 30% o f the b on us wi l l be me asure d ag ai nst a sco rec ard of i nd iv id ua l obj ec ti ves , ide nti f ied a s the m eas ur ab le key pr ior it ies re qui red to dr ive t he conti nu ed tr an sfo rm atio n of M &S . Th e pe r fo rm an ce ta rgets f or th e 202 2/23 sch em e are d eem ed by t he Bo ard to be too com me rcia lly se nsi tive to di sclos e at thi s tim e, a s they a re not d isclo sed elsewhere in the report. Where possible, they w il l b e disc lose d in n ex t ye ar ’s repo r t . Th e Co mmi t tee, a t its a bso lu te discret ion , may us e its j ud ge me nt to adju st out come s t o ensur e that any pa yments ma de ref le c t over al l bu sin ess a nd individual performance during the year . Any d iscret ion a pp l ie d wi ll b e cle ar ly discl osed and j ustified. Director CORPORA TE T ARGETS INDIVIDUAL OBJECTIVE S Gr ou p PB T be fo re ad ju st in g ite ms P BT Scoreca rd of individual measures % bo nu s % b o nus Measu res Stuart Machin 70 % 30% – L ead a nd d eve lo p a succe ss fu l rhy thm a nd e f fe c ti ve way s of wor k in g wi th n ew exe cu ti ve tea m. L ea de rsh ip a nd g ove rn an ce of Executiv e Commi ttee. – I mp le me nt a si mp l if i ed a nd ef fec t ive o rga ni sa tio n al st ru c tu re. – Evo lve th e Oc a do Re ta il jo in t ven ture a nd s tr ate gic p l a n. – D el i ver t he F oo d su pp ly ch ai n tra ns fo rm ati on . – D el i ver t he P rop er t y s tore rot ati on a nd re ne wa l pro gr a mm e. – C reate a h ig h pe r fo rm in g an d en g ag ed cu lt ure a cros s th e wh ol e of M &S . Katie Bickerstaffe 70 % 30% – D el i ver t he M S2 an d om ni - ch an ne l st ra teg y an d pe r fo rm an ce. – Improvemen t in Sparks active members, engagement, personalisati on and payment. – A chi eve I nter n atio n al g row th a nd s tr ateg y fo r In di a ex p ans io n. – D el i ver e nd to e nd cl oth in g su pp ly ch ai n (p has e 1 ). – D el i ver d ig it al a nd d at a c ap ab il i t y an d pu t at th e he ar t o f the d e li ve r y of th e ne x t p ha se of g row th t ra ns for m ati on . – C loth in g c ateg or y ma na ge me nt a nd e f fe c tiv e way s of wo rk in g . Eoin T onge 70 % 30% – C ont in ue to im p rove an d st ren gth en t he G ro up b al a nc e she et . – I mp le me nt a n ew en erg is ed co ntro l an d ri sk f ra me wor k – L ead t he s tr ateg ic f r am ewo rk re vi ew fo r the n ex t ph ase o f gro wth transf ormation – Acce lerat e the Property stor e ro tation programme. – L ead t he o rga ni sa tio n pro d uc ti vi t y an d ef f i cie nc y i ni tia ti ves . – D el i ver a s tep c ha ng e in o ur su st ai na bi l it y p l an a nd p ut a t the cen tre of o ur B ra nd a nd p ro pos iti on . Annual Report & Financial Stat ements 2022 99 GOVERNANCE PERFORMANCE SHARE PLAN ( PSP) PS P AW A RD S MA DE I N 202 1 /22 (AUD IT E D) Ah ead o f gr an ts be in g ma de , the Com mi t tee revi ewed t he lo ng -ter m in centi ve f ra mewo rk at M &S , a sses sin g the e x tent to w hic h it rem ai ne d sui ta ble . Af te r consi de rat ion , i t wa s de cid ed th at the c urrent structural arrangements rem ain ed a pp rop ri ate, 20% of t he 202 1 PS P awa rd woul d be b ase d up on st rate gic tr ans for ma tio n go al s rel eva nt to the achiev ement of t he busine ss strat egy ov er the n ex t t hree y ear s and t he rem ai ni ng 80 % of the aw ard wo ul d be b ase d on EPS (30%), RO CE (30%) an d rel at ive TS R (20%). TSR i s mea sure d ag ai nst a b esp oke gro up of 1 3 comp an ies t ake n fro m the F TSE 350 G ene r al an d Fo od & D ru g Ret ail ers i nd ices , revi ewed p ri or to gr an t to ensure t he con stituen ts remained appropriat ely al ig ne d to M&S ’ b usin ess o pe ra tio ns an d bes t ref lec ted t he v alu e of sh are ho lde rs’ inves tme nt in M &S ove r the resp ec ti ve per formance per iod. These companies are l iste d in F ig ure 1 4 . In l ig ht of th e retu rn of s ha re pr ice to pre-pandemic lev el s, the C ommittee decided that it was appropriat e for gran t level s to return to 250% of s al a r y fo r the 202 1 PS P . In d eterm in in g the si ze of the 202 1 PS P aw ards , th e Com mi t tee de cid ed tha t as a resul t of th e sha re pr ice re cover y over th e l as t 1 2 m ont hs , fewe r sha res wou ld be aw ard ed t han i n 2020. Th e gr an t wa s ma de o n 29 Jun e 202 1 . Hav in g ta ken th e de cisio n to del ay targ et set tin g , th e Com mi tte e consu lted w it h share holders on the pr oposed tar gets and r eceived support for t he pr oposed targe ts. The s trat egic target s ar e deemed too com me rcia lly se nsi tive to di sclos e bu t wi ll b e rep or te d at the t im e of vesti ng . In l in e wi th po l ic y, awards w il l vest t hree yea rs af te r the d ate of g ra nt , to the ex te nt tha t the p er f or ma nce con di tio ns are m et , an d mus t the n be h eld fo r a f ur t he r two yea rs. C l awb ac k provi sio ns ap ply d ur in g thi s hol di ng pe ri od . Fo r f in an cia l me asu res, 20% of aw ards w il l vest f or th resho ld pe r fo rm an ce, in crea sin g to 1 0 0% o n a str ai ght - li ne b asis b et we en th resho ld a nd maximum performance. For stra tegic me asures , n o pay me nt sha l l be m ad e if the t arg et is no t ach ieve d. T h is sup po r ts the C om mit tee ’s view th at d el ive r y of thes e str ateg ic m easu res is cr iti ca l ; payment for ac hievemen t belo w the targe t is not appropria te . Detail ed tar gets ca n be s ee n in F igu re 1 3. FI G UR E 1 3: PE R FO RM AN CE CO N DI TI O NS F OR P SP AW AR DS M AD E I N 202 1 /22 (AUDI TE D) 202 1/2 2 award measures Weighting Details Thresho ld Maximum Adju sted EP S in 2023 /2 4 (p) 30% 15 p 24 p ROCE i n 2023 / 2 4 (%) 30% 10 . 5 % 13 . 5 % Rel a tive T SR 20% Median Upper quar tile Strategic measu res 20% M&S .com growth Food like-for -like sales Store st af f cos t to sal es ra tio FIGURE 1 4: T SR CO M P AR A TO R GR OU P 202 1 /22 AW A RD S ASOS Dunelm Group J Sainsbury Nex t W m Morrisons B&M E uropean Fra sers Kingf isher Te s c o Dixon s Carphone JD Spor ts Fashion N B row n G ro up WHSmith FI G UR E 1 5: P SP AW AR DS M AD E I N 202 1 /22 (AUDI TE D) Basis of award % of s al ar y Thresho ld level of vest ing Face value of aw ard £000 En d of performance period Vesting date Steve R owe 250 % 20% 2,0 86 0 1 /04/202 4 2 9/ 0 6 / 2 024 Eoin T onge 250 % 20% 1,5 0 0 0 1 /04/202 4 2 9 / 0 6 / 2 0 24 PS P gr ant s were m ad e as a con dit ion al s ha re awa rd. W he n ca lcu l ati ng th e f ace v alu e of aw ards to b e gr ante d, t he nu m ber o f sha res awa rde d wa s mul tip l ie d by the ave ra ge m id -m ar ket sh are p rice o n th e fi ve d eal i ng d ays pr io r to the d ate of gr ant . Fo r th e 202 1 aw ard , the s ha re pr ice wa s ca lcu l ated a s £ 1 .52 67 , be ing t he ave ra ge sh are p ri ce bet we en 22 Ju ne 202 1 and 28 Jun e 202 1. FIGURE 1 6: PSP AW AR DS V E ST I NG I N 202 1 /22 (AUD IT E D) Fo r di rec tors i n recei pt of PS P awa rds gr ante d in 20 1 9, t he aw ards w il l ves t in Ju ne 2022 bas ed o n thre e- year pe r fo rm an ce over th e pe rio d to 2 Ap ri l 202 2. Per for ma nce h as be en a sses sed an d it h as be en d eter mi ned t hat 0 % of th e total aw ard w il l vest . T he Co mm it tee revi ewed th is leve l of ves tin g ag ain st th e wider bus iness performance of the per iod an d deter mi ne d thi s level o f pay me nt wa s appropria te; no discre tion was applied for either share price movemen ts or formulaic v est ing out comes. Det ai l s of pe r fo rm an ce ag ai nst th e spe ciﬁ c ta rget s set are s how n in th e table overleaf . Th e tota l vesti ng v alu es sh own i n Fi gu re 1 7 di rec tly cor respo nd to th e f igu re in clu de d in th e sin gl e fi gu re ta ble o n pa ge 95 . Ma rks a nd S pe nc er G ro up p lc 100 REMUNER A TION REMUNE R A TION REPORT C ONTINUED PERFORMANCE SHARE PLAN ( PSP) CONTINUED 201 9/20 a ward Adj us te d EP S in 2 0 21/ 2 2 (p) Av erage R OCE (20 1 9/20-202 1/2 2) (%) TSR 1 /3 of award 1/3 of aw ard 1/3 of awa rd T otal ve sting % of aw ard Threshold performance 22.7 10 . 2 Median 0% Maximum performan ce 28 . 5 12 . 7 Upper quar tile Actual performance achieved 21. 7 p 8 .7% Belo w median Percentage of maximum achiev ed 0% 0% 0% Th e ta rget s ou tl ine d ab ove are s tated o n a po st - I FRS 1 6 b asis a nd i ncl ud e adj ustm en ts th at have b ee n ma de fo r the i mp ac t of t he inves tme nt in O c ado R eta il L imi ted . T he or ig in al t arg ets we re EPS 2 4. 0 p -3 1 . 0 p an d ROC E 1 3 .0% -1 7 . 0% . F or th resh old p er f or ma nce 20% of th e 20 1 9/20 award wo uld h ave vested , i nc reasi ng to 1 0 0 % on a st ra ig ht - l ine b asi s bet we en th resh old a nd m ax im um p er f or ma nce. FIGURE 1 7 : VE S T IN G VALUE O F AW A RD S VE S T IN G I N 202 1 /22 (AUDI TE D) On g ra nt At th e e nd of p er f or ma nc e pe rio d (2 A pr il 2022) Number of shares granted (incl . rights issue adjustment) % of s al ar y granted Dividend equivalent s accrued during the performance period Number of shares vesting Number of shares lapsing Impact of share price performance T otal ve sting of aw ard £000 Steve Rowe 9 8 3 , 8 01 250 % 51 , 4 3 7 0 1, 03 5 , 2 3 8 – £0k Dividend equivalen ts ac crued during the p erformance period have been included in the table above. PS P AW A RD S TO BE M A DE I N 2022/2 3 Du ri ng th e yea r , t he Co mm it tee rev iewe d the l ong - term i nce nti ve fr am ewor k at M &S , as sess ing t he ex tent to wh ich i t rem ain ed sui ta ble . Wh ile t he 2022 PSP wi l l mai nt ain t he m easu res use d for t he 202 1 PSP aw ards (30% a dju sted EPS , 30% RO CE , 20% rel at ive TS R an d 20% str ateg ic m easu res ), t he EP S and R OCE t arg ets have b ee n in crea sed f rom th ose se en i n awa rds f rom p revio us ye ars . In m ak in g this d ec isio n , the C om mit te e was m in df ul o f the n ee d to ensu re that M &S ’ P SP mo tiv ates se nio r le ade rs to dr ive t he req uire d tr ans for ma tio n to secu re M&S ’ lo ng - term su ccess w hi le ba l a nci ng sh are hol de r intere sts . Ove ra l l , th e Com mi t tee be l ieves th at thes e PS P targ ets a re ap prop r iately st retchi ng in t he conte x t of th e bus ine ss an d an alys t ex pe c tati ons a nd re ma in e qu al ly cha ll en gi ng as th ose set a t the s tar t of th e pe r for ma nce p er io d for p revi ous aw ard s. TSR w il l o nce ag ai n be m easu red a ga ins t a bes po ke grou p of com pa ni es ta ken f rom th e F TS E 350 Ge ne ra l an d Foo d & D ru g Reta ile rs in dices . T he e xis tin g grou p of 1 3 comp an ies , as d et ail ed i n Fi gu re 1 4, w as th oro ug hly revi ewed to en sure th e cons tit ue nts rem ai ne d ap prop r iate an d al ig ne d to M&S ’ b usi ness o pe r atio ns . Th is revi ew resul ted in t he re mov al of Wm M or ris ons , as i t is no l on ge r li sted o n the F TSE . T he rev ise d TSR co mp ar ator g roup o f 1 2 co mp an ies c an b e fou nd i n Fi gu re 1 9. Fo llow in g a de ba te on M& S ’ sha re pr ice p er fo rm an ce sin ce the 2020/2 1 PSP w as aw ard ed i n Jun e 202 1, a gra nt of 250% o f sa l ar y wa s ap proved fo r th e 202 2 PS P . T h e Com mi tte e wi ll rev iew a nd re conf ir m th is de cisi on i mm ed iately p ri or to gr an t to ensu re this remain s appr opriate. Per f or ma nce w il l be m easu red as s how n in F ig ure 1 8 b elow, wi th 20% of aw ard s vesti ng fo r thres hol d pe r for m an ce and 100% f or m ax im um . FIGURE 1 8: PER FO R MA NC E CON DI T IO NS F OR P SP AWARD S TO BE M AD E I N 202 2/23 2022/2 3 award measures Weighting Details Thresho ld Maximum Adju sted EP S in 202 4/25 (p) 30% 18 p 27p ROCE i n 202 4/25 (%) 30% 11 . 5 % 14 . 0 % Rel a tive T SR 20% Median Upper quar tile Strategic measu res 20% M&S .com growth Food like-for -like sales Store st af f cos t to sal es ra tio Annual Report & Financial Stat ements 2022 101 GOVERNANCE PERFORMANCE SHARE PLAN ( PSP) CONTINUED FIGURE 1 9: TS R COM PAR ATOR G RO UP 2022/23 A WAR D ASOS Dunel m Group J Sainsbury Nex t B&M E uropean Frase rs Kingf isher Te s c o Dixon s Carphone JD Spor ts F ashion N Brow n G rou p WHSmith EXECUTIVE DIRECTORS’ RE MUNER A TION FIGURE 2 0: DIRECTORS’ SHAREHOLDINGS (A UDITED) Th e ta bl e be low sets o ut th e tota l nu mb er of s ha res hel d by eac h exe cuti ve di rec tor se r v ing o n th e Bo ard du ri ng th e pe ri od to 2 Ap ri l 202 2. Sh ares ow n ed ou tr ig ht in clu de th ose h eld by con ne c ted pe rso ns . Th ere h ave be en n o cha ng es in th e cu rre nt di rec tors’ inte rests i n sh ares o r opti ons g r anted by t he Co mp any a nd i ts sub sid ia rie s bet we en th e en d of th e ﬁn an cia l yea r and 24 May 202 2. No d ire cto r had a n in terest i n any of th e Co mp any ’s subsid ia ri es at th e st atuto r y en d of th e year. Shares owned outright Unvested Vested unexercised options With performance conditions Without performance conditions Performance Share P lan Restric ted Share Plan Steve R owe 562 , 6 62 3 , 8 61 , 4 7 9 – – Eoin T onge 2 77 ,999 2, 03 2,0 49 78 9 , 252 – FIGURE 2 1 : SHAREHOLDING REQUIREMENTS INCL UDING POST - CESSA TION (A UDITED) Al l exe cuti ve di rec tors a re req uire d to bui ld sh ares e qu iv ale nt in v a lue to a mi ni mu m pe rcenta ge o f the ir s al a r y w ith in a ﬁ ve-y ear p er io d fro m the ir a pp oin tme nt d ate. Fo r the CE O, thi s requ ire me nt is 250% of s al a r y a nd fo r oth er exe cu tive d ire ctor s the re qu ire men t is 20 0% of s al a r y. A simil ar req ui rem ent of 100 % of sa l a r y cu rren tly ap pl ies to m em be rs of th e E xecu ti ve Com mi t tee be low Bo ard le vel . Th e ch ar t b elow s hows t he ex tent to wh ich e ach e xecu tive d ire c tor has m et th eir t arg et sh areh ol din g as at 2 A pr il 2022. For S teve Rowe, h is 250% sh are hol di ng req ui rem ent is m ea sured f rom t he d ate he w as ap po inte d CEO. Al tho ug h the resp ec ti ve ta rget h as n ot yet be en a chi eved , t he Co mm it tee is s atis f ie d that n o sh ares g ra nted o r hel d have b ee n sold by e ith er th e CEO o r his re l ated p ar t ies an d that t he CEO ’s interest s rem ain s tron gly al i gn ed w ith sh are ho lde rs . Fo r the p ur pos es of th e req ui reme nts , th e net n um be r of unve sted sh are aw ards n ot su bje ct to p er fo rm an ce con dit ion s is in clu de d an d is ref lec ted i n th e cha r t b elow. Th e Com mi tte e conti nu es to keep sh are ho ldi ng re qui rem ent g ui de li nes a nd a c tua l di rec tor sha reh old in gs un de r revi ew an d wi ll t ake a pp ropr i ate ac tio n sho uld i t fe el th is is ne cess ar y . T o su pp or t t he Co mm it tee’s inte ntio n to dri ve lo ng -ter m , sus ta ina bl e de cisi on - ma ki ng fo r the b en ef it o f M&S a nd o ur sh are ho lde rs an d in l in e wi th th e 20 1 8 UK Co rp or ate G over na nce Co de c ha ng es an d the I nvestm ent A ss oci ati on’s upd ated g ui de li nes , i n 202 0 the C om mit tee a pp roved th e ex te nsio n of sh are ho ldi ng g uid el i nes to beyo nd th e ti me at w hi ch an e xecu tiv e dire c tor leaves M &S . Di rec tors a re requ ire d to mai nta in th ei r mi nim um sh are ho ldi ng re qui rem ent , o r , i f the ir le vel of sh are ho ldi ng is b el ow this , th ei r ac tu al sha reh old in g , for t wo ye ars a f ter le avi ng M &S . Fo r the avo id an ce of do ubt , th e Com mi t tee ha s ap proved a ll ve sti ng aw ards f rom 2020 gr ant s onw ard s to be he ld in a n om ine e veh icl e to ensu re the su ccessf u l op er atio n of th is po l ic y . Fo r the p ur pos es of th is c alc ul at ion , a n aver ag e sha re pr ice is u sed to red uce th e im pa c t of sh are p rice vo l ati l it y on t he resu lts . Th e aver ag e sh are pr ice fo r the y ear w as £ 1 . 8 09, w ith resu lt ant s ha reho ld ing s il lus tr ated in t he ch ar t bel ow . Shareholding requirement Shares owned outright Unvested DSBP/RSP shares 210 % 250 % of sal ar y 20 0% of sa l ar y 126% Steve Rowe Eoin Tonge Ma rks a nd S pe nc er G ro up p lc 102 REMUNER A TION REMUNE R A TION REPORT C ONTINUED EXECUTIVE DIRECTORS’ RE MUNER A TION CONTI NUED EMPL O YEE SH ARE S CHEMES ALL-EM PLO YEE SHARE SC HEMES ( AUD ITED ) E xecu ti ve dire c tors m ay pa r tic ip ate in Sh areS ave, t he Co mp any ’s save as yo u ear n (SA YE ) sc hem e, a nd S ha reBu y, the Com pa ny ’s share i ncen tive p l an , o n the sa me b asis a s al l oth er e li gi ble co ll eag ues . Fur the r det ai l s of the s che me s are set o ut in n ote 1 3 of t he ﬁ na nci al st atem ent s on pa ges 1 54 to 1 56. DI LU TI O N OF S HA R E CA PI T A L BY EM PL O YE E S HA R E PL A NS Award s gr ante d un de r the Co mp any ’s SA YE scheme and dis cre tionary share pl an ca n be m et by th e issu e of n ew sha res wh en th e op tio ns are e xercis ed o r throu gh marke t pur chase sha res. The Compan y monit ors t he number of sh ares is sue d un de r the se sch em es an d the ir im p ac t on d ilu tio n l im its . T he Compan y’s usage of s hare s c omp ar ed wi th th e dil uti on l im it s set by th e Inves tme nt A sso ciat ion i n resp ec t of a ll sha re pl a ns (1 0% in a ny rol l ing 10 -yea r pe ri od) a nd e xecu ti ve sha re pl a ns (5% in any rol l in g 1 0 -year p er io d) as a t 2 Ap ri l 202 2 is sh own i n Fi gu re 22 and 23: FI GU RE 22: All share plans Limit Actual 8.89% 10% FI GU RE 23: E xe cut ive sh are p l ans Limit Actual 2.75% 5% FIGURE 2 4: EXECUTIV E DIRECT ORS’ IN TEREST S IN THE C OMP ANY’ S SH ARE SC HE MES ( A UDITED) Maximum receivabl e at 3 Ap ri l 2021 Awarded during the y ear Exercised during the y ear Lapsed during the y ear Dividend equivalent s accrued Maximum receivabl e at 2 Ap ri l 2022 Steve R owe Performance Share Plan 3 , 2 28 , 45 0 1, 3 6 6 , 5 0 9 – 733 , 4 8 0 – 3 , 8 61, 4 79 Def er red S ha re Bon us Pl an – – – – – – S AY E 21 , 9 51 – – – – 21 , 9 51 To t a l 3 , 25 0 , 4 01 1, 36 6 , 5 0 9 – 733 , 4 8 0 – 3,883,430 Eoin T onge Performance Share Plan 1, 0 49 , 53 8 9 8 2 , 5 11 – – – 2,03 2,049 Res tricted Share Plan 78 9 , 252 – – – – 78 9 , 2 52 S AY E 21 , 9 51 – – – – 21 , 9 51 To t a l 1 , 8 6 0 , 741 9 8 2 , 5 11 – – – 2,8 43,2 5 2 Th e ma rket p ri ce of th e sha res at th e en d of th e fi na nc ial y ear w as £ 1 . 57 95; the h ig hes t and l owest sh are p ri ces du ri ng th e f in an cia l yea r were £2.5690 a nd £ 1 . 3 1 5 5 resp ec ti vely. Fi gu re 25 shows th e tim e ho ri zons of o ut sta nd in g dis cretio na r y sh are aw ards ( in clu di ng d iv id end e qu iv al ent s ha res accr ue d du ri ng the p er for ma nce p er iod ) for a l l dire c tors se r v ing o n th e Boa rd du ri ng th e yea r . FI G UR E 25: VESTING SC HE DULE OF EXECUTIV E DIRECT ORS’ OUTST ANDING DISC RETIONARY SHARE A W ARDS Maximum receivabl e at 2 Ap ri l 2022 (all d iscretionary sc h em es) 2022/23 2023 /24 2024/25 Maximum receivabl e Lapsed Maximum receivabl e Lapsed Maximum receivabl e Lapsed Steve R owe Performance Share Plan 3 , 8 61 , 47 9 – 1, 03 5 , 2 3 8 1, 4 59 ,7 32 – 1, 3 6 6 , 5 0 9 – Eoin T onge Performance Share Plan 2,03 2, 049 – – 1, 0 4 9 , 5 3 8 – 9 8 2 , 5 11 – Res tricted Share Plan 78 9 , 2 52 52 6 ,16 8 – 26 3 , 0 8 4 – – – As re po r ted o n pa ge 99, t he 20 1 9 P SP aw ards i ncl ud ed w ith in th e tota l s show n in F ig ure 25 wi ll ves t at 0% i n Ju ne 2022. Thi s has b ee n ref lec ted a bove i n the 2022/23 L aps ed col um n. Annual Report & Financial Stat ements 2022 103 GOVERNANCE EXECUTIVE DIRECTORS’ RE MUNER A TION CONTI NUED FIGURE 2 6: PERFORMANC E AND CEO REMUNERA TION C OMP ARISON Th is g ra ph i llu str ates th e Com pa ny ’s per fo rm an ce ag ai nst t he F T SE 1 0 0 over t he p ast 1 0 yea rs . Wh ile M &S is n ot cu rren tly a cons titu en t of the F TSE 100 I nd ex , th e Co mm it tee fe el s th at th is rem ai ns th e mos t app rop ri ate com pa rator. The c al cul atio n of TS R is in a ccorda nce w ith th e rel eva nt rem un er atio n reg ul at io ns. T he t ab le b elow t he TS R ch ar t se ts ou t the re mu ne rat ion d at a for d ire ctor s un de r ta ki ng th e role o f CEO du ri ng e ach o f the l a st 1 0 ﬁn an cia l yea rs. 0 50 10 0 15 0 20 0 0 5 10 15 20 25 30 35 40 2020/21 2 0 21/ 2 2 201 9/20 2 018 / 19 2 0 17/ 18 2 0 1 6 / 17 2 015 /1 6 2 014 / 15 2 0 13 / 1 4 2 012 / 1 3 2 0 11 / 12 FTSE 100 Index (£) CEO single ﬁgure remuneration (£000) Source: Thomson Reuters Marks and Spencer Group plc (£) £ £m 0 2 / 0 4 / 12 3 0 / 0 3 / 13 2 9 / 0 3/ 14 28/03/1 5 02 / 0 4 /16 01 / 0 4 / 17 31/ 0 3 / 18 3 0/ 0 3 /19 28/03/20 0 3/ 0 4 / 21 02/ 04 /22 CEO CEO single ﬁg ur e ( £ 000) Stev e Row e – – – – 1, 6 42 1 ,12 3 1 , 517 1, 20 5 1, 0 68 2 ,63 0 Ma rc Bo l l an d 2 , 14 2 1, 56 8 2, 095 2 , 0 15 – – – – – – Annual bonus pay me nt (% of ma x im um) Stev e Row e – – – – 36.9 8% 0 .00% 0.0 0% 0.0 0% 0.0 0% 95 .0 % Ma rc Bo l l an d 42. 5 0 % 0.0 0% 30 . 55% 31 . 9 0 % – – – – – – PSP v esting (% of ma x im um) Stev e Row e – – – – 0.0 0% 8. 20 % 34. 0% 11 . 2 0 % 0. 00% 0 .00% Ma rc Bo l l an d 00.00 % 7. 6 0 % 4 . 70 % 4 .80% – – – – – – FIGURE 2 7 : P ERCENT A GE CHANGE IN DIRECTORS’ REM UNER A TION % ch an ge 2020 /2 1- 202 1 /22 % c ha ng e 20 1 9/2020 -2020/2 1 2020/21 Ba s e s al ar y/ fees Benefits Annual bonus 201 9/20 Ba s e s al ar y/ fees Benefits Annual bonus Steve Rowe 1% -20 % 10 0 % 0% -3 6 . 8 % – Eoin T onge 1% -33 % 10 0 % 0% – – Archie Norman 1% 20 0 % N /A 0% - 74 % N /A An d y H al fo rd 1% 10 0 % N /A 0% 0% N /A Andrew F isher 1% 10 0 % N /A 0% -10 0 % N /A Justin King 1% -10 0 % N /A 0% 10 0 % N/A T amara Ingram 1% – N /A 0% – N /A Sapna Sood 1% – N /A 0% – N /A Ev elyn Bourke 1% 10 0 % N /A N /A N /A N/A Fiona Da wson 1% – N /A N/A N /A N /A UK colleagues ( average FTE) 2% 0% 10 0 % 0% 0% – Th e ta bl e sets o ut th e an nu al p ercen tag e cha ng e in s al ar y, ben ef it s an d bo nus f or eac h di rec tor com pa red w ith t hat o f the av erage full-t ime equivalent total re ward for a ll U K col lea gu es . For non-execut ive di rect ors, be nef i ts com pr ise t ax a ble e xp en se reimbursemen ts r el ating to travel, acc ommod ation and subsi stenc e in conn ec ti on w ith t he at ten da nce at B oa rd and Committee m eetings dur ing the year . Th e ch an ge in t he t ax ab le b en ef its i s a resul t of Cov id - 1 9 tr avel res tri c tio ns ea sing an d not a ch an ge i n the b en ef it s po l ic y . FIGURE 2 8: RELATIVE IMPO RT ANCE OF SP END ON PA Y Th e ta bl e op posi te il lus tra tes the Com pa ny ’s exp en dit ure o n pay in com pa ris on w ith p roﬁts b efo re ta x an d dis tri bu tio ns to sha reh old er s by way of di vi de nd p aym ent s and s ha re buy b ack . T ot al co ll eag ue p ay is th e total p ay for al l G roup co ll eag ues . G rou p PBT befo re adj usti ng i tems h as b een u se d as a com pa ris on , as th is is th e key ﬁn an cia l met ric t hat th e Bo ard co nsid ers w h en asse ssing Company performanc e. 2020/21 £m 2 0 21/ 2 2 £m % change T ot al co ll eag ue p ay 1, 4 6 3 .7 1 , 4 8 7. 5 1. 6% T otal r eturns t o sharehol ders Nil Nil – G roup PBT b efo re adju sti ng ite ms 41. 6 52 2 . 9 1, 2 57% G roup PBT b efo re adju sti ng ite ms as d iscl osed o n p age 8 6. Ma rks a nd S pe nc er G ro up p lc 104 REMUNER A TION REMUNE R A TION REPORT C ONTINUED EXECUTIVE DIRECTORS’ RE MUNER A TION CONTI NUED FI G U RE 29: SERVI CE AGR EEMENTS In l in e wi th ou r po l ic y, direc tors h ave rol li ng co ntr ac ts w hi ch may b e ter min ated by the C om pa ny giv in g 1 2 m on ths’ noti ce or th e di rec tor g iv ing s ix m onth s’ notice . Da te of appointment Notice period Steve R owe 02/04/20 1 6 1 2 month s/6 mont hs Eoin T onge 0 8/ 0 6/2020 1 2 mo nths/6 months CHA N G ES T O E XE CU TI VE M E MB E RS H IP O F T HE B OAR D DU RI N G 202 1 /22 DIRECTORS APPOINTED TO THE BO ARD As a nn ou nced o n 1 0 M a rch 202 2, Stu ar t Ma chi n wi ll j oin t he B oa rd on 25 May 2022 as CEO. H is ba sic a nnu al s al ar y i s £ 80 0 , 0 0 0 . Stuart ’ s incent ive arrangements are al ig ne d wi th ou r Rem un er ati on Pol i cy, as sum ma ri sed o n pa ge 9 1. It w as an no un ced o n the s am e day th at Katie Bickerstaffe, having previousl y ser ved as a n on - exe cu tive d irec tor, wil l rejoi n the B oa rd on 25 May 2022 as Co - Ch ief E xe cu tive . Her b asi c an nu al sa l ar y is £7 5 0, 0 0 0 . K atie’s in centi ve ar ra ng em ent s are a li gn ed w ith o ur Rem un er atio n Pol i cy o n pa ge 9 1. P A YM E NT S FOR T HE LOS S OF O FFI CE (aud ite d) As a nn ou nced o n 1 0 M a rch 202 2, Steve Rowe w il l sta nd d own f rom t he Bo ard a f ter the p rel im in ar y result s on 25 May a nd w il l cease f u ll- tim e em ploy me nt w ith M &S at the AG M on 5 J uly. In view o f his w isd om an d for mi da ble k n owle dg e of th e bus ine ss , he h as ag ree d to rema in as a n ad vis er to the n ew le ad ers hip fo r up to 1 2 m ont hs. T h e term s of hi s remu ne ra tio n up on le avi ng a re in l in e wi th the a pp roved T e rm in atio n Pol ic y. Steve is contr ac tu al ly enti tle d to recei ve a sa l ar y , an d be nef i ts , by way of p ha sed m on thly p aym ent s fro m 6 Ju ly 20 22 to 5 July 2023, subj ec t to mitigatio n. The Committee determined good leav er treat men t in l in e wi th th e pl a n ru les , a nd ther efor e his un vest ed cond itional shar es awa rde d un de r the 2020 and 202 1 PSP w il l be ti me p ro -r ated to 5 Ju ly 202 2. As det ai led e ar l ier i n th e repo r t , the P SP awa rds gr a nted in 20 1 9 vested i n Ju ne 2022 at 0% , re sult ing i n th e awa rd l apsi ng i n fu l l . PAYM E N T S T O PA S T DIREC TORS ( aud ited) Th ere we re no p aym ent s ma de to pa st direct ors during the period . EX TE RNAL AP POINTMENT S The Compan y rec ognises that executiv e di rec tors m ay be i nvite d to beco me no n- e xecu ti ve dire c tors of ot he r compani es, and that the se appoint ments ca n bro ad en th ei r kn owl ed ge a nd experience t o the benefit of t he Compan y . Th e Pol ic y is fo r th e ind iv id ua l di rec tor to reta in any f ee. N o exe cuti ve di rec tors h el d an external appointmen t during 2 02 1 /2 2. FIGURE 3 0: NON-E XECUTIVE DIRECTORS’ TOT AL SINGLE FIGURE RE MUNER A TION ( AUDITED ) Non-executiv e dir ectors receiv e fee s reﬂ ecting the t ime c ommitment, demands an d respo nsi bil i ties o f the ro le. F ees p ai d to the no n - exec uti ve di rec tors a nd B oa rd Cha ir ma n fo r 202 1 /22 an d 202 0/2 1 are detailed in the table opposite . Benefits incl ude expense r eimbursements relating t o trav el , ac commodation a nd subs isten ce in con ne c tio n wi th the at tend an ce at Bo ard a nd Co mm it tee me etin gs d ur ing t he yea r , wh ic h are de em ed by HM RC to be t ax ab le. Th e am ou nts i n the t ab le op po site in clu de th e gros sed - up cos t of UK t ax pa id by th e Com pa ny on b eh al f of th e non-executiv e dir ectors. Non -taxable ex pe nse re imb ur sem ent s have n ot be en included in the table. As re po r ted l a st yea r , the b asi c no n- exe cuti ve fe e in creas ed by 1 % to £7 2 ,2 1 5 wi th ef f ec t f rom 1 Ju ly 202 1 . T he Bo ard Chairman was simil arly awarded an in creas e of 1 % wi th ef fec t f rom 1 Ju ly 202 1. Th e tota l agg reg ate fe e for th e Bo ard Cha ir ma n in crea sed to £ 6 1 8 ,0 0 0. Th e ad di tio na l fee fo r ch ai ri ng a com mi tte e in creas ed in t he yea r f rom £ 1 5 ,50 0 to £20, 0 0 0 wi th ef fec t f rom 1 Ja nu ar y 20 22. In l in e wi th p ay inc rease s acros s the b usi nes s, n on - exe cut ive d irec tor f ees w il l in creas e by 3% t o £7 4 , 380 w ith e f fe ct f rom 1 J uly 2022. The B oa rd Cha ir ma n wa s al so aw ard ed a n in creas e of 3% bri ng in g the tot al ag gre ga te fee to £ 636 ,54 0 . Fe e level s w il l ag a in be rev iew ed in t he yea r , ah ea d of any ch an ge s wh ich wo uld b e ef fe c tive 1 J uly 2023. Direct or Ye a r Basic fees £000 Additional fees £000 Benefits £000 To t a l £000 Archie Norman 2 0 21/ 2 2 72 54 4 10 626 2020/2 1 71 5 41 5 6 17 Andy Halfor d 2 0 21/ 2 2 72 31 0 10 3 2020/2 1 71 31 0 10 2 Andrew Fi sher 2 0 21/ 2 2 72 17 1 90 2020/2 1 71 16 0 87 Justin King 2 0 21/ 2 2 72 0 0 72 2020/2 1 71 0 1 72 T amara Ingram 1 2 0 21/ 2 2 72 17 0 89 2020/2 1 60 10 0 70 Sapna Sood 2 0 21/ 2 2 72 0 0 72 2020/2 1 60 0 0 60 Eve ly n B o u rke 2 0 21/ 2 2 72 0 1 73 2020/2 1 12 0 0 12 Fiona Daw son (from 25 M ay 20 2 1 ) 2 0 21/ 2 2 62 0 0 62 2020/2 1 0 0 0 0 1. T he 2020 /2 1 ad di ti on al f ee s fo r Tama ra I ng r am h ave b ee n res ta ted to i nc lu de £5 ,1 67 Co m mi tt ee Ch a ir f ees e ar n ed i n 2020/21 but p ai d in 2021 /22 . Annual Report & Financial Stat ements 2022 105 GOVERNANCE NON- EXECUTIVE DIRECTORS’ RE MUNER A TION C ONTINUED FIGURE 3 1 : NON-E XECUTI VE DIRECT ORS’ SHAREHOLDINGS ( AUDITED ) Th e no n- e xecu ti ve di rec tors a re not pe rm it ted to pa r ti cip ate in a ny of the Company’ s incent ive arrangements. All non-execut ive di rect ors ar e requir ed to build and main tain a sha reh old in g of at le ast 2 ,0 0 0 sh ares in the Company upon joining M&S. The table opposit e details the shareholding of the non-executive di rec tors w ho se r ve d on th e Bo ard d ur ing the ye ar as a t 2 Ap ri l 202 2 ( or u po n the ir date of re tir ing f rom t he B oa rd), in clu di ng tho se he ld by con nec ted p er son s. Cha ng es in t he cu rre nt no n -e xec uti ve di rec tors’ inte rests i n sha res in t he Company and its s ubsidiarie s between the en d of the ﬁ na nc ial y ear a nd 24 May 202 2 ( o r up on t hei r da te of retir in g fro m the Bo ard) a re show n in t he t abl e op pos ite. Director Number of shares he ld as a t 2 Ap ri l 2022 Number of shares he ld as a t 24 M ay 2022 Archie Norman 14 8 , 6 0 0 No c ha ng e Andy Halfor d 25 , 20 0 No ch an ge Andrew Fi sher 4 , 24 3 N o cha ng e Justin King 64, 000 No c ha ng e T amara Ingram 2, 000 No ch an ge Sapna Sood 2 ,000 N o ch ang e Eve ly n B o u rke 5 0,000 N o ch ang e Fiona Daw son 12 , 3 5 2 No c ha ng e FIGURE 3 2: NON-EXEC UTIV E DIR ECT ORS ’ A GREEMENTS FOR SERV ICE Non-executiv e dir ectors h av e an ag reem en t for se r v ice fo r an i nit ial t hree - yea r term w hi ch c an b e term in ated by eit he r pa r t y gi vi ng th ree m ont hs’ noti ce ( o r si x mo nths’ not ice for t he Ch ai rm an). Th e ta bl e op posi te sets o ut th ese ter ms for a ll c ur rent m em be rs of th e Bo ard . Director Date of appointm ent Notice period Archie Norman 01/ 0 9 / 2 017 6 mo nths/6 months Andy Halfor d 01/ 01/ 2 013 3 mo nths/3 months Andrew Fi sher 01/12 / 2 015 3 mo nths/3 months Justin King 01/ 01/ 2 019 3 month s/3 months T amara Ingram 01 / 0 6/2020 3 m onths/3 month s Sapna Sood 0 1 /0 6 /2020 3 months/3 m onths Eve ly n B o u rke 0 1 / 02/ 202 1 3 mo nths/3 months Fiona Daw son 25/05/202 1 3 mo nths/3 months NO N - E X ECU T IV E DI RE C TO R CHA N G ES T O TH E BOA RD D UR I NG 2022/23 ROL E CHA NG E S WI TH IN T HE BOAR D An dy H alf ord reti res as th e Ch air o f the Aud it Co mm it tee o n 7 Ju ne 2022; he wi ll remain as the Senior Independent Dir ec tor unt il he ret ires a nd step s dow n be fore the 2023 AGM . His f ee w il l in creas e, i n li ne wi th th e inc rease to b asic n on - exe cut ive di rec tor fe es , fro m £ 1 03 ,2 1 5 to £ 1 05 ,38 0. Eve ly n B o u rke w il l b ecom e Ch ai r of the Au di t Co mmi t tee w ith ef fec t f rom 7 Ju ne 2022. Evelyn wi ll re cei ve a total fee o f £9 2, 2 1 5, w hi ch is i ncl usi ve of the standard annual non- exec utive director fee o f £7 2 ,2 1 5 (£ 7 4, 380 f rom 1 J uly 2022 ). Ma rks a nd S pe nc er G ro up p lc 106 REMUNER A TION REMUNE R A TION REPORT C ONTINUED REMUNER A TION C OMMIT TEE REMIT Du ri n g the y ea r, the Re mu ne r ati on C om mi t tee re vi ewe d th e Term s of Re fe ren ce to e nsu re th at t hey r ef le cte d th e go ver n me nt ’s l ates t re com me nd at io ns a nd t he re vi se d pr in ci pl es o f the R em un er at io n Po li c y, as set o ut i n th e UK C or po r ate G ove rn a nce C od e 201 8. I n p ar t icu l a r, the Co mm it te e, i n it s su pp or t of th e No mi n ati on C om mi t tee , ex p an de d it s rem it to s pe ci f ic al ly d is cus s th e ta le nt a nd su cce ssi on i n th e se ni or l ea de rs hi p gro up a nd a ss oc ia ted p ay ar r an ge m ent s. T h e Term s of Re fe ren ce c an b e fo un d on t he C om pa ny ’s web si te at corpo rate.ma rksandsp encer.com/investors/c orpo rate- governance/governance -framework . KEY RESPONSIBILITIES – Th e Co mm it te e con ti nu es to ha ve a st ron g fo cus on ens uring an appr opriate alignmen t between th e rem un er at io n of e xec ut iv e di rec to rs , th e E xec ut iv e Com m it tee a n d col le ag ue s ac ros s M& S , ensuring that the senior r emuneration f ramework is s tr ateg ic a ll y al ig ne d w it h the b us in es s bu t th at it also attracts and recognises the talent required to drive transf ormation and cultural change within M& S . Th e res po nsi bi l it ies a re b roa dl y as fo l low s: – Setting remuneration pol icy and pr actice s that are d es ig ne d to su pp or t s tr ate gy a nd p ro mo te th e lo ng -te rm s ucc ess o f M& S wh il e fo ll ow in g the principle s: · Cl arit y: Remuneration arrangements are transparen t and promote ef fective engagement with shareholders and the workforc e. · Simpl icity: Remuneration structures are uncomplicat ed , and their rat ionale and op er at io n are e as y to un de rs ta nd . · Risk : Ens ure that reputat ional and other ris ks fro m e xces si ve rew ar ds , an d be h avi ou r al r isk s th at c an a ri se f ro m ta rge t - ba se d in cen ti ve plans, are identified an d mitiga ted. · Predic tability : Th e ra ng e of p os si bl e va lu es of rew ard s to ex ecu ti ve d ire c tor s is i de nti f ie d an d ex pl ain e d at th e ti me o f ap pro vi ng t he p ol i cy. · Proportionality: The link be tween individual aw ard s, t he d el i ve r y of s tr ate gy a nd t he lo ng -te r m pe r fo rm a nce o f th e Com p any is cl ea r. Outco m es sh ou ld n ot rew a rd poor performance. · Alignment with culture: Inc entive scheme s that dr ive behaviours c onsisten t with M& S ’ pu rp os e, v al ue s an d st ra teg y. – Det ermining the terms of employment and rem un e ra tio n fo r th e exe cu ti ve d ire c tor s an d the Executive Committee, incl uding r ecruitment and terminat ion arrangements. – Consi dering the appropriat eness o f the senior remuneration framework and exerci sing independent j udgement and discre tion when authoris ing r emuneration outcome s, taking Company and individual performance, and the con tex t o f th e wi de r wo rk f orce , i nto acc ou nt . – Not in g th e tota l p ay bu dg et s , in clu d in g sa l ar y, bo nu s an d sh are s ch em e al l oc ati o ns , ac ros s al l of M& S , tog eth e r wi th th e p ri nc ip les o f al lo c ati on to ensur e appr opriate c onsistency with the senior pay frameworks. – Ap pro vi ng t he d esi gn , t arg et s an d tot al p ay me nts for all per formance-related pa y sc hemes operated by M&S, seeking shar eholder approval where necessary. – Assess ing the appropriatene ss and subsequent ac hi eve me nt o f pe r fo rm an ce t arg et s rel a ti ng to any s ha re - ba se d in cen ti ve pl a n fo r th e ex ecu ti ve direct ors and E xecutiv e Committ ee. – Rece i vi ng d ire c t fe ed ba ck f ro m BI G , th e G rou p’s colleague represen tative body, c ol league voic e su r vey s an d ma na ge m ent r ep or t s to en su re col le ag u e vi ews o n G rou p cu lt ure , in cl ud in g rem un e ra tio n st ra teg y a nd I& D ar e con sid e red . REMUNER A TION C OMMIT TEE A G ENDA FOR 2 02 1 /2 2 REGUL AR ITEMS Pa y arr angements – Wi th in th e te rm s of th e M &S Re mu ne r ati on P ol ic y, approval of the r emuner ation pack ages for t he execut ive direct ors, the E xecut ive C ommittee, and an y terminati on paymen ts wher e applicable. – Cons ideration of the appropriat eness of the s enior r emuneration framew ork in the con tex t o f th e res t of th e org a ni sa tio n an d external gov er nance. – N ot in g of th e tot al b ud g eted s a l ar y e x pe nd it ure ac ros s M& S , en sur in g p ri nc ip les f or re wa rd al lo c ati on a re al i gn ed a cro ss M &S . Annual Bonu s Scheme – Rev iew o f ac hi eve me nt s ag ai ns t 202 1/22 performance ob jectives for ex ecutive directors and t he Execut ive Committee. – Ap pro va l of t arg et s fo r the 2022 /23 A BS e nsu r in g th at th e pe r fo r ma nc e con di ti on s are t ra ns pa ren t , stre tching and rigorou sly applied. – Ap pro va l of th e 2022/ 23 in di vi du a l pe r fo rm a nce objective s for ex ecutive di rector s and the Executiv e Committ ee. – N ot in g of th e tot al b ud g eted e x pe nd it ure f or th e AB S ac ros s M&S . Long- term incen tives – Ap pro va l of 2022 PS P aw ar ds fo r th e exe cu ti ve direct ors and the Executive Committee. – Ap pro ve th e 2022 PS P ta rge ts e nsu r in g appropriat e alignment between drivin g exceptional pe rfo rman ce and motivating and retaining top talent. – Ap pro va l of th e ve sti ng l eve l of t he 201 9 PS P aw ard s ac ros s M& S. – Reg ul ar rev ie w of a ll i n -f l ig ht P SP s ag ai ns t ta rge ts . – C on sid e ra tio n of l on g -te rm s ha re aw ard s gr a nte d to col le ag u es be lo w E xec uti ve C om mi t tee l eve l . Governance and external market – Rev iew o f th e M& S Re mu ne ra tio n Po l ic y, ens ur in g th at i t cont in ue s to su pp or t t he l on g- ter m su cces s of M &S a nd is a l ig ne d w ith t he 201 8 U K Corporate G overnanc e Code, other external governanc e and emerging best practic e. – Rev iew t he a pp ro pr ia ten es s of th e se ni or rem un e ra tio n f ra me wo rk i n th e con tex t o f the res t of th e or ga ni sa tio n a nd e x ter na l g ove rn an ce. – Appro val of the Dir ec tors ’ Remuneration Repor t fo r 202 1/22 and re vi ew o f the AG M vo tin g ou tco me fo r the 2020 /2 1 rep o r t. – Rev iew o f th e Co mm it te e’s pe r fo r ma nce i n 202 1/22, in cl ud in g as sur a nce t ha t th e pr in ci pl es of the r evised T erms of Reference and broader r emit of th e Co m mi tte e a re em be d de d. – Assessmen t of the external marke t when cons idering remunera tion arrangements for execut ive direct ors and the Executiv e Committee. – Rev iew t he e f fe c ti ven es s an d tr an sp are nc y o f remuneration reporting. – N ot in g of d ire c t fe ed ba ck f ro m BI G , M& S ’ col le ag u e rep res en tat iv e bo dy, to e nsu re th at al l co ll ea gu e vi ew s are re ce ive d a nd co nsi de re d by th e Bo ar d wh en m ak i ng re mu n er ati on a nd reward deci sions . T alent planning – Noting the performance management pro ces s ac ros s th e bu sin es s. – Discuss ing senior leadership talent and succ ession planning . REMUNER A TION C OM MITTE E EFFECTIVE NESS OF THE REMUNER A TION C OMMIT TEE Du ri n g the y ea r, the Bo a rd Ch ai rm a n le d an i nte rn al rev iew o f th e Bo ar d ’s ef fe c ti ven es s. A ll n on - e xec ut ive directors indep endentl y pro vided their v iews, whic h we re th en re vi ewe d an d di scu ss ed co l le ct iv ely. The Remunerat ion Committ ee, under t he le ad er sh ip of A n dre w Fi sh er, con tin ue s to op er ate ef f i cie nt ly ; ma t ter s dis cu ss ed d ur in g th e yea r fu l f il th e Co mm i tte e’s e xp an d ed re mi t an d ar e th ou gh tf u lly d e ba ted i n th e con tex t o f inte r na l and external factors. 2022/23 AC T I O N P L A N – Ful l rev i ew of t he M &S Re m un er ati o n Pol i cy i n anticipati on of the binding shareholder vot e at th e 2023 AGM , e nsu r in g th e po li c y con tin u es to acc elerat e the transformation and support lo ng -te r m suc cess o f M& S an d is a l ig ne d wi th th e 20 1 8 UK C or po r ate G ove rn an ce C od e, o th er external gov er nance and emer ging best prac tice . – Rev iew a nd d is cu ss G rou p f ut ure p ay a nd i nce nt ive structure s t o align with organisational design an d M& S va lu es , e nsu ri ng a p pro pr i aten es s of rew ard s tr uc t ure s an d cos ts fo r th e f ut ure , as we l l as co nti nu e d al ig n me nt w ith t he B o ard a pp ro ac h to p ay. – Rev iew o f pro p ose d ES G cus tom er s en ti me nt me tr ic a nd es ta bl i sh me nt of b a se l in e fo r measur ement toge ther with cont inuing di scuss ion on alt ernative ESG measur es t o ensur e appropriat e fo cus o n Pl a n A g oa l s in B oa rd p ay ar r an ge me nt s. – Cont inue t o support the work of the Nominati on Committee through the as sessmen t of senior leadership talent, suc cessi on planning and associa ted pay arrangemen ts, t ogether with talent plans and c olleague engagement acros s the entire organisati on. Annual Report & Financial Stat ements 2022 107 GOVERNANCE REMUNER A TION C OM MITTE E C ONTINUED FI G UR E 33: REMUNERA TION COMMI T TEE MEETINGS The table opposit e details the independent non-executive di rec tors th at we re mem be rs of the C om mit tee d ur in g 202 1 /22. MEMBER Member since Maximum possible meetings Number of meetings attended % of meetings attended Andrew Fi sher ( Committee C hair ) 1 Oc tob er 20 1 8 5 5 10 0 % Archie Norman 3 November 20 1 7 5 5 10 0 % T amara Ingram 1 1 September 202 0 5 5 10 0 % COMMIT TEE AD VI SERS In carr ying out its responsibilitie s, the Committee i s independentl y advised by external advisers. The Committee wa s ad vis ed by P w C du ri ng th e year. P wC i s a fou ndi ng m em be r of th e Remunera tion Consul tants Group and volu nt ar ily op er ates un de r the co de of con du ct i n rel a tio n to execu tive remunerat ion c o nsult ing in the UK . Th e cod e of con du ct c a n be fo un d at remunerat ionconsu ltantsgro up.com. Th e Co mmi t tee ha s not e xp l ici tly cons idered the independence o f the ad vi ce it rece ives , al tho ug h it re gu l ar ly ref lec ts o n th e qu al it y a nd o bje ct iv it y of thi s ad vice . Th e Com mi t tee is s atis f ied t hat any conflicts are appropriat ely managed. P wC w as a pp oin ted by th e Com mi tte e as its independent advis er in 2 0 1 4, following a ri go rous a nd com pet iti ve tend er pro ce ss. PwC pr ovides independen t commen tar y on matt ers under consi de rat io n by the Co mm it tee a nd updat es on legislative requir ements, be st pr ac ti ce and m ar ket pr a ct ice. P w C ’s fees are t y pic a lly ch arg ed o n an h our ly ba sis , wi th cost s for wo rk a gre ed in a dv a nce. Du ri ng th e yea r , P w C ch arg ed £66,7 50 fo r Remunerati on Committee m atter s. This is ba sed o n an a gre ed fe e fo r busi nes s as u sual s uppor t, with a dditional work cha rge d at ho ur ly rates . P wC h as p rovid ed ta x , con sult an cy a nd r isk co nsu ltin g ser vi ces to the G roup i n th e fi na nc ial y ear. P wC ’s ad vi sor y team ha s no con ne c tio n wi th any i nd iv idu al d ire c tor of th e Gro up. The Committee al so seeks int ernal sup po r t f rom th e CEO, CF O, G en er al Counse l & C ompany Secre tar y and the H ea d of E xec uti ve Rew ard & Pay G over na nce as n eces sa r y. All m ay atte nd the C ommittee meeting s by invitation but are no t prese nt fo r any d iscus sio ns th at rel ate d irec tly to th eir ow n rem un er atio n . The Committee al so r eviews ex ternal survey and bes poke b enchmarking dat a , in clu di ng th at pu bl is he d by Aon H ewi t t Li mi ted , KPM G , P w C , FI T Remunera tion Consul tants, K orn Fe rr y and W il l is T ower s Watso n. REMUN ERA TION C OMMI T TEE ST AKEHOL DER AND SHAREH OLDER ENGA GEMENT Th e Co mmi t tee is d ed ic ated to ens ur ing tha t exec uti ve pay re ma ins co mp etit ive , ap prop r iate an d f ai r in th e contex t s of th e external marke t, Company per formance an d the p ay ar ra ng em ent s of th e wi de r wor k fo rce. In col l a bo rat ion w it h the H ead of E xec uti ve Rew ard & P ay Gove rn an ce, the C om mit tee g ive s col lea gu es , thr ough c olleague r epres entativ es, the oppor tunity t o raise questions or conc er ns r egarding the remuneration o f the e xecu ti ve dire c tors . Du ri ng th e yea r , colleague represen tatives were given the o pp or tun it y to ra ise th eir v ie ws wi th the R emuneration Committee via the BIG C ha ir . Det ai l s of th e di rec tors’ pay ar ra ng em ent s were d iscu sse d in th e contex t of the rew ard f r am ewor k for t he rest of t he org an is atio n an d ex ter n al fac t ors; no concerns wer e raised either du ri ng th ese d iscus sio ns o r subs eq ue ntly . Th e Co mmi t tee is d ed ic ated to a conti nu ous , o pe n an d tra nsp are nt di alo gu e wi th sh areh ol de rs on th e is sue of exe cuti ve rem un er atio n . As d escr ib ed i n the C om mit tee C ha ir ’s let ter , di alo gu e on the propo sed me asur es and w eightings of th e PSP co ntin ue d du ri ng th e yea r . Shareholders were po sitiv e in their feedback and c onfirmed that the targe ts set al i gn ed w ith th ei r ex pe c tati ons . SHAREHOLDER S UPPORT FOR THE REMUNERA TION POLIC Y AND 2 02 0/2 1 DIRE CTORS’ RE MUNER A TION R EPORT At the Annual General Mee ting on 6 Ju ly 20 2 1 , 99 . 1 5% of share ho lde rs voted in f avo ur of a pp rovi ng th e Direct ors’ Remuneration Repor t f or 202 0/2 1 . T h e Com mi t tee be l ieves th at th is il lus tr ates the s trong l evel o f sha reho ld er support for the senior remunerati on fr am ewo rk . T he t ab le b elow sh ows f ul l det ai l s of th e votin g ou tcomes fo r th e 20 20/ 2 1 Dir ectors ’ Remuneration Repor t. FIGURE 3 4: V OTING O UTC OME S F OR THE REMUNE RA TION P OLICY AND 2 020 /2 1 REMUNER A TION REPORT Votes f or % Vote s fo r Votes against % Vote s ag ai ns t Vote s withheld Rem un era tio n Pol ic y ( at th e 202 0 AG M) 1 ,125 , 6 97,13 4 9 7. 14 % 3 3 ,18 7, 6 0 2 2. 86% 9 42 , 792 2020/2 1 Re mun era tio n Re por t (at the 202 1 AGM) 1, 2 71,170 , 6 2 5 9 9 .15 % 10 , 910 , 0 4 0 0.85 % 2,73 4 , 6 63 AP P ROV E D BY TH E B OA R D An drew F ish er Chair of t he Remuneration Committee Lo nd on , 24 May 2022 Th is R em un er at io n Po li c y an d th ese re mu n er ati o n rep or t s h ave b ee n pre p are d in a cco rd an ce wi th t he re le va nt p rov isi o n of th e Co mp a ni es Ac t 20 0 6 an d on t he b as is p res cr ib ed i n the Large and Medium-sized Companies and Groups (Ac counts and Repor ts ) (Amendment ) Regulations 20 1 3 (“the Regulations ” ). W here required, data has been audited by Deloitte, an d th is is i n di ca ted a pp ro pr ia tely. Ma rks a nd S pe nc er G ro up p lc 108 DIRECTORS’ REPORT Ma rk s an d Sp en cer G rou p plc (the “ Com pa ny ”) is t he ho ld ing co mp any of th e Ma rk s & Sp en cer G rou p of compani es ( the “Gr oup”). Th e Di rec tors’ Re po r t for t he yea r en de d 2Ap ri l 202 2 com pr ises p ag es 56 to 1 1 2 an d pa ges 2 1 0 to 2 1 1 of t his re po r t, toget he r wi th the s ec tio ns of t he A nn ua l Report incorporat ed by r eferenc e. As pe rm it ted by le gi sl ati on , so me of t he mat ter s req uire d to be in clu de d in t he Di rec tors’ Rep or t have in stead b ee n in clu de d in th e Str ateg ic Rep or t on p ag es 2 to 5 5 , as t he B oa rd consid er s the m to be of strategic impor tance. Specifically , th ese a re: – Fut ure busine ss dev elopments (throughou t the Strategic Repor t). – Risk m an ag em ent o n pa ge s 45 to 46. – Deta il s o f br an ches o p er ated by th e Com pa ny on p ag es 9 to 25. – Info rm atio n on h ow th e dire c tors have h ad reg a rd for th e Com pa ny ’s st akeh old er s, a nd t he ef f ec t of th at reg ard , on p ag es 32 t o 34. The St rategi c Report and the Dir ec t ors ’ Report toge ther f orm the Management Rep or t f or th e pu rp oses o f the D iscl osure Guidance an d T ranspar ency Rule s (“ DTR ”)4 . 1 . 8R . Information rel ating to f inancial ins tr um ents c a n be fo un d on p ag es 1 65 to1 75 and is i ncor po r ated by refe rence . For in formati on on our appr oach t o social, envir onmental and ethical matters, ple ase s ee ou r ESG C om mit tee re po r t on p ag es 70 t o 77 , an d refe r to the sustainability section of our webs ite: marksandspencer .com/ sustainability . Ot her i nfo rm ati on to be d iscl osed i n th e Di rec tors’ Rep or t is gi ven i n this s ec tio n . Th e Di rec tors’ Re po r t fu l fi l s th e requir ements of the C orporate Governanc e Stat ement for the purposes of DTR 7 .2. 3R . Fu r the r in for ma tio n is ava il a ble o nl i ne at marksandspencer . com/thec ompany . Both t he St rate gic R epo r t a nd th e Di rec tors’ Rep or t have be en d r awn u p an d prese nted i n accord an ce wi th , an d in relianc e upon, applicable English company l aw, and th e l ia bi li ties o f the d ire cto rs in conn ec ti on w ith t hose re po r ts s ha ll b e sub jec t to the l i mit ati ons a nd res tri c tio ns prov ide d by suc h l aw. INFORMA TION TO BE DISCL OSED UN D ER LR 9. 8 . 4R Listin g Rule Detail Page refere nce 9.8 . 4R ( 1 ) ( 2 ) (5- 1 4) ( A) (B) Not applicable N /A 9 . 8 . 4 R (4 ) Long-term incen tive schemes 86 -88 , 9 1 -9 3, 95 , 9 9 -10 4 BO ARD OF DIRECT ORS Th e me mb er shi p of th e Boa rd an d biographical deta ils of th e dir ectors are p rovid ed o n pa ges 6 0 an d 6 1 . C ha ng es to the di rec tors d ur in g the y ear a nd u p to the d ate of th is rep or t are set o ut b elow. Details of directors ’ beneficial an d no n- b en ef ici al i nterest s in th e sha res of the C om pa ny are sho wn o n pa ges 100 to 1 02 an d 1 05 . O ptio ns g ra nted to di rec tors un de r the S ave A s Y ou E ar n (“ S A YE ”) a nd E xecu ti ve Sh are O ptio n Sc he mes a re show n on p ag e 1 02. Fu r th er i nfor m atio n regar ding empl oy ee shar e option sch em es is prov id ed i n note 1 3 to the f in anc ia l sta teme nts o n pa ges 1 54 to 1 56. Name Role Ef f ec ti ve d ate o f departure/ appointment Depa rtu res Steve Rowe E xecu tive Direct or 25 May 202 2 Appointments Fiona Daw son Non - E xecutive Direct or 25 May 202 1 Stuar t Machin E xecutive Direct or 25 May 202 2 Kati e Bickerstaf fe E xecutive Direct or 25 May 202 2 The appointmen t and replacement o f di rec tors is g over ne d by the C om pa ny’s Ar ticle s of A sso ciat ion (t he “ Ar ticl es”), the U K Cor p or ate Gove rn an ce Cod e (the “ Cod e” ), the C om pa nie s Ac t 200 6 a nd rel ate d leg isl a tio n. T he A r ti cles m ay be am en de d by a spe cia l reso lut ion o f the sha reh old er s. Su bje c t to the A r tic les , the C om pa nie s Act 20 0 6 an d any direction s given by spec ial r esolut ion, the b usi nes s of th e Com pa ny wi ll b e ma na ge d by the B oa rd wh o may exe rcise al l the p owe rs of th e Com pa ny. The Compan y may , b y or dinary res olution, declare dividends not ex ceeding the am ou nt recom me nd ed by th e Bo ard . Su bje ct to th e Com pa ni es Ac t 20 06 , th e Bo ard m ay pay inte ri m di vi de nds a nd a l so any fixed rat e dividend , whene ver t he f in anc ia l posi tio n of th e Com p any, in the op ini on o f the B oa rd, j usti f ies i ts p aym ent . Th e di rec tors m ay fro m tim e to tim e ap po int o ne o r mo re dire c tors. T h e Bo ard may a pp oin t any pe rso n to be a d irec tor ( so lo ng as th e tota l nu mb er of d ire ctor s do es not e xcee d the l i mit p rescr ib ed i n the A r ti cles). Unde r th e Ar t icle s, a ny suc h di rec tor sh al l ho ld of f i ce on ly unti l the next Annual General Meeting (“ AGM”) wh ere th ey wi ll s ta nd fo r an nu al e lec ti on . DIRECTORS ’ C ONFLICTS OF INTEREST Th e Co mp any ha s pro cedu res in p l ace f or managing con fl icts of inter est. Should a di rec tor be com e awa re tha t they, or any o f the ir con ne c ted pa r ti es , have a n interes t in a n ex isti ng o r prop ose d tr ans ac ti on w ith Ma rk s & Sp en cer, they sho ul d noti f y th e Bo ard in w r iti ng or a t the n ex t B oa rd me etin g. I nter na l contro l s are i n pl a ce to ensu re th at any rel ated p ar t y tr an sa c tio ns inv olving directors, or their connected pa r ti es, a re con duc te d on an a r m’s leng th ba sis. D ire cto rs have a co ntin ui ng d ut y to upd ate any ch an ge s to these con fl i ct s. DIRECTORS’ INDEMNITIE S The Compan y main tains dir ec t ors ’ and of f i cers’ l ia bil i t y insu r ance w hi ch p rovid es appropria te c over for l egal action brought ag ai nst i ts di rec tors . T he Co mp any h as al so g ra nted i nd em nit ies to ea ch of i ts direct ors and the Company Sec retary t o the e x tent p er mi t ted by l aw. Qu al if yi ng third-par ty indemnity provis ions ( as def i ne d by Se ct ion 234 of t he Co mp an ies Ac t 20 06) were i n force d ur ing t he yea r en de d 2 Ap ri l 202 2 an d rema in i n force in rel atio n to cer ta in lo sses a nd l i abi l iti es wh ich t he di rec tors (or Co mp any Se creta r y) may i ncu r to third p ar ties i n the co urs e of ac ti ng as d ire cto rs or Company Secretary or empl oy ees o f the Company or of an y associa ted compan y. Qual if ying pension scheme indemnit y prov isio ns (as def in ed by S ec ti on 235 of the C om pa nie s Act 20 0 6) were in f orce du ri ng th e cour se of th e f in an cia l yea r en de d 2 Ap ri l 202 2 for t he b ene f it of the Truste es of th e Ma rk s & Sp en cer UK Pe nsio n Sc hem e, b oth i n the U K an d the R epublic of Ir el and. O TH E R DIS C L OSURES GOVERNANCE Annual Report & Financial Stat ements 2022 109 GOVERNANCE PROFIT AN D DI VIDENDS Th e prof i t for t he f in an ci al yea r , af te r ta xa tio n, a mo unt s to £309.0 m ( l as t yea r £( 1 94 .4)m o n a 5 2 wee k ba sis ). Th e direct ors hav e not decl ared dividends as follows: Ordinary share s £m No pr oposed interim dividend (l a st yea r no p ropo sed int erim dividend) – No pr oposed final dividend (l a st yea r no p ropo sed final dividend ) – No dividen d propo sed f o r 2 0 21/ 2 2 (l a st yea r no propo sed dividend) – SHARE CAPIT AL The Compan y’s issued or dinar y share ca pi ta l as at 2 A pr il 2022 comp ris ed a sin gle c l ass o f ord in ar y s hare . Ea ch sh are ca rr ie s the r ig ht to one vote at g en er al me etin gs of t he Co mp any. Du ri ng th e f in an cia l yea r , 2 1 5 ,7 53 ord in ar y sha res in t he Co mp any we re issu ed u nd er the te rms o f the U ni ted K ing do m Em ploye es’ SA YE S ha re Op tio n Sch em e. 3 1 , 4 70 shares we re issu ed at a p ri ce of 1 5 1 p, 1 22, 1 63 sha res at a pr ice of 82p and 62, 1 20 sh ares at a p ri ce of 238p. In a ddi tio n , du ri ng th e pe ri od , 2, 1 76,0 0 0 ord ina r y sh are s were is sue d to satis f y em ploye e sha re awa rds u nd er th e Com pa ny ’s Restri c ted Sh are Pl an at a pr ice of 1 p. Det ai l s of move me nts i n the C om pa ny’s issu ed s ha re ca pi tal c a n be fo un d in note 24 t o t he f in an ci al st atem ent s on p ag e1 77 . RESTRIC TIONS ON TR ANSFER OFS E CUR IT I ES Th ere a re no sp eci f ic rest ri ct ion s on th e tr ans fer o f secu ri tie s in th e Com pa ny, wh ich i s gove rn ed by it s Ar ticle s an d prev ai li ng l egi sl ati on . T he Co mp any is n ot awa re of any a gre em ents b et we en ho ld ers of se cur iti es th at may resu lt i n restr ic tio ns on th e tr ans fer o f sec ur iti es or th at m igh t resul t in rest ri ct ion s on voti ng r ig hts . Informa tion pro vided to the Compan y pu rsu ant to th e Fi na nci al Co nd uc t Auth or it y ’s D TR s is pu bl is he d on a Regulat or y In format ion Service and on th e Co mp any ’s websi te. As at 2 A p ril 202 2, th e fol low in g info rm ati on h as be en re ceive d , in a ccorda nce w ith DTR 5, f rom h ol der s of no tif i ab le inte rests i n the C o mpany’ s issued share capital. Th e in for mat ion p rovi de d be low wa s cor rec t at th e date of n oti fi c atio n; howeve r , the d ate rece ive d may no t have b ee n wi thi n the cu r rent f in an ci al yea r . It s hou ld b e noted t hat t hese holdings ar e likely to h av e changed sin ce the Co mp any w as n otif i ed . Howeve r , noti f ic ati on of a ny cha ng e is not requir ed unt il the next not if iable threshold is crossed. Notifiable inter ests Voting rights % of c ap it a l disclosed N atu re o f ho ld in g as p er d isc lo sur e Schr oders plc 9 0 ,15 3 , 7 3 0 5.54 9 * Indirect int erest (5.5 4 7%), CFD (0.0 0 1 %) Citadel LL C and its group 97, 6 7 9 , 5 4 9 5.000 5 2 ** Equity swap Black r ock , Inc. 9 8 , 15 7, 2 5 0 5 . 01 Indirect int erest ( 4.62 %), securities lending (0. 1 3 %), CFD (0.26 %) RWC A ss et Management LLP 10 4 , 9 6 5 , 6 6 0 5 . 38 Indirect int erest Norge s Bank 57 ,7 9 6 ,956 2 . 9 51 6 8 Di rec t i ntere st * D is cl osu res m ad e p ri or to t he 201 9 r ig ht s is sue . ** Di scl ose d o n 1 5 S ep tem be r 2020 . A fu r th e r dis cl osu re w as m ad e on 15 Sep tem be r no ti f y in g th e Co mp any th at Ci ta d el ’s ho ld in g ha d de cre as ed b el ow th e 5% no tiﬁ ab le t hre sh ol d , wh ic h di d not s t ate th e ne w po sit io n . In th e pe ri od f rom 2 A pr il 2022 t o th e date of t his re po r t, w e recei ved a f ur the r noti f ic ati on in a ccord ance w it h DTR 5 from B l ac kro ck In c. , d iscl osin g a ho ldi ng of 1 1 7 , 3 1 9 , 1 2 6 ord ina r y sh ares (5 .9 7% , bro ken d own as f ol lows: I nd irec t , 5. 49%; Se cur iti es le nd ing , 0 . 0 7%; an d CFD,0 .4 1 %) . IN TE R E ST S I N VOTI NG R IG H TS V AR I A T I ON O F R IG H TS Subject t o applicable stat ute s , right s at ta che d to any cl as s of sh are m ay be va ri ed w ith t he w ri tte n conse nt of t he ho lde rs of at l eas t thre e - qu ar te rs in no min al v al ue o f the is sue d sh ares of tha t cl as s, o r by a sp eci al res olu tio n pa sse d at a sep a rate g ene r al me eti ng of t he shar eholders. RIGHTS AND OBLIGA TIONS A T TACHI NG TO S H AR E S Su bje ct to th e provi sio ns of th e Com pa ni es Ac t 20 06 , a ny resol uti on pa sse d by the Co mp any u nd er th e Com pa ni es Ac t 20 06 a nd ot he r sha reh old er s’ rig hts , sh ares m ay be is sue d wi th suc h ri ght s an d restr ic tio ns as t he Compan y ma y b y or dinar y re solut ion de cid e, o r (i f the re is no su ch reso lu tio n or so f a r as it d oe s not m ake sp ec if ic prov isio n ) as th e Bo ard m ay dec id e. POW E RS FO R T HE CO M P AN Y IS SU I NG O R B UY IN G BACK I TS OW N SHARES Th e Co mp any w as au tho ri sed by sha reh old er s at the 202 1 AGM to pu rchas e in th e ma rket u p to 1 0% o f the Co mp a ny’s issu ed s ha re ca pi tal , as p er mit te d und er the C om pa ny’s Ar ticl es. N o sha res were bought back under this authority during the ye ar e nd ed 2 A pr il 2022 and u p to the date of t his re po r t. This standar d authority is renewable an nu al ly ; the d ire ctor s wi ll s ee k to renew i t at th e 202 2 AG M . Th e Co mp any w as al s o aut hor ise d at th e 202 1 AG M , pur sua nt to the re du ct ion o f the n om in al v alu e of i ts ord in ar y sha res fro m £ 0 .25 to £ 0 . 0 1, t o m ake a n of f-m ar ket pu rcha se of it s de fer red sh ares o f £ 0. 24 eac h. I n accord an ce wi th th is au tho ri t y, 1 ,95 7 ,77 9 ,62 6 d efe rre d sha res of £0. 2 4 we re bo ug ht ba ck fo r a total a gg reg ate am ou nt of £0.01 , an d ca nce ll ed on 8 J uly 202 1 . Ma rks a nd S pe nc er G ro up p lc 110 GOVERNANCE O THE R DISC LO SUR ES C ONTINUED Th e di rec tors we re gr an ted au tho ri t y at th e 202 1 AGM to al lot re lev ant sec ur iti es up to a no mi na l amo un t of £ 6 , 5 2 1 ,7 58 .6 4. T hi s aut ho ri ty w il l a pp ly unt il th e conc lusi on of t he 2022 A GM . At thi s year ’s AGM , sh are ho lde rs w il l be aske d to gra nt an a uth or it y to al lot relev an t secu r itie s (i ) up to a no mi na l am ou nt of £6,529,88 1 .95 and ( ii ) com pr isin g eq ui ty s ecu ri tie s up to a nominal a mount o f £ 1 3,05 9, 7 63. 9 1 ( af te r de du ct ing f rom su ch l im it a ny relev an t secu r itie s al lot ted u nd er ( i)), in con ne c tio n wi th an o f fe r of a ri ght s issu e (the S ec ti on 55 1 amo unt), suc h Se ct ion 55 1 am oun t to app ly unti l the conc lusi on of t he AGM to b e hel d in 2023 or o n 1 Oc tob er 2023, wh ich ever i s soo ne r . A spe ci al reso lu tio n wi ll b e pro pose d to renew th e di rec tors’ po wers to m ake no n pre - em pti ve issu es fo r ca sh in conn ec ti on w ith r ig hts i ssu es an d oth er w ise u p to a nom in al a mo unt of £9 79,482.29. In a dd iti on , a se pa rate spe ci al reso lu tio n wi ll b e pro pose d , in l i ne with inst itutional s hareholder guidelines, to auth or ise th e di rec tors to m ake no n- p re- e mpt ive is sue s for c ash i n connection with acqui siti ons/ specified ca pi ta l invest me nts , up to a f ur t he r nominal amount of £ 97 9,48 2.29 . A spe ci al reso lu tio n wi ll a l so be p rop ose d to renew th e di rec tors’ au tho r it y to repur chase t he Company’ s ordina r y sha res in t he m ar ket. T he a uth or it y w il l be l im ite d to a max im um o f 1 95, 896 ,459 ord ina r y sh are s and s ets th e mi nim um an d ma xi mu m pr ices w hic h wi ll b e pa id . DEADLINE S F OR EXERCISING VOTI NGR I G HT S V otes are e xerci sa ble at a g en er al m eet in g of th e Com pa ny in resp ec t of w hi ch the b usi nes s bei ng vote d up on is b ei ng hea rd . V otes may b e exe rcise d in p ers on , by prox y o r , i n rel at ion to cor po r ate members, b y corporat e repr esentat ives. Th e Ar ticl es prov ide a d ea dl in e fo r sub mis sio n of p roxy f or ms of n ot les s tha n 48 h our s bef ore th e tim e ap po inted for t he ho ld ing o f the m eet ing o r adjourned mee ting. Ho wev er , when ca lcu l ati ng th e 48 -h ou r pe ri od , th e direct ors can, and ha ve, dec ided no t t o ta ke accou nt of any p ar t of a day t hat is not a wo rk in g d ay . SIGNIFI CANT A G REEME NTS – CHANGE OF CONT ROL Th ere a re a num b er of a gre eme nts to wh ich t he Co mp any is p ar ty t hat t ake ef fe c t, a lter o r ter mi nate u pon a c ha ng e of cont rol of th e Co mp any fo llow in g a ta keover b id . De tai l s of th e sig ni fi c ant ag reem en ts of th is k in d are as fo ll ows: – Th e $300 m U S Notes is sue d by th e Compan y t o various in stit utions on 6 De cem be r 2007 un de r Sec ti on 1 4 4 a of th e US Se cu ri ties Ac t con ta in an option such t hat, upon a change of contro l event , com bi ne d wi th a cred it ratings downgrade, any holder of suc h a US No te may req uire t he Com pa ny to prep ay the p ri nc ip al am ou nt of th at US N ote. – Th e £ 850 m Cred it Ag ree me nt da ted 1 3 D ece mb er 202 1 bet we en th e Company and various banks con tains a pr ovision such tha t , upon a change of cont rol even t, u nl ess n ew term s are ag reed w it hin 6 0 day s, t he f ac il it y u nd er thi s agre em ent w il l b e ca nce ll ed w ith a ll outstanding amounts becoming immediat ely payable with inter est. – The amended and res tat ed Relation ship Agre em ent d ated 6 O c tobe r 20 1 4 ( o r igi na lly d ated 9 N ovem be r 200 4 as am en de d on 1 M arch 20 05), b et wee n HS BC an d the C om pa ny and re l ati ng to M&S B an k , con ta ins ce r ta in p rovisi ons wh ich a dd ress a ch an ge o f contro l of the C om pa ny . U po n a ch an ge of contro l , th e ex isti ng r ig hts a nd ob li ga tio ns of th e pa r ti es in resp ec t o f M&S B an k cont inu e an d HS BC g ain s certain limited addit ional rights in respe c t of ex is tin g custo mer s of th e new cont roller of the Company . Where a thi rd- p ar t y a rr an ge me nt is i n pl a ce for t he su pp ly of f ina nc ia l ser vices prod uc t s to exis tin g cus tome rs of th e new co ntrol le r , t he Co mp any is re qu ired to procu re the te rm in atio n of su ch arrangement as soon as practicable (whi le no t bei ng re qu ired to d o any th in g tha t wou ld brea ch su ch a th ird -p ar t y arrangement ). Where a thir d -par ty ar ra ng em ent i s so ter min ated , o r do es not e xi st , HSB C ha s the e xclusi ve ri gh t to neg oti ate prop ose d term s for t he of f er an d sa le , of f in an cia l se r vi ces prod uc t s to the ex ist ing c ustom er s of the n ew cont rol ler by H SBC o n an exclu sive b asi s. W he re the Co mp any under takes a re-bra nding ex e rc ise with the n ew cont rol ler fo l lowi ng a ch an ge of cont rol (whi ch i nclu de s usin g any M&S b r and i n resp ec t of th e new contro ll er ’s busi nes s or v ice ver sa), HS BC may, de pe ndi ng o n the n atu re of th e re- b ra nd ing e xerci se, h ave the ri ght (exerci sa ble at H SB C ’s elec ti on) t o termina te the R elationship A greement. – Th e Com pa ny do es not h ave agreemen ts with any dir ec tor or empl oy ee tha t would provide com pen sa tio n for lo ss of of f ice or em ploy me nt resu ltin g f rom a ta keove r excep t that p rovi sion s of th e Com pa ny ’s sha re sch em es an d pl a ns m ay ca use opt ion s an d awa rds gr an ted to em ploye es un de r suc h sch em es an d pl a ns to vest o n a ta keover. COLLEAGUE INVOL VEMENT We rema in com mi tte d to coll eag ue inv olv ement thr oughout the busine ss. Col le ag ues a re kept we ll i nfo rm ed of t he pe r fo rm an ce and s tr ategy o f the G rou p. E xa mp les o f col lea gu e involve me nt an d engagement, and inf ormation on our approac h t o our w or kforc e, are highlight ed thro ug hou t thi s An nu al Re po r t an d spe ci fi c al ly on p age s 26 t o 29, 32 to 34, an d 63 to 64. Share schemes are a long-established and succes sf ul p ar t o f col lea gu es’ total rew ard packages, encouraging and supporting em ploye e sha re own er shi p. T he Co mp any op er ates bo th an a ll- e mp loyee SA YE Sch em e an d Sh are I ncen tive P l an . A s at 2 Ap ri l 202 2, 1 5 ,4 42 c ol le ag ues we re pa r tic ip atin g in S ha reS ave, th e Com pa ny ’s SA Y E Sch em e. Fu ll d eta il s of a l l sch em es are g ive n on p ag es 1 54 to 1 56 . Th ere a re websi tes for b oth p ens ion sch em es – the d ef in ed co ntr ibu tio n sch em e ( Y ou r M& S UK Pe nsio n S avin g Plan ) and t he defined benefit s cheme (t he Marks & Spencer UK Pension Sc heme ) – wh ich a re fu l ly accessi ble to e mp loyees an d for me r em ploye es w ho have ret ai ne d benefits in e ither sc heme. Empl oyee s are updat ed as needed with any pertinent inf or mati on o n the ir p en sion s avi ng s. Annual Report & Financial Stat ements 2022 111 GOVERNANCE EQU AL OPPORTUNITIES Th e G roup i s comm it ted to an a c tive inclus ion , div ersity and equal opportunities pol icy: from rec ruitment and selection, thr ough training and dev elopment, performance r eviews and pr omotion, t o re tir ement. Th e Co mp any ’s pol ic y is to pro mote a n envir onment fr ee fr om dis criminat ion, harassment and victimisat ion, where ever yone w il l rece ive e qu al tre atm ent reg ard less o f ge nd er, c olo ur, ethni c or nati onal origin, he alth condit ion , age, ma ri ta l or ci vi l pa r tn er st atu s, s ex ua l or ie ntat ion , g en de r id enti t y or f a ith . Al l de cisi ons re l ati ng to em ploy me nt pr ac ti ces wi ll b e ob jec ti ve, f ree f rom bi as an d ba sed s ole ly upo n wo rk cr ite ri a an d ind iv id ua l me ri t. T he C om pa ny is respo nsi ve to the n ee ds of i ts em ploye es , cus tome rs an d the co mm un it y at l a rge. M&S i s an o rga nis ati on w hic h uses ever yone ’s tale nts a nd a bil i ties a nd wh ere i nclu sio n an d di versi t y are v alu ed . M&S h as a b usi nes s-wi de i ncl usio n an d di vers it y str ateg y, spon sore d by a member o f the E xecut ive Committee and c hampioned b y our Inc lusi on Ac tiv ati on G rou p of se nio r le ade rs . Our se ven employ ee -led diver sity net wo rk s are su pp or te d by a centr al In clusi on a nd D ive rsit y tea m , wh o wor k to em be d a cul ture o f inc lusi on a cross t he org an isa tio n. I n 20 1 7 , o ur i ncl usio n an d di vers it y ta rget s were a gree d as: a im ing to have 50% fe ma le re prese nta tio n an d 1 5 % eth nic m in or it y rep rese ntat ion o n th e M&S s en ior m an ag em ent te am by 2022. Unf or tu na tely , th ese ta rget s have n ot be en a chi eved ; in resp on se we wi l l ma int ai n thes e as ta rget s an d throu gh a revi ew an d re- set of o ur s tra tegy a nd ap pro ach , we w il l en sure fo cus is g ive n t o gender r epresenta tion, ethni city and disability. We know we h ave a lot m ore to do , bu t we are f ac in g into thi s and w a nt to show ou r colle agues, c ust omers and c ommunities tha t we conti nu e to be com mit te d to ma ki ng M &S an i nc lusi ve org an isa tio n. Further in formati on on our inc lusion an d di versi t y in iti ati ves ca n be f oun d on pa ges 26 to 29, and p ag e 69. EMPLO YEE S WI TH DISABILITIES Th e Co mp any is cl ear i n it s po li cy t hat pe op le w ith h eal th con di tio ns , both v isi bl e and non-visible, should hav e full and f air co nsid er ati on fo r al l v ac an cies . M&S h as co ntin ue d to dem on str ate its commitmen t t o int er viewing those applicants with disabil itie s who fulf il the minimum criteria, and endea vouring to retai n em ploye es in th e wor k fo rce if t hey bec ome disabled during em ploy me nt. M &S w il l ac ti vely retr ai n an d adjust emp lo yees ’ envir onments where pos sib le to al low th em to ma xi mi se the ir pote ntia l an d wi ll co ntin ue to wor k w ith external or ganisations to pro vide workplace opportuniti es t hrough our in nov ative M ar k s & Sta r t sch em e, wo rk i ng close ly wi th T he Pr in ce’s T ru st a nd Job cen tre Plu s, m ost re cently v ia th e Kickstart programme. RESEAR CH & DEVEL OPM ENT Rese arch a nd in nov ati on rem ai n key to ou r Fo od of fer a nd th e deve lop me nt of im prove d prod uc t a nd f ab r ic in Clo thing & Home. Fur ther informat ion is ava il a bl e on o ur cor po r ate websi te: marksandspencer .com/thecompan y . GROCERIES SUP PL Y C ODE O F PR AC T I CE Th e G rocer ies (Su pp ly Cha in P ra ct ices ) Ma rket I nvesti gat ion O rde r 20 09 (th e “O rde r” ) a nd T he G roce ri es Su pp ly Cod e of Pr ac ti ce (the “C od e”) i mp ose o bl ig ati ons on M&S regarding its r el ation ships with its suppliers of groceries. Under the Order and C ode, M&S is r equired t o submit an annual c ompl iance report t o the A udit Com mi t tee for a pp rova l an d the n to the Competiti on and Marke ts Authority and G rocer ies Co de A dju dic ator ( “G CA”). M&S s ub mit ted i ts re po r t , coveri ng th e pe ri od f rom 4 A pr il 202 1 to 2 Apr il 2022 to the Au dit C om mi tte e on 1 2 May 2022. It w as ap prove d on 1 9 M ay 202 2 . In a ccorda nce w ith th e O rder, a summ ar y of th at com pl ia nce re po r t is set o ut b elow. M&S b el i eves th at it h as m ateri al ly com pl ie d wi th th e Cod e an d the O rde r du ri ng th e relev an t pe rio d . No fo rm al dis pu tes und er t he Co de h ave ar ise n du ri ng th e rep or ti ng p er io d. T he re have be en seve n in sta nces d ur in g the re po r ti ng pe ri od in w hi ch su pp li er s have ei the r al le ge d a brea ch o r ma de a refe ren ce to pot ential non -compliance with t he Code. M&S h as wo rke d wi th th e sup pl ie rs to ad dres s the is sue s ra ised a nd si x of th em have b ee n resolve d or clo sed , w ith o ne issue remaining open. One a dditional Cod e refe ren ce mad e by a sup pl i er b efore 4 Ap ri l 202 1 w as a l so clos ed d ur ing t he reporting period. A deta iled s ummar y of the complianc e rep or t is av ai l ab le o n ou r websi te. POLITICAL DONA TIONS Th e Co mp any di d not m ake a ny po li tic al donati ons or incur any pol itical expenditure during the y ear ended 2 Ap ri l 202 2. M& S has a p ol i cy o f not m ak in g do nat ion s to pol i tic al organisat ions or independent election candidates or incurring political ex pe nd itu re any w he re in th e wor ld as def i ne d in th e Pol it ic al P ar ti es , Ele c tio ns an d Refe rend um s Ac t 200 0. GOING C ONCERN In adopting the going c oncern bas is f or preparing t he financial sta temen ts, the di rec tors h ave consi de red th e bus ine ss ac ti vi ties a s set ou t on p ag es 1 0 to 25, the f i na nci al p osit ion o f the G rou p, i ts c ash flows, liquidity positi on and borro wing f aci l iti es as set o ut i n the F in an cia l Rev iew on p ag es 36 to 44 , th e Gro up’s f ina nc ia l ris k ma na ge me nt obj ec ti ves an d exposur es t o liquidity and financial risks as set o ut i n note 2 1 to the f in an ci al st ateme nts , as w el l as th e Gro up’s pr in cip al r isk s an d un cer t ai nties a s set ou t on p ag es 4 7 to 54. Bas ed o n the G rou p’s cas h fl ow fore ca sts , the B oa rd ex pe ct s the G ro up to have ad eq uate reso urces to conti nu e in op er atio n , me et it s l iab il i ties a s they f al l du e, ret ai n suf f i cie nt ava il a bl e ca sh an d not b reac h the cove na nt un de r its revo lvi ng cre di t f aci li t y for t he fores eea bl e fu tu re, be in g a pe ri od of at le ast 1 2 mon ths f rom th e ap prov al of the financial s tat ements. The Boar d ther efor e con siders it appropria te for the G roup to ad op t the g oin g con cer n bas is in pr eparing its financial stat ements. Se e no te 20 to the ﬁ na nci a l sta tem en ts for more informat ion on our facilities. LONG-TERM VIABILITY ST A TEME NT Th e di rec tors h ave ass esse d th e prosp ec ts of th e Com pa ny over a th ree -ye ar p er iod to Marc h 20 25. T his h as t aken i nto accou nt the b usi nes s mo del , str ateg ic a ims , ris k ap peti te, a nd p rin ci pa l ris ks a nd un cer t ai nties , a lon g wi th th e Com pa ny ’s cur rent f i na nci al p osi tio n. B ase d on t his ass essm ent , th e di rec tors h ave a rea sonable expectation that the Compan y wi ll b e ab le to conti nu e in o pe rat ion a nd me et it s li ab il it ies as t hey f al l d ue ove r the t hree -ye ar p er io d und er rev iew. Se e ou r ap p roa ch to as ses sin g lo ng -te rm viabilit y on page 5 5. AU DI T OR Reso lut ion s to reap poi nt D elo it te LLP a s au dito r of the C om pa ny and to au th or ise the Au di t Co mmi t tee to deter mi ne i ts remu ne ra tio n wi ll b e pro pos ed at th e 2022 AG M . ANNUAL G ENE RAL MEE TING Th e AGM of M ar k s and S p ence r G roup plc w il l b e broa dc as t on li ne f rom M&S ’ Wate rsid e Ho use su pp or t centre on 5 J uly 2022 at 1 1 a m. S h areh old er s are ad v ise d not to tr avel to the ve nu e on th e day. Th e Noti ce of Me eti ng is given, t ogether wit h explanatory notes a nd g uid an ce on h ow to access the m eet ing a nd vote e lec tro nic a lly, on p ag es 1 98 to 209. Ma rks a nd S pe nc er G ro up p lc 112 GOVERNANCE O THE R DISC LO SUR ES C ONTINUED DIRECTORS’ RESPONSIBILITIES Th e Bo ard is o f the v iew t hat th e An nu al Rep or t s ho uld b e tr uly rep resen tati ve of the ye ar a nd p rovid e sh areh old er s wi th the i nfo rm atio n ne cess ar y to asses s the Group’ s positi on, per formance, bus iness model and strategy . Th e Bo ard req ue sted th at th e Aud it Com mi t tee revi ew the A n nu al Re po r t an d prov ide i ts o pi nio n on w het he r the re po r t is fair , balanced and understan dable. The Aud it Co mm it tee’s op in ion i s on p ag e 80 . Th e di rec tors a re al so res po nsib le fo r preparing t he Annual R epor t, the Rem un er atio n Rep or t and Po l ic y an d the financial stat ements in ac cordanc e with applicable law and regulations. Company law r equires the dir ectors to prepare financial stat ements for each financial yea r . Un de r th at l aw th e dire c tors a re requir ed to prepare the Gr oup financial stat em ents in ac cordance with int ernational ac count ing standard s in confo rm it y w ith t he req ui rem ent s of th e Companie s Act 2006 and Int ernational Financial R epor ting Standards (“IFRS”). Un de r comp any l aw, th e dire c tors mu st not appr ove t he financial sta temen ts un less t hey a re sati sf ie d tha t they g ive a tru e an d f ai r vi ew of th e sta te of af f a irs of th e Gro up a nd th e Com p any an d of the p rof it o r loss o f the G rou p an d th e Compan y for that period. In pr eparing thes e financial sta temen ts, the di rect ors ar e requir ed t o: – Select suitable acc ounting policie s and then appl y them c onsist entl y . – Make judgements and acc ounting esti mates t hat a re reaso na bl e and pruden t. – State whether applicable IF RS ( as ad op ted by th e UK ) have b ee n fol lowe d , subj ec t to any ma teri al depar tur es di scl osed an d explained in the f inancial sta tement s. – Prepare the financial stat ements on a g oi ng con cer n bas is un les s it is inappr opriat e t o pre sume t hat the Com pa ny wi ll co nti nue i n bu sin ess . – The dir ec t ors ar e res ponsible for keeping adequate acc ounting rec ords tha t are su f f ici ent to sh ow an d ex pl a in the C om pa ny’s tr ans ac ti ons a nd dis close w it h reaso na bl e accu ra cy at any ti me th e f in an cia l pos itio n of th e Com pa ny an d en ab le th em to ensu re that the financial sta tements c omply wi th th e Com pa ni es Ac t 20 06 . T hey are also re sponsible for saf eguarding the ass ets of t he G rou p and t he Co mp any an d hen ce for t ak i ng reas on ab le step s for t he preve nti on a nd d etec tio n of fraud and o ther irregularities. The dir ectors are r espons ible f or the m ai nten an ce and i nteg ri t y of the Comp any’s website. Legisl atio n in th e UK g over ni ng th e pre pa rat ion and diss emination of financial st ateme nts m ay di f fe r fro m leg isl atio n in other jur isdic tions. Ea ch of t he cu rre nt di rec tors , w hos e na mes a nd f un c tio ns are l is ted on p ag es 60 a nd 6 1, conf ir ms th at, to th e bes t of th eir k n owle dg e: – The Group financial sta tement s, pre pa red in a ccord ance w it h the applicable set of acc ounting s tandards, gi ve a tru e an d f ai r vi ew of th e asse ts , liabil ities, financial pos ition and pr ofit or lo ss of th e Co mp any an d th e under takings included in the conso l id atio n ta ken as a w ho le . – The Management Report includes a f air rev iew o f the d evel op me nt an d pe r fo rm an ce of the b usi nes s an d the p osi tio n of the C om pa ny and the undertakings included in t he conso l id atio n ta ken as a w ho le , toget he r wi th a de scr ipti on of t he p ri nci pa l ri sks an d un cer t ain ties t hat th ey f ace. – T he A nn ua l Rep or t, t ake n as a wh ol e, is fair , balanced and understan dable, an d provi des t he n ecess ar y info r mati on for s ha reho lde rs to as sess th e G roup ’s positi on, per formance, bus iness model and st rat egy . DISCL OSURE OF INFORMA TION TO AUDITO R Ea ch of t he p ers ons w ho a re di rec tors at th e tim e wh en th is Di rec tors’ Re po r t is ap prove d conf i rms t hat , so f a r as he /she is awa re, t here i s no rel eva nt au dit i nfo rm ati on of w hi ch th e Com pa ny ’s au dito r is un awa re an d tha t he/sh e has ta ken al l th e steps t hat h e/she o ug ht to have ta ken as a d ire cto r to make hi msel f/h ers el f awa re of any re leva nt au di t informat ion and t o establish tha t the Co mp any ’s aud ito r is awa re of that information. The Directors ’ Report wa s appro ved by a dul y authorised committee of th e Boa rd of D ire c tor s on 24 M ay 2022 and sig ne d on it s be ha lf by Nick Folland General C ounsel and C ompany Sec re tar y Lo nd on , 24 May 2022 Annual Report & Financial Stat ements 2022 113 GOVERNANCE IND E PEN DE NT A U DIT O R ’ S RE PO RT TO TH E M EM B E RS O F MA RKS A ND S PE N CE R G ROU P PLC Rep or t o n th e aud it o f the f i na nci al s tatem en ts 1 . OP INION In our opinion: – the f in an cial s ta tem ent s of M ark s and Spencer Group plc (the ‘C ompany’) and its subsidiarie s (the ‘Group’) gi ve a tru e an d fai r vi ew of th e st ate of t he G rou p’s and o f th e Com pany ’s af fa irs as a t 2 Ap ril 2022 an d of th e G roup ’s prof it fo r th e 52 weeks t he n end ed ; – the G ro up f ina nc ial s tat eme nt s hav e been pr operl y prepar ed in accor dance wi th Unit ed Kingdom adopted international acc ounting standards; – the Compan y financial stat ements hav e been pr operl y prepar ed in accor dance wi th Unit ed Kingdom adopted international acc ounting standards and as applied in accor dance wi th the provi sions of th e Com pan ies A ct 2 0 06 ; an d – the f in an cial s ta tem ent s have be en prepared in accordan ce with the requirements of the C ompanies Ac t 20 0 6 . We have aud ite d the f i na nci al s tatem ent s which compris e: – the Consolidat ed Income S tat ement; – the Consol idated Statement of Compr ehensiv e Income; – the Consol idated and Com pany Sta teme nts o f Fi na nci al Posi tio n; – the Consol idated and Com pany Sta teme nts o f Cha ng es in Eq ui t y ; – the Consol idated and Com pany Sta teme nts o f Ca sh Fl ows; a nd – the rel ated notes 1 to 32 and C 1 to C7 . The financial reporting framework that has b ee n ap pl i ed i n the ir pre pa ra tio n is applicable law and Unit ed Kingdom adopt ed int ernationa l ac coun ting standard s and, as regards the C ompany financial stat ements, as applied in accord an ce wi th th e provi sio ns of th e Com pa ni es Ac t 20 06 . We condu c ted ou r au di t in acco rda nce with Int ernational Standards o n A uditing (UK ) ( ‘ ISA s (U K )’) a nd a pp li c abl e l aw. Our re sponsibilities u nder tho se standard s ar e further desc ribed in the a ud itor ’s respo nsi bil i ties f or th e au dit o f the f i na nci al s tatem en ts se ct ion of ou r rep or t . We are ind ep en de nt of th e G roup a nd t he Com pa ny in a ccorda nce w ith t he eth ic al req uire me nts th at a re relev ant to o ur au dit o f the f i na nci al s tatem en ts in t he UK , including the Financial R epor ting Cou nc il ’s (the ‘ FRC ’s’) Ethi ca l St and a rd as ap pl ie d to li sted p ubl i c intere st ent iti es , an d we have f ul f il le d ou r othe r eth ic al re sponsibilities in ac cor dance with these requir em ents. The non-audit services prov ide d to the G rou p an d Com pa ny for the p er io d are d isclo sed i n note 4 to the f in anc ia l sta teme nts . We conf ir m tha t we have n ot prov ide d any n on -a ud it se r v ices proh ib ited by t he FRC ’s Ethi ca l St and a rd to the G rou p or th e Com pa ny. We bel ieve t hat t he au di t evi de nce we have o bta in ed is su f f i cie nt an d appropria te t o pro vide a bas is for our opinion. 2. B ASIS F OR OP INION Ma rks a nd S pe nc er G ro up p lc 114 INDEPENDENT A UDIT OR ’S REPORT C ONTINUED INDEPENDENT A UDITOR’S REPORT KE Y AU DI T MAT TE R S Th e key au dit m at ter s that we i de nti fi ed in th e cur ren t year w ere: – impairment and impairment re versal of UK s tore ass ets; – accoun tin g for th e UK s tore est ate programme; – invento r y prov isio ns fo r UK Cl othi ng & Home; and – discl osure o f adj usti ng i tems as p ar t of alt ernative performance measur es. Wi th in th is rep or t , key au di t mat ter s are ide ntif ied as fol lows: In creas ed l evel of ri sk Si mil ar l evel of r isk De crea sed l evel of r isk MA TER IALIT Y Th e ma teri al it y t hat we u sed f or th e Group financial s tat ements was £2 5.0 m (2 02 1: £ 1 6. 0 m ) wh ich w as d eter mi ned o n the b asi s of consi de ri ng a n um be r of di f fe rent m etr ics u sed by i nvestor s an d other readers of the financial s tat ements. These inc luded: – adju sted p rof it b efore t ax ; – ear ni ngs b efo re interes t, t a x , deprecia tion and amortisati on; and – reven ue . SCO PI N G W e ha ve performed a full-sc ope audit on th e UK co mp on ent of t he bu sin ess . Ba l an ces sub jec t to fu l l scop e au dit rep resent 95% (2 02 1 : 9 6%) of the G roup’s reven ue , 88% (2 02 1: 9 5%) of adj uste d prof it b efo re ta x , 93% ( 202 1 : 93 % of los s bef ore ta x) of p rof it be fore t ax , 80 % ( 202 1 : 80 %) of tota l ass ets a nd 88% (2 02 1: 88%) of total l i abi l iti es. We pe r fo rm an aly ti ca l revi ew pro cedu res o n the re sidual balances. SIGNIFI CANT C HANGES IN OU R AP PR OAC H We have deter m ine d th at the i mp ai rm ent of pe r un a go od w il l and t he g oin g conce rn b asi s of accou nti ng a re no lon ge r key au dit m at ters i n th e cur rent period. These changes ar e disc ussed fu r th er i n sec ti on 5 . 3. SU MM ARY O F OU R AUD IT A PPROACH 4. C ONCLUSIONS REL A TING TO GOING CONC E RN In au di tin g th e fi na nc ial s tate me nts , we have con clu de d th at the d ire cto rs’ use of the going conc ern basis of acc ounting in th e pre pa rat ion o f the f i na nci al stat ements is appropriat e. Ou r eva lu atio n of th e di rec tors’ ass essm ent o f the G rou p’s and C om pa ny’s abilit y t o cont inue t o adopt the going conce rn b asi s of accou nti ng in clu de d: – obtained an understanding of r elevant contro l s rel at ing to th e ass essm ent o f going c oncern models, including the revi ew of th e in put s an d assu mp tio ns use d in th ose m od el s; – obtained management’s boar d - appro ved thr ee -year cash flow forecasts and c ovenant compliance f orecasts, including t he sens itivity analyse s; – r eview ed management’ s asse ssment of going conc ern and viability, including the t hree -ye ar p l an , as s et ou t in th ei r pa pe r to the Au dit C om mi tte e; – ass essed the appr opriat eness of for ecast a ssumpt ions by: · r eading analyst reports , indust r y dat a an d oth er e x tern al i nfo rm ati on and c omparing these w ith man ag eme nt’s estimates; · comp ar ing f orec as t sa les w ith re cent hist orical financial in format ion t o consi de r accu ra cy o f fore ca sti ng; · t esting the u nderlying da ta generated to pre pa re th e fo rec as t sce na ri os and t o det ermine whether there wa s ad equ ate su pp or t fo r th e assump tions underl ying the f orecast; · r eviewing corr espondence rel ating t o UK Governmen t s uppor t s uch as indir e ct tax holidays and staff furlough; · r eviewing corr espondence rel ating to the av ail a bi l it y of th e G roup ’s financing arrangements; · consid er in g the resu lt s of the sen siti vi t y an alyse s pe r for m ed; a nd · eval uati ng t he G rou p’s disclo sures on going c oncern against t he req uire me nts o f IAS 1. Bas ed o n the wo rk w e have p er fo rm ed , we have n ot id ent if ie d any m ater ial un cer t ai nties re l ati ng to event s or conditi ons that, individual ly or collectivel y , may c ast s ign if ic a nt do ubt o n th e Gro up's an d Com pa ny ’s abil i ty to con tin ue as a go ing co nce rn fo r a pe ri od of a t leas t twelv e mont hs fr om when the f inancial st ateme nts a re au tho ris ed fo r issu e. In rel atio n to the rep or ting o n how t he G roup h as a pp li ed th e UK C or po rate G over na nce Co de , we have n othi ng mate ri al to ad d or d raw at ten tio n to in rel atio n to the di rec tors’ st atem ent i n the financial s tat ements about whether the direct ors con sider ed it appr opriate to ado pt th e goi ng co ncer n b asis of ac counting. Our re sponsibilities and the re sponsibilities of the directors with respe c t to goi ng con cer n are d escr ib ed in th e relev a nt sec ti ons o f thi s repo r t . Annual Report & Financial Stat ements 2022 115 GOVERNANCE 5. K E Y AUDI T MAT TE RS Key aud it m at ters a re tho se ma tte rs th at, in our profe ssional judgement, wer e of mos t sig nif i ca nce i n ou r aud it o f the financial stat ements of t he curr ent period an d inc lud e th e mos t sig nif i ca nt as sess ed risks o f mat erial misstat em ent ( whether or n ot du e to fr au d) th at we id ent if ie d . Th ese m at ters i ncl ud ed th ose w hic h ha d the g reatest e f fe c t on: th e over al l au di t str ateg y, the al lo cat ion o f resou rces in the a ud it ; an d di rec tin g the e f fo r ts of t he engagement t eam . Th ese m at ters we re ad dres sed i n the contex t of ou r aud it o f the f i na nci al st ateme nts a s a wh ole , an d in fo rm in g ou r op ini on t here on , a nd we d o not p rovid e a sep ar ate op in io n on th ese m at ters . Cha ng es in t he cu rre nt pe ri od re l ati ve to the p ri or p er io d are as fo l lows: – Due to th e recog ni tio n of an i mp ai rm ent in th e pr io r pe ri od , th e ca rr yi ng am ou nt of pe r un a go od w il l is be low ou r mate ri al it y a nd , th erefo re, i t do es not re prese nt a r isk of m ater ia l misstat ement. W e have there for e not id enti f ie d the i mp ai rm ent o f pe r un a go od wi ll a s a key aud it m at ter . G ood w il l is di sclos ed i n note 1 4. – In the p ri or p er io d go ing co nce rn w as id enti f ie d as a key au dit m at ter a s a respo nse to th e Covi d - 1 9 p and em ic when ther e was uncertainty around the financial impact and the potent ial for restr ic tio ns to th e Gro up’s ab il it y to tr ade f rom i ts p hysic al s tores. T h is uncertainty has reduc ed s ignificantly an d accord ing ly we have n ot id ent if ie d the going conc ern basis of acc ounting as a key au di t mat ter i n the c ur rent pe ri od . Ou r con clus ion s rel at ing to go ing co nce rn a re disc uss ed in sec ti on 4 . 5. 1 . IMP AIRMENT AND IMPA IRMENT REVERSAL OF UK STORE ASSET S KEY A UDIT MA TTE R DESC RIPTION As a t 2 Ap ri l 202 2 the G rou p he ld £3, 3 79.4 m il li on (202 1 : £3 ,594. 0 mi ll io n) of UK s tore ass ets i n respe c t of stores not co nsid ere d for cl osure w it hin t he UK st ore es tat e pr ogramme. In ac cordanc e wi th IA S 36 Imp ai rm ent o f As sets , the G rou p ha s un de r ta ken a n an nu al ass essm ent o f in dic ator s of im pa ir me nt. An i mp ai rm ent c ha rge of £6.9 mil l io n (2 02 1: £ 66. 4 mi ll i on) and a rever sa l of pre v ious ly recogni sed impa irment cha rges o f £ 63.4 m il l ion h ave be en recog nis ed as s et ou t in n otes 5 and 1 5 t o the financial stat ements. As d esc ri be d in no te 1 5 to th e f ina nc ia l st ateme nts , th e G roup h as es tim ated th e recover ab le a mo unt of s tore ass ets ba sed o n the ir v alu e in u se, d er i ved f rom a dis coun ted ca sh f low mo de l pre pa red by ma na ge me nt. T he m od el re li es on cer t ai n assu mp tio ns an d esti mates of f utu re tr adi ng p er for ma nce, incorporating committed strat e gic cha ng es to the U K Clot hin g & Ho me a nd Fo od b usin ess es an d the p er f or ma nce of new s tor es operat ing within t heir shelt er pe ri od (wh ich t akes i nto accoun t the ti me new s tores ta ke to esta bl ish t hem selves in th e ma rket), al l of w hi ch invo lve a hig h de gre e of es tim atio n un cer t ai nt y ( as d isclo sed i n note 1 an d note 1 5). Th e key assu mp tio ns ap pl i ed by ma na ge me nt in th e im pa ir me nt revi ews performed are: – fu ture reve nu e grow th a nd ch an ge s in gro ss mar gin; – long te rm g row th r ates; an d – discount rates. Th e Aud it C om mit tee co nsid er s thi s to be a sig ni f ic ant m at ter . Th ei r consi de ra tio n is on p ag e 8 1 . HOW T H E SCO PE O F OU R AUD IT R E SP ON D E D TO TH E K E Y AUD IT M A T T E R In resp on di ng to the i de ntif i ed key au di t mat ter w e comp leted t he fo ll owi ng audit pr ocedure s: – obtained an understanding of r elevant cont rols r el ating to the im pairment revi ew p roces s; – evalua ted and challenged ma na ge me nt's r a nge o f im pa ir me nt in dic ator s wi th du e cons ide ra tio n gi ven to the p rof it ab il it y i mp ac t of committ ed strat egic chan ges t o the U K Clot hin g & Ho me a nd F oo d bus ine sses a nd th e pe r fo rm an ce of n ew s to re s; – asse ssed the mechani cal acc uracy of th e im pa ir men t mo de l s and t he methodol ogy applied b y management for c onsist enc y with the requir ements of IA S 36; – ass essed the appr opriat eness of fore ca st reven ue a nd g ross m argi n gro w th rat es thr ough c omparison with external ec onomic benchmarking data an d wi th refe rence to hi stor ic al forec asting a ccurac y ; – ass essed the appr opriat eness of the d iscou nt r ates ap pl i ed w ith th e inv olv em ent of our int ernal valuation s specialists and compar ed the rates a pp l ie d wit h ou r inter na l benchmarking data; – evalua ted the appr opr iat eness and compl et eness of information included in th e im pa ir me nt mo de l ba sed o n ou r cum ul a tive k now le dg e of th e bu sin ess dr ive n by ou r revi ew of tr ad ing p l a ns , str ateg ic in iti ati ves , mi nutes o f property and in vest ment c ommittee meetings, and meetings with r egional st ore managers and senior trading managers from ke y pr oduc t ca tego ri es , toget her w it h ou r wi der re tail industry knowledge; and – asses sed t he com pl etene ss an d accu ra cy o f dis closu res wi thi n the financial stat ements in ac cordanc e wi th IFR S . Key obser vatio ns We are sati sf ie d th at the j ud ge men ts applied, impairment char ges and revers al s re cord ed an d di sclosu res w ith in the financial statement s ar e appr opriat e. Ma rks a nd S pe nc er G ro up p lc 116 INDEPENDENT A UDIT OR ’S REPORT C ONTINUED INDEPENDENT A UDITOR’S REPORT 5. K E Y AUDI T MAT TE RS CONTINUED 5. 2 . ACCOU NT IN G FO R T HE U K S TO RE E S T ATE PRO G R A MM E KEY A UDIT MA TTE R DESC RIPTION In F eb ru ar y 20 1 8 , the B oa rd app roved a l ist of s tores ma rke d for c losu re as pa r t of it s UK sto re esta te prog ra mm e. T he t otal c harge rec ognised in c onnec tion with this clo sur e pr ogr amme in previou s pe ri ods w as £6 57 .6 m il l ion . A f ur the r net cha rge o f £ 1 6 1.4 mil l io n ha s be en recog nis ed i n the cu r rent p er iod a s a resu lt of : – an in crea se in th e nu mb er of s tores ass esse d as p roba bl e for cl osure a nd the u pd ate of es tim ates ma de i n l igh t of k now n deve lop me nts i n the e xi t strat e gy , including curr ent trading performance, negot iation s with l an dlo rds a nd ch an ges i n the ret ai l property marke t; – dep reci ati on of s tore ass ets w he re prev iou sly id enti f ie d for c losure , as they approach t heir planned cl osur e d ates ; a n d – ac celera ted d eprec iation and impairment of buil dings and fix tures and fittings in r espect of additional st ores added to the pr ogramme. Fur the r info r mati on is s et ou t in n otes 1 an d 5 to the f in an cia l st ateme nts a nd pa ge 22 of th e str ateg ic re po r t. Ou r key au dit m at ter w as fo cuse d on the s pe cif ic a ssu mpt ion s ap pl ie d in th e disc ounted cash flo w anal ysis pr epared by management including t he disc ount rate , store clo sure cost s , fre eh old s al e proce ed s, l eas eho ld su rre nd er cost s an d ex pe c ted sub let i ncom e, l ease i nce nti ves and void periods. Th e Aud it C om mit tee co nsid er s thi s to be a sig ni f ic ant m at ter . Th ei r consi de ra tio n is on p ag e 8 1 . HOW T H E SCO PE O F OU R AUD IT R E SP ON D E D TO TH E K E Y AUD IT M A T T E R In resp on di ng to the i de ntif i ed key au dit m at ter we co mp leted th e fol low in g audit pr ocedure s: – obtained an understanding of r elevant contro l s rel at ing to th e revi ew an d ap prov al of th e G roup's U K store exit model ; – performed enquiries o f management and ins p ected the latest strategi c plans , Boar d and r elevan t sub- committee minu t es of me eting s; – und er stood a nd c ha ll eng ed t he b asis of management' s judgement where stores p revi ously m ar ked fo r clos ure are no l on ge r ex pe cte d to close an d additional stor es hav e been iden tified for clos ure; – with the in volv ement of our internal real e state sp ec ia li sts , we ev al uate d the appropria tene ss of managemen t 's judgement s for a repr esentat ive sample of properties and benchmark with r eferenc e t o ex ternal data; – asse ssed the mechani cal acc uracy of di scou nted c ash f low m od el s a nd other key pro vision calc ul ations ; – asses sed t he i ntegr it y o f key inp ut s to the di scou nted c ash f low m od el s in clu din g th e disco unt r ate, s tore closu re costs , f ree ho ld sa le p rocee ds , leasehol d surr ender costs, expected sub let i ncom e, su bl et lea se in centi ves an d void p er io ds w ith ref eren ce to ava il ab le ev id en ce; – reca lcu l ated t he clo sin g provi sio n for a rep rese nt ati ve s am pl e of s tores; – evalua ted the ac curacy and compl et eness of provis ions rec orded in l ig ht of th e st atus o f the G rou p's UK st ore estat e plan; and – asses sed t he com pl etene ss an d accu ra cy o f dis closu res wi thi n the financial stat ements in ac cordanc e wi th IFR S . Key obser vatio ns We are sati sf ie d th at the G rou p’s esti mate of th e im pa ir men ts an d store e xi t charge s and the associa ted dis clo sure s are appropriat e. Annual Report & Financial Stat ements 2022 117 GOVERNANCE 5. K E Y AUDI T MAT TE RS CONTINUED 5. 3 . IN VE N TORY P ROVI SI O NS F OR U K CLO TH I NG & HO M E KEY A UDIT MA TTE R DESC RIPTION As a t 2 Ap ri l 202 2, th e Gro up h eld UK Cl othi ng & H om e inven tori es of £ 458.6 m il l ion (202 1 : £430.6 mi l li on), in clusi ve of a p rovisi on o f £ 4 8. 3 mi ll i on (202 1 : £78. 2 m i l l i o n). In 2020 the G roup re cog nise d an inve ntor y w ri te- d own o f £ 1 57 .0 m il l io n ( o f wh ich £1 45. 3 mi ll i on rel ated to UK Clot hin g & Ho me i nventor y) whic h wa s inc lud ed w it hin t he G rou p’s directl y attributable gains/ ( ex penses ) resul tin g fro m the C ovid - 1 9 pa nd em ic adjusting item. In th e pr io r pe ri od th e G roup re corde d a net r eversal of the invent or y impairment of £90 .8 m il li on (£ 1 01 .6 mi ll i on rel atin g to UK Clot hin g & Ho me i nventor y). In th is pe ri od t he G rou p has reve rse d or u til is ed th e rem ain in g Covi d-1 9 prov isio n of £ 1 8 .6 m il l io n that w as originally rec orded and pres ent ed within adj usting it ems. As d esc ri be d in th e Accoun tin g Pol ici es in n ote 1 to the f in an cia l st ateme nts , inve ntori es are c ar r ied a t the low er of cost a nd net re al is ab le v alu e. A s a resul t, jud ge me nt is a pp l ied i n dete rm ini ng t he appropria te pr ovision s r equired for obs olete i nventor y and i nvento r y ex pe c ted to be so ld be low cost b ase d up on a d eta ile d an alysi s of ol d seas on inve ntor y a nd fo rec ast n et rea li sa ble va lu e bas ed u po n pl a ns fo r inven tor y to go i nto sal e. We consi de r the as ses sme nt of inve ntor y p rovis ion s wi thi n UK Clot hin g & Ho me to req ui re the m ost jud ge me nt du e to his tori ca l tr adi ng pe r fo rm an ce and t he q ua ntum o f gro ss in vent or y . Management has det ermined the lev el of prov isio n usi ng ju dg em en t and w it h refe ren ce to fo rec as t fu tu re s al es ut il is in g ava il a ble d at a fro m pa st pe ri od s on th e sa lea bi li t y of sto ck . Ma na ge me nt ha s des cri be d it s meth od olo gy f or th e ca lcu l ati on of t he inve ntor y p rovi sion i n notes 1 a nd 5. Th e Aud it C om mit tee co nsid er s thi s to be a sig ni f ic ant m at ter . Th ei r consi de ra tio n is on p ag e 8 1 . HOW T H E SCO PE O F OU R AUD IT R E SP ON D E D TO TH E K E Y AUD IT M A T T E R In resp on di ng to the i de ntif i ed key au dit m at ter we co mp leted th e fol low in g audit pr ocedure s: – obtained an understanding of r elevant cont rols r el ating to in vent or y ma na ge me nt an d the rev iew a nd appro val of t he in vent or y pr ovisi on; – asses sed t he v al id it y, accur a cy a nd compl et eness of the informa tion used b y management in c omputing the pro v is ion; – asse ssed the mechani cal acc uracy and logic of the models underpinning the pro v is ion; – un de rstoo d the c ha ng es in th e pro visioning methodology and challenged the ap propria tene ss ther eof ; – cha ll eng ed a nd v al i date d the key assump tions applied by management in es tim ati ng th e provi sio n, by per forming enquiries of buyers and merchandi sers, c onsidering the c urrent purchas ing strat egy and ranging plans, ass esse d the h isto ric a l accu ra cy o f fore ca sti ng stoc k to be sub jec t to a future discoun t ; – tested the a ccur a cy of t he p rocess use d by ma na ge me nt to ide ntif y pot entiall y impaired invent or y acr oss a r ep re sentativ e sample of individual product line s; and – asses sed t he com pl etene ss an d accu ra cy o f dis closu res wi thi n the financial stat ements in ac cordanc e wi th IFR S . Key obser vatio ns We are sati sf ie d wi th th e jud ge me nts ta ken by ma na ge me nt an d th at the re sult ing in vent or y pro vision f or UK Clo thing & Home is appr opriate . W e be li eve th e dis closu res ma de a roun d the lev el of unc er tainty appr opr iat ely r eflect rea sonably possible future changes to man ag eme nt’s estimates. Ma rks a nd S pe nc er G ro up p lc 118 INDEPENDENT A UDIT OR ’S REPORT C ONTINUED INDEPENDENT A UDITOR’S REPORT 5. K E Y AUDI T MAT TE RS CONTINUED 5. 4 . D IS CLOS UR E O F AD JUS T I NG I TE M S AS PAR T OF A LTER N A T IV E PE R FO RM A NCE M E A SU R ES KEY A UDIT MA TTE R DESC RIPTION Th e G roup h as p resen ted an a lter na tive pe r fo rm an ce mea sure b ein g ad juste d prof i t befo re ta x of £52 2 .9 mil l ion (2 02 1: £ 5 0. 3 mi ll i on), whi ch is d er ive d fro m st atuto r y prof i t bef ore ta x of £39 1. 7 mi ll i on (20 2 1 : los s befo re ta x of £209.4 m il l ion) adju sted fo r a nu mb er of ite ms tota ll i ng £ 1 3 1 . 2 mi ll i on (2 02 1: £ 25 9.7 mi l li on) whi ch th e Gro up consi de rs me et th eir d ef i nit ion o f an ‘adj usti ng i tem’ . Ju dg em ent i s exerc ised by management in det ermining the cl as sif i cat ion o f suc h items i n accord an ce wi th gu id an ce issu ed by th e FRC an d ESM A . We consi de r the re to be a ris k of f ra ud i n the re po r tin g of adjusting items within the alternativ e performance me asur es. E xp l a nati on s of ea ch ad just ing i tem are set o ut i n note 5 to the f i na nci al st ateme nts a nd a re sum ma ris ed i n the gr ap hi c to the ri ght . 35 0 40 0 45 0 50 0 55 0 60 0 39 1. 7 16 1. 4 (2 1. 9) (1 4.3 ) (0 .4 ) (6 0. 0) (1 7. 8) 41 .3 16 .0 26 .9 52 2. 9 £m Sta tut ory p ro ﬁt bef ore tax UK st ore e stat e UK lo gis tic s Or gan isa tion Oth er St rat egic pr ogr amme s St ore imp air men ts/ ( rev ers als ) ( Gain s) /ex pens es att ributa ble to Co vid- 1 9 Fra nchis e r est ruct ure M&S Ba nk Oca do r elat ed Ad jus ted pr oﬁt bef ore tax In det ermining adjust ed pr ofit before ta x, we id enti f ie d the fo l lowi ng r isk s: – the identification and classific ation of item s as ‘ad jus tin g’ as p ar t o f the presentatio n of alternati ve pe r fo rm an ce mea sures m ay be inappr opriat e, dis torting the rep or ted resu lt s; – the o mis sio n of item s wh ich a re cons idered mat eri al, one- of f or sig nif i ca nt i n natu re, d istor tin g the alterna tive per formance m eas ures; and – the cl a ri t y an d det ai l of di sclosu res in respe c t of ad jus tin g item s as pa r t of alterna tive per formance m eas ures m ay be ins uf ficient, prev enting inv estors from ob taining a c lear understanding of th e Gro up’s resul ts an d per formance . The Group’ s policy regarding adjusting item s is set o ut i n note 1 . T h is is a sig nif i ca nt m at ter cons ide red by th e Aud it Co mm it tee o n pa ge 8 1. HOW T H E SCO PE O F OU R AUD IT R E SP ON D E D TO TH E K E Y AUD IT M A T T E R In resp on di ng to the i de ntif i ed key au dit m at ter we co mp leted th e fol low in g audit pr ocedure s: – obtained an understanding of r elevant contro l s, re l ati ng to the i de nti fi ca tio n and disc losur e of adju sting it ems within alterna tive per formance m eas ures; – performed enquiries o f management t o understand the rational e applied in ident if ying item s as adjusting and c omplet ed an independent ass essm ent a s to the se lec ti on a nd prese nt atio n of ad jus tin g item s bas ed on th eir na ture ; – asses sed t he id en tif ic at ion a nd consi sten cy o f items re po r ted as adj usti ng p er io d on p er iod , w it h re ferenc e to guidance published by ESM A an d the F RC; – per for me d tests ove r a rep resent ati ve sample of adjusting items through agreeme nt t o supporting evidenc e; – used our cumulativ e audit k nowl edge and applied da ta anal y tics to identify an d test oth er tr an sa ct ion s ou tsid e of th e no rm al cou rse o f busi nes s , or w hi ch di spl ay c ha ra cte ris tic s of be ing m ater ia l , si gn if ic an t or o ne - of f in natur e; – consid ere d the i mp ac t of a dju sti ng item s on t he dir ectors ' remunerat ion targe ts t o determine w hether any in creas ed f ra ud r isk f a cto r ex isted ba sed o n ac tu al resu lt s for th e period; and – asses sed t he com pl etene ss an d accu ra cy o f dis closu res wi thi n the financial stat ements in ac cordanc e wi th IFR Ss . Key obser vatio ns We are sati sf ie d th at the i tems i ncl ud ed in adju sting it ems within the alternative pe r fo rm an ce mea sures a re in l in e wi th the G rou p’s pol i cy a nd th at th ey are appropria tel y discl osed. Annual Report & Financial Stat ements 2022 119 GOVERNANCE 6. OUR APPLICA TION OF MA TERIALIT Y 6. 1 . MA TERIALIT Y We def in e mate ri al it y a s the m ag ni tud e of misstat ement in t he financial sta tement s tha t ma kes it p roba bl e tha t the e cono mi c decisi ons of a reas on abl y knowledgeabl e pe rso n wou ld be c ha ng ed or i nf lu en ced . We use mate ri al it y b oth i n pl a nn ing t he scop e of ou r au di t wor k an d in ev alu ati ng the resu lt s of ou r wor k . Based on our profe ssional judgement, we determined m at eri ality for the f inancial st ateme nts a s a wh ole a s fol lows : Gr ou p fi na nc ia l st ate me nt s Company financial stateme nts Materia lit y £25.0 mi l li on (202 1 : £ 1 6 .0 m il l ion) £2 2.5 million (2 02 1: £ 1 4 . 4 mil l io n ) Basis for determining material it y We consid ere d the fo l lowi ng m etri cs i n the cur rent a nd p ri or p er io d: – Adjus ted prof i t be fore t ax – Ea rn ing s bef ore in terest , ta x , d ep reci atio n an d amortisation (‘ EBITD A ’) – Revenu e Using profess ional judgement, we d et ermined mate ri al it y to be £25. 0 m. We have use d 3% of net a sset s in b oth th e cur rent a nd t he p rio r pe ri od , c ap pe d at 9 0% of G rou p mater ia l it y, as th e bas is for mat erialit y . Rationale for the benchmark applied In det ermining our benchmark for ma teriality we consi de red a n um be r of di f fe rent m etr ic s use d by inves tors an d oth er rea de rs of th e financial stat ements. Group ma teriality repr esen ts: Metric % Adju sted p rof it b efore t ax 4.8 EBITD A 2.3 Reven ue 0.2 Net a sset s is use d as the benchmark as the Compan y operat es primarily as a holding compan y for the G roup a nd we there fore c onsider thi s as the y key metr ic for the C ompany . W e capped ma teriality at 9 0% of G rou p mat erialit y t o reduc e the r isk o f a mate ri al er ror ar isi ng as a resul t of th e conso l id atio n of th e Compan y’s result in the Gr oup financial stateme nts. 6.2. PERFOR MAN CE MA TERIA LITY We set pe r for ma nce m ater ia l it y at a level l ower th an m ater ia l it y to redu ce th e probabi lit y t hat, in aggregat e, unc orrected and unde tect ed mis stat ements exc eed the ma teriality for t he financial st ateme nts a s a wh ole . Gr ou p fi na nc ia l st ate me nt s Company financial stateme nts Performance material it y 65 % (202 1 : 6 0%) o f G roup m ater ia li t y 65 % (202 1 : 6 0%) o f Compan y mat erialit y Basis and rationale for determining perfo rmance material it y In det ermining performance mat er iality, we c onsidered the f ollowing factor s: – our cu mu l ati ve k now led ge o f the G rou p an d it s env iron me nt , inc lud in g industr y specific trends; – th e cha ng e in t he leve l of ju dg em ent re qu ired i n key accou nti ng est im ates; – r eliabil ity on int er nal c ontr ol o ver financial r epor ting; – the leve l of ch an ge to th e busi nes s in th e pe ri od ; – the st ab il it y i n key ma na ge me nt pe rso nn el ; – the leve l of cen tra l is atio n in th e G roup’s f in an cia l rep or t ing co ntrol s and pr ocesse s; and – the leve l of m isst atem ent s id enti f ie d in p rio r p er iod s. Ou r pe r fo rm an ce mate ri al it y p ercen tag e h as in creas ed f rom 6 0% to 65 % o f mate ri al it y d ue to th e redu c tio n in th e leve l of un cer t ai nt y c ause d by Cov id - 1 9. 6.3. ERROR RE PORTING THRESHOLD We agree d w ith th e Aud it Co mm it tee t hat we wo ul d repo r t to the C om mit tee a l l aud it d if fere nces in e xcess of £1 .3 m il l io n (2 02 1: £ 0 .8 m il l ion), as wel l as d if fere nces b elow th at th resho ld th at , in o ur v iew, wa rr an ted rep or ti ng o n qu al i tati ve gro un ds. We al so rep or t to th e Aud it Co mm it tee o n di sclosu re mat te rs th at we id enti f ie d wh en as ses sing t he ove ra ll p rese ntat ion o f the financial stat ements. Ma rks a nd S pe nc er G ro up p lc 120 INDEPENDENT A UDIT OR ’S REPORT C ONTINUED INDEPENDENT A UDITOR’S REPORT 7 . AN OVE RVI E W OF T H E SCOP E OF O UR AUD IT 7 . 1 . IDENTIFICA TION AND SC OPING OF C OMPONENTS Ou r au di t was s cope d by ob ta ini ng a n understanding of the Group a nd its envir onment, including gr oup -wide contro l s, a nd a sses sin g the r isk s of mat erial missta tement at the Gr oup le vel. Com po ne nts we re sel ec ted to prov id e an appropria te bas is for undertak ing a udit wor k to add ress th e ri sks o f mate ri al mis st ateme nt id en tif ie d . Bas ed o n ou r ass essm ent w e have fo cuse d ou r au dit o n the U K bu sin ess w hic h wa s subj ec t to fu ll audit pr ocedur es. W e ha ve performed ou r fu ll a ud it sco pe o f the U K comp on ent usi ng a m ateri al i t y of £22.5 mi ll i on (or 90% of G rou p mater ia l it y) (2 02 1: £ 1 5 . 2 mil l io n ). Th e G roup h old s 50% o f the o rdin ar y sha res of O ca do Re tai l Ltd (‘ ORL ’). T hi s inte rest is a ccounte d for as a n inves tme nt in as soc iate i n accord an ce wit h IA S 2 8 on th e ba sis th at th e sha reh old ers’ ag reem en t gi ves contro l over O RL to Oc ad o G roup p lc . In th e cu rren t pe ri od the G rou p reco rded a s ha re of los s of ass oci ate fro m OR L of £ 1 8 .6 m il l ion a nd is s ubject to specified audit pr ocedure s. We have al so tes ted the co nso li da tio n proc ess and carried out anal y tical proc edures in f orming our conclus ion tha t the re were no s ign if ic a nt ri sks o f mat erial missta tement remaining in the cons olidated financial inf ormation aris ing fro m the co mp on ent s not su bje ct to a full audit. R eve nu e Fu ll a udi t sc op e Re vi ew at Gr ou p leve l 5% 95 % Adjus te d pr oﬁ t before tax 12 % 88 % Proﬁ t before tax 7% 93 % To ta l liabilities 12 % 88 % To ta l asse ts 20 % 80 % 7 . 2. OUR CONSIDER A TI ON OF THE CON TROL ENVIRONMENT Ou r au di t str ateg y is to rely on con trol s over ce r ta in p rocesse s wi thi n a nu mb er of bu sin ess c ycle s. T hes e inc lud ed proc urem en t wi thi n UK Cl othi ng & H om e and Food, in vent or y , and fixed asse ts in clu din g IFR S 1 6 Lea ses . As p ar t of ou r contro l s testin g , we ob tai ne d an understanding of the Group ’ s pr ocess es and t est ed c ontrols t hrough a combina tion of test s of in qu ir y, obs er v ati on , in spe c tio n an d re - pe r fo rm a nce . On ce r ta in b usi ness c ycl es , we obt ai ne d an understanding o f , but did not rely on , con trol s . Th ese in clu de d inve ntor y pro visions, food rebat es and f inancial clos e and r epor ting. Gi ven t he i mp or t an ce of inf or mat ion tech no log y (“ I T ”) to th e record in g of financial inf ormation and transacti ons, we have teste d G ene ra l IT co ntrol s rel at ing to cer tai n of th e G roup’s IT syste ms w here re lev ant to ou r au di t wor k . We have be en a ble to pl ace IT co ntrol s rel ia nce a cross th ese sy stem s to supp or t the a ud it of a n um be r of bu sin ess c ycle s, suc h as pay ab les , p rocure me nt , lea se acc ounting , pr op ert y plant and equipment an d in vent or y . Annual Report & Financial Stat ements 2022 121 GOVERNANCE 7 . AN OVE RVI E W OF T H E SCOP E OF O UR AUD IT CONTINUED 7 . 3. OUR C O NSIDER A TION OF CLIMA TE-RE L A TED RISKS Th e G roup co ntin ue s to develo p it s ass essm ent o f the p otent ial i mp ac t s of cl im ate cha ng e an d set t arget s wh ich management c onsiders t o be aligned with t he Paris A g reemen t. Management has i de nti fi ed a n um be r of mi les tones , in clu din g th e targ et of n et zero c ar bo n em issi ons by 20 40 , as d isc uss ed in t he T a sk Fo rce on Cl i mate - Rel a ted Fi na nc ia l Dis closu res rep or t o n pa ges 72 to 77 . Th is as sess me nt foc usse s on th e im pa c t on p rop er t y a nd t wo of th e G roup ’s k ey resou rces: an im al p rotein a nd cot ton . Management c o nsi ders that the most likel y impact on t he financial stat ements wi ll b e in re l atio n to its t hree -ye ar c ash flow f orecasts, incl uding those described as p ar t of o ur key a ud it m at ters i n sec ti on 5, a nd h as i nclu de d th e im pa ct w it hin thes e f orecasts where appr opriate. Wh il st a t thi s sta ge th ere i s sign if i ca nt uncertainty regarding what the long-term im pa ct o f cl im ate cha ng e in iti ati ves may be , the f orec as ts ref le ct m an ag em en t's bes t esti mate of t he i mp ac t on t he financial stat ements as explained in n o t e 1. As a p ar t of ou r au dit p roce du res, we h ave obta ined ma nag eme nt’s clim ate-rel ated ris k ass essm ent a nd h eld d iscu ssi ons w it h ma na ge me nt to und er sta nd th e pro cess of ident if ying climat e- relat ed risks, the det ermination of mitigating actions and the i mp ac t o n the G rou p’s fi na nci al st ateme nts . We per for me d ou r own qu al it ati ve ri sk ass essm en t of the pote ntia l im pa c t of cl im ate ch ang e on the G rou p’s accoun t ba l an ces an d cl as ses of tr an sa ct ion a nd d id no t id enti f y a ny rea sonably possible risks o f mat erial misstat ement. Our pr ocedur es w ere pe r fo rm ed w ith th e invo lveme nt of o ur climat e- change s pecialists an d incl uded reading discl osur es incl uded in the Strat egic Report to consider whether t hey are mat erially c onsist ent with the financial stat ements and our knowledge o btained in th e au di t. We did no t ide nti f y cl i mate - rel ate d ris k as a sep ar ate Key Aud it M at ter i n our a ud it gi ven th e na ture of t he G rou p’s ope rat ion s an d kn owl ed ge g ai ned o f it s imp ac t on critical acc ounting e stimates and judgement s during our ris k asses sment proc edures an d audit proc edures. We have not b ee n en ga ge d to provid e assuranc e o ver t he ac curacy of these disclosures. 7 . 4 . WOR KI N G WI TH O TH E R AUD ITO RS OR L is the o nly co mpo ne nt of t he G rou p wh ere wo rk is co nd uc ted by a D elo it te compone nt aud itor . W e ha ve iss u ed detaile d inst r uctions to t he c omponent au dit te am to pe r for m sp eci f ie d au dit proce du res. D ue to th e no n- co - term in us yea r - e nd of O RL , we h ave pe r fo rm ed a revi ew of th e comp on ent a ud itor ’s f iles for t he p er iod e nd ed 28 Novem be r 202 1 an d the re po r tin g recei ved f rom t he compone nt aud itor for the period subs eq ue nt to 2 8 Nove mb er 202 1 . We have en ga ge d regu l a rly wi th th e compone nt aud itor throughout the au dit p roces s, d eter mi ni ng th e natu re, timing and ex tent of the specified audit proce du res to be p er fo rm ed a nd to re view t heir c om ponent r epor ting. A de di cate d me mb er of t he G rou p au dit te am is as sig ne d to fa cil i tate an ef fe c tive a nd co nsis tent ap pro ach to compone nt o versigh t. 8. O THE R INF ORMA TION The ot her in formati on c omprises t he inf or mati on i ncl ud ed i n the a nn ua l repo r t , other than the f inancial sta tement s and our audi tor’ s report th ereon. The director s are resp on sib le fo r the ot her i nfo rm ati on con tained with in the annual report. Our opinion on the financial sta temen ts do es not cove r the o the r info r mati on a nd , excep t to the ex te nt oth er w ise e x pl ici tly st ated in o ur re po r t, w e do no t ex pres s any fo rm o f assu ra nce co nclu sio n the reo n. Ou r resp onsi bi li t y is to read t he oth er information a nd, in doing so, c onsider whether the o ther inf o rmation is mat erially inc onsist ent with the financial stat ements or our kno wledge ob tained in th e cou rse of th e au di t, o r oth er w ise appears t o be ma teriall y mis stat ed. If w e ident if y suc h mat erial inconsi st encies or apparen t mat erial misstat ements, we are requir ed t o determine w hether this gi ves ri se to a mater ia l mi sst atem ent i n the financial s tat ements t hemsel ves. If , ba sed o n the wo rk w e have p er fo rm ed , we con clu de th at th ere is a m ater ia l misstat ement of this o ther in formation, we are re qui red to rep or t t hat f a c t. We have noth ing t o rep or t i n thi s reg ard . 9. RESPONSIBILITIES OF DIRE CTORS As e xp l ai ne d mo re fu l ly in the d ire c tors’ re sponsibilities stat ement, the dir ec tor s are resp on sib le fo r the p rep ar atio n of th e f in anc ia l sta teme nts a nd fo r be in g sat isf ie d th at the y giv e a tru e an d f air v iew, an d for su ch in tern al co ntrol a s the direct ors det ermine is necessary to enable the pr epar ation of financial stat em ents tha t are f ree f rom m ater ial m iss tate me nt, wh eth er du e to fr au d or e rro r . In pr eparing the financial stat em ents, t he di rec tors a re respo nsi ble fo r as sessi ng t he G roup’s an d the C om pa ny’s ab il it y to cont inu e as a going conc er n, discl osing as applicable, matters rel at ed to going conc ern and us ing the going c oncern ba sis of a ccount ing u nl ess th e di rec tors eit he r inten d to li qu id ate the G rou p or th e Compan y or to cease operations, or hav e no rea l isti c al tern ati ve bu t to do so. Ma rks a nd S pe nc er G ro up p lc 122 INDEPENDENT A UDIT OR ’S REPORT C ONTINUED INDEPENDENT A UDITOR’S REPORT 1 0. AUD ITOR’S RESPONSIBILITIES FOR THE A UDIT OF THE FINANC IAL ST A TEMENTS Ou r ob jec ti ves are to ob tai n reas on ab le assuranc e about whe ther t he financial st ateme nts a s a wh ole a re fre e f rom mat erial missta tement, whether due to fr au d or e rro r , a nd to is sue a n aud itor ’s report tha t includes our opinion. Reas on ab le as sur an ce is a hi gh leve l of assu r ance , bu t is no t a gu ar ante e tha t an au dit co nd uc ted i n accord an ce wit h ISA s (U K ) wi ll a lways d etec t a m ateri al misstat ement when it exists. Mis st ateme nts c a n ar ise f rom f ra ud or e rro r and a re consi de red m ater ia l if, in di vid u al ly or in t he ag gre ga te, they co uld reaso na bly b e ex pe c ted to inf lu en ce the econ om ic d eci sio ns of us ers t ake n on th e basis of these f inancial stat ements. A fu r th er d escr ip tio n of ou r respo nsi bi li ties f or th e au di t of the financial stat ements i s locat ed on the F RC ’s websi te at: w w w .frc .org.uk/ auditorsre sponsibilities . Th is de scr ipti on for ms p ar t o f ou r aud ito r’s rep or t . 1 1 . E X TENT T O WHICH THE AUDI T W AS C ONSIDE RED CAP ABLE OF DETECTING IRREGUL ARITIES , INC LUDING FR A UD Irregularities, inc luding fraud, are i nstance s of no n - comp l ia nce w ith l aw s and reg ul at ion s. We desi gn p roced ures i n l in e with our res ponsibilities, outlined abo ve, t o det ec t mat erial misstat ements in re spect of irr egul arities, including fraud . Th e ex te nt to whi ch ou r pro ced ures a re capable of det ecting irr egul arities, in clu din g f ra ud is d eta ile d be low. 1 1 . 1 . ID ENTIF YING AND ASSESSING POTENTIAL RISKS RELA TED TO IRREGULARITIES In ident if ying and ass essing risks of mat erial missta tement in res pect of irregularities, including fraud and non-compliance wit h laws an d r egul ati ons, we consi de red th e fol low in g: – the n ature o f the i nd ustr y an d sec tor, cont rol envir onment and bu siness pe r fo rm an ce inc lud in g the d esig n of the Gr oup’ s remunerat ion policies, ke y drivers for direct ors’ remunera tion, bonus l evels and per formance target s; – the G rou p’s own ass essm ent o f the ris ks th at i rreg ul ar iti es may o ccur ei th er as a resu lt of f r aud o r er ror th at w as appro ved by the board; – result s of ou r en qu ir ies of m an ag em ent , inte rn al au di t an d the a ud it com mi t tee ab ou t the ir ow n id enti f ic atio n an d ass essm ent o f the r isk s of i rre gul ar iti es; – any mat te rs we id ent if ie d hav in g obt ai ne d an d revie wed th e G roup’s do cum ent ati on of t hei r po l ici es an d pro ced ure s rel a tin g to: · ident if ying, evaluating and complying wi th l aws a nd re gu l atio ns a nd wh eth er th ey were aw are of a ny instanc es o f non-compliance; · det ec ting and re sponding t o the risks of f ra ud a nd w heth er th ey have kn owl ed ge o f any ac tu al , susp ec ted or a ll eg ed f ra ud ; · the internal c ontrols es tablished to miti gate r isk s of f ra ud o r non-compliance wit h laws an d regulations ; and – the m at ters d iscu sse d amo ng t he au di t engagement t eam and r elevant int erna l specialists, i ncluding tax , valuat ions, pensions, IT and industr y specialists reg ardi ng h ow an d wh ere f ra ud m ig ht occu r in th e f in an cia l st ateme nts a nd any p otenti al i ndi c ators of f r au d. As a resu lt o f thes e proce du res , we con sider ed the opportuniti es an d in centi ves th at may e xi st wi thi n th e org an isa tio n for f ra ud a nd i de ntif i ed th e grea test pote nti al fo r fr au d in th e are as in wh ich m an ag em ent i s requ ire d to exerci se significant judgment, suc h as disclo sur e of adj usting it ems within alt ernative performance me asur es. In c ommon wi th al l au di ts u nd er IS As ( UK ), we a re also requi red to per form specific proce du res to respo nd to the r isk o f management o verride. W e also ob tained an understanding of the l eg al a nd reg ul ator y f ra mew or k that the G rou p op er ates i n, f ocus ing o n prov isio ns of th ose l aw s an d regu l ati on s tha t ha d a dire c t ef fe c t on th e det ermination of mat erial amounts and discl osur es in the f inancial stat ements. Th e key l aws a nd reg ul atio ns we consi de red i n this co ntex t i ncl ud ed UK C ompanies Act, Financial Conduct Authority regulations including the L isting Rul es , pe nsio ns a nd ta x le gi sl ati on . In a ddi tio n , we cons ide red p rovisi on s of oth er l aws a nd re gu l atio ns th at d o not have a d irec t ef fec t o n the f i na nci al st ateme nts b ut co mp li an ce wi th wh ic h may b e fu nd am ent al to th e G roup’s ab il it y to ope ra te or to avoid a m ater ia l pen al t y. Th ese i ncl ud ed th e com peti tio n an d ant i- br ib er y l aws , da ta p rotec tio n, G rocer ies S up ply Co de of P ra c tice, a nd employmen t, envir on mental and health and saf ety r egul ati ons. 1 1 . 2. A UDIT RESPO NSE T O RISKS IDENTIFIED As a resu lt o f pe r for mi ng t he ab ove, we id enti f ie d the d iscl osure of a dju sti ng ite ms within alt ernative per formance measur es as a key au di t mat ter re l ated to th e pote ntia l ri sk of f ra ud . T he key au di t mat ter s sec ti on o f our re po r t ex pl ain s the mat ter i n mo re det ai l an d al so d escr ib es the s pe cif ic p roce du res we pe r fo rm ed i n respo nse to th at key au di t mat ter. In addit ion t o the abo ve, our proc edu re s to respo nd to ris ks id en tif i ed in clu de d the f ollowing: – r eviewing the financial s tatemen t discl osur es and te sting t o supporting documenta tion t o asses s c ompl iance wi th prov isio ns of re lev ant l aws an d reg ul at ion s des cri be d as h avi ng a di rec t effect on the financial stat ements; – enquiring of m anagement, the a udit committee a nd in-house l egal couns el conc er ning actual and pot ential litigation and cl aims; – performing analytical pr ocedur es t o id enti f y a ny unu sua l or u ne xp ec ted rel at ion shi ps th at may i nd ic ate ris ks of mat erial missta tement due to fraud; – r eading minut es o f meetings of those charged with gov ernance, re viewing int ernal audit r epor ts and revie wing cor respo nd en ce wi th HM RC; a nd – in ad dres sin g the r isk of f r au d thro ug h management o verride of contr ol s, te sting th e appr opriat eness of journal entries an d other adjustme nts; asses sing whe ther the judgements made in making ac counting estimat es are i ndi ca tive o f a poten tia l bi as; a nd eva lu atin g th e busi nes s ra tio na le of any sig ni f ic ant t ra ns ac tio ns th at are un usu al o r out sid e the n or ma l cou rse of bus iness. We al so com mu nic ated re lev ant i de ntif i ed laws and regul ation s and pot ential f raud risks t o all engagement team mem bers including in ternal s pecialists and component team, and r emained ale r t to any i ndi ca tio ns of f r aud o r non-compliance wit h laws an d r egul ati ons thro ughout the audit. Annual Report & Financial Stat ements 2022 123 GOVERNANCE RE P OR T O N OTH E R LE GA L AN D RE G UL A TO RY RE QU IR E ME N TS 1 2. OPINIONS ON OTHER MA T TERS PR E SCR IB E D BY TH E CO MPAN IE S AC T 20 0 6 In o ur o pin io n the p ar t of the d ire cto rs’ remu ne ra tio n repo r t to be a ud ited h as been pr operly pr epared in ac cordanc e wi th th e Com pa ni es Ac t 20 06 . In o ur o pin io n, b as ed o n the wo rk un de r ta ken i n the cou rse o f the a ud it : – the in for ma tio n gi ven i n the s tra tegi c rep or t a nd th e di rec tors’ rep or t f or th e f in anc ia l year f or w hic h the f i na nci al st ateme nts a re pre pa red is co nsiste nt with t he financial stat ements; and – the strategic repor t and the direct ors’ rep or t have b e en p rep are d i n acc ordance with applicable legal r equirements. In th e l igh t of th e kn owl ed ge a nd understanding of the Group a nd t he Compan y and their envir onment obt ai ne d in th e cour se of th e au di t, we have n ot id ent if ie d any m ater ial misstat ements in t he stra tegic repor t or th e di rec tors’ rep or t. 1 3. CORPOR A TE GOVERNANCE ST A TEMEN T Th e L isti ng Ru les re qui re us to revi ew the direct ors ' stat ement in r el ation to going conc ern, longer -term viability and that pa r t of th e Co rp or ate Gove rn an ce Sta teme nt rel a tin g to the G roup’s com pl ia nce w ith t he prov isio ns o f the UK Corpora te Governanc e Code spec ified for o ur rev iew. Bas ed o n the wo rk u nd er take n as p ar t o f ou r aud it , we h ave conc lud ed th at e ach o f the fo l lowi ng e lem en ts of th e Cor p or ate Governanc e Stat ement is mat erially cons istent w ith the financial sta temen ts and our kno wledge obtained during the a ud it : – the directors ’ stat ement with regar ds t o the appropriat eness of adopting t he going c oncern bas is of account ing and any mat erial uncertaintie s ident ified set ou t on p ag e 1 1 1 ; – the d irec tor s’ exp l an ati on as to it s ass essm ent o f the G rou p’s prosp ec ts , the p er io d thi s asse ssm ent cove rs an d why th e pe ri od is a pp rop ri ate set ou t on p ag e 55 ; – the d irec tor s' statem ent o n f air, balanced and understandable s et ou t on p ag e 1 1 2; – the b oa rd’s conf i rm ati on th at it h as ca rr ie d ou t a robu st as ses sme nt of th e emerging and principal risks set out on p ag e 1 1 2; – the se c tio n of the a nn ua l rep or t t hat des cri bes t he rev iew of e f fe ct ive nes s of r isk m ana ge me nt an d inte rn al co ntrol syste ms set o ut o n pa ges 45 to 55; and – the se c tio n desc ri bi ng th e wor k of th e au dit co mm it tee set o ut o n pa ge s 7 8 to 8 4 . 1 4 . MAT TE R S ON W H ICH W E A RE RE QU I RE D TO R E PO R T BY E XCE PT I ON 1 4. 1 . Adequacy of explanat ions r eceiv ed and ac counting records Un de r the Co mp an ies A ct 20 0 6 we are req uire d to repo r t to you if, in o ur o pin io n: – we have no t recei ved a ll th e in for ma tio n and explanations we requir e for o ur audit; or – adequat e acc ounting r ecor ds ha ve no t be en kep t by the C om pa ny , or retu r ns ad eq uate fo r ou r aud it h ave not b ee n recei ved f rom b ra nc hes n ot vi sited by us; o r – the Company financial stat ements are not in ag reement with the ac count ing reco rds a nd ret ur ns . We have noth ing t o rep or t i n resp ec t of th ese m at ter s . 1 4. 2. Directors’ remuneration Un de r the Co mp an ies A ct 20 0 6 we are al so re qu ired to rep or t if in o ur o pi nio n certain dis clos ures o f dir ectors ’ remu ne ra tio n have n ot be en m ad e or the p ar t of the d ire c tors’ remu ne ra tio n rep or t to be a ud ited i s not i n ag reem ent wi th th e accou ntin g record s an d retur ns . We have noth ing t o rep or t i n resp ec t o f these mat ters . 1 5 . OTH E R MAT TE R S WH I CH WE A R E REQUIRED T O ADDRESS 1 5 . 1. Audi tor te nu re Fo llow in g th e recom me nd atio n of th e Audit Committee, we wer e appoint ed by the s ha reho ld ers o n 8 Ju ly 20 1 4 to audi t the financial s tat ements f or the period en din g 28 March 20 1 5 a nd su bse qu ent financial periods. The period of to tal unint errupted engagement including prev iou s ren ewa l s an d reap po int me nts of the f i rm i s 8 per io ds , cover in g the p er io ds en din g 28 March 20 1 5 to 2 A pr il 2022. 1 5 . 2 . Cons is ten cy of t he a ud it re por t with the additional report t o the audit committee Ou r au di t opi ni on is co nsis tent w ith th e additional report to the audit commi ttee we are re qui red to prov id e in a ccorda nce wi th IS As (U K ). 1 6 . US E O F OU R RE P OR T Th is rep or t is ma de so le ly to the com pa ny’s me mb ers , as a b od y, in accord an ce wi th Ch apter 3 o f Pa r t 1 6 of the C om pa nie s Act 20 0 6 . Ou r au dit w or k has b ee n un de r t aken s o that w e mig ht st ate to the com pa ny’s me mb ers t hose mat ter s we are re qu ired to st ate to them in a n aud itor ’s rep or t a nd fo r no ot he r pu rp ose. To the fu l lest e x tent p er mi t ted by l aw, we do no t accept o r as sum e respo nsi bi li t y to anyon e oth er th an th e compan y and t he c omp an y’s members as a bo dy, for o ur au di t wor k , fo r thi s repo r t , or f or the opinions w e ha ve formed. As r equired by the Financial Conduct Authority ( FC A ) Dis clos ure Guidance and T r an spa ren cy R ule (DTR) 4 . 1 . 1 4R , thes e f in anc ia l sta teme nts fo rm p a r t of th e Eur opean Single Electroni c Format (ESEF) prepar ed Annual Financial Report filed on th e Nat ional S torage Mechanism of the U K FC A in a ccorda nce w ith t he ES EF Regulatory T echnical Standard (‘ESEF RTS ’ ). T his a ud itor ’s repo r t p rovid es no assuranc e o ver whe ther the annual financial r epor t has been prepar ed us ing the si ng le e lec tro nic fo r mat sp ec if ie d in the E SEF RT S. Richard Muschamp FCA ( Senior s tatut or y audit or) Fo r an d on b eh al f of De loi t te LLP Stat utory A udit or London 2 4 M ay 2022 124 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS Notes 52 weeks ended 2 April 2022 53 weeks ended 3 April 2021 Total £m Total £m Revenue 2, 3 10,885.1 9,155.7 Share of result in associate – Ocado Retail Limited 3, 5, 29 (18.6) 64.2 Operating profit/(loss) 2, 3, 5 572.2 (30.7) Finance income 5, 6 33.9 57.4 Finance costs 5, 6 (214.4) (236.1) Profit/(loss) before tax 4, 5 391.7 (209.4) Income tax (expense)/credit 7 (82.7) 8.2 Profit/(loss) for the year 309.0 (201.2) Attributable to: Owners of the parent 306.6 (198.0) Non-controlling interests 2.4 (3.2) 309.0 (201.2) Earnings/(loss) per share Basic earnings/(loss) per share 8 15.7p (10.1p) Diluted earnings/(loss) per share 8 15.1p (10.1p) Reconciliation of profit before tax and adjusting items: Profit/(loss) before tax 391.7 (209.4) Adjusting items 5 131.2 259.7 Profit before tax and adjusting items – non-GAAP measure 522.9 50.3 Adjusted earnings per share – non-GAAP measure Adjusted basic earnings per share 8 21.7p 1.4p Adjusted diluted earnings per share 8 20.9p 1.4p CON SOLID A TE D INC OME ST A TEMENT 125 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS Notes 52 weeks ended 2 April 2022 £m 53 weeks ended 3 April 2021 £m Profit/(loss) for the year 309.0 (201.2) Other comprehensive income/(expense): Items that will not be reclassified subsequently to profit or loss Remeasurements of retirement benefit schemes 11 357.0 (1,352.0) Tax (charge)/credit on retirement benefit schemes (127.6) 256.5 Loss on disposal of investment held at fair value through other comprehensive income (“FVOCI”) 16 (3.7) – 225.7 (1,095.5) Items that may be reclassified subsequently to profit or loss Foreign currency translation differences – movements recognised in other comprehensive income (13.5) (27.7) – reclassified and reported in profit or loss (0.5) 3.7 Cash flow hedges – fair value movements recognised in other comprehensive income 21 91.3 (215.5) – reclassified and reported in profit or loss 21 (10.5) 26.5 Tax (charge)/credit on cash flow hedges (14.7) 37.0 52.1 (176.0) Other comprehensive income/(expense) for the year, net of tax 277.8 (1,271.5) Total comprehensive income/(expense) for the year 586.8 (1,472.7) Attributable to: Owners of the parent 584.4 (1,469.5) Non-controlling interests 2.4 (3.2) 586.8 (1,472.7) CON SOLID A TE D ST A TE MENT OF COMPREHENSIVE INC OME 126 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS Notes As at 2 April 2022 £m As at 3 April 2021 £m Assets Non-current assets Intangible assets 14 192.5 232.0 Property, plant and equipment 15 4,902.3 5,058.6 Investment property 15.0 15.2 Investments in joint ventures and associates 29 810.9 825.8 Other financial assets 16 4.5 9.7 Retirement benefit asset 11 1,043.9 639.2 Trade and other receivables 17 270.6 261.4 Derivative financial instruments 21 21.4 0.3 7,261.1 7,042.2 Current assets Inventories 5 706.1 624.6 Other financial assets 16 17.6 18.4 Trade and other receivables 17 217.1 209.6 Derivative financial instruments 21 43.6 32.8 Current tax assets – 35.4 Cash and cash equivalents 18 1,197.9 674.4 2,182.3 1,595.2 Total assets 9,443.4 8,637.4 Liabilities Current liabilities Trade and other payables 19 1,960.9 1,599.0 Partnership liability to the Marks & Spencer UK Pension Scheme 12 71.9 124.9 Borrowings and other financial liabilities 20 247.2 432.8 Derivative financial instruments 21 3.2 96.0 Provisions 22 53.6 43.1 Current tax liabilities 34.0 – 2,370.8 2,295.8 Non-current liabilities Retirement benefit deficit 11 5.7 7.8 Trade and other payables 19 188.2 192.3 Partnership liability to the Marks & Spencer UK Pension Scheme 12 120.4 68.6 Borrowings and other financial liabilities 20 3,561.0 3,659.9 Derivative financial instruments 21 0.4 10.7 Provisions 22 91.8 74.2 Deferred tax liabilities 23 187.2 42.3 4,154.7 4,055.8 Total liabilities 6,525.5 6,351.6 Net assets 2,917.9 2,285.8 Equity Issued share capital 24 19.7 489.2 Share premium account 910.6 910.4 Capital redemption reserve 2,680.4 2,210.5 Hedging reserve 21 17.6 (54.8) Cost of hedging reserve 21 3.6 4.6 Other reserve (6,542.2) (6,542.2) Foreign exchange reserve (73.9) (59.9) Retained earnings 5,897.9 5,325.2 Equity attributable to owners of the parent 2,913.7 2,283.0 Non-controlling interests 4.2 2.8 Total equity 2,917.9 2,285.8 Th e f in an cia l st ateme nts w ere ap prove d by the B oa rd and a uth or ise d for i ssu e on 24 May 20 22. Th e f in an cia l st ateme nts a l so com pr ise notes 1 to 3 2. Steve Rowe , Chi ef E xec ut ive O f fi cer E oi n T o ng e, Ch ie f Fin anc ial O f f ice r CON SOLID A TE D ST A TE MENT OF FINANCIAL POSITION 127 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS Ordinary share capital £m Share premium account £m Capital redemption reserve £m Hedging reserve £m Cost of hedging £m Other reserve¹ £m Foreign exchange reserve £m Retained earnings 2 £m Total £m Non- controlling interest £m Total £m As at 29 March 2020 487.6 910.4 2,210.5 68.6 5.7 (6,542.2) (35.9) 6,597.8 3,702.5 6.0 3,708.5 Loss for the year – – – – – – – (198.0) (198.0) (3.2) (201.2) Other comprehensive (expense)/income: Foreign currency translation – movements recognised in other comprehensive income – – – – – – (27.7) – (27.7) – (27.7) – reclassified and reported in profit or loss – – – – – – 3.7 – 3.7 – 3.7 Remeasurements of retirement benefit schemes – – – – – – – (1,352.0) (1,352.0) – (1,352.0) Tax credit on retirement benefit schemes – – – – – – – 256.5 256.5 – 256.5 Cash flow hedges – fair value movement in other comprehensive income – – – (214.2) (1.3) – – – (215.5) – (215.5) – reclassified and reported in profit or loss – – – 26.5 – – – – 26.5 – 26.5 Tax on cash flow hedges – – – 36.8 0.2 – – – 37.0 – 37.0 Other comprehensive (expense)/income – – – (150.9) (1.1) – (24.0) (1,095.5) (1,271.5) – (1,271.5) Total comprehensive (expense)/income – – – (150.9) (1.1) – (24.0) (1,293.5) (1,469.5) (3.2) (1,472.7) Cash flow hedges recognised in inventories – – – 33.9 – – – – 33.9 – 33.9 Tax on cash flow hedges recognised in inventories – – – (6.4) – – – – (6.4) – (6.4) Transactions with owners: Shares issued in respect of employee share options 1.6 – – – – – – (1.6) – – – Purchase of own shares held by employee trusts – – – – – – – (0.8) (0.8) – (0.8) Credit for share-based payments – – – – – – – 19.3 19.3 – 19.3 Deferred tax on share schemes – – – – – – – 4.0 4.0 – 4.0 As at 3 April 2021 489.2 910.4 2,210.5 (54.8) 4.6 (6,542.2) (59.9) 5,325.2 2,283.0 2.8 2,285.8 CON SO LI DA T ED S TA TE M E NT O F CHA NG E S I N EQ UI T Y 128 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS Ordinary share capital £m Share premium account £m Capital redemption reserve £m Hedging reserve £m Cost of hedging £m Other reserve¹ £m Foreign exchange reserve £m Retained earnings 2 £m Total £m Non- controlling interest £m Total £m As at 4 April 2021 489.2 910.4 2,210.5 (54.8) 4.6 (6,542.2) (59.9) 5,325.2 2,283.0 2.8 2,285.8 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 – – – – – – – 357.0 357.0 – 357.0 Tax charge on retirement benefit schemes – – – – – – – (127.6) (127.6) – (127.6) 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) – – – 67.1 (1.0) – (14.0) 225.7 277.8 – 277.8 Total comprehensive income/(expense) – – – 67.1 (1.0) – (14.0) 532.3 584.4 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 own shares 3 (469.9) – 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 17.6 3.6 (6,542.2) (73.9) 5,897.9 2,913.7 4.2 2,917.9 1. T he “ oth er r ese r ve” w a s or ig in al ly c rea ted a s pa r t of t he c a pi ta l res tr uc tu r in g th at to ok p l ace i n 20 02. I t rep re sen ts t he d i ere nc e bet w ee n th e no mi na l v al ue o f th e sha re s iss ue d pr io r to th e c ap it al re d uc ti on b y the C om p any ( be in g th e c ar r y in g va lu e of t he i nves tm en t in M ar k s an d Sp e nce r pl c) and t he s ha re c ap it a l , sh are p re mi um a nd c a pi ta l re de mp tio n res er v e of M ar ks a nd S p en cer p lc a t th e da te of t he tr a ns ac ti on . 2. Included with in re tained earning s is the fair value through other compr ehensive income re serve. 3. O n 8 Ju ly 202 1, the C om pa ny re du ce d th e no mi na l v al ue o f it s 1,957,779,626 ord in ar y sha res i n is su e at th at d ate f ro m £0.25 to £0.01 . T he r ed uc ti on w a s com pl ete d by su bd i vi di ng ea ch £0.25 o rdi na r y s ha re in i ss ue i nto o ne o rdi n ar y s ha re of £0.01 an d on e de fe rre d sh a re of £0.24 . A ll d ef er re d sh are s wer e th en b ou gh t ba ck f or to ta l ag gr eg ate co ns id er at io n of £ 0.01 and cancelled. The Compan y’s issued share capital remain s unchanged and each shar eholder’s pr oportionate inter est in the share capital of the Company r emains unchanged. As id e f rom t he c ha ng e in n om in a l va lu e, t he r ig ht s at t ac hi ng to th e o rdi na r y sh a res ( in cl ud in g vot in g an d di v id en d ri gh ts a nd r ig ht s on a r etu rn o f c ap it al) r em ai n un ch a ng ed . CON SO LI DA T ED S TA TE M E NT O F CHA NG E S I N EQ UI T Y CONTINUED 129 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS Notes 52 weeks ended 2 April 2022 £m 53 weeks ended 3 April 2021 £m Cash flows from operating activities Cash generated from operations 26 1,385.7 876.7 Income tax paid (7.7) (5.8) Net cash inflow from operating activities 1,378.0 870.9 Cash flows from investing activities Proceeds on property disposals 43.9 2.9 Purchase of property, plant and equipment (192.8) (158.9) Purchase of intangible assets (64.6) (47.8) Sale/(purchase) of current financial assets 0.8 (6.7) Purchase of non-current financial assets (3.3) – Proceeds on disposal of non-current financial assets 5.2 – Purchase of investments in associates and joint ventures 1 (37.8) 8.7 Acquisition of subsidiary, net of cash acquired 2 (4.5) – Loans to related parties (1.0) – Interest received 8.4 9.2 Net cash used in investing activities (245.7) (192.6) Cash flows from financing activities Interest paid 3 (216.6) (219.3) Issuance of Medium Term Notes – 300.0 Redemption of Medium Term Notes (163.6) (136.4) Repayment of lease liabilities (216.0) (184.3) Payment of liability to the Marks & Spencer UK Pension Scheme – (17.2) Shares issued on exercise of employee share options 24 0.3 – Purchase of own shares by employee trust – (0.8) Cash received from settlement of derivatives – 14.0 Net cash used in financing activities (595.9) (244.0) Net cash inflow from activities 536.4 434.3 Effects of exchange rate changes (8.2) (3.3) Opening net cash 669.7 238.7 Closing net cash 27 1,197.9 669.7 1. Cu r ren t yea r in cl ud es £33.8 m ou t ﬂow i n rel a ti on to co nt in ge nt co nsi d er ati o n set tl ed w i th O ca do R et ai l Li mi ted a n d £4.0 m o ut ﬂo w on t he a cqu is it io n of 27% of th e is su ed s ha re ca p it al o f No bo dy ’s Ch i ld L im ite d . L ast y ea r in cl ud es i nﬂo w of £11.2 m u po n ﬁn al i sa tio n of t he co m pl eti on s ta tem en t in re l at io n to th e inv est me nt i n Oc a do R eta il L i mi ted a nd ou t ﬂow o f £2.5 m in re l at io n to Fo un de rs F ac tor y Ret ai l Li m ite d. 2. £4.5 m o ut ﬂow o n th e a cqu isi ti on o f 77.7 % o f the i ss ue d sh are c a pi ta l of T h e Sp or t s Ed it L im it ed . 3. I n clu d es in tere st p ai d on t he P a r tn ers hi p l ia bi l it y to th e M ar ks & S p en cer U K Pe ns io n Sc he me o f £nil (l a st ye ar : £6.4 m) and i nte res t pa id o n le as e li a bi li ti es o f £ 128.3 m ( l as t ye ar : £132.3 m). CONS OLIDA TE D ST A TEMENT OF CASH FLO WS 130 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 1 A CC OUNTING POLICIES Gene ral information Ma rk s an d Sp en cer G rou p plc (th e “Co mp any ” ) is a pu bl i c li mi ted com pa ny dom ici le d and i nco rp or ated i n Eng l a nd an d Wale s un de r the Co mp an ies A ct 20 0 6 . Th e ad dres s of the C om pa ny’s reg istere d of f i ce is Watersi de H ous e, 35 Nor th Wh ar f Roa d , London, W 2 1 NW , Unit ed Kingdom. Th e pr in cip al a c tiv it ies of t he Co mp any a nd it s sub sidi ar ies (the “G ro up” ) an d the n atu re of th e Gro up’s op er atio ns a re as a Clot hin g & Ho me a nd F ood ret ai le r . Th ese f i na nci al st atem ent s are p resen ted in s terl i ng , w hic h is al so t he Co mp any ’s fu nc tio na l cu rren c y , an d are rou nd ed to th e nea rest h un dred t ho usa nd . Fo rei gn o pe rat ion s are in clu de d in accord an ce wi th th e pol i cies s et ou t wi thi n this n ote. Basis of preparation Th e f in an cia l st ateme nts h ave be en p rep are d for th e 52 week s en de d 2 Ap ri l 202 2 (l a st yea r : 53 week s en de d 3 Ap ri l 202 1 ) in acc ordance with UK-adopt ed Int ernational Ac counting Standards an d wi th the re qu ire men ts of th e Co mp an ies Ac t 20 0 6 as applicable t o c omp anies repor ting under tho se standards. The Marks and Spenc er Scottis h Limit ed Partnership has taken an e xem ptio n un de r pa ra gr ap h 7 of th e Pa r tn ersh ip (Accou nts) Reg ul a tio ns 20 08 f rom th e req ui reme nt to pre pa re and d el i ver f in anc ia l sta teme nts i n accord an ce wi th th e Com pa ni es Ac t. Th e f in an cia l st ateme nts h ave be en p rep are d on a g oin g conce rn b asi s. I n ado pti ng th e go in g conce rn b asis , th e Bo ard has co nsi de red th e busi nes s ac ti vi ties a s set ou t on p ag es 1 0 to 2 5 , the f i na nci al p osit ion o f the G rou p, i ts c ash f lows , l iq ui dit y posi tio n an d bo rrow in g fa ci li tie s as set o ut in t he F in an cia l Rev iew on p ag es 36 to 44 , th e Gro up’s f ina nc ia l ris k ma nag em en t objectiv es and exposure s t o liquidity and ot her financial ri sks as set o ut i n note 2 1 an d the p ri nc ip al r isks a nd u nce r ta int ies as set o ut o n pa ges 47 to 54. Th e G roup co ntin ue s to mai nta in a rob ust f i na nci al p osi tio n prov idi ng i t wi th suf f ici ent a ccess to li qu idi t y, throug h a com bin ati on of c as h and co mm it ted f a cil it ies , to mee t its n ee ds in th e sho r t a nd me di um ter m . At 2 Ap ri l 202 2, th e G roup h ad fu r th er s tren gth en ed it s ava il a bl e li qu id it y over t he yea r to £2,07 2.9m (l ast ye ar : £ 1,7 99. 4m), comp ris ing c as h and c as h equivalents of £ 1 , 1 9 7 .9m, an undra w n c ommit t ed syndicat ed bank revolvi ng c redi t f aci l it y ( “R CF ” ) of £8 50 .0 m (set to mature i n Ju ne 202 5), a nd u ndr aw n un comm it ted f a cil i ties a mo unti ng to £25.0 m . Th e G roup’s net d eb t at 2 Ap ri l 2022 was £2,698. 8m , a re du ct ion of £8 1 7 . 1 m si nce 3 A pr il 202 1, pri ma ri ly dr ive n by stro ng f ree cash flo w generati on. Th e G roup su ccess fu lly re ne goti ated i ts RCF i n De cem be r 202 1, wh ich i s set to ru n unti l Ju ne 2025, an d rep l aces th e f aci l it y w hic h wa s du e to matu re in A pr il 2023. Th e new f a cil it y co nta ins a f in anc ia l covena nt , be ing t he r atio o f ea rni ng s bef ore in terest , ta x , de pre ciat ion a nd a mo r tis ati on ; to net inte rest an d de pre cia tio n on r ig ht - of-us e ass ets u nd er IF RS 1 6 . Th e coven ant is m ea sured semi-annually . In a do ptin g the g oi ng con cer n ba sis of p rep ar atio n , the B oa rd has a sse sse d the G rou p’s cas h flow f orec as ts w hi ch in cor po rate a l atest es tim ate of th e on go ing i mp ac t of c ur rent m ar ket cond itions on the Gr oup and include a number of assumpt ions including sale s gr owth and cus tomer behaviour . While t rading conti nu es to be st rong , i n for mi ng th ei r out loo k on t he f utu re f in anc ia l pe r for m an ce, th e Bo ard cons ide red a v ar iet y o f dow nsi des th at th e G roup m ig ht ex pe ri en ce, su ch as a su sta in ed econ om ic re cessio n , in creas ed cost s an d an i na bil i t y for th e G roup to exe cute th e tr ans for ma tio n pl a n. Un de r thes e l atest fo rec ast s , the G rou p is a ble to op er ate wi tho ut th e ne ed to dr aw on i ts av ai l ab le f ac il iti es an d wi tho ut taking an y s upplementary mitigat ing actions, such as r educing ca pi ta l ex pe nd itu re and o the r dis cretio na r y sp en d . Th e fore ca st ca sh f lows a l so in dic ate th at th e G roup w il l com ply w ith a ll relev an t ba nk in g covena nts d ur in g the f orec as t pe ri od , b ein g at lea st 1 2 mont hs f rom th e ap prova l of th e f in an cia l st ateme nts . Th e Bo ard h as al s o mod el le d a mo re severe , bu t pl a usi ble , downs ide s cenario . This downside sce nario ass umes tha t: – T here w il l b e a per io d of e cono mi c recessi on i n the U K in 2022/23 an d 202 3/2 4 (fol low in g the i mp ac ts o f the C ovid - 1 9 pa nd em ic , the u nfo ldi ng h um an ita ri an c ris is fol low in g the i nvas ion of Uk r ai ne an d th e subs equ en t sha rp i nc reases i n th e cost of l iv in g), resulti ng i n a de cl in e in s ale s of 4. 0% p er a nn um , acros s al l th ree bu sin ess u ni ts. – Util i ties , f ue l an d oth er cost s in creas ing by ove r £50m a cros s 2022 /23 a n d 2 023/24. – A de l ay on tr an sfo rm atio n be ne fi ts resu lt s in in crem en ta l sa les ex pe c ted fro m the t ra nsfo rm ati on d ecl i ni ng by 1 0 % , 20% a nd 40 % respe c tive ly acros s the t hree -ye ar p er io d acros s bot h Fo od a nd Clo thi ng & Ho me b usi nes s un its . Even un de r th is severe b ut p l au sib le dow nsi de s cena ri o, th e G roup wo uld co ntin ue to h ave suf f i cie nt l iq uid it y a nd h ead roo m on i ts ex is tin g fa ci li ties a nd a ga ins t the R CF f in an cia l coven ant for t he fo rec ast p er io d. A lth ou gh , sh oul d such a s cen ar io ar ise , the re are a r an ge of m iti ga tin g ac tio ns th at cou ld be t ake n to red uce th e im pa ct . G ive n cur rent t ra di ng an d ex pe c tat ion s for the b usi nes s, t he Bo ard co nsid er s that t his d own sid e scen ar io ref lec ts a p l au sib le , but re mote , ou tcome fo r the G rou p. In a ddi tio n , revers e stres s testin g ha s be en a pp li ed to th e mod el , wh ich re prese nts a s ign if ic a nt de cl in e in s ale s comp are d to the dow nsi de sce na ri o. Su ch a scen ar io , an d the s equ en ce of eve nts wh ich co uld l ead to it , is co nsid ere d to be rem ote. As a resu lt , th e Bo ard ex p ec ts th e G roup to h ave ade qu ate resou rces to contin ue i n op er ati on , me et it s l ia bil i ties a s they f al l du e, ret ai n suf f i cie nt ava il a bl e ca sh an d not b rea ch th e covena nt u nd er th e revolvi ng c redi t f aci l it y fo r the fo rese eab le fu tu re, b ein g a pe ri od of at l eas t 1 2 m ont hs f rom th e ap prova l of t he financial stat ements. The Boar d theref o re considers it a pp ropr ia te for th e Gro up to ad opt t he g oin g con cer n basi s in pr eparing its financial stat ements. New a ccou nti ng s tan da rds a dop ted by t he G rou p Th e G roup h as a pp li ed t he fo llow in g new s ta nd ards a nd inte rp retati on s for th e f irs t tim e for t he a nnu a l repo r ti ng p er iod commenc ing 4 April 20 2 1 : – Am en dm ent s to IFRS 1 6: Cov id - 1 9 - Rel a ted Rent C on cessi ons beyo nd 30 J un e 202 1 . – Am en dm ent s to IFRS 9, I AS 39, IF RS 7 , IFR S 4 and I FRS 1 6: Intere st Ra te Ben chm ar k Refo r m Pha se 2. Th e ad opt ion o f the s ta nd ards a nd i nter pret atio ns l iste d ab ove has n ot le d to any ch an ges to the G ro up’s accou ntin g po l ici es or h ad a ny othe r mate ri al i mp ac t on t he f in an ci al po siti on or p er f or ma nce of th e G roup . NOT E S TO TH E F IN AN CIA L S T ATEM E NT S 131 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS New a ccou nti ng s tan da rds i n issu e bu t not ye t ef f ec ti ve New s ta nd ards a nd i nter pret atio ns th at are i n issu e bu t not yet ef f ec ti ve are l iste d be low : – Am en dm ent s to IAS 1 6: P rope r t y, Pl ant a nd Eq ui pm ent – Pr oceeds b ef ore Int ended Us e – Amendments t o IFRS 3 : Refer ence t o the Conc eptual Framew ork – Am en dm ent s to IAS 3 7: One rous Co ntr ac t s – Cost o f Ful f il l in g a Contrac t – An nu al Im prove me nts to IFR S Sta nd ard s 20 1 8 - 2020 Cycle : Amendments to IF RS 1 First -time Adopti on of Interna tional Financial R epor ting Standards, IFR S 9 Financial Inst r uments, IFR S 1 6 Lea ses an d IA S 4 1 Agr icu ltu re – IFRS 1 7 In sur an ce Cont ra ct s – Am en dm ent s to IAS 1 : C l assi f ic ati on of L ia bi l iti es as Cu rre nt or Non-Curren t – Am en dm ent s to IAS 1 an d IFR S Pr ac tice S tatem en t 2: Dis closu re of Accou ntin g Pol i cies – Am en dm ent s to IAS 8: D ef in iti on of A ccounti ng E sti ma tes – Am en dm ent s to IAS 1 2: Defe rre d T a x Re l ated to As set s and Liabilities arising f rom a Single T r ansaction – Am en dm ent s to IFRS 1 0 an d IAS 28: S ale o r Co ntr ibu tio n of As sets b et we en a n Investor a nd i ts A sso ci ate or Jo int Ventu re Th e ad opt ion o f the a bove s ta nd ards a nd i nter pret atio ns is n ot ex pe c ted to lead to a ny cha ng es to the G rou p’s account ing po li cie s or h ave any oth er m ater ia l im pa ct o n the f i na nci al posi tio n or p er for ma nce of t he G rou p. Alternative per fo rmance measures In rep or tin g fi na nc ia l info rm ati on , th e G roup p resen ts al ter nati ve pe r fo rm an ce mea sures ( “ A PMs”), w hi ch a re not d ef in ed o r spe ci fi ed u nd er th e req ui reme nts o f IFR S . Th e G roup b el i eves th at thes e APMs , w hic h are n ot consi de red to be a sub sti tute fo r , o r sup er io r to, IFR S me asures , p rovid e stak eholders w ith additional helpful i nformat ion on the pe r fo rm an ce of the b usi nes s. T hes e APMs a re consi stent w it h how th e bu sin ess p er fo rm an ce is p l an ne d and re po r ted w ith in the i nter na l ma na ge me nt rep or ti ng to th e Bo ard an d E xecu ti ve Com mi t tee. S ome o f the se me asures a re al s o use d for th e pu rp ose of s et tin g remu ne ra tio n targ ets . Th e key APMs t hat th e G rou p uses i ncl ud e: sa les ; li ke -fo r - l ike re venue gr ow th; operating p ro fit before adjusting it ems; profit bef ore ta x a nd ad jus tin g items ; adj uste d bas ic ea rn ing s pe r sh are; net d ebt ; n et de bt excl ud ing l eas e li ab il it ies; f re e ca sh f low ; an d retur n on c a pi tal e mp loyed . E ac h of th ese APM s, a nd ot he rs use d by the G rou p, a re set ou t in th e G loss ar y in clu din g ex pl a na tio ns of how t hey a re ca lcu l ated a nd how t hey c an b e recon ci led to a st atuto r y me asure w he re relev a nt. The Group reports some financial mea sur es, primaril y Inter n atio na l sa les , on b oth a re po r ted a nd con sta nt cu rre nc y ba sis. T h e const an t cur ren cy b asis , w hi ch is a n APM , retr an sl ates the p revi ous y ear reve nu es at th e aver ag e ac tu al p er iod ic exch an ge r ates use d in t he cu rre nt f in an cia l yea r . T his m eas ure is pres ente d as a me ans o f el im in atin g th e ef fe c ts of e xcha ng e rate f lu c tua tio ns on t he yea r - o n -yea r repo r ted resu lt s. Th e G roup m akes ce r t ain a dju stm ent s to the st atu tor y p rof it me asures i n ord er to de ri ve ma ny of th ese APM s. T he G rou p’s po li cy i s to exclu de i tems th at are co nsid ere d sig nif i ca nt i n natu re and/ or quantum t o the financial stat ement line it em or applicable dis closu re note or a re cons istent w it h item s that w ere trea ted as adjusting in prior periods. The Group ’s def inition o f adjust ing item s is cons istent w it h pr io r pe rio ds . Adju sted resu lt s are consi stent w it h how bu sin ess p er f or ma nce is m easu red i nter na lly an d prese nted to ai d comp ar a bil i t y of pe r fo rm an ce. O n this b asi s, the f ollowing it ems were included within adjus ting it ems for the 5 2-week p er io d en ded 2 A p ri l 202 2 : – Net c harges associat ed with t he stra tegic programme in relation to the rev iew of th e UK s tore est ate. – Signif icant re struc turing co sts and other ass ociated c osts ar isin g f rom str ateg y or o p er atio na l ch ang es th at are n ot consi de red by th e G roup to be p ar t of th e nor m al op er ati ng costs o f the b usi nes s. – Imp ai rm en t cha rges a nd p rovisi on s that a re consi de red to be sig nif i ca nt i n natu re an d/or v alu e to the tr ad in g pe r fo rm an ce of th e busi nes s. – Cha rges a nd reve rsa l s of p revi ous i mp ai rm ent s ar isin g f rom the w r ite -o f f of a sset s an d othe r pro pe r t y ch arge s that a re sig nif i ca nt i n natu re an d/or v alu e. I mp air m ent ch arg es are rec og nised in operating profit bef ore ad justing items w here they re l ate to stores no t prev iou sly im pa ired . – Adju stm ent s to incom e f rom M& S Ba nk d ue to a prov isio n recog nis ed by M &S Ba nk f or th e cost of p rovid in g red ress to cus tome rs in res pe ct o f pos sib le mi s-se ll i ng of M &S B an k financial pr oducts. – Am or t isat ion o f the i de ntif i ed i nta ng ib le as sets a ris ing a s pa r t of th e invest me nt in O ca do Re tai l L imi ted . – Remea sur ement of c ontingent considera tion including disc ount un wind. – Directl y attributable gains and expenses resulting f rom the Covid- 1 9 pandemic. Refe r to note 5 for a su mm ar y of th e adju sti ng i tems . NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 132 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS A sum ma r y of t he Co mp any ’s and t he G rou p’s accounti ng po li cie s is gi ven b elow. Accounting conv ention Th e f in an cia l st ateme nts a re dr awn u p on t he h istor ic al cos t bas is of ac counting, exc ept for c er tain financial instruments (incl uding de ri va tive i nstr u men ts ) an d pl a n ass ets of d ef in ed b en ef it p ens ion sch em es wh ich a re me asure d at f ai r va lu e at the e nd of e ac h reporting period, as explained in the acc ounting policies belo w . Basis of consolida tion The Group financial stat ements i ncorporat e the f inancial st ateme nts o f Ma rk s an d Sp en cer G rou p plc a nd a ll i ts su bsid ia ri es ma de u p to the p er iod e nd d ate. W he re neces sa r y, adju stm ent s are m ad e to the f in an cia l st ateme nts o f subs idi ar ies to b ri ng th e accou nti ng po l ici es use d in l i ne w ith th ose u sed by th e G roup . Subsidiaries Subsi diar y undertakings ar e all en titie s (incl uding spec ial purpos e enti tie s ) ove r wh ich th e Co mp any h as contro l . Co ntrol i s ach ieve d wh en th e Co mp any h as the p ower ove r th e enti t y ; is ex p osed , or h as r igh ts to, v ar iab le retu r ns f rom it s involve me nt wi th th e enti t y ; an d ha s the a bi li t y to use it s powe r to af fe ct i ts retu r ns. Th e Co mp any reas ses ses w heth er o r not i t contro l s an e ntit y i f f ac ts a nd ci rcum sta nces i nd ic ate tha t the re are ch an ges to on e or m ore of t hese t hree e le men ts of co ntrol . C ons ol id ati on of a subs idi ar y be gin s wh en th e Co mp any o bta ins co ntrol ove r the subs idi ar y and ce ases w he n the C om pa ny loses co ntrol o f the subs idiary. Subsidiary under takings ac quired during the y ear are rec o rded using the ac quisition method of ac count ing and t heir resul ts are i ncl ud ed f rom th e d ate of acqu isi tio n. Th e se pa ra ble n et as sets , i nclu di ng p rop er t y, pl a nt an d equipment an d intangibl e ass ets, of the newl y acquir ed subs idiary under takings ar e incorporat ed int o the c onsolidated f in anc ia l sta teme nts o n the b asi s of th e fa ir v al ue as a t the ef fe c tive d ate of co ntrol . Int ercompan y transacti ons, balances, and unrealis ed gains on tr an sa c tio ns be tw een G ro up com pa ni es are e li mi nate d on c onsolidation. Asso ciates An a sso cia te is an en tit y ove r wh ich th e G roup h as si gn if ic an t inf lu en ce an d tha t is ne ith er a su bsid ia r y no r an i nteres t in a joi nt ven ture. S ig ni fi ca nt i nf lue nce is t he p ower to pa r ti cip ate in th e f in an cia l an d op er atin g po l ic y de cisi ons o f the i nvestee bu t is not co ntrol o r joi nt con trol over t hose p ol i cies . T he resu lts an d asse ts an d l ia bil i ties o f asso ci ates are i ncor po ra ted in th ese financial stat ements us ing the equit y me thod of acc ounting. Un de r the e qu it y me tho d , an inve stm ent i n an as soc iate is rec ognised init ially in the consolidat ed stat ement o f financial posi tio n at cost a nd a dju sted th erea f ter to reco gni se th e Gro up’s sha re of th e prof i t or los s an d oth er com pre he nsi ve inco me of the a sso cia te. Wh en th e G roup’s sh are of lo sses o f an as soc iate excee ds th e G roup’s in terest i n that a sso cia te (whic h inc lud es any lo ng -ter m in terest s that , i n subs ta nce , for m pa r t of th e G roup’s net i nvestm ent i n th e asso ci ate ) , the G rou p dis conti nu es recog nis ing i ts sh are o f fu r th er los ses . Add iti on al lo sses a re recog nis ed o nly to the e x tent th at th e G roup h as i ncu rre d leg al or c onstructive obligations or made pa yments on behalf of the a ssocia te. Dividends rec eived or rec eivable fr om an associa te are reco gn ise d as a red uc tio n in t he c ar r y in g amo un t of the investment. Associat ed undertak ings acquir ed during the year are rec orded usi ng th e eq uit y m eth od of a ccoun tin g and t hei r resul ts a re in clu de d fro m the d ate of acq uis iti on . On a cqu isit ion o f the inves tme nt in a n ass oci ate, a ny excess o f the cos t of the inves tme nt over t he G rou p’s share of t he n et f air v al ue of t he identifiable asse ts and liabilities o f the invest ee is rec ognised as go od w il l , w hic h is in clu de d wi thi n the c a rr yin g am ou nt of th e inves tme nt. A ny exces s of th e Gro up’s sha re of th e net f a ir v alu e of th e id enti f ia ble a sset s an d li ab il it ies ove r the cos t of the inves tme nt , af ter re asse ssm ent , is re cogn ise d im me di ately in prof i t or los s in th e pe ri od i n wh ich t he inves tm ent is a cqu ired . Th e G roup’s sh are of t he ne t fa ir v al ue of i de ntif i ed i nta ng ib le ass ets is a mo r tis ed over t he e xp ec ted u sef ul e cono mi c li fe of th e ass ets. Th e req ui reme nts o f IA S 36 are ap pl ie d to deter mi ne w het her it is n eces sa r y to recog nis e any im p air me nt los s wi th resp ec t to the G rou p’s investm en t in an a sso ci ate. Wh en n eces sa r y, the enti re c ar r yi ng a mo unt o f the i nvestm ent ( in clu di ng g ood w il l) is tested fo r im pa ir me nt in a ccorda nce w ith I AS 36 as a si ng le as set by comp a rin g it s recover ab le a mou nt ( hig he r of v alu e in u se an d fa ir v al ue le ss cost s of di spo sa l) wi th its c a rr yin g am ou nt. Wh en a G rou p com pa ny tra ns ac ts w ith a n as soc iate of th e G roup , prof i ts an d los ses resu ltin g f rom th e tra ns ac tio ns w ith t he ass oci ate are reco gn ise d only to th e ex ten t of inte rests i n the ass oci ate tha t are no t rel ated to th e G roup. Rev enue Reven ue co mp ris es sa les of g oo ds to cus tome rs ou tsi de th e G roup l ess a n ap prop ri ate de du c tio n for a ct ua l an d ex pe cte d retur ns , d iscou nts a nd loy al t y sch eme vo uc he rs , and i s sta ted net o f va lue a dd ed t ax a nd ot he r sa les ta xes . Reven ue is rec ognised when performance obl igation s ar e sat isfied and go ods a re de l ive red to ou r fr an chi se pa r tn er s or th e cus tome r an d the co ntrol of g oo ds is t ra nsf er red to the b uye r . O nl i ne s ale s are reco gn ise d wh en ite ms are d el i vere d, a s thi s is wh en t he pe r fo rm an ce obl i gat ion i s de em ed to have b ee n sat isf ie d . Wh ere th ird - pa r t y br an de d go ods a re so ld on a co nsig nm ent b asi s, on ly the com mi ssio n rece iv ab le is i ncl ud ed in s tat utor y revenu e. A ri ght o f retur n is no t a sep ar ate pe r fo rm an ce ob li ga tio n an d the G rou p is re qui red to reco gni se reven ue n et of es tim ated retur ns . A ref un d li ab il it y a nd a cor resp on di ng as set in i nvento r y rep resent ing t he r ig ht to recover pro du ct s f rom th e custom er are recognis ed. Th e G roup e nter s into ag reem en ts w hic h enti tle ot he r pa r tie s to ope ra te und er th e Ma r ks & S pe ncer b r and n am e for ce r t ain ac ti vi ties a nd o pe rat ion s , such a s M&S B an k an d M& S Ene rgy. These con tracts give rise t o performance-based variable cons ider ation. Income dependent on the performance o f the thi rd- p ar t y o pe ra tio ns is reco gn ise d wh en it i s hig hly p rob ab le tha t a sig nif i ca nt rever sa l in th e am ou nt of in com e recog nis ed wi ll n ot occu r , an d pres ented a s othe r op er ati ng i ncom e. Supplier inc ome In l in e wi th in du str y pr ac tice , the G rou p en ters in to agre eme nts wi th sup pl i ers to sh are th e costs a nd b en ef it s of pro mot ion al ac ti vi t y and vo lu me g row th . Th e G roup re ceiv es in come f rom i ts sup pl ie rs b ase d on sp ec if ic a gre em ent s in pl ace. T hi s sup pl ie r in come re cei ved is re cogn ise d as a d edu c tio n fro m cost of s al es ba sed o n the e nti tle me nt tha t has b ee n ea rn ed u p to the ba l a nce she et d ate for ea ch rel eva nt su pp li er a gre em ent . Ma rketi ng con tributi ons, equipmen t hir e and ot her non-judgemen tal , fixed rate su pp l ier c ha rges a re not i ncl ud ed in t he G rou p’s def in iti on of s uppl ier in come. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 133 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS Th e t yp es of su pp l ie r inco me re cogn ise d by the G rou p an d the a ssocia ted rec ognition policie s ar e: A . Pr omotional contrib ution Inc ludes supplier c ontribution s t o pr omotional giv eaways and pre-agr eed c ontribution s t o an nu al “s pen d an d save” a c tiv it y. In come i s recog nis ed as a d ed uc ti on to cost of s al es over th e relev an t prom oti on al p er iod . In com e is c alc ul ate d and i nvoi ced at th e end o f the p rom otio na l pe ri od b ase d on a ct ua l sa les o r acc ording to f ixed con tributi on arrangement s. Con tributi ons earned bu t not i nvoice d are a ccru ed at t he e nd of th e rele va nt pe ri od . B. Volume -base d rebates Includes annual growth inc entives, seas onal c ontribution s and con tribution s t o shar e ec onomies of sc al e resul tin g fro m mov ing p rod uc t su pply. An nu al g row th in cent ives a re ca lcu l ated a nd i nvoice d at the e nd of th e f ina nc ia l year, once e ar ned , b ase d on f i xed p erce nta ge grow th t arg ets a gre ed fo r eac h sup pl ie r at th e be gi nn ing o f the ye ar . T hey a re recog nise d as a re du ct ion i n cost of s al es in the ye ar to wh ich t hey rel ate. Ot he r volu me - ba sed re bates a re ag reed w it h the su pp l ie r and s prea d over th e rel eva nt sea son / contr ac t p er io d to whi ch th ey rel ate. Co ntr ib uti ons e ar ne d bu t not i nvoice d are a ccru ed at t he e nd of th e rel eva nt pe ri od . Uncollect ed supplier inc ome at t he balance shee t dat e is cl as sif i ed w ith in th e f in anc ia l sta teme nts a s fol lows: A . Trade a nd o the r paya ble s Th e maj or it y of i nco me du e f rom sup pl ie rs is n et ted ag ai ns t amo un ts owed to th at su pp li er as t he G roup h as th e leg a l rig ht a nd in tentio n to of f set th ese b al a nces . B . T rad e an d oth er r ece iva ble s Supplier inc ome that has been ear n ed bu t not i nvoi ced at th e ba l an ce she et d ate is recog ni sed in tr ad e an d oth er rece iv ab les a nd p ri ma rily re l ates to volu me - ba sed re bates th at r un u p to the p er iod e nd . In o rder to p rovid e use rs of t he acco unt s wi th gre ater understanding in th is ar ea , addit ional balance s heet discl osur e is prov id ed i n note 1 7 to th e f in an cia l sta teme nts . M&S Bank Th e G roup h as a n econ om ic i nterest i n M& S Ba nk w hic h enti tles the G rou p to a 50% sh are of t he p rof its o f M&S B an k af te r appropria te c ontractual deductions. Dividends Fi na l di vi de nds a re record ed i n the f i na nci al s tatem en ts in t he pe ri od in w hi ch th ey are a pp roved by th e Com pa ny’s sh areh ol de rs. Inter im d iv id en ds a re record ed in t he p er iod i n wh ich t hey a re appro ved and pai d. Government grant s Governmen t grants are r ecognis ed wher e ther e is r easonable assu r ance t hat th e gr a nts w il l be re ceive d an d tha t the G rou p wi ll co mp ly wit h the co ndi tio ns at t ach ed to th em . G over nme nt g ra nts th at com pe ns ate the G rou p fo r ex pe nses in cur red a re recog nis ed in p rof it o r los s, a s a de du ct ion a ga in st the re l ated e xp en se, ove r the p er io ds n ecess ar y to match th em wi th th e rel ated cos ts . G over nme nt g ra nt in com e is dis clos ed in n ote 30. Pensions Fun de d pe nsi on pl ans a re in p l ace fo r the G rou p’s UK em pl oyees an d som e overs eas e mp loyee s. For defined benefit (“DB”) pensi on scheme s, the differenc e bet we en th e f ai r va lu e of the a sset s an d the p rese nt va lu e of the D B ob l ig atio n is reco gni sed a s an as set o r li ab il it y i n th e st ateme nt of f i na nci al p osit ion . T he D B ob li ga tio n is ac tu ar ia lly ca lcu l ated u sin g the p rojec ted u ni t cred it m eth od . An a sset c a n be re cogn ise d as , in th e even t of a pl a n w ind - up , the p ens ion scheme r ules provide the Group with an unc onditional right to a refu nd of su rp lu s asse ts as sum ing a f u ll se tt lem en t of pl a n l iab il i ties . In th e ord in ar y co urs e of bu sin ess , th e T r uste es have no r igh ts to wi nd - up o r cha ng e, th e be ne fi ts d ue to the m em be rs of th e sch em e. As a re sult , a ny net su rp lus i n the U K DB sc he me is reco gni sed i n f ul l . Th e se r vi ce cost of p rovid in g retire me nt be nef i ts to em ploye es du ri ng th e yea r , tog eth er w ith t he cost o f any cu r ta il me nt , is cha rge d to ope r atin g prof i t in th e yea r . T he G rou p no lo ng er in cur s any se r vi ce cost o r cur t ai l me nt costs re l ated to th e UK DB Pe nsio n Sc hem e as th e sch em e is clo sed to f utu re accr ua l . Th e net i nteres t cost on t he n et retire me nt be nef i t ass et/ l ia bi l it y is c alcu l ate d by app lyi ng th e di scoun t rate , mea sure d at th e be gi nni ng o f the ye ar, t o t he n et def i ne d be nef i t asse t/ l ia bi l it y an d is in clu de d as a sin gl e net a mo unt i n f in ance i nco me. Rem easu rem ent s , bei ng a c tua ri al g ai ns an d los ses , toge the r wi th the differenc e between actual in ves tment r eturns and the r eturn implied by the net int erest c ost, ar e r ecognis ed immediat ely in ot her c o mprehens ive income . Payments to defined c ontribution r etiremen t benefit sc hemes are ch arg ed as a n ex p ense o n an a ccr ua l s ba sis. Fo r fu r th er d eta il s o n pe nsio n sch em es an d the P ar tne rshi p l ia bi li t y to the M ar ks & S pe ncer U K Pen sio n sch em e, se e notes 1 1 an d 1 2. Intangible a ssets A . Goodwill Go od wi ll a ri sing o n con sol id ati on re prese nts th e excess o f the co nsid er ati on p aid a nd t he am ou nt of a ny no n- contro ll i ng in terest i n the a cqu iree ove r the f a ir v alu e of th e identifiable asse ts and liabilities (inc luding in tangible a ssets ) of th e acqu ire d enti t y at th e date of t he a cqui siti on . G oo dw il l is recog nis ed as a n as set an d ass esse d fo r imp ai rm en t ann ua l ly or as t ri gg er ing eve nts o ccur. Any im pa ir men t in v alu e is recog nis ed w ith in th e in com e sta teme nt. B. Acquired intangible assets A cquir ed intangible asse ts incl ude tr ade ma r ks o r br an ds. T h ese as sets a re ca pi ta li sed o n acq uisi tio n at cost a nd a mo r tise d on a s tra ig ht - l in e ba sis over t hei r esti mate d usef u l li ves . Ac quired intangible assets ar e te sted f or impairment as triggering event s occu r . A ny im pa ir me nt in v al ue is re cogn ise d wi thi n the income stat em ent. C . So f t ware i nta ng ib les W he re comp uter s of t w are is n ot an inte gr al p ar t o f a rel ated i tem of co mp uter h ard wa re, th e sof t wa re is t rea ted as an in tangible as set. Capitalised software c osts include ex ter n al di rec t cost s of g ood s an d ser vice s, a s wel l as in tern al payr ol l-r elated c osts f or emplo yees who are directly associa ted wi th th e proje c t. W he n the G rou p in cur s conf i gu rati on a nd cus tomis ati on cost s as p ar t o f a clou d -b ase d sof t wa re- as- a - ser vi ce agre em ent , an d wh ere th is d oes n ot resul t in th e crea tio n of an a sset w hi ch th e G roup h as con trol over, the n thes e costs are ex pensed. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 134 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS Capitalised so f tware dev elopment c osts ar e amortised on a s tra ig ht - l in e bas is over th ei r ex pe cte d econ om ic l i ves, no rm al ly bet we en th ree a nd f i ve year s. Co mp ute r sof t w are un de r deve lop me nt is h eld at cos t les s any reco gni sed im pa ir me nt loss . A ny imp ai rm en t in v alu e is reco gn ise d within t he inc ome stat ement. Property, plant and equipment Th e G roup’s po l ic y is to sta te prop er t y, pl a nt an d eq ui pm ent at c ost le ss ac cumul at ed depreciat ion and any r ecogni sed im pa ir me nt loss . Pro pe r t y is no t reva lue d for a ccoun tin g pu rp oses . As set s in th e cour se of con str uc ti on a re hel d at cost les s any reco gni sed i mp ai rm ent l oss . Cost s in clu de p rofess ion al fee s and , fo r qu al i f y in g asse ts , bo rrow ing cos ts . Lea seh old buildings with lease premium s and ongoing peppercorn lease pay me nts a re consi de red in - subs ta nce pu rch ases a nd are the refo re inc lud ed w ith in t he bu ild in gs c ateg or y of prop er t y , plant and equipmen t. De pre ciat ion i s prov ide d to wr ite of f t he cost o f ta ng ibl e non-current assets (including inve stment properties ), less esti mate d resid ua l va lu es on a st ra ig ht - l in e basi s as fo llow s: – Fr eehold l and – not deprec iat ed. – Bui ldi ng s – de prec iate d to thei r resid ua l va lu e over th eir esti mate d rem ain in g econ om ic l iv es of 25-50 ye ar s. – Fi x tu res, f i t tin gs an d eq ui pm ent – 3 to 25 year s accord ing to the est im ated eco no mic l i fe of th e as set. Resid ua l v alu es an d use fu l econ om ic l i ves are rev iewe d an nu al ly . De pre ciat ion i s cha rge d on a ll a dd iti ons to , or di spo sa l s of, de pre ciat ing a sset s in th e yea r of pu rch ase o r dis pos al . Any i mp ai rm ent i n va lue , or reve rs al of a n im pa ir me nt , is reco gni sed w it hin t he i ncom e st ateme nt . Leasi ng Th e G roup re cog nise s a rig ht - o f - use as set a nd cor resp ond in g l iab il i t y at the d ate at w hic h a lea sed a sset i s mad e av ail a bl e for u se by th e Gro up, e xcept fo r sho r t - ter m lea ses ( de f ine d as le ases w ith a l eas e term o f 1 2 m ont hs or l ess ) an d lea ses of low- va lue a sset s. F or th ese l eases , th e G roup re cog nis es the l ease p ay men ts as a n op er ati ng ex p ens e on a st ra igh t - l ine ba sis over t he ter m of th e lea se. Lea se l ia bil i ties a re mea sure d at th e prese nt v alu e of th e fu tu re lea se pay me nts , e xclud in g any p aym ent s rel ati ng to no n -l ease compone nts. F uture l ease payment s inc lude fixed payments, in-substanc e fixed pa yments, and variable lea se pa yments tha t are b ase d on an i nd ex o r a ra te, les s any le ase i ncen tives rec eivable. Leas e liabilities al so tak e int o ac coun t amoun ts payable under r esidual value guarantee s and paymen ts t o exe rcise o ptio ns to the e x tent t hat i t is reas on ab ly cer ta in t hat suc h pay me nts w il l be m ad e. T he p aym ent s are di scou nted at th e rate im pl i cit i n the l eas e or, where t hat c an no t be rea di ly det ermined, at an incremen tal borro w ing ra te. Ri ght - of-use a sset s are m easu red i nit ia lly at cos t bas ed o n the va lu e of the a sso ci ated le ase l ia bi li t y, adjus ted fo r any pay me nts ma de b efo re ince ptio n , in iti al d irec t cos ts an d an es tim ate of the d ism ant l ing , re mov al a nd resto rat ion cos ts req ui red i n the term s of th e lea se. T he G rou p pres ent s rig ht - of-use a sset s in “pr oper ty, pl ant and equipment” in the c onsolidated statement of financial posit ion. Subsequen t t o initial r ecognition, t he lease liabilit y is reduced for p aym ent s ma de a nd i ncre ase d to refle c t interes t on t he lea se l ia bil i t y ( u sin g the e f fe ct ive i nterest m etho d). T h e rel ated ri ght - of-use a sset i s de pre ciate d over th e ter m of the l eas e or, if sh or te r , t he us ef ul eco no mic l i fe of th e le ased a sset . T he le ase term s ha ll i ncl ud e the p er io d of an e x tens ion o pti on w he re it is reaso na bly ce r ta in th at th e opt ion w il l b e exerci sed . W he re the lea se cont ai ns a pu rcha se op tio n , the a sset is w r it ten of f over the u sef ul l i fe of th e ass et wh en i t is reas on ab ly cer ta in th at th e pu rcha se opt ion w il l b e exe rcise d. Th e G roup re me asures t he le ase l i abi l it y (and m akes a cor respo nd in g adju stm ent to th e rel ate d ri ght - of-use a sset) whenever: – Th e lea se ter m has c ha ng ed o r the re is a ch an ge in t he ass essm ent o f exe rcise of a p urch ase o pti on , in w hi ch c ase the l ease l i ab il it y i s reme asu red by di scou ntin g the rev ise d lea se pay me nts u sin g a revis ed d iscou nt ra te. – Th e lea se pay me nts c ha ng e du e to chan ge s in an i nd ex o r rate o r a ch ang e in e xp ec ted p aym en t und er a g u ar antee d resid ua l va lu e, in w hi ch c ases t he le ase l i abi l it y is re mea sure d by dis count ing t he rev ise d lea se pay me nts u sin g the i nit ia l dis coun t rate (unles s the l eas e pay me nts ch an ge is d ue to a cha ng e in a f lo ati ng in terest r ate, i n wh ich c ase a rev ise d dis coun t rate is u sed ). – A leas e contr ac t is m od if i ed a nd th e lea se mo di fi ca tio n is not a ccoun ted for a s a sep ar ate le ase, i n w hic h ca se the l eas e l iab il i t y is rem easu red by d iscou nti ng th e revis ed le ase pay me nts u sing a rev ise d di scou nt ra te. Lea ses for w h ich th e G roup i s a less or a re cl as sif ie d as f in an ce or o pe rat ing l eas es. A l ease i s cl as sif ie d as a f i na nce le ase if i t tr ans fer s subs ta ntia l ly al l the r isk s an d rewa rds of ow ne rsh ip to the les se e, an d cl a ssif i ed as a n op er ati ng le ase i f it d oes n ot. Wh en th e G roup i s an i nter me dia te lesso r , it a ccount s for t he hea d le ase an d th e sub lea se as t wo se pa rate co ntr ac ts . Th e sub lea se is cl a ssi f ied a s a f in ance o r op er ati ng le ase by ref eren ce to the r igh t - of-us e asse t ar isin g fro m the h ea d leas e. Am ou nts d ue f rom le sse es un de r f in ance l eas es are reco gn ise d as rece iv ab les at th e am ou nt of th e G roup’s ne t invest men t in th e lea ses. F i na nce le ase in com e is al lo ca ted to accoun tin g pe ri ods so as to ref lec t a co nst ant p er io dic r ate of retu r n on th e G roup’s net i nvestm ent i n the l eas e. Ren ta l inco me f rom o pe ra tin g leas es is reco gni sed o n a str ai ght-l ine b asi s over th e ter m of the relevant lease . Cash and c ash equiv alents C ash an d c ash e qu iv ale nts i ncl ud es sho r t -ter m de po sits w it h ba nk s an d othe r f in an cia l in stit uti ons , w ith a n in iti al m atu ri t y of th ree mo nth s or le ss an d cred it c a rd paym en ts rece ive d wi thi n 48 ho ur s. B an k tra ns ac tio ns a re record ed o n the ir settle ment d ate. Inventories Inve ntori es are v al ue d on a wei gh ted aver ag e cost b asis a nd ca rr ie d at th e lower o f cost a nd net re al is ab le v alu e. Co st in clu des all direct expenditur e and o ther attributable c osts incurr ed in bringing in ventorie s t o their p re sent l o cation and condit ion. Al l inven tori es are f i nish ed g oo ds . Cer tai n pu rcha ses of i nventor ies may b e subj ec t to ca sh f low he dg es for f orei gn e xcha ng e ri sk . Th e in iti al cos t of he dg ed i nventor y is ad juste d by the as so ciate d he dg ing g ai n or l oss tr an sfe rre d fro m the c as h flow h ed ge reser ve (“ b asis a dju stm ent ” ). NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 135 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS Provisions Provi sion s are reco gn ise d wh en th e G roup h as a p resen t ob li ga tio n as a resu lt of a p ast eve nt , an d it is p rob ab le th at the G roup w il l be re qu ire d to sett le th at ob l ig atio n. P rovisi ons a re me asure d at th e bes t esti mate of t he ex p end it ure req ui red to set tle t he o bl ig ati on at th e en d of th e repo r ti ng p er io d, a nd are d iscou nted to pres ent v alu e w here t he ef fec t is m ater ia l . Share -based payments Th e G roup i ssu es eq ui t y-set tl ed sh are - ba sed p ay men ts to cer t ai n em ploye es. A f a ir v alu e fo r the e qu it y-s et tle d sha re awa rds is m easu red at t he d ate of gr an t. T he G rou p me asu res the f a ir v alu e of e ach aw ard u sing t he B l ack- Sch ol es mo de l where appropriat e. Th e f ai r va lue o f eac h awa rd is reco gni sed a s an e xp ens e over th e vesti ng p er io d on a st ra ig ht - l in e basi s, a f ter a ll owi ng for a n esti ma te of the sh are aw ard s tha t wil l eve ntu al ly vest . Th e leve l of vest ing i s revi ewed at e ach re po r ti ng pe ri od a nd the c ha rge is a dju sted to ref lec t a ct ua l and e sti mated l evel s of v esting. Foreign currencies Th e f in an cia l st ateme nts a re pres ented i n ster l in g wh ich is the Company’ s functional c urrency . Th e resul ts of ove rse as su bsid ia ri es are tr an sl ated a t the we igh ted aver ag e of mo nth ly exch ang e r ates for reve nu e an d prof it s. Th e st atem ents o f f in an cia l posi tio n of ove rsea s subs idi ar ies a re tr ansl ated at yea r - en d exch an ge r ates. T he resu lt ing e xcha ng e di f fe rences a re bo oke d into rese r ves a nd rep or ted in th e cons olidated stat ement o f c omprehensiv e income. On dispo sal of an ove rse as su bsid ia r y th e rel ated c um ul at ive tr an sl ati on di f fe rences re cog nis ed in res er ve s are rec l assi f ie d to prof it o r loss a nd a re recog nis ed as p a r t of th e ga in o r loss o n di spos al . T r an sa c tio ns de no mi nated i n fo reig n cur ren cies a re tr ans l ated at th e exch an ge r ate at the d ate of th e tr ans ac ti on . Fo rei gn cur ren cy m on eta r y as set s and l i ab il iti es he ld at th e en d of th e rep or ti ng p er io d are tr an sl ated at t he clo sin g ba l an ce she et rate . Th e resul tin g exch an ge g ai n or los s is reco gn ise d wi thi n the inc ome stat ement. Ta x a t i o n T a x ex pe nse co mp ri ses cu rren t an d defe r red ta x . T ax i s recog nis ed in th e in come s tate me nt, e xcept to th e ex ten t that i t rel a tes to items re cogn ise d in ot her co mp reh ensi ve in com e or d irec tly in e qu it y, in wh ich c ase t he rel ated ta x is re cogn ise d in ot her compr ehensive income or directly in equity . Provi sion i s ma de fo r un cer t ai n ta x pos itio ns w he n it is co nsid ere d prob a ble t hat th ere w il l be a f u ture o ut f low of f un ds to a ta x au tho ri t y . Th e prov isio n is c alc ul a ted usi ng th e sin gle b est esti mate w he re tha t outcom e is m ore l ike ly tha n not a nd a weig hted ave ra ge p rob ab il it y i n othe r ci rcums ta nces . Th e po siti on is r eview ed on an ongoing basis, t o ensur e appropria te provi sion is ma de f or ea ch k now n ta x ri sk . Def er red t ax is a ccoun ted for u sin g a temp or ar y di f fe rence ap pro ach , a nd is th e ta x ex p ec ted to be p aya bl e or recove ra bl e on tem po ra r y d if feren ces b et wee n the c ar r y in g am ou nt of ass ets a nd l ia bi li ties i n th e sta teme nt of f in an ci al p ositi on a nd the co rresp on di ng t ax b ases u se d in th e comp ut atio n of t ax ab le prof i t. D efe rre d ta x is c alcu l ated b as ed on t he e xp ec ted m an ne r of rea li sat ion o r set tl em ent of t he c ar r y in g am oun t of as sets a nd liabilities, appl ying tax ra te s and laws enact ed or substan tivel y en ac ted at t he en d of th e rep or ti ng p er io d. Deferr ed tax liabilitie s ar e generally recogni sed f or all taxable temporary differenc es. Def erred tax liabilities are rec ognised for t ax a ble tem po r ar y d if fere nces a risi ng o n inves tme nts i n subs idi ar ies , as so ciates a nd jo int ve ntu res , except w he re th e revers al o f the te mp or ar y d if fere nce c an b e contro ll ed by th e G roup a nd i t is pro ba ble t hat th e di f fe ren ce wi ll n ot rever se in the fo rese ea ble f ut ure. I n ad di tio n, d efe rre d ta x l ia bi li ties a re not rec ognised on temporary difference s tha t aris e from goodw ill wh ich i s not d ed uc ti ble fo r ta x pu r pose s. Def er red t ax as sets a re reco gni sed to th e ex ten t that i t is prob a ble t hat t ax ab le p rof its w il l b e avai l a ble a ga ins t wh ich t he deductible t emporar y dif fer ence s can be utilised. The carr ying am ou nt of de fer red t ax a sset s is rev iewe d at the e nd o f eac h rep or ti ng p er io d and re du ced to the e x tent t hat i t is no l ong er prob a ble t hat su f f ic ien t ta xa bl e prof it s wi ll b e ava il a bl e to all ow al l or p ar t of the a sset to b e recovere d. Deferr ed tax a ssets and liabilities ar e not r ecognised in res pect of tem po ra r y d if f eren ces th at ar ise o n in iti al reco gn iti on of a sset s and liabilities ac quired o ther than in a busines s c ombination. Financial in struments Financial as sets and liabil itie s ar e r ecogni sed in the Group ’ s st ateme nt of f i na nci al p osit ion w he n th e Gro up b ecom es a p ar t y to the cont ra c tua l prov isio ns of t he in str um ent . F in an cia l ass ets are i niti al ly cl a ssif i ed a s at f air v al ue th rou gh p rof it a nd los s, f a ir value t hrough other c omprehens ive income or amor tis ed cos t depending on the G roup’ s busine ss model f or managing the f in anc ia l ass et an d its c ash f low c ha ra c teri stic s . Fi na nci al as set s tha t are he ld fo r col lec ti on of co ntr ac tu al c ash f low s, w h ere tho se ca sh f lows re prese nt so lely p aym ent s of pr in ci pa l and inte rest , are me asu red at a mo r tise d cost . Th e ta bl e be low sets o ut th e G rou p’s accounti ng cl assi f ic atio n of ea ch cl a ss of i ts f in an ci al as sets a nd l i abi l iti es: Note Measurement Financial assets: Other investments 16 FVTPL 1 Unlisted equity investments 16 FVOCI 2 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. Fa ir v al ue t hro u gh p roﬁ t or l oss . 2. Fair value thr ough ot her c omprehensiv e inc ome. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 136 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS A . Trade a nd o the r re cei vab les T rade rec eivables ar e rec orded in iti al ly at tr ans ac ti on p ri ce and su bse qu ent ly mea sured a t am or ti sed cos t, e xcept t hose w hi ch , du e to fa c tori ng a rr an ge me nts , are h eld w ith in a “ h old to col le ct a nd se l l ” busi nes s mo de l and a re me asure d at F VOCI . Trad e recei va bl es me asure d at am or tise d cost a re ca rr ie d at no mi nal v a lue l ess a n al low ance f or any do ubt f ul d eb ts. T h e al lowa nce fo r do ub tf u l de bts is re cog nise d ba sed o n ma na ge me nt ’s exp ec ta tio n of los ses w ith out re ga rd to wh eth er an i mp ai rm ent t ri gg er h ap pe ned o r no t ( a n “ex pe c ted credi t lo ss” model). B . Ot he r fi na nci al as set s Ot her f i na nci al a sset s consi st of inv estments in unlist ed equity securitie s , loan s r eceivable, vent ure capital in vestments and short -term in vestments with a mat ur it y d ate of over 9 0 d ays an d are cl a ssi fi ed a s eit her f a ir value t hrough other c omprehens ive income (“ F V OCI”) or fair va lu e throu gh p rof it o r los s (“ F V TPL ” ). F in an cia l as sets h eld at F VOCI a re ini tia l ly mea sured a t f air v al ue , in clu din g tr ans ac ti on co sts dir ec tl y attributabl e t o the ac quisition of t he financial ass et. F in an cia l as sets h eld a t F V T PL are in iti al ly reco gni sed at f ai r va lue a nd t ra nsa c tio n costs a re ex pe nse d . Fo r eq uit y i nvestm en ts at F VOC I , ga ins o r los ses ar isi ng f rom cha ng es in f a ir v al ue a re recog nise d in o the r comp reh ens ive in come u nti l the s ecu ri t y is dis pos ed of, at wh ich t ime the c umu l ati ve g ain o r los s prev iou sly recog ni sed i n oth er com preh en sive i ncom e an d accu mu l ated i n the F VOCI reser ve is t ransferr ed t o reta ined earnings. Th e G roup d esi gn ated al l no n -l is ted eq ui t y inves tme nts n ot he ld for t ra di ng as F VO CI on i nit ia l recog ni tio n be ca use th e G roup i ntend s to hol d the m for lo ng -te rm s tra tegi c pu rp oses . Fi na nci al a sset s tha t do n ot me et the c ri teri a for b ei ng m easu red at am or tise d cost or F VOCI are m easu red at F V TPL w it h ga ins an d loss es ar isin g f rom ch an ges i n f air v al ue i ncl ud ed in t he income stat em ent for t he period. C. Classification of financial liabiliti es and equity Financial liabilities and equit y ins truments are classified ac cor ding to the s u bstanc e of the con tractual arrangements ent ered in to . An e qu it y in str um en t is any con tra c t tha t evid en ces a resid u al inte rest in t he as sets o f the G rou p af te r de du ct ing a ll o f its liabilities. D. Bank borr owings Inter est - bearing bank loans and o ver draf ts are initially r ecorded at fair value, whic h equals the proc eeds recei ved , n et of d irec t is sue cos ts . Th ey are su bse qu ently h eld a t am or ti sed cos t. F in an ce ch arge s, i ncl ud ing p rem iu ms pay ab le o n set tle me nt or re de mp tio n and d ire ct i ssu e costs , a re accou nted for u sin g an ef fec ti ve inte rest ra te meth od a nd are a dd ed to or d ed uc ted f rom th e c ar r yi ng a mo unt o f the i nstr u men t. E . L oa n note s Lon g- ter m loa ns are i ni tia lly m easu red at f a ir v al ue net o f dire c t issu e costs a nd a re sub seq ue ntly he ld at a mo r tise d cost . If th e loa n is d esig nate d in a f ai r va lu e he dg e rel ati ons hi p, the c a rr y in g va lu e of th e loa n is ad jus ted for f a ir v al ue g ain s or lo sses at t rib ut ab le to the r isk b ei ng h ed ge d. F . T ra de paya ble s T r ad e pay ab les a re record ed i nit ia lly at f a ir va lu e and su bse qu en tly mea sure d at am or t ised co st. G e ne ra lly, thi s resul ts in th ei r recog ni tio n at th eir n om in al v alu e. G. Equity instruments Equit y i nst ru me nts is sue d by the G rou p are record ed at t he con sid er atio n rece ive d, n et of d ire ct i ssu e costs . Derivative financial instruments and hedging activities Th e G roup p ri ma ri ly uses c ross- cu rre nc y sw aps a nd fo r w ard fore ign c ur ren cy con tra c ts to ma na ge i ts ex po sures to f luc tu ati ons in i nterest r ates an d fore ig n exch an ge r ates. T he se ins tr um ent s are i niti al ly reco gni sed a t fa ir v al ue o n the t ra de d ate and a re subs eq ue ntly rem easu red at t hei r f ai r va lue a t the e nd of t he rep or ti ng p er io d. T he m eth od of re cog nisi ng th e resul tin g ga in or lo ss is d ep en de nt on w het her t he d er iv ati ve is de sign ated a s a he dg ing i nst ru me nt an d the n atu re of th e item b ei ng he dg ed . Th e G roup d esi gn ates cer t ain h ed gi ng d er iv ati ves as ei th er : – A hed g e of a hi ghly p rob ab le fo rec ast tr a nsa c tio n or ch an ge in th e c ash f lows of a re cog nis ed as set or l i ab il it y (a cas h flo w hedge ); or – A hed g e of the e xp osu re to cha nge i n th e fa ir v al ue of a recog nis ed as set o r l iab il i ty (a fa ir v al ue h ed ge). At the i nce ptio n of a h edg in g rel at ion shi p, th e he dg ing i nst ru me nt an d the h ed ge d item a re do cum ente d , alo ng w ith th e ri sk management ob jective s and strat egy for undertaking various he dg e tra ns ac ti ons a nd p rospe c tive e f fe ct ive nes s testin g is pe r fo rm ed . Du ri ng th e l ife o f the h ed gi ng rel atio nsh ip, p rospe c tive ef fe c tive nes s testi ng is p er for me d to ensu re that t he in str um ent rem ain s an ef fec ti ve he dg e of th e tr ans ac ti on . Ch ang es i n the f air v al ue o f de ri vat ive f in an ci al in str um ent s tha t do n ot qu al i f y for h ed ge a ccount ing a re reco gni sed i n the i nco me st atem ent as th ey ar ise. In 20 1 9/20 , the G rou p ea rly ad op ted th e Pha se 1 am en dm ent s Intere st Ra te Ben chm ar k Refo r m – Am en dm ents to IF RS 9, I AS 39 an d IFRS 7 . T hes e am end me nts m od if y spe cif i c he dg e accou ntin g req uire me nts to al low h ed ge a ccount ing to con tinu e fo r af fe c ted he dg es du ri ng th e pe ri od of u nce r ta int y b efo re the h ed ge d item s or h ed gin g in str um ent s af fe c ted by th e cur rent i nteres t rate be nch ma rk s are a me nd ed as a re sult o f the o ng oi ng in terest r ate be nch ma rk re for ms . Th e ap pl ic ati on o f the a me nd men ts im p ac ts the Gro up’ s accoun ting in rel ation to a sterling denominat ed f ixe d rate d ebt , fo r wh ich i t f air v al ue h ed ge a ccount s usi ng ster l ing f i xed to G BP LI BOR i nteres t rate sw a ps. T he a me nd me nts pe rm it con tin uat ion o f he dg e accou ntin g even i f in th e f utu re the h ed ge d be nch m ar k interes t ra te, GB P LI BOR , may no l ong er be se pa r ately id enti f ia ble . Howeve r , thi s rel ief d oes n ot ex tend to the re qu irem en t that t he d esig nate d interes t ra te risk co mp one nt mus t conti nu e to be rel i ably m easu r ab le. If t he r isk com po ne nt is no longer re liably mea surable, t he hedging r elationship is discontinued . In th e cur ren t year, the G rou p ado pted t he Ph ase 2 a me nd me nts Intere st Ra te Ben chm ar k Refo r m – Am en dm ents to IF RS 9, I AS 39, IFR S 7 , IFRS 4 a nd I FRS 1 6 w hi ch w as issu ed i n Aug us t 202 0. Th ese a me nd men ts are m an da tor y fo r an nu al rep or tin g per io ds be gi nni ng o n or a f ter 1 Ja nu ar y 202 1 . Wh il e the G rou p no lo ng er ho lds a ny fa ir v al ue he dg e rel a tio nsh ips , th ese am en dm ent s al low th e G roup to reta in a ny ba l an ces fro m dis conti nu ed IB OR l inke d he dg e rel at ion shi ps on t he b al a nce sh eet a s thes e are now de em ed to be b ase d on t he rep l ace me nt r ate. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 137 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS A . C ash f low h ed ges Ch an ges i n th e fa ir v al ue of d er iv ati ve f in anc ia l ins tru me nts t hat a re desi gn ated a nd ef fec ti ve as he dg es of f utu re ca sh f lows a re recog nis ed i n othe r com preh en sive in come . Th e el eme nt of t he ch an ge i n f air v al ue w hi ch rel a tes to the fo reig n cur ren cy b asi s spre ad is re cogn ise d in th e cost of he dg in g reser ve, w ith t he rem ai ni ng ch an ge i n f air v al ue recog nis ed i n the h ed gi ng rese r ve a nd any i nef fec ti ve po r ti on is recog nis ed i mm ed iately i n the i ncom e st atem ent i n f in ance cos ts . If th e f ir m comm it men t or fo rec ast t ra ns ac tio n th at is th e subj ec t of a c ash f low h ed ge resu lts i n the re cog nit ion o f a no n- f in an cia l ass et or l i abi l it y, then , at t he ti me th e as set or l i ab il it y is re cog nise d , the a sso cia ted ga in s or los ses o n the d er iv ati ve tha t ha d prev iou sly been r ecognis ed in other c omprehensiv e inc ome and ac cumul at ed in th e ca sh f low he dg e rese r ve are re move d di rec tly fro m eq ui ty an d inc lud ed i n th e ini tia l me asu reme nt of th e as set or l i ab il it y. If th e he dg ed i tem is tr an sa ct ion - rel a ted the f orei gn cu rre nc y ba sis sp read is re cl a ssif i ed to prof i t or lo ss w hen t he h ed ge d item af f ec ts p rof it o r loss . If th e he dg ed i tem is ti me - pe ri od rel ated , the n the a mo unt a ccum ul ated in th e cost o f hed gi ng res er ve i s recl a ssi f ied to p rof it or l oss o n a syste mat ic an d ra tio nal b asi s. Th ose re cl as sif ie d am ou nts a re recog nis ed i n prof it o r los s in th e sa me l in e as th e he dg ed i tem . If th e he dg ed i tem is a no n -f in an cia l item , th en t he am ou nt accu mu l ated i n th e cost of h ed gin g rese r ve is rem oved d irec tly f rom e qu it y a nd in clu de d in th e in iti al c ar r y in g amount of th e r ecognis ed non-financial it em. Fo r he dg es tha t do n ot resul t in th e recog ni tio n of an a sset or a l i abi l it y, amo unt s def er red in t he c ash f low h ed ge rese r ve are reco gn ise d in th e in come s tate men t in th e sa me p er io d in wh ich t he he dg ed i tems a f fe ct n et pro fi t or l oss . B . Fair v alu e he dge s Cha ng es in t he f ai r va lu e of a de ri v ative ins tr um ent d esig nate d in a f ai r va lu e he dg e are reco gn ised i n the i nco me st atem ent . T he he dg ed i tem is a dju sted fo r ch ang es in f ai r va lu e at tri bu ta bl e to the ri sk be in g hed ge d w ith th e cor respo nd in g entr y in th e in come s tate men t. Cha ng es in t he f ai r va lu e of de ri v ative f i na nci al i nst ru me nts tha t do no t qu al if y for h ed ge a ccoun tin g are reco gn ised i n th e in come s tate me nt as th ey ar ise. C . Dis con tin uan ce of h ed ge a ccou nti ng Hedge acc ounting is dis conti nu ed w he n the h ed ge re l atio nsh ip n o lon ge r qu al if i es for hedge ac count ing . This includes when the hedging inst rument ex pi res, i s sol d, te rm in ated or e xerci sed , o r wh en o ccur ren ce of the fo rec as t tra ns ac ti on is n o lon ge r hi ghly p rob ab le. T he G rou p cannot v oluntarily de- designa te a hedging r elationship . Wh en a c ash f low h ed ge i s dis conti nue d , any cu mu l ati ve ga in or lo ss on t he h ed gin g in str um ent a ccum ul ate d in th e ca sh f low he dg e reser ve is reta in ed i n equ it y u nti l the fo rec as t tra ns ac tio n occu rs. S ub seq ue nt ch an ges i n the f a ir v alu e are re cogn ise d in the i nco me st atem ent . If a h ed ge d tr ans ac ti on is n o lon ge r ex pe c ted to occur, the ne t cum ul at ive g ai n or los s accu mu l ated in th e ca sh f low he dg e rese r ve is tr an sfe rre d to the in com e stat em ent for t he period. Wh en a f a ir v alu e he dg e is di scont inu ed , t he f ai r va lu e adj ust men t to the c ar r y ing a mo unt o f the h ed ge d item a ri sing fro m the h ed ge d ri sk is am or tise d to the in com e sta teme nt ba sed o n the re ca lcu l ated e f fe ct ive i nterest r ate at th at da te. Th e G roup d oe s not us e de ri va tives to he dg e in com e sta teme nt tra nsl ation ex posures. Reser ves Th e fol low in g des cri bes t he n atu re and p ur po se of ea ch rese r ve within equity: A . S ha re pre mi um ac coun t Proce eds re cei ved in e xcess of t he no min al v al ue o f sha res issu ed , n et of a ny tra ns ac tio n cost s. B . Ca pit al re de mpt ion r ese r ve Am ou nts tr an sfe rre d fro m sha re c api ta l on re de mpti on o r rep urch ase o f issu ed sh ares . C . He dg ing r ese r ve Cum ul at ive g ai ns an d los ses on h ed gi ng ins tr um ents d ee me d ef f ec ti ve in c ash f low h ed ges . D. Cost o f he dgi ng Cu mu l ati ve ga ins a nd l osses o n th e po r tio n exc luded fr om the de signat ed hedging instrument that relat es to cha ng es in th e fore ig n cur ren cy b asis . E . O th er r ese r ve Or igi na l ly created a s pa r t of th e ca pi ta l restr uc tu ri ng th at too k pl a ce in 20 02. It rep rese nts th e di f fe ren ce bet we en th e no mi na l va lu e of the s ha res issu ed p ri or to th e ca pi ta l redu c tio n by the C om pa ny (be in g the c ar r y in g va lu e of the i nvestm en t in M ar ks a nd Sp en cer p lc) and th e sha re c api ta l , sha re pre miu m an d c api ta l red em ptio n rese r ve of M ar ks a nd Sp en cer p lc at th e date of t he tr an sa ct ion . F . Fo reig n exch an ge res er ve G ai ns a nd los ses a risi ng o n retr ansl atin g the n et as sets o f overs eas o pe rat ion s into ster l in g. G . Retained earnings Al l oth er ne t ga ins a nd lo sses a nd tr ans ac ti ons w it h own ers (e.g . di vid en ds ) not re cog nise d el s ewh ere. Crit ical ac countin g judgements and key sourc es of es ti mat ion u nce r tai nt y The pr eparation o f c onsolidated financial stat ements r equires the G rou p to ma ke esti mates a nd ju dg em ent s tha t af fe c t the application o f policies and reported amounts. Cr itic a l jud ge me nts re prese nt key de cisi on s ma de by m an ag eme nt in th e ap pl ic ati on o f the G rou p accou nti ng p ol ici es. W h ere a sig nif i ca nt r isk of m ater ia lly d if f ere nt ou tcomes e xis ts d ue to management assump tions or sour ce s of estimat ion unc er tainty , thi s wi ll re prese nt a key sou rce of est im atio n un cer t ai nt y. Estim ates an d jud ge me nts a re conti nu al ly eva lu ated an d are b ase d on hist oric al experience and other factor s, including expectations of f utu re event s th at are b el ieve d to be rea son ab le un de r th e circu ms tan ces . Act ua l resul ts m ay dif fer f rom t hese es tim ates . Th e esti ma tes wh ich h ave a sig nif i ca nt r isk of c au sin g a mater ia l adj ust men t to the c ar r y ing a mo unt o f ass ets an d l ia bil i ties wi thi n the n ex t 1 2 mo nths a re di scus sed b elow. Crit ical ac countin g judgements Adj usti ng ite ms Th e di rec tors b el ie ve that t he a djus ted prof i t an d ear ni ng s per s hare measur es pr ovide addit ional us eful in format ion t o sharehol ders on the performance o f the busine ss. These measur es are con siste nt wi th how b usi nes s pe r for m ance i s mea sure d inte rn al ly by the B oa rd and E xe cu tive Co mm it tee . Th e prof i t bef ore ta x a nd ad jus tin g items m ea sure is n ot a recog ni sed prof i t mea sure u nd er IF RS an d may n ot be d ire ct ly comp ar ab le wi th ad juste d prof i t mea sures u sed by ot he r comp an ies . The classification of adjusting items r equires significant management judgement af ter con sidering the natur e and inte ntio ns of a tr a nsa c tio n. T he G ro up’s def i nit ion s of ad jus tin g items are outlined within both t he Group ac counting policies an d the G los sa r y. The se de fi ni tio ns h ave bee n ap pl i ed consi stent ly year o n yea r . Note 5 p rovid es f ur t her d et ail s o n cu rren t yea r adju sti ng i tems and thei r adherenc e to G roup policy. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 138 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS UK defined benefit pensio n surp lus Wh ere a su rp lus o n a de fi ne d be nef i t sch em e ar ises , th e ri ght s of th e T r uste es to preven t the G rou p ob tai ni ng a ref un d of th at sur pl us in t he f utu re are co nsid ere d in d eterm in in g wh ethe r it is ne cess ar y to rest ric t t he am ou nt of th e sur pl us th at is re cogn ise d. Th e UK d ef in ed b en ef it sc he me is i n sur pl us at 2 A pr il 2022. Th e di rec tors h ave ma de th e ju dg em ent th at th ese a mou nts me et the re qu ire men ts of re cover abi l it y on t he b asis t hat pa ra gr ap h 1 1 (b) of IFRI C 1 4 ap pl ies , e na bl in g a ref und o f sur pl us assuming the gradual settlemen t of the sc heme liabilities o ver tim e unt il al l m em be rs have l ef t th e sch em e, a nd a su rp lus of £ 1,043.9m h as b ee n recog ni sed . As sess me nt of con trol over O ca do Re tail L im ited Th e di rec tors h ave ass esse d th at the G rou p ha s sig ni fi c ant inf lu en ce over O ca do R eta il L imi ted a nd ha s the refo re accou nted for t he inves tm ent as a n as soci ate ( se e note 29). This a sses sme nt is ba sed o n th e cur rent r ig hts h eld by t he resp ec ti ve sha reh old er s an d requ ires j ud ge men t in as sess ing t hese r ig hts . T hese r ig hts in clu de d eterm in ati ve ri ght s cur rent ly hel d by Oc ad o G roup P lc , af ter a gre ed d isp ute -res olu tio n pro ced ures , in re l atio n to the ap prov al of th e Oc a do Ret ai l Li mi ted bu sine ss pl an an d bu dg et an d the a pp oi ntme nt an d rem ova l of O ca do Ret ai l Li mi ted ’s Chi ef E xec uti ve O f f icer. Any fu tu re cha ng e to these r ig hts req uires a re ass essm ent o f contro l an d could res ult i n a ch an ge in th e st atus o f the i nvestm ent f rom a sso cia te to joint ve ntu re, subs idiary or in vest ment. De term ini ng the l ease te rm Th e G roup d eter mi nes th e le ase ter m as th e no n- c a ncel l a ble term o f the l eas e, tog ethe r wi th a ny per io ds covere d by an o ptio n to ex ten d the le ase i f it is re aso na bly cer t ai n to be exe rcise d , or any p er iod s covered by a n opt io n to t er mi nate th e le ase if i t is reaso na bly ce r ta in n ot to be exe rcise d. Th e G roup h as sev er al le ase con tra c ts fo r l an d an d bu ild ing s that include exten sion and t ermination option s. The Gr oup ap pl ie s jud ge me nt in ev al uat ing w he the r it is re aso na bly cer t ai n wh eth er or n ot to exe rcise th e opt ion to ren ew o r term in ate the l ease . Th at is , i t consi de rs al l rel eva nt f ac tors t hat c reate an e cono mi c in centi ve for i t to exerci se ei the r the re new al o r termina tion, including: w hether there ar e significant penaltie s t o termina te ( or not exten d); whet her an y leas ehold impr ovements are e xp ec ted to have a si gn if ic an t rem ain in g va lue ; his tori c al lea se du ra tio ns; th e im po r ta nce o f the u nd er lyi ng as set to the G roup’s op er ati ons ; an d the cos ts an d bu sine ss di sru pti on requir ed to repl ace the leas ed ass et. Most renewal periods and periods c ov ered b y terminat ion opt ion s are in clu de d as p ar t o f the l ease te rm fo r le ases of l and an d bui ld ing s. T he G rou p t yp ic al ly exe rcises i ts o ptio n to renew ( o r do es n ot exe rcise i ts op tio n to termi na te ) fo r thes e lea ses be ca use t here w il l b e a sign if i ca nt ne ga tive ef fec t o n tr adi ng if a rep l a ceme nt p rope r t y is n ot read ily av ai l ab le. Th e lea se ter m is rea sses sed i f a sig nif i ca nt eve nt or a si gn if ic a nt cha ng e in c ircu mst an ces occu rs w hic h af fe c ts th e ass essm ent of reas on ab le cer tai nt y, for ex am pl e, if a s tore is id en tif ie d to be close d as p ar t o f the U K store es tate st rate gic p rog ra mm e. Determining whet her forecast purcha ses are hig hl y probable Th e G roup i s ex pos ed to fore ign c ur ren cy r isk , m ost si gn if ic a ntly to the US d ol l a r as a resul t of so urci ng Cl othi ng & H om e prod uc t s fro m Asi a wh ich a re pa id fo r pre do mi na ntly in U S do ll ars . Th e G roup h ed ges t hese e x posu res usi ng fo r w ard fo reig n exch an ge co ntr ac ts a nd he dg e accou nti ng is a pp l ie d wh en th e req uire me nts o f IFRS 9 a re met , w hic h in clu de th at a fo rec ast tr ans ac ti on mu st b e “ hig hly p rob abl e” . Th e G roup h as a pp li ed j ud ge men t in as sess ing w he the r fore ca st pu rcha ses are “ h ig hly pro ba ble ” . I n ma ki ng th is as ses sme nt , the G roup h as con sid ered t he m ost rece nt bu dg ets a nd p l an s. T he G roup’s po l ic y is a “ l ayere d ” he dg ing s tr ateg y wh ere on ly a sm al l fr ac ti on o f the fo rec as t purc has e requ ire me nts is i ni tia lly h ed ge d , ap proxi ma tely 1 4 mon ths p rio r to a seas on , wi th i ncre me nta l he dg es l ayere d on ove r tim e as th e bu yi ng p er iod f or th at se ason approache s and t herefor e as certainty increa ses over the fore ca st pu rch ases . As a res ult o f thi s prog ressi ve str ateg y, a red uc tio n in th e su pply p ip el in e of i nventor y doe s not immediat ely lead t o over - hedging and the disqualification of “ hig hly p rob ab le”. If the fo rec ast tr a nsa c tio ns were n o lon ge r ex pe c ted to occur, any accu mu l ated g ai n or los s on t he he dg in g ins tr um ents w oul d be i mm ed iately re cl as sif ie d to prof it o r los s. Key sour ces of es ti mat ion u nce r ta int y Cli mate cha nge i mp ac t Cl im ate cha ng e is a g lob al c ha ll eng e an d an e me rgin g ri sk to bus ine sses , p eo ple a nd th e env iro nme nt a cross th e wor ld . Alt hou gh co mm itm ent s we have m ad e to date fo rm p ar t o f the cash flow projections within our going conc er n and impairment ass essm ent s , the i mp ac t of cl i mate ch an ge i s not ju dg ed to h ave be en a key d ri ver i n deter mi ni ng th e ou tcomes of t hese e xerci ses an d is the refo re not cu rre ntly cl a ssi fi ed a s a key sou rce of esti mat ion u nce r t ain ty. Th e G roup w il l cont inu e to revie w this cl as sif i cat ion a s the a sses sme nt of t he im pa c ts , ri sks a nd op po r tu nit ies p resen ted by cl im ate cha ng e an d the G rou p’s commit ments t o addres s the challenges pr esent ed ev olve over the co mi ng yea rs . UK s tore es tate p rog ramm e Th e G roup i s un de r ta ki ng a si gn if ic an t str ateg ic pro gr am me to revi ew its U K store es tate resu lti ng i n a net ch arg e of £ 1 6 1 .4 m (l a st yea r : £9 5. 3m) in the ye ar . A sig nif i ca nt leve l of es tim atio n ha s be en us ed to dete rm in e the ch arg es to be re cogn ise d in th e yea r . Th e mos t sig ni fi c ant ju dg em ent t hat i mp ac ts t he ch arg e is th at the s tores id ent if ie d as p ar t o f the p rogr a mm e are mo re l ikely tha n not to clo se. Fu r th er si gn if ic an t closu re costs a nd i mp ai rm ent cha rges m ay be re cord ed in f u ture ye ars d ep en di ng o n de cisio ns ma de a bo ut f ur t he r store clo sures a nd th e succes sf ul d el ive r y of t he transforma tion programme. Wh ere a sto re closu re has b ee n an no un ced th ere is a re duce d level o f esti ma tio n unce r t ain t y as the p rog ra mm e ac ti ons a re to be ta ken ove r a sho r ter a nd mo re im me di ate tim ef ra me. Fur the r sig nif i ca nt est im atio n un cer t ai nt y ar ises i n resp ec t of dete rm ini ng th e recove ra ble a mo unt o f ass ets an d th e costs to be inc urred as part of the pr ogramme. Sign ificant ass umptions hav e been made inc luding: – Reas sess me nt of th e usef u l li ves of s tore f ixe d ass ets an d closure dates. – Estimati on in r espect of the expec ted shor ter -term trading va lu e in us e, in clu di ng as sum pti ons w it h reg ard to the p er io d of tr ad ing a s wel l as c han ge s to fut ure s ales , g ross m argi n and operating cos ts. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 139 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS – Est im atio n of th e sa le p rocee ds fo r fre eh old s tores wh ich is de pe nd ent u po n lo cat ion - spe cif i c f ac tors , ti mi ng of l ike ly ex it a nd f utu re ch ang es to the U K reta il p rope r t y m ar ket valuations . – Est im atio n of th e va lu e of di l ap id atio n pay me nts re qu ire d for l ease ho ld store e xi ts , w hic h is de pe nd ent o n a nu mb er of f ac tor s inc lud in g the e x tent o f mod if i cat io ns to the sto re, the te rms o f the l eas e agre em ent , a nd th e cond iti on of t he property . Th e as sum ptio ns m ost l ike ly to have a mater ia l im pa c t are closu re da tes and c ha nge s to fut ure s ales . Se e no tes 5 and 1 5 for f u r the r det ai l . Usef ul l ives an d resi du al valu es of p rop er t y, plant and equipment and intangible s De pre ciat ion a nd a mo r tis ati on a re provi de d to wri te dow n the co st of propert y , plant and equipment and c er tain in tangibles t o the ir es tim ated resi du al v alu es ove r the ir est im ated us efu l l ives , as set o ut a bove. T h e sel ec tio n of th e resid ua l va lu es an d usef u l l ives g ives r ise to est im atio n un cer t ai nt y, espec ia lly in t he con tex t of ch an gi ng eco no mic a nd m ar ket f ac tors , th e ch an nel s hif t from stor es t o online, incr easing t echnological advancement and t he Gro up’ s ongoing strat egic transf ormation pr ogrammes. The use ful lives of property, plant and equipmen t and intangible s are rev iewe d by ma na ge men t an nu al ly . Se e notes 1 4 an d 1 5 for fu r th er d eta il s . Refe r to the UK s tore est ate prog r am me se c tio n ab ove for sp ec if ic s ou rces of esti mat ion u nce r t ain ty i n rel a tio n to the us efu l l ives o f pro per t y , pl ant a nd eq ui pm ent f or store s id enti f ie d as pa r t of t he UK s tore est ate prog r am me. D ue to th e nat ure of th e G roup ’s prope r t y, pl an t and e qu ip me nt , it is n ot pr ac ti ca bl e to provid e a me an ing f ul se nsi tiv it y a na lysis . Impairmen t of pro perty, plant an d equipmen t and intangibl es Pr oper ty, pl ant and equipment and c omputer s of tware int an gi bles a re revi ewed f or im p air me nt if e vent s or ch an ges in ci rcum sta nces i nd ic ate tha t the c ar r y in g am ou nt may n ot be rec overable. G oodwill and inde finite life brands ar e re viewed for im pa ir me nt on a n an nu al b asis . Wh en a rev iew fo r im pa ir me nt is cond uc ted , t he recove ra ble a mo unt i s dete rm ine d ba sed o n th e hig he r of v alu e in u se an d f ai r va lue l ess cos ts to sel l . T he v al ue in us e meth od re qu ires th e G roup to d eterm in e ap pro pr iate assu mp tio ns in re l ati on to the c as h flo w proje c tio ns over th e thre e -yea r str ateg ic pl an pe ri od (wh ich i s a key sou rce of esti mat ion u nce r t ain ty), th e lo ng -ter m grow th rate to be a pp l ied beyo nd th is th ree -yea r pe ri od a nd th e ris k-ad juste d pre -t ax dis coun t rate us ed to dis coun t the as sum ed c as h fl ows to prese nt v alu e. S ee n otes 1 4 and 1 5 fo r fu r th er d eta il s o n the G roup’s ass um ptio ns an d as soci ated s ensi tiv it ies . Inv entory pro visioning Th e G roup a sses ses th e recover a bil i t y of inve ntori es by ap ply in g assumpt ions ar ound the future saleability and e stimat ed selling pr ices of i tems . At 2 Ap ri l 202 2, th e G roup h ad re cogn ise d a total U K Clot hi ng & Ho me i nventor y provi sion o f £ 48 .3m ( l as t year : £78.2m), whi ch in clu de d £nil (l ast ye ar : £2 4 . 2m ) re l ati ng sp ec if ic al ly to the esti mate d im pa ct o f the C ovid - 1 9 pa nd em ic . Du ri ng 202 1 /22, UK Clot hin g & Ho me p er f or ma nce h as be en s trong , w it h bet ter-tha n- ex pe c ted sel l-t hrou gh o f inven tor y or ig in al ly prov ide d fo r and t he Group has upda ted its ass umption s r egarding f utur e trading pe r fo rm an ce. Af te r uti l isin g £ 1 0. 2m of th ese p rovisi ons i n the pe ri od , th e Gro up h as rel ease d th e rema in in g £ 1 4. 0 m , resul tin g in no U K Cloth in g & Ho me inve ntor y p rovi sion s in re l atio n to Covi d-1 9 rem ain in g on th e ba l an ce sh eet at 2 A pr il 2022. See n ote 5 for fu r th er d eta il s o n the a ssu mpti on s and a sso cia ted se nsiti v iti es. Post -retir ement ben efits Th e dete rm in atio n of p ensi on n et inte rest in com e an d the def i ne d be nef i t ob li ga tio n of the G ro up’s def i ne d be nef it p en sio n sch em es de pe nds o n th e sel ec tio n of cer tai n as sum ptio ns w hic h in clu de th e dis coun t rate , inf l at ion r ate an d mo r ta l it y r ates. D if f er e nc es a r is in g f rom ac tu al e x pe rie nces o r f utu re cha ng es in assu mp tio ns wi l l be ref le c ted in su bse qu ent p er io ds. T h e fa ir v al ue of unquoted inve stments with in tot al p l an as set s is esti ma ted wi th consi de rat io n of f ai r va lue es tim ates p rovid ed by th e ma na ge r of the i nvestm en t or f un d. S ee n ote 1 1 f or f ur t he r det ai l s on th e im pa ct o f ch ang es in t he key as sum ptio ns a nd es tim ates. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 140 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 2 SE GMENT AL INFORMA TION IFR S 8 Op er ati ng Se gm en ts req ui res op er ati ng se gm ent s to be id enti f ie d on th e ba sis of i nter na l repo r ti ng o n comp on ent s of th e G roup th at a re regu l a rly revi ewe d by the ch ief o pe ra tin g de cisi on - ma ker to al loc ate reso urces to the s egm en ts an d to asses s th eir per formance . Th e ch ief o pe rat ing d ec isio n -m ake r has b ee n id ent if ie d as th e E xecu ti ve Com mi tte e. T he E xe cuti ve Co mm it tee rev iews t he G rou p’s inte rn al rep or ting i n ord er to as sess p er for ma nce an d al lo ca te resources a cross e ac h op er atin g seg me nt . Th e G roup’s rep or t ab le o pe rat ing s eg me nts h ave the refore b ee n id enti f ie d as fo llow s: – UK Clo thi ng & H om e – comp ri ses th e reta il in g of wom en swea r , m en swea r , l ing er ie , ki dswe ar a nd ho me p rod uc ts t hrou gh U K reta il stores a nd o nl in e. – UK Fo od – i ncl ud es th e resul ts of th e UK ret ai l foo d busi nes s an d UK F oo d fr an chi se op er ati ons , w ith t he fo ll owi ng f ive m ai n ca tego ri es: p rotein d el i an d da ir y ; prod uce; a mb ie nt an d in -s tore ba ker y ; m ea l s, d es ser t a nd f rozen; a nd h ospi ta l it y an d ‘ Fo od o n the M ove’; an d di rec t sa les to Oc ad o Ret ail L i mite d. – Inter na tio na l – consis ts of M ar k s and S p ence r own ed b usi nes ses in Eu rope a nd A si a an d the i nter nati on al f r anc his e op er atio ns . – Oc ad o – in clu des th e G roup ’s share of p rof it s or los ses f rom th e inves tme nt in O c ad o Reta il L im ited . Ot her b usi nes s ac ti vi ties a nd o pe rat ing s eg me nts , in clu di ng M& S Ba nk a nd M &S En erg y, are comb ine d an d pres ented i n “al l oth er seg me nts”. Fin an ce inco me a nd cost s are no t al loc ated to se gm ent s as ea ch is m an ag ed o n a cent ra li sed b asi s. Th e E xec uti ve Com mi t tee as sesse s the p er f or ma nce of t he op er ati ng s egm en ts b ased o n a me asu re of op er ati ng p rof it be fore adj usti ng i tems . Th is m easu rem ent b asis e xclu des t he ef fec ts o f adju sti ng i tems f rom th e op er ati ng se gm ent s. Th e fol low in g is an a na lysis o f the G rou p’s revenu e and re sult s by rep or t ab le se gm ent : 52 weeks ended 2 April 2022 53 weeks ended 3 April 2021 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 before adjusting items 1 3,332.2 6,639.6 937.2 – – 10,909.0 2,239.0 6,138.5 789.4 – – 9,166.9 Revenue before adjusting items 2 3,308.3 6,639.6 937.2 – – 10,885.1 2,239.0 6,138.5 789.4 – – 9,166.9 Operating profit/(loss) before adjusting items 3 330.7 277.8 73.6 13.9 13.0 709.0 (130.8) 228.6 44.1 78.4 1.9 222.2 Finance income before adjusting items 28.3 57.4 Finance costs before adjusting items (214.4) (229.3) Profit/(loss) before tax and adjusting items 330.7 277.8 73.6 13.9 13.0 522.9 (130.8) 228.6 44.1 78.4 1.9 50.3 Adjusting items (131.2) (259.7) Profit/(loss) before tax 330.7 277.8 73.6 13.9 13.0 391.7 (130.8) 228.6 44.1 78.4 1.9 (209.4) 1. S al es b efo re a dju st in g ite ms i s reve nu e b efo re a dju st in g ite ms s ta ted p ri o r to adj us tm en ts fo r U K Clo th in g & Ho me b r an d con sig n me nt s al es of £ 23.9 m. 2. Re ven u e is st ate d pr i or to a dju st in g ite ms o f £ni l (l a st f u ll y ea r: £1 1. 2m) ( se e no te 5). 3. O pe r ati ng p roﬁ t /(lo ss) bef ore a dj us ti ng i tem s is s tat ed a s gro ss p roﬁ t les s op e ra tin g cos ts p r io r to ad jus ti ng i tem s. R ep or ta bl e se gm en t lev el co sts a re a ll oc ate d w he re di re c tly at tr ib ut a bl e or b as ed o n an a pp ro pr ia te cos t dr i ver f or t he co st . NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 141 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 2 SE GMENT AL INFORMA TION CONTINUED Other segmental information 52 weeks ended 2 April 2022 53 weeks ended 3 April 2021 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 Additions to property, plant and equipment, and intangible assets (excluding goodwill and right-of-use assets) 139.2 163.7 18.5 – – 321.4 50.5 105.0 6.8 – – 162.3 Depreciation and amortisation 1,2 (268.1) (248.8) (35.0) – – (551.9) (312.3) (259.4) (25.1) – – (596.8) Impairment charges, impairment reversals and asset write-offs 1 (37.2) 10.7 (8.0) – – (34.5) (155.1) (34.9) (4.7) – – (194.7) 1 . These costs are allocat ed to a r eportable segment where t hey ar e directly attributable. Where costs ar e not dir ec tly attributable, a pr opor tional allocat ion is made to each s egment ba se d on a n ap p rop ri ate c ost d r ive r. 2. I ncl ud es £0 .2m ( l as t ye ar : £0. 3m) de p rec ia tio n ch a rge d on i nve st me nt p rop er t y. Se gm ent a sset s and l i ab il iti es , in clu di ng inves tme nts i n as soci ates an d joi nt ve ntures , a re not d isclo sed b ec au se th ey are no t rep or ted to or revi ewed by t he E xe cuti ve Co mm it tee. 3 E X PE N S E A NA L YS I S 2022 Total £m 2021 Total £m Revenue 10,885.1 9,155.7 Cost of sales (7,130.3) (6,244.1) Gross profit 3,754.8 2,911.6 Selling and administrative expenses (3,244.1) (3,018.9) Other operating income 80.1 12.4 Share of results of Ocado Retail Limited (18.6) 64.2 Operating profit/(loss) 572.2 (30.7) Th e f ig ures a bove in clu de £1 36. 8m (l ast ye ar : £25 2.9 m ) a dju sti ng i tem ch arges w it hi n op er atin g prof i t/(lo ss ) ( see n ote 5). The se are f ur the r an alyse d ag ai nst t he c ateg or ies of reve nu e (£ ni l ; l as t yea r : £ 1 1 . 2m ) , cost of s ale s ( £ 1 7 . 0 m g ain ; l as t year : £86. 3m g ai n ) , sel l in g and ad min ist rat ive e xp ens es (£ 1 55.9m ; l as t year : £3 1 3.8 m ), ot her o pe r atin g in come (£34.6 m; l a st yea r : £nil) a nd sh are o f resul ts of O ca do Reta il L im ited (£3 2. 5m; l ast yea r : £ 1 4 . 2m ). Th e sel l in g an d ad min ist rat ive e xp ens es are f ur the r an alyse d be low : 2022 Total £m 2021 Total £m Employee costs 1,2 1,420.6 1,339.1 Occupancy costs 344.3 223.9 Repairs, renewals and maintenance of property 122.2 95.8 Depreciation, amortisation and asset impairments and write-offs 3 586.4 791.7 Other costs 4 770.6 568.4 Selling and administrative expenses 3,244.1 3,018.9 1. T he re a re an a dd it io na l £65.1 m ( l as t yea r : £68. 8m) em p loye e cos ts r eco rde d w it hi n cos t of s al es. T h ese c ost s ar e in clu d ed w it hi n th e ag gr eg ate re mu n er ati on d is cl osu res i n no te 10A . 2. L as t ye ar i nc lu de d f ur lo ug h in com e (se e note 3 0). 3. I ncl ud es £0 .2m ( l as t ye ar : £0. 3m) de p rec ia tio n ch a rge d on i nve st me nt p rop er t y. 4. I ncl ud es co st s su ch as l og is ti cs , I T, mar ke tin g a nd su nd r y co st s. Adju sti ng ite ms c ateg or ise d as sel l in g an d ad min ist rat ive e xp ens es are f ur the r an alyse d as: e mp loyee cos ts of £0. 1 m (l a st yea r : £ 1 0 0 .4 m ) ; occu pa nc y cost s £5.9m (l a st yea r : £ 6.1 m); de pre cia tio n, a mo r tis ati on a nd as set i mp air me nts /revers al s a nd w ri te- of fs £64.9 m (l as t yea r : £ 1 88 .6 m ); an d oth er cos ts £8 5. 0 m (l a st yea r : £ 1 8 .7 m). NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 142 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 4 P ROFIT / (LOSS ) BEFORE T A X A TION Th e fol low in g item s have b ee n inc lud ed i n ar ri vi ng at p rof it /(los s ) b efo re ta xat ion : 2022 £m 2021 £m Net foreign exchange (gains)/losses (14.5) 2.9 Cost of inventories recognised as an expense 6,086.3 5,427.6 Write-down of inventories recognised as an expense 197.6 117.0 Depreciation of property, plant and equipment 1 – owned assets 290.5 312.1 – right-of-use assets 167.8 153.1 Amortisation of intangible assets 93.6 131.6 Impairments and write-offs of intangible assets and property, plant and equipment 100.1 252.0 Impairment reversals of property, plant and equipment (62.1) (73.1) Impairments of right-of-use assets 25.4 52.7 Impairment reversals of right-of-use assets (28.9) (36.9) 1. I ncl ud es £0 .2m ( l as t ye ar : £0. 3m) de p rec ia tio n ch a rge d on i nve st me nt p rop er t y. In clu de d in ad mi nis tr ative e xp en ses is t he au di tor ’s remun er ati on , in clu di ng e xp ens es for a ud it a nd no n -a ud it se r v ices , pay ab le to the Com pa ny ’s audi tor De loi t te LLP a nd i ts as soc iates as f ol lows: 2022 £m 2021 £m Annual audit of the Company and the consolidated financial statements 1.7 1.6 Audit of subsidiary companies 0.6 0.6 Total audit fees 2.3 2.2 Audit-related assurance services 0.2 0.2 Total non-audit services fees 0.2 0.2 Total audit and non-audit services 2.5 2.4 NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 143 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 5 AD JUS TING ITEMS Th e tota l adj usti ng i tems rep or ted for t he 52 -w eek p er io d en de d 2 Ap ri l 202 2 is a n et cha rge o f £ 1 3 1.2m (l as t year : £259. 7 m ). Th e ad just me nts m ad e to repo r ted p rofi t be fore t ax to ar ri ve at a djus ted pro fi t are : Notes 2022 £m 2021 £m Included in revenue Sparks loyalty programme transition – (11.2) – (11.2) Included in operating profit Strategic programmes – UK store estate 15, 22 (161.4) (95.3) Strategic programmes – UK logistics 15, 22 21.9 (2.2) Strategic programmes – Organisation 15, 22 14.3 (133.7) Strategic programmes – International store closures and impairments 22 0.4 (3.6) Store impairments, impairment reversals and other property charges 15, 22 60.0 6.9 Amortisation and fair value adjustments arising as part of the investment in Ocado Retail Limited 29 (32.5) (14.2) Directly attributable gains resulting from the Covid-19 pandemic 17.8 90.8 M&S Bank charges incurred in relation to insurance mis-selling provision (16.0) (2.4) Franchise restructure (41.3) – Intangible asset impairments 14 – (79.9) Sparks loyalty programme transition – (5.4) Establishing the investment in Ocado Retail Limited – (1.7) GMP and other pension equalisation 11 – (1.0) (136.8) (241.7) Included in net finance costs Remeasurement of contingent consideration including discount unwind 5.6 (6.8) 5.6 (6.8) Adjustments to profit before tax (131.2) (259.7) Str ate gic p rog ra mme s – UK s tore e st ate (£ 1 6 1. 4 m) In N ovem ber 20 1 6 , th e Gro up a nn oun ced a s tra tegi c prog r amm e to tra ns for m the U K store es tate w ith th e over al l o bjec ti ve to im prove ou r store es tate to bet ter m eet o ur c ustom er s’ nee ds. T h e Gro up i ncu rre d cha rges o f £ 657 .6 m up to A pr il 202 1 und er th is prog r am me p ri ma rily re l ati ng to closu re costs a sso cia ted wi th stores i de nti fi ed a s pa r t of th e str ateg ic tr an sfo rm atio n pl ans . Du ri ng 2020/2 1, the G rou p ex pe ri en ced a sig ni f ic ant c ha nn el sh if t f rom s tores to onl i ne d ue to the p an de mi c, a ccele ra tin g the G rou p’s am bi tio n to achi eve a Clot hin g & Ho me o nl in e sa les m ix o f at lea st 4 0% over t he n ex t th ree ye ars . Th is a ccele rati on i n ch ann el s hif t req uire d the G ro up to revis e the U K store es tate st rate gic p rog ra mm e to ensu re the es tate con tinu ed to m eet cu stom ers’ ne ed s. Th e G roup h as re cogn ise d a cha rge o f £ 1 6 1.4m in t he p er iod i n rel a tio n to those s tores id enti f ie d as pa r t of t he rot atio n pl a ns . Th e ch arge pr im ar ily ref le ct s a revis ed v iew of l atest store c losure p l an s an d assu mp tio ns for e sti mated s tore closu re cost s, a s wel l as ch arg es rel at ing to th e im pa ir me nt of bu ild in gs a nd f ix tures a nd f it ti ng s, a nd d ep reci ati on as a resu lt o f sho r ten ing t he us efu l eco no mic l i fe of stores b as ed on t he l a test ap proved e xi t rou tes. Fur the r cha rges re l ati ng to the c losu re and rot atio n of th e UK s tore est ate are an tici pate d over th e ne x t ni ne ye ars a s the p rogr a mm e prog ress es , the q ua ntu m of wh ic h is sub jec t to ch ang e th roug ho ut th e pro gr am me p er iod a s we get g reate r cer t ain t y of ci rcums ta nces th at n ee d to be in p l ace to ma ke closu re f in anc ia lly v ia ble . Fut ure ch arg es wi ll n ot in clu de F oo dh al l clos ures at l ease event w he re the re is o pp or tu ni t y for a b et ter lo ca tio n, a s thi s is not i n th e scop e of the p rog ra mm e. Fo llow in g th e l atest rev iew at 2 A pr il 2022, the tot al clo sure p rogr am me n ow cons ists o f 204 store s, 100 of w hi ch h ave al read y clo sed . Fur the r cha rges o f c. £20 0 m are es tim ated w ith in th e ne x t ni ne f in an ci al yea rs , br in gi ng a ntic ip ated tota l prog r am me cost s sin ce 20 1 6 to c. £ 1 b n , vs c . £ 92 6 m yea r . In a dd iti on , w he re store ex it ro utes in t he ne x t ni ne ye ars l ea d to the recog ni tio n of g ain s on e xi t, p ar ticu l ar ly tho se rel at ing to as set m an ag eme nt , the se cred it s wi ll a l so b e recog nis ed w ith in ad jus tin g item s as pa r t of t he p rogr am me . Th ese cos ts are re po r ted as a dju sti ng ite ms on t he b asis th at th ey are si gni f ic an t in qu an tum , re l ate to a stra tegi c in iti ative f ocu sed on rev iew in g ou r store est ate an d to aid com pa ra bi l it y f rom on e pe ri od to th e nex t. Th e ant ici pate d total p rog ra mm e costs d o not i nc lud e any cos ts th at may a ris e in rel atio n to a fu r the r c .30 s tores cu rre ntly un de r consi de rat io n for clo sure w ith in th e ne x t ni ne ye ars . At thi s sta ge t hese c . 30 stores re ma in com me rcia l ly sup por ta ble a nd i n the eve nt of a de cis ion to clo se the s tore the e xi t rou tes are not y et cer t ai n. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 144 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 5 AD JUS TING ITEMS CONTINUE D Str ate gic p rog ra mme s – UK lo gis ti cs (£2 1.9m c red it) In 20 1 7 /1 8 , as p a r t of th e prev iou sly an no unce d lo ng -ter m str ateg ic programme to t ransit ion t o a s ingle-tier UK distribut ion ne t work, the G rou p an no un ced th e op en ing o f a new Cl othi ng & H om e dis tri bu tio n cent re in Wel ha m G reen . A s a di rec t resul t , the G rou p an nou nce d the c losu re of t wo ex isti ng d ist ri but ion ce ntres . In F eb ru ar y 20 20, t he n ex t p has e of th e sin gle - tie r prog r amm e wa s an nou nce d wi th th e closu re of t wo f ur th er d ist ri but ion centres a cros s 202 0/2 1 an d 202 1 /22. A ne t cred it of £2 1 .9m h as be en re cogn ise d in th e pe ri od , ref le ct ing t he g ai n on di spo sa l of dis tri bu tio ns cen tres an d an u pd ated v iew o f esti mate d closu re costs . T o tal p rog ra mm e cost s to date are £ 1 7 .9m wi th f ur t her n et cha rges o f £ 43.3m e xp ec ted ove r the n ex t t hre e fi na nc ial y ear s. Th ese n et cred it s are rep or ted as ad jus tin g item s on th e ba sis tha t they a re sig nif i ca nt in q u antu m , rel ate to a str ateg ic i nit iati ve focu sed o n rev iew ing o ur U K log ist ic s net wo rk a nd to aid com pa ra bil i t y fro m on e pe rio d to the n ex t . Strategic programmes – Organ isation (£ 1 4. 3m credit ) Du ri ng 2020/2 1, the G rou p an nou nce d a com mit me nt to integ ra te mo re fl ex ib le ma na ge me nt str uc tu res in to store op er atio ns as w el l as st ream l ine t he bu sin ess at s tore an d ma na ge me nt leve l in th e UK a nd Re pu bl ic of I rel a nd a s pa r t of th e ‘ Neve r the S am e Ag ai n’ tr ans for ma tio n. T he c ha ng es resul ted in a re du ct ion o f c. 8 , 200 role s acro ss c entral s uppor t c entr es , r egional management and stores . A cred it o f £2.4m h as b ee n recog nis ed i n the p er io d bas ed on th e f in al is atio n of re du nd an cy cos ts as soci ated w ith t hese cha ng es . No p rovisi on rem ai ns at th e yea r en d and t he re are no fur ther c harge s ant icipat ed . During 20 1 6/ 1 7 , the Group announced a wide -ranging strat egic revi ew acros s a nu mb er of a reas o f the b usi nes s wh ich i ncl ud ed UK or ganisation and t he pr ogr amme t o ce ntralise our London He ad O f f ice f un c tio ns into o ne bu il din g . In prev io us yea rs , an im pa ir me nt ch arge o f £ 1 1 .9m w as re cogn ise d in re l atio n to the sub - let o f prev iou sly clos ed of fi ces. I n the p er io d , thi s imp ai rm en t cha rge h as b ee n fu lly reve rse d wi th a cre dit o f £ 1 1 .9m re cog nise d . Th is rel ates to the up da tin g of ass um ptio ns a nd ma r ket fl uc tu atio ns over th e l ife o f the su bl et of prev io usly clo sed o f f ices . T ot al cos ts of cen tra l isin g ou r Lon do n Hea d O f f ice f un ct ion s into o ne bu ild in g in cur red to da te are c. £86m . Any f ut ure ch arg es wi ll re l ate to the up dat ing o f assu mp tio ns an d ma rket f lu c tu atio ns over t he l if e of th e sub let le ase. Th ese cre di ts a re repo r ted a s adju sti ng i tems o n the b asis t hat th ey are con siste nt wi th th e disc losu re of costs p revi ou sly recog nis ed . Strat egic progr ammes – Interna tional st ore clos ure s and i mp air me nts (£0 . 4 m cre dit) In 20 1 6/1 7 , th e G rou p ann ou nce d its i ntent ion to clo se own ed stores i n 1 0 i nter nati on al m ar kets . A cred it of £0. 4m ( l ast ye ar : cha rge o f £3.6 m ) h as b ee n recog nis ed i n the ye ar, refle ct ing a n up date d vi ew of th e esti mate d f ina l clos ure cost s for ce r ta in ma rket s an d thos e costs w hi ch c an o nly be re cog nise d as in cur red , t ak in g the p rog ra mm e net cost to d ate to £ 1 48. 2m . Th e net c red it is con sid ere d to be an a djus tin g item a s it is p ar t of a str ateg ic p rog ra mm e wh ich , ove r the si x yea rs of n et ch arge s, has b ee n sig ni f ic ant i n bot h qu ant um a nd na ture to th e result s of th e Gro up. N o f ur th er si gn if ic a nt ch arge s are ex pe c ted . Directly a ttributable gains re sulting fr om the C ovid- 1 9 pandemic ( £1 7 .8m credit ) In M arch 2020, fo l lowi ng th e on set of th e Cov id - 1 9 g lob al pa nd em ic an d sub seq ue nt UK g over nm ent res tr ic tio ns , the G ro up sust ai ne d sig nif i ca nt d isr upti on to it s op er atio ns . In resp on se to the u nce r ta int y resu lti ng f rom t he p and em ic , cou pl ed w ith th e f ast - pa ced ch an ges t ak in g pl a ce acros s the ret ai l sec tor, the Bo ard ap prove d a Covi d - 1 9 sce na rio to ref le c t ma nag em en t’s bes t esti mate of t he si gni f ic an t vol ati l it y a nd bu sin ess d isr upt ion ex pe c ted as a resu lt of th e on go in g pa nd emi c. Th e pa nd em ic con tin ue d to imp ac t th e Gro up th roug ho ut 2020/2 1 an d it b ec am e in creasi ng ly mo re dif fi cu lt to dif fere nti ate Covi d-1 9 item s fro m costs t hat su pp or te d the u nd er lyi ng p er fo rm an ce of th e busi nes s. I n ad di tio n, t he es tim ated ti mef r am e over w hic h thes e ef fe c ts m ay have im p ac ted th e busi nes s in crea sed . A s a resul t, t he G rou p took th e de cisi on i n the i nter im 2020/2 1 re sult s to only i nclu de c ha ng es in es tim ates to items t hat we re in clu de d in a djus tin g item s in 20 1 9/20 , in th is c ase rel atin g to the inve ntor y prov isio n an d ba d de bt prov isio n. Included within d irectl y attributable expenses r esulting fr om the C ovid - 1 9 pa nd em ic of £ 1 63.6 m at 20 1 9/20, w as a n in crem en tal wr ite - dow n of i nventor y to net real is a ble v al ue of £1 57 . 0 m (UK C loth ing & H om e: £ 1 45.3m ; UK F oo d: £6.0 m ; and I nter na tio nal : £5.7 m), refl ec ti ng m an age me nt ’s best es tim ate of th e im pa c t on th e G roup o f the C ovid - 1 9 pa nd em ic . Accordi ng ly , of th e tota l £204 .8 m inven tor y prov isio n , £ 1 57 . 0 m wa s recog nis ed in a dju sti ng item s an d £ 47 . 8m i n the u nd er lyi ng resu lts . T he tota l rem ai nin g prov isio n he ld as at 3 A pr il 202 1 was £36 .7 m . In clu de d wi thi n the U K Cloth in g & Ho me p rovisi on l a st yea r wa s an i ncre me nta l wr ite - dow n of i nventor y to net real i sa ble v al ue of £ 1 8 .6 m ref lec ti ng m an ag em ent ’s bes t esti mate of t he im p ac t of th e Covi d-1 9 p an de mi c on UK C loth in g & Hom e inve ntor y a s at 3 Ap r il 202 1. Dur in g 202 1 /22, UK C loth in g & Hom e p er fo rm an ce has b ee n stro ng , w ith b et ter -th an - e xp ec ted se l l-th roug h of stoc k or ig ina l ly provi de d for. Dur ing t he yea r , £ 1 0. 2m of th e Covi d - 1 9 prov isio n has b ee n ut il ise d , an d the re has b ee n a rele ase o f £ 1 4. 0 m recog nis ed i n adj usti ng i tems . No U K Cloth in g & Ho me inve ntor y prov isio ns in re l ati on to Covi d - 1 9 rem ai n on th e ba l a nce sh eet at 2 02 1 /2 2. Similar ly , follo w ing bett er -than- expected sell-t hrough of inve ntor y p revi ou sly provi de d for i n the I nter nat ion al m ar kets , the re ha s be en a rel ease o f £ 0. 8m o f the C ovi d-1 9 i nventor y prov isio ns du ri ng 202 1 /22. No Inte rn atio na l Cov id - 1 9 sto ck prov isio ns rem ai n on th e ba l a nce sh eet at 202 1 /22. Dur in g the yea r , o f the U K Fo od p rovisi on ag ai ns t excess sl ow- mov ing personal prot ec tive equipment, c ommitted to during the peak of th e f irs t Covi d-1 9 lo ckdow n a nd in cur red d ire ct ly in resp ons e to the Cov id - 1 9 p an de mic , £3 .0 m h as be en u til is ed a nd £2. 2m rele ase d. A p rovis ion o f £5.6m re ma in s on th e ba l an ce she et a t 2 0 21/ 2 2 . Th e c ar r yi ng v al ue of t he G rou p’s inventor ies a t 2 Ap ri l 202 2 is £7 06 . 1 m , spl i t acros s the U K Clo thi ng & Ho me , UK F oo d an d Int ernational bu sine sses repre senti ng gr oss in vent ories o f £ 506.9m, £200 .4 m an d £7 0 . 8m resp ec ti vely, aga ins t wh ich a p rovis ion o f £ 48 .3m , £ 1 7 . 8m a nd £5.9m h as b ee n recog nis ed . Th e tota l UK Clot hin g & Ho me i nventor y provi sio ns rep resen t 9.5% (l as t year : 1 5.4% ) of UK Cl othi ng & H om e inve ntor y. The U K Clot hi ng & Ho me inv entory pr ovis ion is ba sed on f utur e tradi ng ass umptions in l ine w it h the G rou p’s 20 22/23 Bud ge t. H owever, trad in g coul d be h igh er o r lowe r tha n ex pe c ted an d a 5% increa se in t he UK Clot hin g & Ho me i nventor y provi sio n (from 9. 5% t o 1 4. 5%) would resul t in a red uc ti on i n the v al uat ion o f inve ntor y h eld o n the ba l an ce she et of £25. 2m and wo uld res ult i n a cor respo nd in g de creas e to recog nise d prof i t bef ore ta x i n the p er io d. In a ddi tio n , a rele ase o f £ 0. 8m h as b ee n recog nis ed w ith in adj usti ng i tems i n rel at ion to th e Covi d-1 9 b ad d ebt p rovi sion recog nis ed a ga ins t inter n atio na l fr an ch ise p ar t ner s. At 202 1 /22 no Cov id - 1 9 b ad d eb t provi sio n rema in s. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 145 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 5 AD JUS TING ITEMS CONTINUE D Th e £ 1 7 . 8m d ire c tly at tri bu ta ble n et g ain s fro m the C ovid - 1 9 pa nd em ic are co nsid ere d to be ad just ing i tems a s they m eet t he G roup’s est ab li she d de fi ni tio n , be ing b oth si gn if ic an t in n ature an d va lue to th e resul ts of t he G rou p in th e cur rent p er io d , an d treat men t as ad jus tin g items i s consi stent w ith t he tre atme nt of cha rges o f a consi stent n atu re recog nis ed i n 20 1 9/20. No f ut ure cha rges a re ex pe c ted . Any f ut ure cre dit s rel at in g to these i tems wi ll co ntin ue to al s o be cl assi f ied a s adj usti ng . Store impairments, impairment reversa ls an d pro pe rt y c har ges (£6 0. 0 m cre di t) Th e G roup h as re cogn ise d a nu mb er of c ha rges a nd cre di ts in th e pe ri od as soc iated w it h the c a rr y in g va lu e of ite ms of p rope r t y, plant and equipmen t. In resp on se to the st rong G rou p pe r fo rm an ce an d li f ti ng of gove rn me nt restr ic ti ons , th e G roup h as rev ise d fu tu re cas h fl ow pro jections for UK an d Int ernational stor es ( ex cluding those stores th at h ave be en c apt ured a s pa r t of th e UK s tore est ate programme ) . As a resul t, st ore impairmen t t esting has iden tified stores w he re the cu r rent a nd an tici pa ted fu tu re pe r for ma nce do es not su p por t the c ar r y in g va lu e of the s tores . A cha rge of £2.9m (l a st yea r : £ 66. 4m) has b ee n in cur red p ri ma ri ly in resp ec t of the i mp ai rm ent o f ass ets as soc iated w it h thes e stores . In ad di tio n , a cred it o f £ 63. 4m ( l ast ye ar : £73.3m) has b ee n in cur red fo r the revers al o f store im p air me nts re cog nise d in p revi ous p er io ds , where revise d futur e cash f lo w pr ojections more than s uppor t the c a rr y in g va lu e of th e stores , ref le cti ng i mp roved tr ad in g ex pe c tati ons co mp are d to those a ssu me d at the p ri or ye ar e nd . Refe r to note 1 5 for f ur the r det ai l s on th e im pa ir me nts . A fu r th er c harg e of £0.5m h as b ee n recog ni sed i n rel ati on to the s et tle men t of prov isio ns fo r pro pe r t y ch arge s. T his t reatm ent is con sisten t wi th the o ri gi na l provi sio n cha rges , w hi ch were rec og nised within adju sting it ems. Th e ch arge s/credi ts h ave bee n cl a ssif i ed a s an ad jus tin g item on th e ba sis of th e sig ni f ic ant q ua ntu m of th e cha rge /credi t in the p er io d to the resu lts o f the G rou p. A ny fu ture c ha rges o r re versals relating t o st ores previousl y impaired w ithin ad justing item s wi ll co ntin ue to be re cog nise d wi thi n ad jus tin g items i n l ine w it h the o ri gi nal c ha rge. Am or ti sat ion a nd f air v alu e adj us tme nt s ari sin g as pa rt of th e inves tm ent i n Oc ad o Ret ail L im ite d (£3 2 . 5m) Int an gi ble a sset s of £366. 0 m were a cqui red as p a r t of th e inves tme nt in O c ado R eta il L imi ted i n 20 1 9/20 rel atin g to the O ca do brand and acquir ed cust omer relations hips. The se in tangibles are be ing a mo r tis ed ove r the ir us ef ul eco no mic l i ves of 10- 4 0 yea rs wi th an a mo r tis ati on ch arg e of £ 1 7 .6m re cogn ise d in th e pe ri od . In a ddi tio n , a fu r th er d efe rre d ta x ch arge o f £ 1 4 .9m ha s be en rec ognised pr edominantl y relating to the subs tantial enactment of th e Fi na nce Ac t 202 1 d ur in g the p er io d in creas ing t he U K’s ma in cor po r atio n ta x ra te from 1 9% to 25 % fro m 1 Ap ri l 2023. Th e am or t isa tio n cha rge a nd ch an ges i n th e rel ated d efe rre d ta x l iab il i t y are in clu de d wi thi n the G rou p’s sha re of th e prof it o r los s of th e asso ci ate and a re cons ide red to be a dju sti ng ite ms as th ey are b ase d on ju dg em ent s ab ou t the ir v alu e an d eco nom ic l if e and ar e not related to the Group’ s underlying trading per formance. Th ese ch arg es are re po r ted as a dju sti ng ite ms on t he b asis th at they a re sig ni fi ca nt i n qu antu m an d to aid co mp ar ab il it y f rom on e pe ri od to the n ex t . M& S Ban k ch arg es in cur red i n rel at ion to ins ura nce m is -se ll in g provi sio ns (£1 6. 0 m) Th e G roup h as a n econ om ic i nterest i n Ma rk s an d Sp en cer Fi na nci al S er vices p lc (tr ad in g as M& S Ba nk), a w ho lly ow ne d subs idi ar y of HS BC UK B an k pl c, by w ay of a Re l ati ons hip Agre em ent t hat e ntit les th e G roup to a 50% s ha re of the p rof it s of M& S Ba nk af ter ap pro pr iate d ed uc tio ns . Th e G roup d oe s not sha re in a ny loss es of M& S Ba nk a nd is n ot ob l ig ed to refu nd any profit shar e rec eived fr om HSBC, although future income may b e im pa cte d by sig nif i ca nt on e - of f d ed uc ti ons . Si nce th e year e nd ed 3 1 De cem be r 20 1 0 , M&S B an k ha s recog nis ed in its audited financial statement s an e stimated l iability for r edress to custom er s in resp ec t of p ossi bl e mis- sel l in g of f in an ci al prod uc t s. T he G rou p’s prof it sh are a nd fe e in com e fro m M&S B an k has b ee n red uce d by the d ed uc ti on of t he est im ated l ia bi li t y in bot h the cu rre nt an d pr io r yea rs. I n l in e wi th the a ccoun tin g treat men t un de r the Re l ati ons hip A gree me nt , the re is a c ap o n the a mo unt o f cha rges t hat c an b e of fset a ga in st th e prof it s ha re in a ny one ye ar, whe reby exces s l ia bil i ties c a rr ied f or w a rd are de du cte d fro m the G rou p’s fu ture p rof it sh are f rom M &S B ank . Th e de du c tio n in th e pe ri od is £ 1 6 .0 m (l ast ye ar : £2.4 m). Th e treat me nt of th is in a dju sti ng ite ms is i n li ne w ith p revi ou s cha rges i n rel a tio n to sett lem ent o f Pay me nt Protec ti on Insu r ance ( PPI) cl ai ms a nd , al tho ug h it is re cu rr ing , i t is si gni f ic an t in q ua ntu m in th e contex t o f the tot al ch arg es reco gni sed for PPI m is- sel l in g to- d ate an d is not co nsid ere d rep resen tati ve of th e no rm al o pe rat ing p er for ma nce of t he G rou p. As p revi ou sly note d, w hi le th e Aug us t 20 1 9 dea dl i ne to ra ise p otenti al m is- sel l in g cl ai ms h as now p as sed , cos ts rel a tin g to the est im ated l iab il i t y for re dress a re ex pe c ted to conti nue . Th e tota l cha rges recog nis ed i n adj usti ng i tems si nce Se ptem be r 20 1 2 for PPI is £3 26. 3m w hic h excee ds th e tota l of f set a ga ins t prof i t sha re of £25 9. 0 m to date , and t his d ef ici t wi l l be d ed uc ted f rom th e G roup’s sh are of f ut ure pro fi ts f rom M &S B ank . Fran chi se res tr uc tu rin g (£41 . 3m) Du ri ng th e yea r , t he G rou p recog nis ed a ch arg e of £4 1.3m as a resu lt of th e restr uc tu re of cer tai n Inte rn atio na l fr a nch ise o pe rat ion s. In S eptem be r 202 1 t he G rou p an nou nce d the c losure o f 1 1 f r an chi se stores i n Fra nce i n respo nse to i ncrea sed EU b ord er cos ts. Con seq ue ntly, the G rou p has re cog nise d a ch arge o f £ 1 0. 3m for c losure cos ts . No f utu re cost s are cu rre ntly ex pe c ted . In M arch 2022, in resp on se to the u nfol din g hu ma ni ta ri an cr isis fol low in g the i nvas ion o f Uk ra in e, th e G roup a nn ou nced i t ha d susp en de d shi pm ent s to its T ur k ish f ra nc hise e’s Russi an b usi nes s. Th e G roup h as su bse qu ent ly mad e the d ec isio n to fu lly e xi t its Rus sia n fr an ch ise. A s a resu lt , the G rou p ha s recog nis ed a ch arg e of £3 1 . 0 m rep resent ing t he G rou p’s ful l ex it cos ts f rom Ru ssi a and business disruptions in Ukraine. Th e cost s are con side red to be a dju sti ng ite ms as th ey are on e -o f f in n atu re an d sig nif i ca nt in v a lue to th e resul ts of th e Group and t o the Int ernational s egment. Remea surement of contingen t c onsiderat ion inc lu din g dis cou nt unw in d (£5.6 m cre di t) Con tin ge nt consi de ra tio n, res ult ing f rom t he inve stm ent i n Oc ad o Ret ail L im ite d, i s rem easu red at f a ir v alu e at ea ch rep or tin g date w ith t he ch an ges i n f ai r va lue re cog nise d in p rof it o r loss . Du ri ng th e pe ri od , £33.8 m of conti ng ent co nsid er ati on w as set t led , fol low in g the a chi evem ent o f the f i rst a nd se con d pe r for m ance ta rgets (see n ote 2 1 ). A c redi t of £5. 6m ha s be en re cogn ise d in th e pe ri od , rep rese ntin g the rev al ua tio n of the co nti nge nt consi de rat io n pay ab le. T he c han ge i n f ai r va lue i s consi de red to be an a dju sti ng ite m as it re l ates to a majo r tr ans ac ti on a nd cons equ en tly is not co nsid ere d rep resen tati ve of th e no rm al operating performance of the G roup . The r em eas urement will be re cogn ise d in a djus tin g item s unt il th e fi na l cont ing en t consi de rat io n pay me nt is ma de i n 202 4/25. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 146 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 6 FI N AN CE I N COM E /COS T S 2022 £m 2021 £m Bank and other interest receivable 3.7 2.9 Other finance income 5.9 1.8 Pension net finance income (see note 11H) 13.2 47.2 Interest income of subleases 5.5 5.5 Finance income before adjusting items 28.3 57.4 Finance income in adjusting items 5.6 – Finance income 33.9 57.4 Other finance costs (0.8) (0.6) Interest payable on syndicated bank facility (4.7) (3.9) Interest payable on Medium Term Notes (79.6) (86.4) Interest payable on commercial paper facility – (0.4) Interest payable on lease liabilities (121.1) (130.4) Unwind of discount on provisions (3.8) (2.7) Unwind of discount on Partnership liability to the Marks & Spencer UK Pension Scheme (see note 12) (4.4) (4.9) Finance costs before adjusting items (214.4) (229.3) Finance costs in adjusting items – (6.8) Finance costs (214.4) (236.1) Net finance costs (180.5) (178.7) 7 INC OME T A X (C RE DIT)/EXPENSE A . T axation charge 2022 £m 2021 £m Current tax UK corporation tax on profits for the year at 19% (last year: 19%) – current year 66.8 3.7 – adjustments in respect of prior years (1.0) (12.1) UK current tax 65.8 (8.4) Overseas current taxation – current year 9.6 0.2 – adjustments in respect of prior years 2.2 (0.2) Total current taxation 77.6 (8.4) Deferred tax – origination and reversal of temporary differences 14.9 6.7 – adjustments in respect of prior years 0.7 (5.9) – changes in tax rate (10.5) (0.6) Total deferred tax (see note 23) 5.1 0.2 Total income tax expense/(credit) 82.7 (8.2) NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 147 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 7 IN COM E TA X (CRE D IT )/ E X PE NS E CONTINUE D B. T axation r econcilia tion Th e ef f ec ti ve ta x rate w as 2 1 . 1 % ( l ast ye ar : 3.9%) a nd is e x pl a ine d be low. 2022 £m 2021 £m Profit/(loss) before tax 391.7 (209.4) Notional taxation at standard UK corporation tax rate of 19% (last year: 19%) 74.4 (39.8) Depreciation and other amounts in relation to fixed assets that do not qualify for tax relief 7.8 5.2 Tax benefit arising from UK super deduction regime (6.2) – Other income and expenses that are not taxable or allowable for tax purposes 6.1 8.6 Joint venture results accounted for as profit after tax (2.5) (14.6) Retranslation of deferred tax balances due to the change in statutory UK tax rates (10.5) – Overseas profits taxed at rates different to those of the UK (0.6) 0.7 Movement in unrecognised overseas deferred tax assets – 0.9 Adjustments to the current and deferred tax charges in respect of prior periods 1.9 (18.2) Capital losses no longer recognised – 25.8 Adjusting items: – UK store and strategic programme impairments and other property charges where no tax relief is available 3.9 8.5 – International store closures and impairments – (1.0) – Other strategic programme income and expenses that are not taxable or allowable for tax purposes 2.2 13.0 – Amortisation arising as a part of the investment in Ocado Retail Limited 6.2 2.7 Total income tax expense/(credit) 82.7 (8.2) Th e ef f ec ti ve ta x rate i n respe c t of th e prof it e xclu di ng ad jus tin g item s wa s 1 8. 2% (l as t yea r : 50. 3%). Du ri ng th e pe ri od , no p ay men ts have b ee n ma de to th e Ma rk s an d Sp en cer Scot ti sh L imi ted P ar t ner shi p an d as suc h the t ax i mp ac t to the in com e ta x ex pe nse i n the p er io d wa s £nil ( l ast ye ar : £4. 1 m c ha rge). Unde r th is str uc tu re, t ax re l ief fo r pay me nts to be m ad e to the M ar ks & S pe ncer U K Pen sio n Sch em e in re l atio n to the f i rst P ar t ner shi p inte rest aros e in th e f irs t 1 0 ye ars o f the s tru c ture a nd som e of th is b ene f it is re ca ptu red in s ubse qu en t year s. Th e Fi na nce Ac t 202 1 conta in s leg isl a tio n to incre ase th e ma in r ate of UK co rp or ati on ta x f rom 1 9% to 25 % w ith e f fe c t fro m 1 Ap ri l 202 3. Th e G roup h as th eref ore rem easu red i ts U K def er red ta x as sets a nd l i abi l iti es at th is hi gh er r ate of ta x wh ere th ese a re ex pe c ted to be real is ed o r set tle d on o r af te r 1 Ap ri l 202 3. T his h as resu lted i n the re cog nit ion o f a def er red t ax cre di t of £ 10.5m i n the i ncom e st atem ent . On 20 D ecem be r 202 1, the OE CD pu bl ish ed th ei r pro pos al s i n rel ati on to G lo ba l Anti - Ba se Erosi on Ru les , w hic h prov ide f or a n int ernationally co- ordi nat ed sy st em of tax ati on t o ensur e that l arge m ultinat ional gr oups pa y a minimum lev el of corporat e income ta x in cou ntr ies w he re they o p er ate. In J anu ar y 202 2 the U K gove rn me nt reco nf ir me d it s intent io n to introd uce le gi sl ati on to gi ve ef fe c t to the OE CD prop os al s . Th e new r ul es are e xp ec ted to ta ke ef f ec t f rom 2023 onwa rds. Th ere re ma ins a co nsid er ab le a mou nt of u nce r ta int y w it h respe c t to the de tai le d op er atio n of th e G lob al A nti - Ba se Erosi on Ru les a nd the ir i mp ac t. F ur t her d et ail s a nd g ui da nce a re due i n th e cours e of 2022. From an i niti al rev iew o f the G rou p’s busi nes s an d ta x prof i le, we do n ot ex pe c t the r ul es to have a m ateri al i mp ac t o n the G rou p’s tax r ate or t a x pay me nts . Th ere is n o im pa ct o n th e Gro up’s resul ts fo r 202 1 /22. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 148 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 7 IN COM E TA X (CRE D IT )/ E X PE NS E CONTINUE D C . Cur rent t ax r eco nci lia tio n Th e cu rren t ta x recon cil i atio n sh ows th e ta x ef fe c t of th e ma in ad jus tme nts m ad e to the G rou p’s account ing p rof it s in o rder to ar r ive at it s ta xa bl e prof it s. T h e recon cil i ng ite ms di f fe r f rom tho se in n ote 7B as the ef f ec ts o f defe r red ta x tem po ra r y d if f eren ces are ignored below . 2022 £m 2021 £m Profit/(loss) before tax 391.7 (209.4) Notional taxation at standard UK corporation tax rate of 19% (last year: 19%) 74.4 (39.8) Disallowable accounting depreciation and other similar items 63.7 75.1 Deductible capital allowances (75.7) (50.0) Adjustments in relation to employee share schemes 6.7 1.9 Adjustments in relation to employee pension schemes (2.5) (4.7) Overseas profits taxed at rates different to those of the UK (0.6) 0.7 Movement in unrecognised overseas deferred tax – 0.9 Joint venture results accounted for as profit after tax (2.5) (14.6) Current year losses carried forward – 11.3 Other income and expenses that are not taxable or allowable 0.6 (0.1) Adjusting items: – UK store and strategic programme impairments and other property charges where no tax relief is available 3.9 8.5 – International store closures and impairments – (1.0) – Other strategic programme income and expenses that are not taxable or allowable for tax purposes 2.2 5.5 – Impairment to per una goodwill – 7.5 – Amortisation arising as a part of the investment in Ocado Retail Limited 6.2 2.7 Current year current tax charge 76.4 3.9 Represented by: UK current year current tax 66.8 3.7 Overseas current year current tax 9.6 0.2 76.4 3.9 UK adjustments in respect of prior years (1.0) (12.1) Overseas adjustments in respect of prior years 2.2 (0.2) Total current taxation (note 7A) 77.6 (8.4) 8 EARNINGS PER SHARE Th e c alcu l ati on o f ear ni ngs p er o rdi na r y sh are is b ase d on e ar ni ngs a f ter t ax a nd th e wei ghted ave ra ge n um be r of o rdin ar y sha res in is sue d ur in g the ye ar . Th e ad juste d ear ni ng s pe r sha re f igu res have a l so b ee n ca lcu l ated b ase d on ea r nin gs b efore a dju sti ng ite ms th at are si gn if ic an t in n atu re and /or qu ant um a nd are co nsid ere d dis tor ti ve to und er lyi ng resu lts (see n ote 5). Thes e have be en p rese nted to provi de sha reh old er s wi th an a dd iti on al me asu re of the G ro up’s year-o n-y ear p er for ma nce. Fo r di lute d ear ni ngs p er s ha re, th e weig hted ave ra ge n um be r of ord in ar y s ha res in is sue i s adj usted to as sum e conver sio n of al l d ilu tive pote ntia l ord in ar y s ha res. T he G rou p ha s fou r t yp es of d ilu tive p oten tia l ordi na r y sh ares , b ei ng: th ose s ha re opti ons g r anted to em ploye es wh ere t he exe rcise p ri ce is les s tha n th e aver ag e ma rket p ri ce of the C om pa ny’s ord in ar y s ha res du rin g th e year ; u nveste d sha res gr a nted un de r the D efe rre d Sh are B onu s Pl a n; u nvested sh ares g r anted u nd er t he Res tri cte d Sh are Pl an; a nd u nvested s ha res wi thi n the Pe r fo rm an ce Sh are Pl an th at have m et th e relev ant p er for ma nce con di tio ns at th e en d of th e repo r ti ng p er io d. Det ai l s of th e adju sted e ar ni ngs p er s hare a re set o ut b elow : 2022 £m 2021 £m Profit/(loss) attributable to equity shareholders of the Company 306.6 (198.0) Add/(less): Adjusting items (see note 5) 131.2 259.7 Tax on adjusting items (12.6) (33.5) Profit before adjusting items attributable to equity shareholders of the Company 425.2 28.2 NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 149 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 8 E AR N IN G S PE R SH AR E CONTINUED Million Million Weighted average number of ordinary shares in issue 1,958.1 1,953.5 Potentially dilutive share options under Group's share option schemes 1 73.0 15.0 Weighted average number of diluted ordinary shares 2,031.1 1,968.5 1. I n the p r io r yea r, the p ote nt ia ll y di lu ti ve sh are o pt io ns a re o nly co ns id ere d in r el a tio n to ad ju ste d di lu te d ea rn in gs p er s ha re as t he G ro up m a de a b as ic lo ss p er s ha re. Pence Pence Basic earnings/(loss) per share 15.7 (10.1) Diluted earnings/(loss) per share 15.1 (10.1) Adjusted basic earnings per share 21.7 1.4 Adjusted diluted earnings per share 20.9 1.4 9 DI VIDENDS At the f u ll-ye ar resu lts i n May 202 1 , t he Bo ard a nn ou nced t hat p aym ent o f a di vi de nd in t he 202 1 /22 fin an ci al yea r wou ld b e unl i kely as we fo cus o n restor in g sust ai na ble p rof it ab il it y a nd recove ri ng th e ba l an ce she et towa rds me tri cs co nsis tent wi th inve stm ent g ra de . Con siste nt wi th th at an no un ceme nt , the B oa rd do es not e xp ec t to pay a d iv id en d this f i na nci al ye ar . 1 0 EMPLO YEES A . Aggre gate remune ration Th e ag gre gate re mun er ati on a nd as soc iated cos ts of G rou p em pl oyees ( in clud in g E xecu ti ve Com mi t tee ) were: 2022 Total £m 2021 Total £m Wages and salaries 1,256.0 1,210.3 Social security costs 84.6 99.5 Pension costs 69.0 71.3 Share-based payments (see note 13) 30.2 19.3 Employee welfare and other personnel costs 54.1 43.7 Capitalised staffing costs (6.4) (6.4) Total aggregate remuneration 1 1,487.5 1,437.7 1. E xc lu des a m ou nts r eco gn is ed w it hi n ad ju st in g ite ms o f £0.1 m (l ast y ea r : £ 100 .4 m) (see no tes 3 a nd 5). Det ai l s of key ma na ge me nt com pe nsa tio n are g iven i n no te 2 8 . B. Av erage monthl y number of employ ees 2022 2021 UK stores – management and supervisory categories 4,570 4,870 – other 51,585 54,076 UK head office – management and supervisory categories 3,275 2,948 – other 660 749 UK operations – management and supervisory categories 124 117 – other 1,667 1,507 Overseas 5,205 5,579 Total average number of employees 67,086 69,846 Th e aver ag e nu mb er of f u ll- tim e eq ui va len t em ploye es is 47 , 1 0 8 (l a st yea r : 49, 1 77 ). 1 1 RETIREMEN T BENEF ITS Th e G roup p rovi des p en sion a r ra ng eme nts f or th e be nef i t of it s UK e mp loyees t hrou gh th e Y o ur M& S Pen sio n Sav in g Pl an (a def i ned contr ib uti on ( “ DC ” ) ar ra ng em ent) an d pr ior to 20 1 7 , throu gh t he M ar ks & S pe ncer P ensi on S che me ( “ UK D B Pens ion S ch em e”) (a def in ed benefit (“DB”) arrangement ). Th e le ga cy U K DB Pe nsio n Sc hem e op er ated o n a f in al p en sion ab le s al a r y b asis a nd is g over ne d by a T ru stee b oa rd wh ich is i nd ep en de nt of th e Gro up. T h e UK DB Pe nsi on S che me cl osed to f utu re acc ru al o n 1 Ap ri l 20 1 7 . T he re wi ll b e no f ur the r ser vice c ha rges rel atin g to the s che me a nd n o fu ture m ont hly em pl oyer cont ri bu tio ns for c ur rent se r v ice. At ye ar e nd , th e UK DB Pe nsi on S che me h ad n o ac ti ve me mb ers ( l as t year : n il), 5 1,44 4 d efe rre d me mb ers ( l ast ye ar : 53, 67 4) and 53, 27 0 pe nsi on ers ( l ast y ear : 52,7 94). NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 150 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 1 1 RETIREMEN T BENEF ITS CONTINUED Th e DC p l an i s a pe nsio n pl a n un de r wh ich t he G rou p pays co ntr ibu tio ns to an i nd ep en de ntly ad mi nis tered f un d. S uc h contr ib uti ons are b ase d up on a f i xed p ercent ag e of e mpl oyees’ pay. Th e Gro up h as no l eg al o r cons tru c tive o bl i gati on s to pay fu r th er co ntri bu tio ns to the f un d on ce the con tri bu tio ns have b ee n pa id . Me mb er s’ ben ef it s are d eterm in ed by th e am ou nt of con tri bu tio ns pa id by th e G roup a nd th e me mb er, t og eth er w ith th e inves tme nt retu rn s ear ne d on t he con tri bu tio ns ar isi ng f rom th e pe r fo rm an ce of ea ch in di vid u al ’s investm ent s an d how ea ch m em be r cho oses to rece ive th ei r retire me nt be nef i ts . As a resu lt , ac tu ar ia l ri sk (tha t be nef i ts wi ll b e lowe r tha n ex pe c ted) a nd i nvestm ent r isk (th at as sets i nvested i n wi ll n ot p er fo rm i n l in e wi th ex pe c tati on s ) f al l o n the em ploye e. At th e yea r end , t he DC a rr a nge me nt h ad so me 46 , 560 ac ti ve me mb ers ( l as t year : 4 6 , 1 9 1 ) an d som e 45,77 8 d efe rre d me mb ers ( l as t year : 4 0 ,6 04). Th e G roup a l so o pe rates a sm al l le ga c y fu nd ed D B pe nsio n sch em e in th e Rep ub l ic of I rel a nd . Th is sc hem e clos ed to f utu re accr ua l on 3 1 October 2 0 1 3. Other r etir ement benefits also incl ude a UK post - ret irement healt hcare s cheme and unfunded re tiremen t benefits. Th e tota l Gro up reti rem ent b en ef it cos t was £55.9m (l ast ye ar : £23.9m). Of thi s, i nco me of £8. 8m ( l as t year : i nco me of £4 3. 3m) r el a tes to the UK D B Pen sio n Sch em e, cost s of £6 2. 0 m (l a st yea r : costs o f £ 6 4 .0 m) t o the U K DC p l an a nd cos ts of £2. 8m ( l ast ye ar : cost s of £3.2 m) to o ther r etirement benef it sc hemes. Th e G roup co nsid er s t wo mea sures o f the p en sion d ef ic it . Th e accou nti ng p ositi on is s how n on th e G roup b al ance s he et. T he f u ndi ng posi tio n , ca lcu l ated a t the tr ie nn ia l ac tu ar ia l va lu atio n , is use d to agre e contr ib ut ion s ma de to the s che mes . T he t wo m easu res wi ll va r y b ec aus e they a re for d if fere nt pu rp oses , a nd are c al cul ated at di f fe rent d ates a nd in d if fere nt way s. T he key c al cul a tio n dif fere nce is th at the f u nd ing p osi tio n consi de rs th e ex pe cte d retur ns of s che me a sset s wh en c al cul a tin g the l i abi l it y, whe reas t he acco unti ng posi tio n c alcu l ate d und er I AS 1 9 d iscou nts l i ab il iti es is b ase d on cor p or ate bo nd yi el ds. Th e mos t rece nt ac tu ar ia l va lu atio n of th e UK D B Pensi on S che me w as c a rr ie d out a s at 3 1 Ma rch 20 1 8 an d show ed a f un din g sur p lus of £6 52m. T his is a n im prove me nt on th e prev io us po siti on at 3 1 M arch 20 1 5 (statu tor y su rp lu s of £204m), pr im ar ily du e to lower a ssu med l ife e xp ec t anc y. The C om pa ny and Truste e have con f ir med , i n l in e wi th the c ur rent f un di ng a rr an ge me nt, t hat n o fu r th er co ntr ibu tio ns wi ll b e req ui red to fu nd p ast s er v ice a s a result o f thi s va lua tio n ( o the r tha n th ose al re ad y contr ac tu al ly com mi tte d und er t he e xis tin g Ma rk s an d Sp en cer S cott ish L im ited P ar t ner shi p ar ra ng em ent s – see n ote 1 2). W e cont inu e to wor k cons tru c tive ly wi th the Truste es of the U K DB Pe nsio n Sc he me w ith re ga rd to agree in g the t rie nn ia l ac tu ar ia l va lu atio n of th e sch em e as at 3 1 Ma rch 202 1. Conse qu en tly , the resu lt s of th e va lu atio n are no t yet f in al ise d , al tho ug h it is l i kely tha t the re wi ll co ntin ue to be a su r plu s. By f un di ng it s DB p ens ion s che mes , th e G roup i s ex pos ed to the r isk t hat th e cost of m ee tin g its o bl ig ati on s is hi ghe r th an a ntic ip ated . Th is cou ld occu r fo r sever al re aso ns , for e xa mp le: – Invest me nt retur ns o n the s che mes’ as sets m ay be l ower th an a ntic ip ated , esp ec ia lly if f a ll s in as set va lu es are n ot ma tched by sim il a r f al l s in th e va lu e of th e sch em es’ li abi l iti es. – Th e level o f pr ice i nf l atio n may b e hi gh er th an th at as sum ed , resu lti ng i n hig he r pay me nts f rom th e sch em es. – Sch em e me mb ers m ay l ive lo ng er th an a ssu me d; fo r ex am ple , du e to ad va nces i n hea lth c are. M em be rs may a l so exe rcise (or not exe rcise) optio ns in a w ay th at le ads to in crea ses in t he sc hem es’ l iab il i ties ; for e xa mp le, t hrou gh e ar ly retirem en t or com mu tat ion of pe nsi on fo r c ash . – Leg isl at ive ch an ge s could a l so le ad to an i ncre ase i n the sc he mes’ l ia bil i ties . In a ddi tio n , the G ro up is e xp ose d to add iti on al r isk s throu gh i ts o bl ig ati on to the U K DB Pe nsio n Sc he me v ia i ts in terest i n the S cott ish Li mi ted Pa r tn ers hip (see n ote 1 2). In pa r ticu l a r , u nd er th e le ga l term s of th e Pa r tn ers hip , a def au lt by t he G rou p on th e rent al p aym ent s to the Pa r tn er shi p or a f ut ure ch an ge i n leg isl a tio n could t ri gg er ea rl i er o r hig he r pay me nts to th e pe nsio n sch em e, o r an i ncre ase in th e col l ater al to b e provi de d by the G rou p. Wi th th e pe nsio ne r bu y- in p ol ic ies pu rch ase d in Se ptem be r 2020, Ap ri l 20 1 9 an d Ma rch 20 1 8 , th e Sc hem e ha s now, in tota l , i nsu red arou nd 8 0% of t he p ensi on er c ash f low l i ab il iti es for p en sio ns in p aym en t. T he b uy- i n pol i cies cove r spe ci fi c pe nsi one r l ia bi li ties a nd pa ss al l r isk s to an insu rer i n exch an ge fo r a f ixe d pre miu m pay me nt , thu s redu ci ng th e G roup’s ex po sure to cha ng es in l ong ev it y, inte rest ra tes, i nf l ati on a nd oth er f a cto rs. A . Pe nsi ons a nd o the r pos t- ret ire men t li abi li ties 2022 £m 2021 £m Total market value of assets 10,090.7 10,442.9 Present value of scheme liabilities (9,046.8) (9,803.7) Net funded pension plan asset 1,043.9 639.2 Unfunded retirement benefits (2.6) (3.8) Post-retirement healthcare (3.1) (4.0) Net retirement benefit surplus 1,038.2 631.4 Analysed in the statement of financial position as: Retirement benefit asset 1,043.9 639.2 Retirement benefit deficit (5.7) (7.8) Net retirement benefit surplus 1,038.2 631.4 NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 151 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 1 1 RETIREMEN T BENEF ITS CONTINUED In th e event o f a pl a n wi nd - up, t he p ensi on sc he me r ul es prov ide M &S w ith a n un cond it ion al r ig ht to a refu nd o f sur plu s a s s e t s a s s u m i n g th e fu ll s et tle me nt of pl an l ia bi li tie s. I n the o rdin ar y cour se of b usin ess , th e T r us tee ha s no r igh t to win d up o r cha ng e th e be nef i ts du e to mem be rs of t he sc he me. A s a resu lt , any ne t sur plu s in th e UK D B Pens ion S ch em e is recog ni sed i n fu l l . B . Sch em e ass et s Cha ng es in t he f ai r va lu e of th e sch em e asse ts are a s fol lows: 2022 £m 2021 £m Fair value of scheme assets at start of year 10,442.9 10,653.8 Interest income based on discount rate 204.4 254.9 Actual return on scheme assets excluding amounts included in net interest income¹ (213.4) (117.5) Actuarial loss – asset ceiling (19.4) – Employer contributions 41.8 41.5 Benefits paid (359.3) (379.4) Administration costs (4.6) (4.3) Exchange movement (1.7) (6.1) Fair value of scheme assets at end of year 10,090.7 10,442.9 1. T he a c tu al re tu rn o n sc he me a ss ets w as a l os s of £9. 0 m (l a st ye ar : g ai n of £1 37 . 4m). C . Pen sio ns an d oth er p os t-re tir em ent l ia bil iti es Cha ng es in t he p resen t va lue o f retire me nt be nef i t ob li ga tio ns are a s fol lows: 2022 £m 2021 £m Present value of obligation at start of year 9,811.5 8,751.2 Current service cost 0.2 0.2 Administration costs 0.2 0.2 Past service cost – 1.0 Interest cost 191.2 207.7 Benefits paid (359.3) (379.4) Actuarial loss/(gain) – experience 1 153.9 (82.6) Actuarial loss/(gain) – demographic assumptions 89.0 (12.5) Actuarial (gain)/loss – financial assumptions (832.7) 1,332.1 Exchange movement (1.5) (6.4) Present value of obligation at end of year 9,052.5 9,811.5 Analysed as: Present value of pension scheme liabilities 9,046.8 9,803.7 Unfunded pension plans 2.6 3.8 Post–retirement healthcare 3.1 4.0 Present value of obligation at end of year 9,052.5 9,811.5 1. I ncl ud es £n il ( l as t ye ar : £2. 5m l oss) rel ati ng to a n eq u al is at io n ch arg e re cog ni se d in 201 8 /1 9 th at w a s rec l as siﬁ ed f ro m pro vi sio ns . Th e aver ag e du ra tio n of the d ef i ned b en ef it o bl i gat ion a t 2 Ap ri l 202 2 i s 1 7 . 3 year s (l a st yea r : 1 9.0 ye ars). NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 152 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 1 1 RETIREMEN T BENEF ITS CONTINUED D. An alysis of a sse ts Th e inves tme nt st rate gy of t he UK D B Pen sio n Sch em e is dr iv en by it s l iab il i t y prof il e, i ncl udi ng i ts i nf l atio n -l i nked p en sio n be nef i ts. In a ddi tio n to its i nterest i n th e Scot tish L i mite d Pa r tn ersh ip (refer to note 1 2 ) , the sc he me i nvests i n di f fe rent t y pes o f bo nd ( inc lud in g cor po rate b ond s an d gi lts) and de ri va tive i nst ru me nts ( in clud in g inf l a tio n, i nteres t rate , cross- c ur renc y a nd tota l retur n sw ap s ) i n ord er to al ig n move me nts i n the v al ue of i ts as sets w it h move me nts in i ts l i abi l iti es ar isi ng f rom ch an ges i n ma rket co ndi tio ns . Bro adly, the s che me h as he dg in g tha t covers 1 03% of interes t rate m ovem ent s and 104% of inf l a tio n move men ts , as m easu red o n the Trustee ’s fu nd in g assu mp tio ns wh ich u se a d iscou nt ra te der ive d f rom gi lt y iel ds . Th e f ai r va lue o f the tot al p l an as set s at the e nd o f the re po r tin g pe ri od fo r eac h ca tego r y is a s fol lows : 2022 2021 Quoted £m Unquoted £m Total £m Quoted £m Unquoted £m Total £m Debt investments – Government bonds net of repurchase agreements 1 3,482.9 (1,185.2) 2,297.7 3,945.2 (1,443.5) 2,501.7 – Corporate bonds 6.0 950.0 956.0 6.4 1,036.6 1,043.0 – Asset-backed securities and structured debt – 365.9 365.9 – 256.1 256.1 Scottish Limited Partnership Interest (see note 12) – 193.5 193.5 – 142.5 142.5 Equity investments – Developed markets 550.3 – 550.3 450.9 – 450.9 – Emerging markets 113.7 – 113.7 131.1 – 131.1 Growth asset funds – Global property 5.4 308.7 314.1 5.4 276.8 282.2 – Hedge and reinsurance 25.8 324.7 350.5 43.8 299.0 342.8 – Private equity and infrastructure 5.9 223.6 229.5 – 224.1 224.1 Derivatives – Interest and inflation rate swaps 15.6 406.9 422.5 18.4 298.6 317.0 – Foreign exchange contracts and other derivatives – (40.0) (40.0) 93.2 4.5 97.7 Cash and cash equivalents 5.9 168.1 174.0 13.6 148.9 162.5 Other – Buy-in insurance – 2,910.0 2,910.0 – 3,177.0 3,177.0 – Secure income asset funds – 1,121.6 1,121.6 – 1,064.4 1,064.4 – Other – 150.8 150.8 38.7 211.2 249.9 Total 2 4,211.5 5,898.6 10,110.1 4,746.7 5,696.2 10,442.9 1. Re pu rc ha se ag re em en ts w ere £1, 184. 0 m (l a st ye ar : £1,443 .5m). 2. T he d i ere nc e be tw ee n th e tot al a ss ets o f £1 0 ,1 10.1 m a bov e com pa re d to £1 0 , 09 0.7m is £1 9. 4 m. T h is re l ates to t he c a p ap pl i ed to t he I ri sh DB s ch em e a nd th er efo re th e a ct ua r ia l ga in i s no t reco g ni sed a s p er I FRI C 1 4. Th e f ai r va lue s of the a bove e qu it y a nd d ebt i nvestm ent s are b ase d on p ub li cly ava il a ble m a rket p rice s wh erever av ai l ab le. U nq uote d inves tme nts , he dg e f un ds an d rein sur an ce fu nd s are st ated at f a ir v alu e est im ates prov ide d by the m a nag er o f the i nvestm ent o r f un d. Prop er t y i ncl ud es bo th qu oted a nd u nqu oted i nvestm ent s. T he f a ir v al ue of t he Scot ti sh L imi ted P ar tn er shi p intere st is b ase d on th e ex pe c ted ca sh f lows a nd b en chm ar k as set - ba cke d cred it sp read s. I t is th e pol i cy o f the sc he me to he dg e a pro por tio n of in terest r ate an d inf l at ion r isk . T h e sch em e redu ces it s fore ign c ur renc y e xp osure u sin g for wa rd forei gn e xcha ng e contr ac t s. At yea r end , t he UK s che mes ( UK DB P ensi on S che me a nd p ost - retirem en t hea lth c are ) in di rec tly he ld 33,2 10 (l ast ye ar : 75,223) ordin ar y sha res in t he Co mp any th rou gh it s inves tme nt in U K Equ it y I nde x Fu nds . NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 153 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 1 1 RETIREMEN T BENEF ITS CONTINUED E . Financial assumptions The financial ass umptions for t he UK DB Pen sion Sc heme and t he most recent ac tuarial valuat ions of the other post -re tiremen t sch em es have b ee n up date d by ind ep en de nt qu al i f ied a c tu ar ies to ta ke accou nt of th e req uire me nts o f IAS 1 9 E mp loyee B en ef its in o rder to as ses s the l ia bi l iti es of th e sch em es an d are as fo ll ows: 2022 % 2021 % Rate of increase in pensions in payment for service 2.3-3.6 2.2-3.2 Discount rate 2.70 2.00 Inflation rate for Retail Price Index (RPI) 3.70 3.30 Long-term healthcare cost increases 7.70 7.30 F . Demographic a ssumptions Th e UK d em og ra ph ic as sum ptio ns a re ma inly i n l ine w it h thos e ad opted f or th e l as t for ma l ac tu ar ia l va lu atio n of th e sch em e pe r fo rm ed as a t 3 1 M arc h 20 1 8. T h e UK po st - reti rem ent m or t al i ty a ssu mpt ion s are b ase d on a n an alysis o f the p en sio ner m or tal i t y tren ds u nde r th e sch eme f or th e pe ri od to Ma rch 20 1 8 . Th e sp eci f ic mo r t al it y r ates us ed are b ase d on t he VI T A l i te tab les , wi th f utu re proje c tio ns b ase d on u p -to - date in du str y mod el s , p ar am eter ised to ref le c t sch eme d at a. T h e li fe e xp ec ta nc ies u nd er lyin g the va lu atio n are as f ol lows: 2022 2021 Current pensioners (at age 65) – male 22.3 22.2 – female 25.1 25.0 Future pensioners – currently in deferred status (at age 65) – male 24.0 24.0 – female 26.9 26.8 G . Sensitivity analy sis Th e ta bl e be low sum ma ri ses th e esti mate d im pa ct o f cha ng es in t he p rin ci pa l ac tu ar ia l assu mp tio ns on t he UK D B Pen sio n Scheme s urplus: 2022 £m 2021 £m Decrease in scheme surplus caused by a decrease in the discount rate of 0.25% (20.0) (20.0) Decrease in scheme surplus caused by a decrease in the discount rate of 0.50% (30.0) (30.0) Decrease in scheme surplus caused by a decrease in the inflation rate of 0.25% (70.0) (20.0) Decrease in scheme surplus caused by a decrease in the inflation rate of 0.50% (130.0) (30.0) Increase in scheme surplus caused by a decrease in the average life expectancy of one year 270.0 300.0 Th e se nsiti v it y an alys is ab ove is ba sed o n a ch an ge i n on e assu mpt ion w hi le h old in g al l oth ers co nst ant . Th ere fore , interd ep en de nci es bet we en th e as sum ptio ns h ave not b ee n ta ken in to account w it hin t he a naly sis. H . An alysis o f amo unt s ch arg ed a gai nst p rof it s Am ou nts re cogn ise d in com pre he nsi ve inco me i n respe c t of d ef in ed b ene f it reti reme nt pl ans a re as fo llow s: 2022 £m 2021 £m Current service cost 0.2 0.2 Administration costs 4.8 4.5 Past service costs – 1.0 Net interest income (13.2) (47.2) Total (8.2) (41.5) Remeasurement on the net defined benefit surplus: Actual return on scheme assets excluding amounts included in net interest income 213.4 117.5 Actuarial loss/(gain) – demographic assumptions 89.0 (12.5) Actuarial loss/(gain) – experience 1 153.9 (82.6) Actuarial (gain)/loss – financial assumptions (832.7) 1,332.1 Actuarial loss – asset ceiling 19.4 – Components of defined benefit (income)/expense recognised in other comprehensive income (357.0) 1,354.5 1. I ncl ud es £n il ( l as t ye ar : £2. 5m l oss) rel ati ng to a n eq u al is at io n ch arg e re cog ni se d in 201 8 /1 9 th at w a s rec l as siﬁ ed f ro m pro vi sio ns . NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 154 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 1 2 MA RKS A N D SP E NCE R S COT T I SH L IM I TE D PART N E RS HI P Marks and Spenc er plc is a g eneral partner and t he Marks & Spencer UK Pension Scheme is a limit ed partner of t he Marks and Spencer Sco ttish Limit ed Par tnership (the “Partnership”). Under the P artnership agr eem ent, t he limited p artners hav e no in vol vement in the ma na ge me nt of th e bus ine ss an d sh al l not t ake a ny par t in th e contro l of th e Par tne rsh ip. T he g en er al p ar tne r is resp onsi bl e for th e ma na ge me nt an d contro l of the P ar tne rsh ip an d , as su ch , the P ar tne rsh ip is co nsol i date d into th e resul ts of th e G roup . Th e Pa r tn ers hip h ol ds £ 1.3bn ( l ast ye ar : £ 1 . 4b n) of prop er ti es at b oo k va lue w hi ch h ave bee n le ase d ba ck to Ma rk s and S p ence r pl c. Th e G roup ret ai ns cont rol over t hese p rop er t ies , in clu di ng th e fl ex ib il it y to sub sti tute al ter nati ve pro pe r ti es into th e Pa r tne rsh ip. T h e first limited Pa rtnership in ter est (held by the Marks & S pencer UK Pension Scheme ) pr eviousl y entitl ed the Pens ion Scheme to receiv e an a nnu a l dis tri bu tio n of £7 1 .9m un til Ju ne 2022 fro m the P ar t ner shi p. A s a resul t of th e Covi d-1 9 p an de mic a nd t he ne ed to p reser ve ca sh , in a gre eme nt w ith th e T ru stees , o nly £ 1 8 .9m of t he Ju ne 2020 pay me nt wa s ma de , wi th the re ma in ing £53.0 m b ei ng d efer red . Du ri ng th e pe ri od , th e G roup a nd th e Pen sio n Sch em e T r us tees ag ree d to ame nd th e dis tr ibu tio n da tes so tha t, r ath er th an m ak i ng the p l an ne d pay me nt of £7 1. 9m i n Ju ne 202 1 a lo ng w ith th e de fer red £53.0 m , th e Pens ion S ch em e is now e ntit led to rece ive £7 1. 9m in 2022, £7 3 .0 m i n 202 3 an d £54. 4m i n 202 4. T he s econ d Pa r tn ers hip i nteres t ( al so h eld by t he M ar ks & S pe nce r UK Pe nsio n Sch em e ) enti tle s the Pe nsio n Sc he me to recei ve a f ur t her £36 .4 m an nu al ly fro m Jun e 20 1 7 unti l Jun e 203 1. All pro fi ts g en er ated by th e Pa r tn ersh ip i n excess o f thi s are di str ib ut ab le to Mar k s and S p ence r pl c. Th e Pa r tn ers hip l i ab il it y i n rel at ion to th e f irs t interes t of £ 1 92.3m ( l as t year : £1 93.5m) is in clu de d as a f in an cia l l ia bil i t y in th e G roup’s f in anc ia l sta teme nts a s it is a tr a nsfe ra bl e f in anc ia l ins tru me nt an d me asu red at a mo r tise d cost , be in g the n et pres ent v al ue of t he fu tu re ex pe cte d dis tri bu tio ns f rom th e Pa r tne rsh ip. D ur in g th e year to 2 A pr il 2022, an inte rest ch arg e of £ 4 .4 m (l as t yea r : £ 4 .9m) was recog nis ed i n the i ncom e st atem ent , rep rese ntin g the u nwi nd in g of the d isco unt i ncl ud ed i n this o bl i gati on . T he f i rst l im ited P ar tne rsh ip inte rest of th e Pen sio n Sch em e is in clu de d wi thi n the U K DB Pe nsio n Sc he me as sets , v al ue d at £ 1 93.5m ( l ast y ear : £ 1 42.5m ). Th e se cond P ar t ne rshi p inte rest is n ot a tr ans fer a ble f i na nci al i nstr u me nt as th e Sch em e T r us tee do es no t have th e ri ght to tr ans fer it to any p ar t y ot he r tha n a succes sor Truste e. It is t he refore n ot in clu de d as a pl an as set wi th in th e UK DB Pe nsi on S che me su rp lus rep or ted i n acco rdan ce wi th IA S 1 9. Si mi l ar ly, the asso ci ated l ia bi li t y is no t in clud ed o n th e G roup’s st ateme nt of f i na nci al p osit ion , rat he r the a nn ua l dis tri bu tio n is reco gn ised a s a contr ib uti on to th e sch em e eac h year. 1 3 S HARE- BASED P A YMENTS Th is yea r , a ch arge o f £30. 2m wa s recog nis ed fo r sha re -b ase d pay me nts ( l as t year : c ha rge of £ 1 9. 3m ). Of t he tota l sh are - bas ed p aym ent s cha rge , £ 1 5.1 m (l ast ye ar : £9.2m) rel ates to the S ave As Y o u E ar n sha re opt ion s che me a nd a ch arg e of £6.7 m (l ast ye ar : £ 1. 7 m) r el a tes to the Per for ma nce S ha re Pl a n. T he re ma in ing c ha rge of £8. 4m ( l ast ye ar : £8. 4m) is sprea d over th e oth er sh are p l an s. I n ad dit ion , a cha rge o f £ 8 .6m w as re cogn ise d in rel atio n to the A nnu a l Bon us S che me fo r 202 1 /22 u nd er th e Def er red S ha re Bon us Sc he me. Fur the r det ai l s of the o p er atio n of th e G roup sh are p l an s are p rovid ed i n the R emu ne ra tio n Rep or t . A . S ave As Y o u Ea rn sc hem e – £1 5.1 m Th e S ave As Y o u E ar n (“ SA Y E” ) sc hem e w as ap prove d by sha reh old ers f or a f ur the r 1 0 yea rs at t he 20 1 7 An nu al G en er al M eet ing (AGM ). Un de r the ter ms o f the sc he me , the B oa rd may of fer o ptio ns to pu rcha se ord in ar y s ha res in th e Com p any on ce in ea ch f i na nci al ye ar to those e mp loyee s wh o enter i nto He r Maj est y ’s Revenu e & Cus toms (H MRC) ap proved S A YE s avi ngs co ntr ac t . Th e sch em e al lows pa r tic ip ant s to save up to a m ax im um of £50 0 ( l ast ye ar : £50 0) ea ch mo nth . T he pr ice at w hi ch o ptio ns m ay be of fere d is 80 % of th e aver ag e mid - ma r ket pr ice for t hree co nse cut ive d eal i ng d ays pre ced ing t he of fer d ate. T he o ptio ns m ay no rm al ly be e xercis ed d ur ing the si x-m on th pe ri od af ter the co mp leti on of t he SA YE con tra c t. 2022 2021 Number of options Weighted average exercise price Number of options Weighted average exercise price Outstanding at beginning of the year 119,151,406 99.4p 53,139,941 190.7p Granted 11,526,149 189.0p 101,466,321 82.0p Exercised (208,238) 138.2p (556) 151.0p Forfeited (12,207,656) 102.6p (23,811,474) 155.7p Expired (7,698,700) 206.5p (11,642,826) 248.7p Outstanding at end of year 110,562,961 100.9p 119,151,406 99.4p Exercisable at end of year 11,945 186.8p 7,211,376 212.5p Fo r SA YE s ha re opti on s exerc ised d ur in g the p er io d , the we ig hted aver ag e sh are p ri ce at the d ate of exe rcise w as 20 6. 3p ( l ast ye ar : 1 52.4p). NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 155 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 1 3 SH AR E - BA SE D PA YM E NT S CONTINUED Th e f ai r va lue s of the o pti ons g r anted d ur in g the ye ar h ave be en c al cul a ted usi ng th e Bl a ck-S cho les m od el as sum in g the i np uts show n be low : 2022 2021 3-year plan 3-year plan 3-year plan 2020 modified 1 Grant date Dec 21 Dec 20 Dec 20 Share price at grant date 235p 103p 103p Exercise price 189p 82p 151p Option life in years 3 years 3 years 3 years Risk-free rate 0.5% 0.0% 0.0% Expected volatility 49.3% 45.6% 45.6% Expected dividend yield 0.0% 0.0% 0.0% Fair value of option 81p 34p 19p Incremental fair value of option n/a n/a 15p 1. In th e pr io r ye ar, th ere w a s a mo di ﬁc at io n to th e 202 1 s ch em e rel a ti ng to e mp loy ee s ca nc el l in g awa rd s fro m p rev io us ye ar s in s ub sti tu ti on f or aw a rds g ra nte d u nd er t he 2021 sche me . Th e f ai r v alu e of t he m o di ﬁe d awa rd s ha s be en a mo r ti se d ba se d on t he i nc rem e nt al f ai r v al ue . Th e in cr em en ta l f ai r va lu e is t he d ie re nce b et w ee n th e fa ir v a lu e of th e 202 1 op ti on s, be in g 34 p, an d th e f ai r va lu e of r ep ri ce d pre vi ou s aw ard s, c a lcu l at ed u sin g 2020 aw ar d ass um pt io ns , ke ep in g th e in it ia l exe rci se p ri ce co nsi ste nt . T he f a ir v al ue o f th e mo di ﬁe d op tio ns , b ei ng 15p for 2021 mod iﬁ ed o pt io ns w as re co gn is ed i n op er at in g los s . V ol atil it y h as b ee n esti mate d by ta ki ng th e his tori ca l vol a til it y i n the C om pa ny’s sh are pr ice ove r a thre e -yea r pe rio d . Th e resul tin g f ai r va lue i s ex pe nse d over th e ser vi ce per io d of th ree ye ars o n the a ssu mpt ion t hat 10% (l ast ye ar : 10%) of opt ion s wi ll l apse ove r the s er v ice p er io d as em ploye es le ave the G rou p. Ou tst an di ng o ptio ns g ra nted u nd er th e UK Em pl oyee SA Y E Sc hem e are a s fol lows: Options granted 1 Number of options Weighted average remaining contractual life (years) 2022 2021 2022 2021 Option price January 2017 – 9,202 – – 250p January 2018 5,441 4,112,855 (0.8) 0.3 251p January 2019 2,399,413 3,405,862 0.2 1.3 238p February 2020 8,006,941 12,331,683 1.3 2.3 151p February 2021 89,284,282 99,291,804 2.3 3.3 82p February 2022 10,866,884 – 3.3 – 189p 110,562,961 119,151,406 2.3 3.1 101p 1. F or t he p ur po se o f the a b ove t ab le t he o pti on g r an ted d ate i s th e con tr ac t st a r t da te. B . Per f orm anc e Sha re Pl an * – £6 .7m Th e Per for ma nce S ha re Pl an ( “ PS P ” ) is the p ri ma r y lo ng -te rm i ncen tive p l an f or a pp roxim ately 1 6 0 of the m ost s eni or m an ag er s wi thi n the G rou p. It w as f i rst a pp roved by sh are hol de rs at th e 20 05 AGM a nd ag ai n at th e 202 0 AGM . Un de r th e pl a n , ann ua l aw ards , ba sed o n a pe rcent ag e of sa l ar y, may be of fere d. T he e x tent to w hic h an aw ard ves ts is m easu red ove r a thre e -year p er io d ag ai nst f in anc ia l ta rgets , w hi ch for 202 1 /22 inc lud ed e ar ni ngs p er sh are ( “ EPS ” ), retu rn o n c api ta l em ploye d (“ RO CE ”) , total sh are ho lde r retu rn (“ T SR ” ) an d str ateg ic me asu res. T he v al ue of a ny di vi de nds e ar ne d on th e vested s ha res du ri ng th e thre e yea rs may a l so b e pai d on vesti ng . Awa rds un de r thi s pl a n have b ee n ma de i n eac h year s ince 20 05 . Mo re inf or mati on i s avai l a ble i n rel at ion to th is pl an wi th in the R emuneration Report. Du ri ng th e yea r , 1 9 ,37 4 , 2 1 7 sh ares ( l ast ye ar : 1 9,777 ,92 1 ) we re awa rded u nd er t he pl an . Th e wei ghte d aver age f a ir v al ue of t he sh ares awa rde d wa s 1 5 5 . 1 p (l a st yea r : 1 0 1 . 4p). As at 2 A pr il 2022, 44 , 534, 43 7 sh ares (l ast ye ar : 33,87 8 , 3 25) were out sta nd in g un de r the p l an . C . De fe rre d Sha re Bo nu s Pla n * – £8 . 8m Th e De fer red S ha re Bo nus Pl an ( “D SB P ”) w as f i rst i ntrod uce d in 20 05/0 6 as p ar t o f the A nn ua l Bo nus S che me a nd w as a pp roved by sha reh old er s at the 2020 AGM . It m ay be o pe rate d for a pp roxim ately 5 ,0 0 0 e mp loye es wi thi n the G rou p. A s pa r t of t he pl an , th e em ploye es are re qu ired to d efer a p rop or t ion o f any b onu s pa id in to share s wh ich w il l be h eld f or th ree yea rs . Th ere a re no f ur t he r pe r fo rm an ce cond iti ons o n th ese sh ares , oth er th an co ntin ue d em ploy me nt w ith in th e G roup , and t he v alu e of a ny div id en ds ea rn ed on th e veste d sha res du ri ng th e de fer red p er iod m ay al s o be p aid o n vest ing . M ore in for ma tio n is ava il a bl e in rel a tio n to this p l an within t he Remunerat ion Report . Du ri ng th e yea r no sh ares ( l ast ye ar : n o sha res ) h ave be en aw ard ed u nd er th e pl a n in re l ati on to the a nn ua l bo nus . A s at 2 Ap ri l 202 2, 1 90 , 5 96 sh ares ( l ast ye ar : 422,67 2) were out st and in g un de r the p l an . NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 156 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 1 3 SH AR E - BA SE D PA YM E NT S CONTINUED D. Res tri c ted S ha re Pl an * – £8 . 2m Th e Rest ri cte d Sh are Pl a n (“ R SP ” ) w as est ab l ishe d in 20 0 0 a s pa r t of th e rewa rd str ateg y for rete ntio n an d recr ui tm ent of s en ior m an ag er s wh o are v it al to the su ccess of t he bu sin ess , a nd w as ap prove d by sha reh old ers a t the 2020 AGM . Th e pl a n op er ates fo r the s eni or ma na ge me nt team . Awa rds vest a t the e nd of t he rest ri cte d pe rio d (t yp ic al ly bet we en o ne a nd th ree ye ars) subje ct to th e pa r tic ip ant sti ll b ei ng in e mp loy men t of th e Com pa ny on th e rele va nt vesti ng d ate. T he v alu e of a ny di vi de nds e ar ne d on th e vested s ha res du ri ng the res tri c ted pe ri od m ay al so b e pa id o n vesti ng . Mo re info r mati on i s avai l ab le i n rel at ion to th is pl a n w ith in th e Rem un er atio n Rep or t. Du ri ng th e yea r , 2 ,4 4 1 ,8 09 sh ares ( l as t year : 1 1 ,996 ,948) have be en aw ard ed u nd er th e pl a n . Th e weig hted ave ra ge f a ir v alu e of th e sh ares awa rde d wa s 1 58.7 p ( l ast ye ar : 1 2 4 . 3p ) . As at 2 A p ril 2022, 1 0 , 368, 2 1 7 share s (l as t yea r : 1 0 ,7 22,9 1 9) were out sta nd in g un der t he p l an . E . R epu bl ic of I re la nd S ave As Y ou E ar n sch em e – £0 . 2m Sh ares ave, th e Co mp any ’s Save A s Y ou E ar n sc hem e, w as i ntrod uce d in 20 09 to al l e mp loyees i n the R epu bl i c of Ire l an d for a 10-ye ar pe ri od , af ter ap prov al by sh areh ol de rs at th e 200 9 AGM a nd a ga in at th e 20 1 9 AGM . T he sc he me is su bje c t to Iris h Reven ue r ul es an d al lows p ar tici pa nts to save u p to a ma xi mu m of €50 0 (l ast yea r : €50 0) ea ch mo nth . T he p ri ce at wh ich o ptio ns m ay be of fere d is 80 % of th e aver ag e mid - ma rket p ri ce for t hree co nse cut ive d eal i ng d ays pre ced ing t he of fer d ate. T he o ptio ns m ay nor m al ly be e xercis ed du ri ng th e six- mo nth p er iod a f ter th e com ple tio n of the S A YE co ntr ac t. Du ri ng th e yea r , n o opt ion s were g ra nted ( l ast ye ar : 1,40 9, 1 29 were gr ante d at a f ai r va lue o f 33. 7 p ). A s at 2 Ap ri l 2022, 1 , 1 95 , 1 59 optio ns (l a st yea r : 1 , 84 6 ,589 ) were o ut sta nd in g und er t he sc he me. F . Ma rks a nd S pe nce r Em ploye e Be nef i t T r us t Th e Ma rk s an d Sp en cer E mp loyee B ene f it T ru st (th e “ T r us t” ) ho lds 264 ,77 9 ( l as t year : 52 7 , 1 1 6) shares w ith a b oo k v alu e of £0m ( l ast ye ar : £ 0 . 1 m) and a m ar ket va lu e of £0.4 m (l as t yea r : £ 0. 8m). Th ese sh ares we re acqu ire d by the Trust t hrou gh a co mb ina tio n of ma rket p urc has es an d new is sues a nd a re show n as a re du ct ion i n reta in ed ea rn in gs in t he con sol i date d sta teme nt of f in an ci al p ositi on . Awa rds are gr ante d to emp loyees a t the d isc retio n of Ma rk s an d Sp en cer p lc an d the Trust a gre es to sati sf y t he aw ards i n accord an ce wi th th e wis hes o f Ma rk s an d Sp en cer pl c un de r the se ni or e xecu tive s ha re pl a ns des cr ibe d ab ove. D iv id end s are w ai ved o n al l of th ese sh ares . G. ShareBuy Sh are Buy, the C om pa ny’s Sh are I ncen tive P l an , e na bles t he p ar t ici pa nts to bu y sh ares di rec tly f rom th ei r gross s al ar y. Th is sch em e do es not a tt ra c t an IF RS 2 ch arg e. * A l l awa rd s bo th th is ye ar a n d l ast y ea r we re con d iti on a l sh are s. F or t he p ur p ose s of c al cu l ati ng t he n um b er o f sh are s awa rd ed , t he s ha re pr i ce us ed i s the a ver a ge o f th e mi d- m ar ket pr ic e for t he ﬁ ve co ns ec uti ve d ea l in g da ys p rece d in g th e gr an t da te. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 157 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 1 4 I NT ANGIBLE ASSE TS Goodwill £m Brands £m Computer software £m Computer software under development £m Total £m At 28 March 2020 Cost 136.4 112.3 1,495.1 59.7 1,803.5 Accumulated amortisation and impairments (72.4) (112.3) (1,187.6) (32.1) (1,404.4) Net book value 64.0 – 307.5 27.6 399.1 Year ended 3 April 2021 Opening net book value 64.0 – 307.5 27.6 399.1 Additions – 6.3 0.1 41.4 47.8 Transfers and reclassifications – – 44.7 (44.2) 0.5 Asset Impairments 1 (39.6) – (40.0) – (79.6) Asset write-offs – – (3.2) – (3.2) Amortisation charge – (0.2) (131.4) – (131.6) Exchange difference (0.7) – (0.3) – (1.0) Closing net book value 23.7 6.1 177.4 24.8 232.0 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 G ood w il l rel ate d to the fol low in g ass ets a nd gro ups o f ca sh ge ne rat in g uni ts (CGUs ): per una £m India £m Sports Edit £m Other £m Total goodwill £m Net book value at 3 April 2021 16.5 6.5 – 0.7 23.7 Additions 2 – – 4.8 – 4.8 Exchange difference – 0.1 – – 0.1 Net book value at 2 April 2022 16.5 6.6 4.8 0.7 28.6 1. L as t ye ar a ss et im p ai rm en ts o f £79.6m m a de u p of : £39. 6m c ha rg e rec ord ed a g ai ns t pe r un a go o dw il l , £40 . 0 m in re l at io n to rep l ac ed , ret ir ed o r de co mm is sio ne d as p a r t of M S2. 2. I n Fe br u ar y 2022 , th e Gro u p acq ui re d 77 .7% of t he i ssu e d sh are c a pi ta l of T he S p or t s Edi t L im ite d , a no n -l i ste d com p any b as ed i n En gl a nd a n d Wal es . Th e Sp o r ts Ed it L i mi ted i s a br a nd p l at fo rm s pe ci al i sin g in a c ti vew ea r an d wa s acq u ire d fo r an i ni ti al p ur ch ase p r ice o f £4.5 m. G o od w il l of £4. 8 m wa s rec og ni se d on a cqu is iti o n of th e bu si ne ss , wi th t he acquis ition r epresenting a strategic investmen t opportunity. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 158 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 1 4 I NT ANGIBLE ASSE TS C ONTINUED Goodwill impair ment te sting G ood w il l is not a mo r ti sed b ut is tes ted an nu al ly for i mp ai rm ent w ith t he re covera bl e am oun t be ing d eter mi ne d fro m va lue i n use ca lcul atio ns. Th e go od wi ll b al an ce rel ates to the g oo dw il l reco gni sed o n th e acqu isi tio n of pe r un a £ 1 6 .5 m (l as t yea r : £ 1 6 .5m), Ind ia £6.6 m (l a st yea r : £ 6 . 5m ), S po r ts Ed it £4.8 m (l as t yea r : £nil) a nd oth er £0.7 m (l a st yea r : £0.7 m). G ood w il l for I nd ia is m on itore d by ma nag em en t at a coun tr y le vel , i ncl ud in g the com bi ne d reta il a nd w hol esa le b usin ess es , and h as be en teste d for i mp ai rm ent o n tha t bas is. Th e pe r un a br an d wa s a def i ni te li fe int an gi ble a sset a mo r ti sed o n a str ai ght - li ne b asis ove r a pe ri od o f 1 5 years . T he b ra nd i nta ng ibl e wa s acqu ire d for a cos t of £80. 0 m an d has b ee n f ul ly amo r ti sed . It i s hel d at a net b oo k va lu e of £nil ( l as t year : £n il). T he p er u na go od wi ll o f £ 1 6 .5m i s tested fo r an nu al ly for i mp air m ent . Th e c ash f lows u sed fo r im pa ir me nt testi ng a re bas ed o n the G rou p’s l atest bu dg et an d fore c ast c ash f low s, cove ri ng a th ree -yea r pe ri od , wh ich h ave reg ard to his tori ca l pe r fo rm an ce an d kn owl ed ge of t he cu rre nt ma rket , tog ethe r w ith th e G roup’s vi ews o n the f u ture ach iev ab le g row th an d the i mp ac t of co mm it ted c ash f low s. T he c ash f low s in clu de o ng oin g ca pi ta l ex pe nd itu re requ ire d to mai nta in the s tore net wo rk , but e xclu de a ny grow th c a pit al i ni tiat ives n ot com mit ted . C ash f lows b eyon d thi s thre e- year p er io d are e x tr apo l ated u sin g a lon g -ter m grow t h rate b ase d on th e G roup’s cu rren t vi ew of ac hie va ble lon g -ter m grow th . T he G rou p’s cur rent v iew o f ach iev ab le lo ng -ter m grow th for p er u na is 1.6% (l ast ye ar : 0 .5%), w hic h is a red uc tio n fro m the ove ra l l Gro up lo ng -te rm g row th r ate of 2.0 % (l as t yea r : 1 .75 %). T he G ro up’s cur rent v iew o f ach iev ab le lo ng -te rm g row th fo r In dia i s 5. 5 % (l a st yea r : 5.9%). Ma na ge me nt esti ma tes disco unt r ates th at ref lec t th e cu rren t ma rket a sses sme nt of th e tim e v alu e of m oney a nd t he r isk s spe cif i c to each a sset o r CGU. T h e pre -t ax d iscou nt r ates are d er ive d fro m the G rou p’s post-ta x weig hted ave ra ge cost o f ca pi ta l (“ W ACC” ) wh ich h as b ee n ca lcu l ated u sing t he c ap it al as set p ric in g mod el , the i np ut s of wh ich i ncl ud e a cou ntr y r isk-f ree r ate, e qu it y r isk pre miu m , G roup si ze prem iu m an d a ris k adj ustm en t (be ta). The p ost -t ax WACC is subse qu ent ly gross ed u p to a pre- ta x r ate and wa s 1 0 .8% fo r pe r un a (l a st yea r : 1 1 . 0%) a nd 1 1 . 3% for In di a (l a st yea r : 1 2.9%). Ma na ge me nt ha s pe r for me d se nsit iv it y an alys is on t he key as sum ptio ns i n the i mp ai rm ent m od el usi ng re aso na bly pos sib le ch an ges in th ese key as sum ptio ns , b oth in di vi du al ly an d in com bi nati on . M an ag eme nt h as cons ide red re ason ab ly pos sib le ch an ges i n key assu mp tio ns th at wou ld c aus e the c ar r y in g am ou nts of g oo dw il l or b r and s to excee d the v al ue i n use fo r eac h ass et. Fo r bot h pe r un a and I nd ia resp ec ti vely, the re are no re ason ab ly pos sib le ch an ges i n key assu mp tio ns th at wou ld le ad to an i mp air m ent an d the a ssum pti ons d o no t gi ve ris e to a key source of es tim ati on u ncer tai nt y. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 159 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 1 5 PROPER T Y , PL ANT AND EQU IPME NT Th e G roup’s pro pe r t y, pl ant a nd e qu ip me nt of £4,902. 3m (l a st yea r : £5, 058. 6m) consist s of ow ne d ass ets of £3 ,48 6. 5m (l a st yea r : £3,562.6m) an d rig ht - of-use a sset s of £ 1,4 1 5. 8m (l ast yea r : £ 1,496. 0 m). Property, plant and equipment – o wned Land and buildings £m Fixtures, fittings and equipment £m Assets in the course of construction £m Total £m At 28 March 2020 Cost 2,887.5 5,457.1 138.0 8,482.6 Accumulated depreciation, impairments and write-offs (720.1) (3,880.6) (18.0) (4,618.7) Net book value 2,167.4 1,576.5 120.0 3,863.9 Year ended 3 April 2021 Opening net book value 2,167.4 1,576.5 120.0 3,863.9 Additions 3.8 18.6 92.1 114.5 Transfers and reclassifications 7.2 157.0 (162.6) 1.6 Impairment reversals 36.9 36.2 – 73.1 Impairment charge (73.2) (48.7) – (121.9) Asset write-offs (29.8) (17.4) (0.1) (47.3) Depreciation charge (83.3) (228.5) – (311.8) Exchange difference (6.6) (2.8) (0.1) (9.5) Closing net book value 2,022.4 1,490.9 49.3 3,562.6 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 As set w ri te- of fs i n the ye ar i ncl ud e ass ets w ith g ross b ook v al ue o f £38 3. 3m (l a st yea r : £ 67 . 4m) and £ni l (l as t yea r : £nil) n et bo ok v alu e tha t are no l ong er i n use a nd h ave the refo re be en reti red . NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 160 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 1 5 PROPER T Y , PL ANT AND EQU IPME NT CONTINUE D Right-of-use assets Set o ut b elow a re the c a rr y in g am ou nts of r ig ht - o f - u se ass ets reco gn ise d and t he m ovem ent s dur in g th e pe rio d: Right-of-use assets Land and buildings £m Fixtures, fittings and equipment £m Total £m As at 28 March 2020 1,571.1 59.2 1,630.3 Additions 37.2 13.1 50.3 Transfers and reclassifications 0.3 – 0.3 Disposals (5.5) 0.2 (5.3) Impairment reversals 36.9 – 36.9 Impairment charge (52.7) – (52.7) Depreciation charge (132.0) (21.1) (153.1) Exchange difference (10.6) (0.1) (10.7) As 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 As at 2 April 2022 1,368.4 47.4 1,415.8 Im pai rme nt of p rop er t y, pl an t and e qu ip men t an d rig ht- of-u se as set s Fo r im pa ir me nt testin g pu rp oses , th e G roup h as d eter mi ned t hat e ach s tore is a se pa ra te CGU, w ith th e exce ptio n of O utl ets sto res, wh ich a re consi de red tog eth er as o ne CG U. Cl ick & co ll ec t s ales a re in clu de d in th e ca sh f lows of t he rel eva nt CGU . Ea ch CG U is tested fo r im pa ir me nt at th e ba l an ce she et d ate if any i nd ic ators o f imp ai rm en t and i mp ai rm ent reve rs al s h ave be en id enti f ie d. S tores id enti f ie d wi thi n the G rou p’s UK store es tate pro gr am me a re au tomat ic al ly tested fo r im pa ir men t ( s ee n ote 5). Th e va lu e in us e of ea ch CGU i s ca lcu l ated b ase d on t he G rou p’s lates t bu dg et an d fore ca st c ash f lows , cover in g a thre e -yea r pe ri od , wh ich h ave reg ard to his tori c pe r fo rm an ce and k n owle dg e of th e cu rren t ma rket , tog ethe r wi th th e G roup’s vi ews o n the f ut ure achievable gr ow th and the impact of c ommitted initiat ives. The cash flo ws include ongoing capital expenditure requir ed t o maintain the s tore net wo rk , but e xclu de a ny grow th c a pit al i ni tiat ives n ot com mit ted . C as h flo ws beyo nd th is th ree -yea r pe ri od a re ex tr a po l ated usi ng a l ong - term g row th r ate ba sed o n ma na ge me nt ’s futu re ex pe c tat ion s, w it h refere nce to fore ca st G DP g row th . Th ese g row th r ates do n ot excee d th e lon g- ter m grow th r ate for t he G rou p’s retai l busi nes ses i n the re leva nt ter ri tor y. If th e CGU rel ates to a store w hi ch th e Gro up h as id ent if ie d as p ar t o f the U K store est ate pro gr am me , the v al ue i n use c al cul a ted ha s be en mo dif i ed by es tim ati on of t he f utu re ca sh f lows u p to the po int w h ere it i s esti mate d that t ra de w il l ceas e and t he n esti mat ion o f the tim in g and a mo unt o f costs a sso cia ted wi th clo sure as d eta il ed f ul ly in n ote 5. Th e key assu mp tio ns in t he v alu e in u se c alcu l ati on s are th e grow th r ates of s al es an d gros s prof it m arg ins , c han ge s in th e op er ati ng cost b ase , lon g- ter m grow th r ates a nd th e ris k-adj usted p re -t ax d iscou nt r ate. T he p re- ta x di scoun t rates a re de ri ved f rom th e G roup’s weig hted ave ra ge cos t of c ap ita l , w hi ch ha s be en c al cul a ted usi ng th e ca pi ta l ass et pr ici ng m od el , t he in pu ts of w hi ch i nclu de a coun tr y r isk-f ree r ate, e qu it y ri sk pre mi um , G rou p size pre miu m an d a ri sk ad just me nt (b eta). Th e pre -t ax d iscou nt r ates ra ng e f rom 9.8% to 1 5. 8% (l a st yea r : 8.9% to 1 4. 0%). I f the CG U rel a tes to a store wh ich th e G roup h as i den tif i ed as p ar t of the U K store es tate prog r am me , the a dd itio na l key ass um ptio ns in t he v alu e in u se c alc ul at ion s are cost s ass oci ated w ith c losure , th e disp os al p rocee ds fro m store ex it s an d the t imi ng o f the s tore ex its . NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 161 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 1 5 PROPER T Y , PL ANT AND EQU IPME NT CONTINUE D Im pai rme nt s – UK s tore s exclu di ng t he UK s to re est ate p rog ram me Du ri ng th e yea r , t he G rou p has re cog nise d an i mp ai rm ent c ha rge of £6.9m a nd im pa ir me nt rever sa l s of £6 3 .4 m as a resu lt of U K store im pa ir me nt testi ng un rel a ted to the U K store est ate pro gr am me (l ast ye ar : im pa ir me nt ch arg e of £ 66 .4 m and i mp ai rm ent reve rs al s of £64. 5m ). Im pa ir me nt ch arge s of £2.9m an d im pa ir me nt rever sa l s of £ 63.4 m have b ee n recog nis ed w ith in a djus tin g item s ( see n ote 5). Th e rem ai nin g £ 4 .0 m im pa ir me nt ch arg e has b ee n reco gni sed i n op er ati ng p rof it b efore a dju stin g item s as it re l ates to stores n ot prev iou sly im pa ire d. T he i mp ai red sto res were im p aire d to thei r ‘ va lue i n use ’ recover ab le a mou nt of £37 . 1 m , wh ich i s the ir c ar r y ing va lu e at yea r end . T he s tores wi th im pa ir me nt rever sa l s were w ri t ten ba ck to the ir ‘ v alu e in u se’ recove ra ble a mo unt o f £302.3m . Fo r UK sto res, w he n cons ide ri ng b oth i mp air m ent ch arg es an d rever sa l s, c as h flo ws beyo nd th e th ree -yea r pe ri od a re ex tr ap ol a ted usi ng th e Gro up’s cur rent v ie w of ac hiev ab le lo ng -te rm g row th of 2. 0% , a dju sted to 0% w he re ma na ge me nt be l ieves th e cur ren t tr adi ng p er f or ma nce a nd f utu re ex pe c tati ons o f the s tore do n ot sup po r t th e grow t h rate of 2. 0% . T he r ate us ed to dis count t he fore ca st c ash f lows f or U K stores is 9. 8% (l a st yea r : 8 .9%). As d isc lose d in th e accou ntin g po l ici es (note 1 ), t he c ash f lows u sed w it hin t he i mp air m ent m od el are b ase d on a ssu mpt ion s wh ich are so urces of es tim ati on u ncer tai nt y a nd sm al l move me nts i n thes e assu mp tio ns cou ld lea d to fu r th er im pa ir me nts . Ma na ge me nt has p er for me d sen siti vi t y an alysi s on th e key assu mp tio ns in t he im p air me nt mo de l usi ng rea son ab ly pos sib le ch an ges i n the se key assu mp tio ns ac ross th e UK sto re por tf ol io. A red uc tio n in s al es of 5% from th e th ree -yea r pl a n in ye ar 3 wo uld resu lt i n an i ncre ase in t he i mp air m ent ch arg e of £22.8 m and a 25 basis p oi nt red uc ti on in g ross p rof it m arg in f rom yea r 3 onw ard s wou ld in creas e the i mp ai rm ent c ha rge by £2.5m . I n comb in atio n , a 1 % f al l in s al es an d a 1 0 b asis p oi nt f al l in g ross p rofi t ma rgi n wou ld in creas e the i mp ai rm ent c ha rge by £4.7 m . A 50 b asis p oin t in creas e in th e dis coun t rate wou ld i ncre ase th e im pa ir me nt ch arge by £6. 0m . Re du cin g the l on g- term g row th r ate to 0% ac ross al l stores , wou ld n ot resul t in a si gni f ic ant i nc rease to th e im pa ir me nt ch arge , ei the r in di vid u al ly or in co mb in atio n. A red uc tio n in s al es of 5% from th e th ree -yea r pl a n in ye ar 3 wo uld resu lt i n a red uc tio n in th e rever sa l of £ 1 7 . 2m an d a 25 basis p oi nt red uc tio n in g ross p rof it m argi n f rom yea r 3 onw ards wo ul d resul t in a red uc ti on i n the reve rsa l of £ 1 .1 m . I n comb in atio n , a 5% fal l in sa les a nd a 25 bas is po int f a ll i n gros s prof it m arg in wo uld re du ce the reve rs al by £ 1 9. 0 m . A 50 ba sis po int i nc rease i n the d iscou nt r ate wou ld red uce th e revers al by £3 .3m . Re du cin g the l ong - term g row th r ate to 0% acros s al l stores , wo uld n ot resu lt in a si gn if ic a nt de creas e to the rever sa l , e ith er in di vi du al ly or i n com bin ati on . Impairments – UK store e s tate programme Du ri ng th e yea r , t he G rou p has re cog nise d an i mp ai rm ent c ha rge of £ 1 07 .5m an d im pa ir me nt revers al s o f £2 7 .6 m rel a tin g to the on - go in g UK sto re esta te prog ra mm e (l as t yea r : im pa ir men t cha rge o f £ 1 07 .9m and i mp ai rm ent reve rs al s of £36 .7 m). The se stores were i mp aire d to the ir ‘ va lu e in us e’ recover ab le a mou nt of £37 6.7m, wh ich i s the ir c ar r y in g va lue a t yea r end . T he i mp ai rm ent c ha rge rel ates to th e store clos ure pro gr am me a nd h as b een re cog nise d wi thi n ad jus tin g items (see n ote 5). Impa ir me nt rever sa l s pre do min an tly ref lec t i mp roved tr ad ing e xp ec t atio ns com p ared to th ose as sum ed at t he e nd of th e pr io r yea r . Wh ere th e pl a nn ed c losure d ate fo r a store is o utsi de t he th ree -yea r pl a n pe ri od , n o grow th r ate is a pp li ed . T he r ate use d to disco unt the fo rec as t ca sh f lows fo r UK s tores is 9. 8% (l as t yea r : 8.9%). As d isc lose d in th e accou ntin g po l ici es (note 1 ), t he c ash f lows u sed w it hin t he i mp air m ent m od el s fo r the U K store es tate pro gr am me are b ase d on as sum pti ons w hi ch are s ources o f esti mat ion u nce r ta int y, an d sma ll m ovem ent s in th ese a ssum pti ons co uld l ead to fu r th er i mp ai rm ent s. M an ag em ent h as p er fo rm ed s ensi ti vit y a na lysis o n the key a ssu mpti on s in th e im pa ir men t mo del u sin g reaso na bly p ossi bl e cha ng es in t hese key as sum pti ons a cros s the U K store est ate pro gr am me. A de l ay of 1 2 mon ths in t he p roba bl e date of e ac h store ex it wo uld re sult i n a de crea se in t he im pa ir me nt ch arg e by £3 7 .8 m . A 5 % red uc tio n in p l an ne d sa les i n yea rs 2 an d 3 (whe re relev an t ) wou ld resu lt in a n in creas e in th e im pa ir me nt ch arge by £1 4 .2m . Ne ith er a 50 ba sis po int i nc rease i n the d isco unt r ate, a 25 ba sis po int re du c tio n in m an ag eme nt g ross m argi n du ri ng th e pe ri od of t ra din g , no r a 2% incre ase i n the cos ts as soc iated w it h ex iti ng a store wo ul d result i n a sig ni f ic ant i ncre ase to the i mp ai rm en t cha rge , in di vid u al ly or in co mb in atio n wi th th e othe r reas on ab ly poss ibl e scen ar ios co nsid ere d . Impairments – Int ernationa l store s Du ri ng th e pr io r yea r , th e G rou p recog nis ed an i mp ai rm ent reve rs al of £8. 8m i n Ire l an d as a resul t of sto re imp ai rm en t testin g. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 162 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 1 6 O TH ER FINANC IAL ASSETS 2022 £m 2021 £m Non-current Other investments 1 4.5 – Unlisted equity investments 2 – 9.7 Current Other investments 3 17.6 18.4 1. I ncl ud es £ 3.1 m ( l as t yea r : £ni l) of v en tu re ca p it al i nves tm en ts m an a ge d by True C a pi ta l L im ite d . 2. T he G ro up h as re co gn is ed a lo ss o n di sp os al o f it s un l is ted e qu it y i nve stm e nt of £3 .7m (l as t yea r :£n i l) in o th er co mp re he nsi ve i nco m e. 3. I ncl ud es £8 .8 m (l a st y ea r : £9.2m) of m on ey m ar ket d e pos it s he ld by M a rk s an d S pe nce r pl c in a n es crow a cco un t. Th e G roup i rrevo c ably d esig na ted un l isted e qu it y i nvestm ent s at f ai r va lue t hrou gh ot he r comp reh ens ive in com e. O the r f in an cia l ass ets a re mea sured a t f air v al ue w ith c ha ng es in th ei r va lue t ake n to the in com e st ateme nt . 1 7 TRAD E AND OTHER RECEIV ABLE S 2022 £m 2021 £m Non–current Trade receivables 0.1 0.1 Lease receivables – net 74.7 62.8 Other receivables 3.3 2.1 Prepayments 192.5 196.4 270.6 261.4 Current Trade receivables 103.0 109.8 Less: provision for impairment of receivables (4.8) (3.7) Trade receivables – net 98.2 106.1 Lease receivables – net 0.8 – Other receivables 27.2 30.5 Prepayments 76.8 53.9 Accrued income 14.1 19.1 217.1 209.6 Th e di rec tors co nsid er t hat th e c ar r y ing a mo unt o f tra de a nd ot he r recei va bl es ap proxi ma tes thei r f ai r va lue . Th e G roup’s as sess me nt of any e xp ec ted c redi t los ses is i ncl ud ed i n note 2 1 B . Inc lud ed i n accr u ed in com e is £7 .7m (l ast ye ar : £5.7 m ) of a ccru ed su pp l ier i nco me rel at ing to reb ates th at have b ee n ea rn ed bu t no t yet invoi ced . A n amo un t of sup pl i er in com e tha t has b ee n invo iced b ut n ot yet set tle d ag ai nst f u ture tr ad e cre dito r ba l an ces is in clu de d wi thi n tr ad e cred itor s, w he re the re is a r igh t to of fs et. Th e G roup e ntere d into f in an ce leas ing a rr a nge me nts a s a less or fo r sur pl us of fi ce spa ce in t he Me rch ant S qu are bu il din g in Lo nd on , wh ich i s sub let fo r the re ma ini ng d ur ati on of t he le ase. Th e ma tur it y a na lysis of th e G roup ’s lease re ceiv ab les i s as fol low s: 2022 £m 2021 £m Timing of cash flows Within one year 4.8 4.8 Between one and two years 4.7 4.8 Between two and three years 4.7 4.7 Between three and four years 6.1 4.7 Between four and five years 7.8 6.1 More than five years 121.1 128.9 Total undiscounted cash flows 149.2 154.0 Effect of discounting (73.7) (79.3) Present value of lease payments receivable 75.5 74.7 Less: provision for impairment of receivables – (11.9) Net investment in the lease 75.5 62.8 In clu de d wi thi n tra de a nd ot her re cei va ble s is £ 1. 1 m (l as t yea r : £nil) w hi ch , du e to non - recou rse f a cto ri ng ar r an gem en ts in p l ace , are h eld wi thi n a “ ho ld to coll ec t an d sel l ” bu sin ess m od el a nd are m eas ured a t F VOCI . NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 163 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 1 8 CASH AND CASH EQUIV ALENTS C ash an d c ash e qu iv ale nts a re £ 1, 1 9 7 .9m (l ast ye ar : £6 7 4 .4m). Th e ca r r yi ng a mo unt o f thes e asse ts ap prox im ates the ir f ai r va lu e. Th e ef f ec ti ve interes t ra te on sho r t - ter m ba nk d ep osit s is 0 .7 % ( l as t year : 0 . 1 % ). Th ese d ep osit s have a n aver ag e mat ur it y of 39 days (l a st yea r : 5 days). 1 9 TRADE AND O TH ER P A Y AB LES 2022 £m 2021 £m Current Trade payables 732.8 624.8 Other payables 523.5 466.7 Social security and other taxes 59.1 46.8 Accruals 595.2 407.5 Deferred income 50.3 53.2 1,960.9 1,599.0 Non-current Other payables 174.4 179.2 Deferred income 13.8 13.1 188.2 192.3 In clu de d wi thi n cur rent o the r pay ab les is £ni l (l a st yea r : £33.6m) and no n - cur rent o the r pay ab les is £1 7 2.6 m (l as t yea r : £ 1 7 8 .4 m ) of cont ing en t consi de rat ion re l ati ng to the i nvestm en t in O ca do Ret ai l Li mi ted . See n ote 2 1 D for f u r th er d eta il s. A contr ac t l i abi l it y a ris es in resp ec t of g if t ca rds an d vou che r sch em es as p aym ent h as b ee n recei ved fo r a pe r fo rm an ce ob li ga tio n wh ich w il l b e per for me d at a l ate r poi nt in t im e. In clu de d wi thi n tra de a nd ot he r pay ab les are g if t ca rd/ vou che r sch em e li ab il it ies: 2022 £m 2021 £m Opening balance 194.4 180.8 Issues 404.2 363.2 Released to the income statement (412.8) (349.6) Closing balance 185.8 194.4 Th e G roup o pe r ates a num be r of su pp l ier f i na nci ng a rr an ge me nts , u nde r w hic h sup pl ie rs c an o bta in a ccele rate d set tle me nt on invoi ces f rom the f i na nce p rovid er. This i s a for m of rever se f ac tor in g wh ich h as th e obj ec ti ve of se r vi ng t he G rou p’s supp li er s by gi vi ng th em e ar ly access to fu nd in g. T h e Gro up set t les th ese am ou nts i n accord an ce wi th ea ch su ppl i er ’s agre ed p aym ent te rm s. Th e G roup i s not p ar t y to th ese f in an ci ng ar r ang em en ts an d the a r ra ng eme nts d o no t pe rm it th e G roup to ob tai n f in an ce fro m the p rovi de r by pay ing t he p rovid er l a ter tha n th e Gro up wo uld h ave pa id it s sup pl i er . Th e G roup d oe s not i ncu r any i nterest tow ards the p rovi de r on th e am ou nts d ue to the su pp l ie rs. T h e Gro up th erefo re di sclos es the a mo unt s f ac tored by su pp l ie rs wi thi n tr ad e pay ab les b ec au se the n atu re an d fu nc ti on of t he f in an cia l l ia bi li t y rem ain t he s am e as th ose of ot he r tra de p aya bl es. Th e pay me nts by t he G rou p und er t hese a r ra ng eme nts a re in clu de d wi thi n op er ati ng c ash f lows b ec au se th ey conti nu e to be pa r t of th e no rm al o pe rat ing c ycl e of the G ro up a nd th eir p ri nc ip al na ture re ma ins o pe ra tin g – i.e . pay me nts fo r th e purc has e of go od s an d se r v ices . At 2 Ap ri l 202 2, £330.0 m ( l as t year : £27 2. 6m) of tra de p aya bl es were a mo unt s owed u nd er th ese a rr an ge me nts . Du ri ng th e yea r the m a xi mum f a cil i t y ava il a ble a t any on e tim e un de r the a r ra ng eme nts w as £404 . 1 m (l ast yea r : £305 .0 m). NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 164 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 20 BORROWINGS AND O TH ER FINANCIAL LIABILITI ES 2022 £m 2021 £m Current Bank loans and overdrafts – 4.7 Lease liabilities 200.2 219.4 6.125% £400m Medium Term Notes 2021 1 – 163.5 Interest accrued on Medium Term Notes 47.0 45.2 247.2 432.8 Non-current 3.00% £300m Medium Term Notes 2023 1 299.1 298.5 4.75% £400m Medium Term Notes 2025 1,2 409.4 412.2 3.75% £300m Medium Term Notes 2026 1 298.6 298.3 3.25% £250 Medium Term Notes 2027 1 248.3 248.0 7.125% US$300m Medium Term Notes 2037 3,4 192.3 192.2 Revaluation of Medium Term Notes 5 34.8 24.2 Lease liabilities 2,078.5 2,186.5 3,561.0 3,659.9 Total 3,808.2 4,092.7 1. T he se n otes a re is su ed u nd e r Ma rk s a nd S pe nc er p lc’s £3 bn Eu ro Me d iu m T er m N ote p rog ra m me a nd a l l pay i nte res t an nu a lly. 2. T he G ro up o cc asi on a lly e nte rs i nto i nte res t ra te sw ap s to ma na g e int ere st r ate e xp osu re . At ye ar e nd , £1 0 . 5m (l a st y ea r : £ 1 3 .6 m) of f ai r va lu e ad ju stm e nt fo r ter m in ate d he dg es to b e amortised o ver t he r emaining debt maturity. 3. Inter est on these bonds is payable semi-annual ly . 4. US $30 0 m M ed iu m Term N ote e xp os ure s wa p pe d to ste rl i ng (ﬁ xe d- to -ﬁ xe d cros s cu rr en cy i nte res t r ate sw a ps). 5. Re va lu at io n con sis ts o f fo rei gn e xch a ng e los s o n rev al ua tio n of t he 7. 1 25% U S$30 0 m M ed iu m Term N ote s 2037 of £34 .8 m (l a st ye ar : £24 .2m). Leases Th e G roup l eas es va ri ous s tores , of f i ces, w are ho uses a nd e qu ip men t wi th va r y in g term s, e sc al at ion c l aus es an d rene wa l ri ght s. Th e G roup h as ce r ta in le ases w it h leas e term s of 1 2 mon ths o r less a nd l ease s of ass ets w ith lo w va lues . T he G rou p ap pl ie s the “s ho r t - term lea se” an d “ lea se of low -va lu e asse ts” recog ni tio n exem pti ons f or th ese le ases . Set o ut b elow a re the c a rr y in g am ou nts of l eas e li ab il it ies a nd th e move men ts du r ing t he p er iod . 2022 £m 2021 £m Opening lease liabilities 2,405.9 2,562.0 Additions 100.6 48.3 Interest expense relating to lease liabilities 124.1 133.8 Payments (344.3) (316.7) Disposals (8.1) (7.8) Exchange difference 0.5 (13.7) 2,278.7 2,405.9 Current 200.2 219.4 Non-current 2,078.5 2,186.5 Th e ma tur it y a na lysis of l ease l i ab il iti es is d isclo sed i n note 2 1 A . Futu re c ash o ut fl ows rel at ed to t he p ost b rea k cl aus e pe rio d inc lud ed i n th e leas e li abi li ty Th e G roup h old s cer t ai n lea ses th at cont ai n brea k cl a use o ptio ns to prov ide o p er atio na l fl ex ib il it y. In accord an ce wi th IF RS 1 6 , th e Gro up has c a lcu l ated th e fu l l leas e term , b eyon d bre ak , to rep resen t the re ason ab ly cer t ai n lea se ter m ( e xcept fo r th ose stores i de nti fi ed a s pa r t of th e UK sto re esta te prog ra mm e ) w it hin t he tota l £2, 2 78.7 m o f lea se l ia bil i ties h eld o n th e ba l an ce she et. Th e fol low in g am ou nts we re recog nis ed in p rof it o r los s: 2022 £m 2021 £m Expenses relating to short-term leases 5.9 4.6 Expenses relating to low-value assets 1.4 1.0 Expenses relating to variable consideration 4.4 2.5 NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 165 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 2 1 FINANC IAL INSTRUMENTS T reasu ry po licy Th e G roup o pe r ates a centr al is ed tre asur y fu nc ti on to ma na ge th e G roup’s f un din g req ui reme nts a nd f i na nci al r isk s in l in e wi th th e Board-appr ov ed tr easur y policie s and pr ocedur es, and their delegat ed aut horities. Th e G roup’s f in an cia l in str um ent s, o the r tha n de ri v ative s, co mp ris e bo rrow ing s , ca sh an d li qu id reso urces a nd v ar iou s item s, s uch as tr ad e recei va bl es an d tr ad e pay ab les th at ar ise d ire ct ly from i ts o pe rat ion s. T he m ai n pu rp ose of t hese f i na nci al i nst ru me nts is to fi na nce th e G roup’s op er ati ons . Th e G roup t reasu r y f un ct ion a l so e nters i nto der i vati ve tr an sa ct ion s, p ri nc ip al ly interes t ra te swa ps , cross- c ur renc y sw ap s and f or w ard cur ren cy co ntr ac ts . T he pu rp ose o f thes e tra ns ac ti ons i s to man ag e the i nteres t rate a nd fo reig n cur ren cy r isk s ar isi ng f rom th e Group’ s operations and f inancing. It rem ai ns th e G roup’s po l ic y not to ho ld or i ssu e fi na nc ia l ins tru me nts fo r tr ad ing p ur po ses , excep t wh ere f in an ci al con str ai nts ne cessi tate th e ne ed to li qu id ate any ou ts ta ndi ng i nvestm ent s. T he t reasu r y f un ct ion i s ma na ge d as a cost ce ntre an d do es no t engage in spec ul ativ e trading. Financial ri sk management Th e pr in cip al f i na nci al r isk s f ace d by the G rou p are l iq ui di t y and f u ndi ng , co unter p ar t y, forei gn cu rre nc y an d inte rest r ate ris ks . Th e po l ici es an d str ateg ies fo r ma na gi ng th ese r isk s are sum m ar ised o n th e fol low ing p ag es: A . Liquidity & funding risk Th e ri sk th at the G rou p cou ld be u na bl e to sett le or m ee t its o bl ig ati on s as they f a l l du e: – The Group’ s funding strat egy ensure s a mix of funding sourc es offering suf ficient headr oo m, maturity and flexibility, and cost - ef fe c tive nes s to match th e req ui reme nts o f the G rou p. – Ma rk s an d Sp en cer pl c is f in an ced by a com bi nat ion o f reta ine d prof i ts , ba nk b or rowi ngs , M ed iu m T er m No tes and co mm it ted syndicat ed bank facilities. – Op er ati ng su bsid ia ri es are f in an ced by a co mbi na tio n of reta in ed p rof its , b an k bo rrow ing s an d interco mp any lo ans . Du ri ng th e yea r , t he G rou p term in ated i ts com mi tte d syn di ca ted ba nk revo lvin g cre dit f a cil i t y and e ntere d a new co mmi t ted syn di ca ted ba nk revo lvin g cre dit f a cil i t y of £850.0 m w ith a cu r rent m atur it y d ate of 1 3 Ju ne 2025. Th e new f ac il it y co nta ins a f i na nci al covena nt , be in g the r ati o of ea rn ing s bef ore in terest , ta x , d ep reci atio n an d am or t isa tio n; to net i nterest a nd d ep reci atio n on r ig ht - o f - use a sset s un de r IFRS 1 6. T h e covena nt is m easu red se mi -a nn ua l ly . T he G ro up w as no t in bre ach o f thi s covena nt at th e rep or t ing d ate. Th e new revo lvi ng cre di t fa ci li t y in clu des fo ur a dd iti on al sus ta in abi l it y m etri cs w he re the m arg in p aya ble o n th e f aci li t y is ad jus ted to ref lec t th e G roup’s pe r fo rm an ce ag ai nst a n um be r of ESG t arg ets m ateri al to th e G roup’s Pl a n A obj ec ti ves. T he G rou p w as not i n brea ch of t hese m etr ic s at th e repo r ti ng d ate. Th e G roup a l so h as a nu mb er o f unco mm it ted f a cil it ies av ail abl e to it. At ye ar e nd , th ese a mou nted to £25m (l as t year : £25m ), a ll o f wh ich a re du e to be revi ewed w it hin a y ear. At the ba l an ce she et d ate, a ster l in g eq ui va len t of £nil ( l as t year : £n il) w as dr awn u nd er t he com mit ted f a cil i ties a nd £ni l (l a st yea r : £nil) w as d raw n un de r the u nco mm it ted f a cil it ies . In a ddi tio n to the e xis tin g bo rrow in gs , the G rou p ha s a Euro Me di um T e r m Note pro gr am me o f £3bn , of w hic h £ 1 . 3bn ( l ast ye ar : £ 1 . 4b n ) wa s in is sua nce as a t the b al a nce s hee t date. T he i ni tia l ra te of interes t is f ixe d at th e da te of issu e an d the N otes are ref er red to as f ixe d rate b or rowin gs th rou gh out t he A nn ua l Rep or t a s the co upo n do es n ot ch ang e wi th m oveme nts i n be nc hm ar k intere st ra tes. Howeve r , the r ate of i nterest o n cer t ai n Notes v ar ies b oth u p an d dow n in resp on se to thi rd- p ar t y cre di t rat ing s (to above /b elow Ba a3 or a bove /b elow B BB -) that ref le ct s the re l ati ve dete ri or atio n or i mp roveme nt i n the G rou p’s cost of cre dit , a nd th e interes t pay ab le on t hes e Notes in crea ses f rom th e ne x t inte rest pay me nt d ate fol low ing a re lev ant c redi t r atin g dow ng ra de . As th e or ig in al contr ac tu a l term s of th ese No tes provi de fo r ch ang es in c as h fl ows to be reset to ref le c t the re l ati ve deter io ra tio n or i mp roveme nt in the G rou p’s cost of cre di t, th e G rou p consi de rs the se Notes to be f lo ati ng r ate ins tr ume nts w h en d eterm in in g amo r ti sed cos t und er IFR S 9 and co nse qu ent ly the G rou p ap pl ie d IFR S 9 pa ra gr ap h B5. 4. 5 , wh ich re qui res no a dju stm ent to th e ca rr yi ng am ou nt of th e l iab il i ties o r im me di ate imp ac t o n prof i t an d loss . If th e G roup h ad d eter mi ne d thes e Notes to be f i xed r ate ins tru me nts , th e Notes wou ld be re me asure d to refl ec t the rev ise d c ash f lows d isco unted a t the o ri gi nal e f fe c tive r ate. T his wo uld re sult i n in iti al ly a hig he r inte rest ex pe nse to p rof it or l oss , of fset by l ower i nterest c ha rges su bse qu ently, wh en com pa red to the G ro up’s treatm en t. As p ar t of the O c ad o Reta il L im ited i nvestm ent , O ca do Re tai l L imi ted en tered i nto a £30m , t hree -ye ar revo lvin g cred it f a cil i ty. Alo ng w ith O ca do G rou p Plc , th e G rou p has p rovid ed a p a rent g ua ra ntee to cover 50% o f the £30 m revo lvin g cre dit f a cil i t y provi de d by BNPP to O ca do Ret ai l Li mi ted . NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 166 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 2 1 FINANC IAL INSTRUMENTS CONTI NUED Th e ta bl e be low sum ma ri ses th e contr ac tu al m atu ri t y of th e G roup’s no n- d er iv ati ve f in an cia l l ia bil i ties a nd d er iv ati ves , exclu di ng tr ad e pay ab les , oth er p aya bl es an d accr ua l s. T he c a rr yin g va lu e of al l tr ad e pay ab les , oth er p aya bl es ( excl ud ing co ntin ge nt con sid er atio n pay ab le) and accr u al s of £1 ,853. 3m (l as t yea r : £ 1 ,4 66. 2m ) is eq ua l to the ir cont ra c tua l un dis coun ted ca sh f lows (see note 1 9) wh ich a re du e wi thi n on e yea r . Co ntin ge nt con sid er atio n ( se e the f a ir v alu e hi er archy se c tio n wi thi n note 2 1 ) of £nil ( l as t year : £33.7 m) is ex pe cte d to be come p ay abl e wi thi n on e yea r and £1 9 0. 8m ( l as t year : £1 9 0. 8m) bet we en t wo a nd f ive ye ar s. Bank loans and overdrafts £m 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 2 £m Total derivative liabilities £m Timing of cash flows Within one year (4.7) (244.8) (326.3) (124.9) (700.7) 1,492.9 (1,586.8) (93.9) Between one and two years – (74.8) (289.1) (71.9) (435.8) 162.7 (164.4) (1.7) Between two and five years – (898.8) (754.6) – (1,653.4) 46.5 (43.8) 2.7 More than five years – (987.7) (3,293.2) – (4,280.9) 404.0 (368.6) 35.4 Total undiscounted cash flows (4.7) (2,206.1) (4,663.2) (196.8) (7,070.8) 2,106.1 (2,163.6) (57.5) Effect of discounting – 524.0 2,257.3 3.3 2,784.6 At 3 April 2021 (4.7) (1,682.1) (2,405.9) (193.5) (4,286.2) 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) 1. T o ta l u nd isco u nte d lea se p ay me nt s of £766. 2m re l ati ng to t he p er i od p ost b re ak c l au se , an d th e ea rl i est co nt ra c tu al l ea se e xi t po in t, a re i nc lu de d in l ea se l ia bi l it ies . T he se u nd isc ou nte d le ase p ay me nt s sh ou ld b e exc lu de d w he n de ter mi ni ng t he G ro up ’s con tr ac tu a l in de bte dn es s un de r th es e lea se s, w h ere t he re is a co nt ra c tu al r ig ht to b rea k . Fu r th er m ore , £1 55. 2m of t hes e pay m en ts re l ate to l ea ses w he re , fo ll ow in g the b re ak c l au se , th e Gro u p wi ll h ave t he a bi l it y to e xi t th e le ase a t any p o int b ef ore t he l ea se e xp ir y wi th a m ax im um o f si x mo nt hs’ n oti ce. 2. C as h in ﬂow s an d ou tﬂ ows o n d er iv at iv e ins tr u me nt s tha t re qu ire g ros s se tt le me nt (su ch as c ros s- cu r ren c y sw ap s an d fo r wa rd fo re ig n exc ha ng e co ntr a ct s) are d isc los ed g ros s . C ash i nﬂ ows a nd o ut ﬂo ws o n de ri v ati ve i ns tr um en ts t hat s et tl e on a n et b as is a re di scl os ed n et . B . Coun ter par t y ri sk Cou nter pa r t y r isk ex is ts wh ere t he G rou p ca n suf fer f i na nci al lo ss th roug h the d ef au lt o r no n- p er fo r ma nce of th e cou nter pa r ties wi th wh om i t tr ans ac t s. E xp osu res are m an ag ed in a ccord ance w it h the G rou p trea sur y p ol i cy w hi ch l im its th e v alu e th at ca n be p l ace d wi th ea ch a pp roved coun terp ar ty to m ini mis e the r isk o f loss . T he m ini mu m lon g- ter m rat ing f or a ll cou nter pa r ti es is lo ng -ter m St an da rd & Poo r’s (S&P)/ Mo od y’s A -/A3 (BBB+/B aa 1 for co mm it ted le nd in g ba nk s ). I n the eve nt of a r ati ng by on e ag en cy b ei ng d if f eren t fro m the ot her, refere nce w il l be m ad e to Fi tch to deter min e th e ca sti ng vote of th e ra tin g grou p. In t he ab sen ce of a F itch r atin g , th e lower a ge nc y rat ing w il l p reva il . L im it s are revi ewe d regu l ar ly by se nio r ma na ge me nt. T h e cred it r isk of t hese f i na nci al i nst ru me nts is es tim ated as th e f air v al ue of t he as sets re sult ing f rom t he con tra c ts . Th e ta bl e be low an alyse s the G rou p’s shor t -te rm i nvestm ent s and d er i vati ve as sets by c redi t ex po sure exc lud in g ba nk b al a nces , store c ash a nd c ash i n tr ansi t. 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 – – – 54.4 182.4 250.3 4.7 3.3 495.1 Derivative assets 2 – – – 6.1 25.8 0.7 0.5 – 33.1 At 3 April 2021 – – – 60.5 208.2 251.0 5.2 3.3 528.2 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 1 . Includes cash on depo sit and money marke t funds held b y Marks and Spencer Scottish Limited Partnership, Marks and Spencer pl c and M arks and Spencer General Ins urance. E xcl ud es c as h in h an d an d in t r ans it o f £2 17 .4 m (l a st ye ar : £1 97 .7m). 2. Standard & Poor’ s equivalent rat ing sho wn as referenc e t o the majority credit rating of th e c ounterparty from either S tandard & Poor’ s , Moody’ s or F itch where applicable. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 167 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 2 1 FINANC IAL INSTRUMENTS CONTI NUED Th e G roup h as a ve r y low ret ail c red it r isk du e to tra ns ac ti ons p ri nc ipa l ly bei ng of h ig h volu me , low v alu e an d sho r t m atu ri ty. Th e ma x imu m ex po sure to cred it r isk at t he b al a nce sh eet d ate w as as fo ll ows: tr ad e recei va bl es £ 10 3 . 1 m ( l as t year : £1 06 .2m), leas e recei va bl es £7 5 .5m ( l as t year : £6 2 .8 m ) , oth er rece iv ab les £30 .5m ( l ast ye ar : £32.6m), cas h and c as h eq ui va lent s £ 1, 1 9 7 .9m ( l ast ye ar : £ 67 4. 4m) and d er iv ati ves £ 65.0 m ( l ast y ear : £33. 1 m). Im pai rme nt of f i nan cia l ass ets Th e cred it r isk m an ag em ent p r ac tices o f the G rou p in clu de i nter na l revie w and re po r ti ng of th e ag ei ng of t ra de a nd oth er re ceiv ab les by days p as t du e by a centr al is ed a ccount s recei va bl e fu nc ti on , a nd gro up ed by resp ec ti ve cont ra ct ua l revenu e st ream , a lon g wi th l ia iso n wi th the d eb tors by th e cred it con trol f un c tio n. Th e G roup a pp l ies th e IFR S 9 sim pl i fi ed a pp roa ch in m easu ri ng e xp ec ted c redi t los ses w hic h use a l if etim e ex pe c ted cre dit l oss allowanc e f or all t rade rec eivables and lease receivable s. T o m easu re ex pe c ted cred it lo sses , tr ad e rece iv ab les h ave be en g roup ed by sh are d cred it r isk c ha ra cte ris tic s alo ng t he l in es of di f fe ri ng reven ue s trea ms suc h as in tern ati on al f ra nc hise , fo od , UK f r an chis e, cor p or ate and s und r y, as wel l as by g eo gr ap hi ca l loc ati on a nd d ays pa st d ue. I n ad di tio n to the ex pe c ted cre dit l osse s ca lcu l ated us ing a p rovis ion m atr ix , the G rou p may p rovid e ad dit ion al p rovi sion f or th e recei va bl es of p ar t icu l ar cu stom ers i f the d eter io rat ion o f f in an cia l posi tio n w as obs er v ed . Th e G roup’s tr ade re cei va ble s are of ve r y low c redi t ri sk du e to tra ns ac tio ns b ein g pr in cip al ly of h igh vo lu me , low va lu e an d sho r t ma tur it y. Th eref ore, i t al so h as ve r y low co ncen tra tio n ris k . Th e ex pe c ted los s rates a re dete rm ine d ba sed o n th e aver ag e wr ite - of f s as a p ropo r ti on of ave ra ge d ebt ove r a pe ri od o f 36 mont hs pr io r to the rep or t ing d ate. T he h istor ic a l loss r ates are a dju sted fo r cur ren t and f or w ard - loo k ing i nfo rm ati on w he re sign if ic a nt. Th e G roup co nsid er s GD P grow t h, u ne mp loy men t, s al es grow t h and b an k ru ptcy r ates of th e cou ntri es in w hi ch g ood s are so ld to be th e mo st rele va nt f ac tors a nd , w he re the i mp ac t of th ese is s ign if i ca nt , adj ust s the h istor ic al lo ss r ates ba sed o n ex pe c ted ch ang es in th ese f a ctor s. His tori ca l ex pe ri en ce has i nd ic ated th at d ebt s ag ed 1 8 0 days o r over a re ge ner a lly no t recover ab le. T h e Gro up h as in cor po rate d this into th e ex pe cte d loss m od el th rou gh a u nif or m loss r ate fo r age in g bu ckets b elow 1 8 0 day s, d ep en de nt on t he reve nue s trea m an d coun tr y a nd p rovid ing f or 1 0 0% o f de bt ag ed ove r 1 80 d ays pa st du e. W he re the G rou p sp eci f ic al ly ho lds i nsur an ce or h old s the l eg al ri ght o f of f set w ith d ebto rs wh ich a re al so c red itors , th e los s provi sio n is ap pl i ed o nly to the ex tent of th e un ins ured o r net e x posu re. T r ad e rece iv ab les are w r it ten of f wh en th ere is n o reaso na bl e ex pe c tati on of re cover y. Ind ic ators t hat t here m ay be n o reaso na bl e ex pe c tati on of re cover y i ncl ud e the f a ilu re of th e de btor to en ga ge i n a pay me nt pl a n , an d f ail ure to ma ke contr ac tu al p aym en ts wi thi n 1 80 d ays p ast d ue. Im pa ir me nt loss es on t ra de rece iv ab les a re prese nted as n et im p air me nt los ses w ith in o pe rat ing p rof it , a nd sub seq ue nt recove ri es are cre di ted to the s am e li ne i tem . As at 3 April 2021 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 95.0 9.9 2.0 0.8 0.8 1.3 109.8 Expected loss rate 1.45% 5.43% 12.88% 15.78% 17.06% 100.0% 3.40% Lifetime expected credit loss 1.4 0.5 0.3 0.1 0.1 1.3 3.7 Net carrying amount 93.6 9.4 1.7 0.7 0.7 – 106.1 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 2.87% 4.93% 0.0% 5.72% 7.76% 100.0% 4.63% 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 NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 168 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 2 1 FINANC IAL INSTRUMENTS CONTI NUED Th e clos ing l oss a llow an ces fo r tra de re cei va ble s recon cil es to the op en in g loss a l lowa nces a s fol lows : Trade receivables expected loss provision 2022 £m 2021 £m Opening loss allowance 3.7 4.0 Increase/(decrease) in loss allowance recognised in profit and loss during the year 1.5 (0.3) Receivables written off during the year as uncollectable (0.4) – Closing loss allowance 4.8 3.7 Th e clos ing l oss a llow an ces fo r lea se recei v abl es reco nci les to the o pe ni ng los s al low an ces as fo llo ws: Lease receivables expected loss provision 2022 £m 2021 £m Opening loss allowance 11.9 4.7 (Decrease)/increase in loss allowance recognised in profit and loss during the year 1 (11.9) 7.2 Receivables written off during the year as uncollectable – – Closing loss allowance – 11.9 1. Re l ate s to th e sub le t of p rev io us ly clo se d o ces as so ci ate d wi th t he s tr ate gi c pro g ra mm e to ce ntr a li se t he G ro up’s L on do n He ad O c e fu nc t io ns (se e note 5) . Th e prov isio n for o the r recei v abl es is h igh ly im mate ri al (i t c an b e qu ant if ie d) a nd th erefo re no d isclo sure is p rovid ed . C . Fo reig n cu rre nc y risk T r an sa c tio nal f orei gn cu rre nc y ex po sure a ris es pr im ar ily f rom th e im po r t of g ood s sou rced f rom ove rsea s sup pl ie rs a nd a l so fro m the ex po r t of g oo ds f rom th e UK to overs eas su bsid ia ri es. T h e mos t sig nif i ca nt ex po sure is to th e US d ol l ar, incu rre d in th e sou rcin g of Clot hin g & Ho me p rodu c ts f rom A sia . G roup Treasur y h ed ge s thes e ex posu res pr in cip al ly usi ng fo r w ard fo reig n exc han ge co ntr ac ts p rog ressi vely ba sed o n d yn am ic fore ca sts f rom t he bu sin ess . He dg in g be gin s arou nd 1 4 m onth s ah ead o f the s ta r t of th e sea son , w ith b et wee n 80 % an d 1 0 0 % of the ris k he dg ed ei ght m on ths b efore t he st ar t o f the s easo n . In a ccorda nce w ith th e G roup’s trea sur y pol i cy, hed ge s are en tered i nto by bus ine ss l in e an d by seas on . Ot her e x posu res ar isi ng f rom th e ex po r t of g oo ds to overse as su bsid ia ri es are a l so he dg ed p rog ressi vely over th e cou rse of t he yea r bef ore th ey are in cu rre d. A s at th e ba l an ce she et d ate, th e gros s noti on al v alu e in s ter li ng ter ms o f for w a rd forei gn e xcha ng e sel l o r bu y contr ac t s am oun ted to £ 1 ,8 65.7 m (l ast yea r : £ 1,7 76.6m) wit h a weig hted ave ra ge m atu ri t y date of si x mo nth s (l as t yea r : six m ont hs ). G ain s an d losse s in e qui t y on fo r w ard fo reig n exc ha nge co ntr ac ts d esig na ted in c as h flow h ed ge re l ati ons hip s as at 2 A pr il 2022 wil l be recl a ssi f ied to th e in come s tate men t at va ri ou s dates ove r the fo l lowi ng 1 5 mo nth s (l as t yea r : 1 6 mo nths) from th e ba l an ce she et d ate. Th e fore ig n exch an ge fo r w ards a re desi gn ated a s ca sh fl ow he dg es of hi gh ly prob ab le fo rec ast t ra ns ac tio ns . Both s pot a nd fo r w ard po int s are de sig nated i n th e hed ge re l ati ons hip ; un de r IFRS 9 t he cu rre nc y ba sis sp read m ay be e xclu de d fro m the h ed ge re l atio nsh ip an d recog nis ed in o the r com preh en sive i ncom e – cost o f hed gi ng res er ve . Th e ch ang e in t he f ai r va lu e of th e hed gi ng i nst ru me nt, to the d eg ree ef fec ti ve, i s def er red in e qu it y a nd su bseq ue ntly e ith er rec l ass if ie d to prof it o r los s or rem oved f rom e qu it y a nd in clu de d in th e in iti al cost o f inve ntor y as p ar t of th e “ basi s adj ustm en t”. Th is wi ll b e rea li sed i n the i nco me st atem ent o nce t he he dg ed i tem is sol d. T he G ro up h as consi de red a nd el ec ted n ot to recog nis e the cu rre nc y ba sis sp read e le me nt in th e cost of h ed gi ng rese r ve , owi ng to the rel a tive ly sho r t - d ated n atu re of the h ed gi ng i nstr u men ts . Th e G roup re gu l ar ly revi ews th e fore ign e xch ang e he dg in g po r t fol i o to conf ir m wh ethe r th e und er lyi ng tr a nsa c tio ns rem ai n hig hly prob a ble . Any id en tif ie d in sta nce o f over - hed gi ng o r in ef fe c tive nes s wou ld resu lt in i mm ed iate rec ycl i ng to the i ncom e st atem ent . A cha ng e in t he ti min g of a fo rec ast i tem d oes n ot di squ al if y a he dg e rel at ion shi p no r the a sse r tio n of “ h igh ly prob a ble” a s the re rem ain s an e cono mi c rel at ion shi p bet we en th e un de rly in g tra ns ac ti on an d th e de ri vat ive. Th e fore ig n exch an ge fo r w ards a re recog ni sed at f a ir v alu e. T he G rou p ha s consi de red a nd el ec ted n ot to app ly cred it /deb it v alu ati on adj ust men ts , owi ng to the ir re l ati vely sh or t - da ted nat ure. T he r isk s at th e rep or t ing d ate are re prese nta tive o f the f i na nci al ye ar . Th e G roup a l so ho lds a n um be r of cros s- cu rren c y swa ps to des ign ate it s fi xed r ate US d ol l a r de bt to fi xed r ate ster l in g de bt. T h ese are rep or ted as c ash f low h ed ges . Th e ch an ge i n the f a ir v alu e of th e he dg ing i nst ru me nt , to the de gre e ef f ec tiv e, is ret ai ned i n oth er com preh en sive i ncom e, s eg reg ated by cost a nd ef fec t of h ed gi ng . Un de r IFRS 9 t he cu rre nc y ba sis on t he cros s- cu rre nc y swa ps is exclu d ed f rom th e he dg e desi gn atio n an d recog ni sed i n oth er com pre he nsive i nco me – cost o f he dg ing res er v e. Ef fe c tive nes s is me asure d usi ng th e hyp othe tic al d er iv ati ve ap pro ach . T he con tra c tu al ter ms of t he cros s- cur ren cy s wa ps in clu de b rea k cl au ses eve r y f ive ye ars w hi ch al low fo r the i nteres t rates to b e reset (l a st reset D ece mb er 20 1 7). Th e hyp oth etic al d er iv ati ve is b ase d on th e or ig in al cr itic a l term s an d so in ef fe c tive nes s may resu lt . NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 169 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 2 1 FINANC IAL INSTRUMENTS CONTI NUED Th e cross - cur ren cy s wa ps are re cogn ise d at f ai r va lue . Th e in clu sio n of cred it r isk o n cross - cur ren cy sw a ps wi ll c au se in ef f ec ti ven ess of th e he dg e rel ati on shi p. Th e G roup h as co nsid ere d an d ele c ted to app ly cred it /deb it v alu ati on a djus tme nts , ow in g to the sw aps’ rel at ive m ater ial i t y an d lon ge r date d natu re. Th e G roup a l so h edg es fo reig n cu rre nc y interco mp any lo ans w h ere th ese ex ist . Fo r w ard fo rei gn exc ha ng e contr ac ts i n rel a tio n to the he dg ing o f the G rou p’s forei gn cu rre nc y inte rcomp any lo an s are cl a ssi f ied a s f air v al ue t hrou gh p rof it a nd los s. T he co rres pon di ng f a ir va lu e movem en t of the i ntercom p any lo an b al a nce resu lted i n a £ 0 .3m g ai n (l as t yea r : £ 1 .4 m ga in) in the i nco me st atem ent . A s at the ba l an ce she et d ate, th e gros s noti on al v alu e of i ntercom pa ny loa n he dg es wa s £ 1 66 . 8m (l a st yea r : £ 1 72.0 m ). Af te r ta ki ng in to accoun t the h ed gin g de ri v ative s entere d into by th e Gro up, t he cu rre nc y an d interes t ra te exp osu re of the G rou p’s f in anc ia l li ab il it ies , excl ud in g sho r t - term p aya bl es an d the l i ab il it y to th e Ma rk s & Sp en cer UK Pe nsi on S che me , is set o ut b elow : 2022 2021 Fixed rate £m Floating rate £m Total £m Fixed rate £m Floating rate £m Total £m Currency Sterling 3,610.6 – 3,610.6 3,886.2 4.7 3,890.9 Euro 104.3 – 104.3 95.8 – 95.8 Other 93.3 – 93.3 106.0 – 106.0 3,808.2 – 3,808.2 4,088.0 4.7 4,092.7 Th e pr io r yea r fl oati ng r ate ster l in g bo rrowi ng s were c ash b al ances c l ass if ie d as overd ra f ts . As a t the b al a nce sh eet d ate a nd excl ud ing l eas e li ab il it ies , po st - h edg in g the G BP a nd U SD f i xed r ate bo rrow ing s are at a n aver ag e rate of 5 . 1 % ( l as t year : 5 .3%) a nd th e wei ghted ave ra ge t ime f or w hic h the r ate is f i xed is f i ve yea rs (l a st yea r : six ye ar s ). Du ri ng th e pr io r yea r , th e G rou p close d ou t al l inte rest r ate swa ps d esig nate d in he dg e rel a tio nshi ps . D. Interest rate risk Th e G roup i s ex pos ed to inte rest ra te risk i n rel at io n to sterl i ng , US d ol l a r and e uro v ar ia ble r ate f in an cia l ass ets a nd l ia bi li tie s. Th e G roup’s po l ic y is to use d er iv ati ve contr ac t s wh ere ne cess ar y to mai nta in a m ix of f i xed a nd f lo atin g ra te bor rowi ngs to m an age thi s ris k . Th e str uc tu re an d mat ur it y of th ese d er iv ati ves cor resp ond to th e un de rly ing b or rowi ng s and a re accou nted fo r as f ai r va lu e or cash flow hedge s as appropriat e. At the b al ance s hee t date , fi xed r ate bo r rowin gs a mou nted to £3, 80 8 .2m (l a st yea r : £ 4 ,0 88 .0 m) represe nti ng th e pu bl ic b on d issu es an d leas e l ia bil i ties , a mou nti ng to 1 0 0 % (l as t yea r : 99%) of th e G roup’s gros s bo rrow ing s. Th e ef f ec ti ve interes t ra tes at the b al a nce sh ee t date we re as fol low s: 2022 % 2021 % Committed and uncommitted borrowings N/A N/A Medium Term Notes 5.1% 5.3% Leases 5.4% 5.4% Th e G roup h as cl osely m on itored t he m ar ket an d the o utp ut f rom th e v ar iou s ind us tr y wo rk in g grou ps m an ag ing t he tr an siti on to new be nch ma rk i nteres t rates . T his i ncl ud es an nou nce me nts m ad e by LIB OR re gul ators ( in clu din g the F i na nci al Co nd uc t Au tho ri t y (“ F CA”) ) reg ardi ng t he tr an siti on aw ay fro m GB P LIB OR to the S terl i ng O ver nig ht In de x Avera ge R ate (“ S ONI A ” ). I n Ma rch 202 1, the FC A an no un ced tha t it w il l no lo ng er se ek to pe rsu ad e, o r com pel , ba nk s to sub mit L IBO R f rom 3 1 De cemb er 202 1 (for US D LI BOR : 30 J un e 202 3 ). L ast ye ar, the G roup i de ntif i ed a ll co ntr ac ts w ith re fere nce to LIB OR a nd en sure d tha t thes e were ter mi nate d or a men de d to spe cif y the d ate on w hi ch th e intere st ra te ben ch ma rk wo uld b e rep l ace d , the a lter na tive b en chm ar k r ate and t he rel eva nt sp read a dju stm ent . Wh ere a pp li ca bl e, f a ll b ack l ang ua ge w as i ncl ud ed to in cor po rate a ny fu ture tr an siti on s to new be nch ma r k interes t rates . Th e G roup n o lon ge r ho lds a ny f ina nc ia l ins tru me nts t hat ref eren ce LI BOR a nd is t here fore n ot ex pos ed to any l iq ui dit y, ba sis or accou nti ng ri sks a ri sin g fro m be nch ma rk ref or m. A ll n eces sa r y sys tem an d op er ati on al ch an ges h ave be en m ad e to refere nce SO NIA . NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 170 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 2 1 FINANC IAL INSTRUMENTS CONTI NUED Derivative financial instruments Th e be low ta bl e il lus tr ates the ef fec t s of he dg e accou nti ng on t he con sol i date d sta teme nt of f in an ci al p ositi on a nd con sol i date d in come s tate me nt thro ug h det ail i ng se pa ra tely by ris k cate go r y an d ea ch t yp e of h ed ge th e de tai l s of th e ass oci ated h ed gin g ins tr um ent a nd he dg ed i tem . 3 April 2021 Current Non-current Forward foreign exchange (FX) contracts £m Forward foreign exchange (FX) contracts £m Cross-currency swaps £m Forward foreign exchange (FX) contracts £m Hedging risk strategy Cash flow hedges FVTPL Cash flow hedges Cash flow hedges Notional/currency legs 1,585.9 333.8 193.5 190.7 Carrying amount assets 32.1 0.7 – 0.3 Carrying amount (liabilities) (83.9) (12.1) (8.1) (2.6) Maturity date to Sep 2021 to Jan 2022 to Dec 2037 to May 2022 Hedge ratio 100% n/a 100% 100% Description of hedged item Highly probable transactional FX exposures Intercompany loans/deposits USD fixed rate borrowing Highly probable transactional FX exposures Change in fair value of hedging instrument 1 (100.2) (11.1) (91.7) (11.8) Change in fair value of hedged item used to determine hedge effectiveness 100.2 12.5 93.0 11.8 Weighted average hedge rate for the year GBP/USD 1.32, GBP/EUR1.13 – GBP/USD 1.55 GBP/USD 1.28, GBP/EUR1.12 Amounts recognised within finance costs in profit and loss – 1.4 1.3 – Balance on cash flow hedge reserve at 3 April 2021 40.6 – 25.4 2.2 Balance on cost of hedging reserve at 3 April 2021 – – (5.8) – 2 April 2022 Current Non-current Forward foreign exchange (FX) contracts £m Forward foreign exchange (FX) contracts £m Cross-currency swaps £m Forward foreign exchange (FX) 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 Intercompany 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. L as t ye ar, th e £(1 1. 1)m fa i r va lu e ch an ge r ep res ent ed i n th e fa ir v a lu e mov em en t of th e fo r w ard c ont r ac ts u nd e r F V TP L con sis te d of e con om ic h ed g es of ce r t ai n in terco m pa ny lo an s/de po si ts a nd f or w a rd con tr ac t s th at we re no l on ge r in h e dg e rel ati on sh ips ( tota l e qu iv al en t no tio n al : £333. 8m ; cu r ren t yea r : ni l). O f th is f a ir v al ue c ha n ge , £(1 0 . 2)m rel a ted to mov em en ts i n va l id h ed ge r el a tio ns hi ps t ha t de - de si gn ate d at th e e nd of t he r esp ec t ive ﬁ na n ci al ye ar a nd w ere r ec l as siﬁ ed to t he co st o f inve nto r y (cu rre nt y ea r: n il ). T hi s li ne a l so in cl ud es th e c as h set tl em e nts o f th e de ri v ati ve p osi ti on s du r in g ea ch re sp ec ti ve ye ar. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 171 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 2 1 FINANC IAL INSTRUMENTS CONTI NUED 2 April 2022 3 April 2021 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 1,348.8 188.1 43.0 (2.3) 449.0 1,136.9 32.1 (83.9) – FVTPL 37.2 129.6 0.6 (0.9) 72.2 261.6 0.7 (12.1) 1,386.0 317.7 43.6 (3.2) 521.2 1,398.5 32.8 (96.0) Non-current Cross-currency swaps – cash flow hedges 193.5 – 18.5 – – 193.5 – (8.1) Forward foreign exchange contracts – cash flow hedges 131.1 30.9 2.9 (0.4) 46.2 144.5 0.3 (2.6) 324.6 30.9 21.4 (0.4) 46.2 338.0 0.3 (10.7) Th e G roup’s he dg in g reser ves dis close d in t he con sol id ated s tate me nt of ch an ges i n eq ui t y , rel a te t o th e fol low ing h ed gi ng 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 29 March 2020 (7.1) 1.4 (5.7) (45.6) (40.1) 0.1 17.0 (68.6) Add: Change in fair value of hedging instrument recognised in OCI 2 – – – 122.2 92.0 – – 214.2 Add: Costs of hedging deferred and recognised in OCI 1.3 – 1.3 – – – – – Less: Reclassified to the cost of inventory – – – (33.9) – – – (33.9) Less: Reclassified from OCI to profit or loss – – – – (26.5) – – (26.5) Less: Deferred tax – (0.2) (0.2) – – – (30.4) (30.4) Closing balance 3 April 2021 (5.8) 1.2 (4.6) 42.7 25.4 0.1 (13.4) 54.8 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 – – – (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) 1. Cr oss - cu rre nc y i nte res t ra te sw ap s. 2. Other c omprehensiv e inc ome. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 172 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 2 1 FINANC IAL INSTRUMENTS CONTI NUED Du ri ng th e pr io r yea r , th e G rou p close d ou t al l inte rest r ate swa ps d esig nati ng i ts G BP f i xed d ebt to f loat ing d eb t wh ich we re rep or te d as f ai r va lu e hed g es ( s ee n ote 20 for det ai l s of f ai r va lu e adj ustm en t ). At 2 Ap r il 2022, the G roup h ad a d efe rre d f air v al ue a dju stm ent of £ 10.5m ( l ast ye ar : £ 1 3 .6 m ) i n bo rrow in gs rel a tin g to term ina ted f ai r va lue h ed ge s. T he i nef fec ti ve po r tio n reco gni sed i n prof i t or lo ss tha t arose f rom f a ir v alu e he dg es am ou nted to a ni l ga in o r loss a s the lo ss on t he h ed ge d items w as £n il (l a st yea r : los s of £ 4 .4 m ) a nd the g ai n on t he he dg in g ins tru me nts w as £n il (l a st yea r : g ain o f £ 4 . 4m). Movement in hedged items and hedging instruments 2022 £m 2021 £m Net gain in fair value of interest rate swap – 4.4 Net loss on hedged items – (4.4) Ineffectiveness – – Th e G roup h old s a nu mb er of c ross- cu rre nc y in terest r ate swa ps to des ign ate it s USD to G BP f i xed d ebt . Th ese a re repo r ted a s ca sh fl ow he dg es. T he i nef fec ti ve po r ti on re cogn ise d in p rof it or l oss th at a ris es fro m the c as h flow h ed ge a mo unt s to a £ 1 . 3m g ai n (l as t yea r : £ 1 . 3m ga in) as the los s on th e he dg ed i tems w as £25.4 m (l ast yea r : £9 3 .0 m g ai n ) a nd t he move me nt o n the h ed gi ng in str um ent s wa s a £2 6.7m gai n (l as t yea r: £9 1 .7m loss ). A n il g ai n or los s (l a st yea r : ni l ga in o r loss) was reco gni sed i n prof i t or lo ss as p revi ous ly real ise d ineffectiveness r eversed out . Movement in hedged items and hedging instruments 2022 £m 2021 £m Net gain/(loss) in fair value of cross-currency interest rate swap 26.7 (91.7) Net (loss)/gain on hedged items (25.4) 93.0 Ineffectiveness 1.3 1.3 Sensitivity analysis Th e ta bl e be low il lus tr ates the es tim ated i mp ac t on t he i ncom e st ateme nt a nd eq ui t y as a resu lt of m ar ket move me nts i n fore ign exch an ge a nd i nterest r ates in re l ati on to the G rou p’s fi na nci al i nst ru me nts . Th e di rec tors co nsid er th at a 2% +/- (l ast ye ar : 2%) move me nt in i nterest a nd a 20% +/- (l as t yea r: 20 %) move me nt in s terl i ng ag ai nst t he rel eva nt cu rre nc y rep resent s a reas on ably p ossi bl e cha ng e. Howeve r , thi s an alysis i s for i ll ustr ati ve pu rp ose s only. Th e Gro up b el ieve s that t hese i ll ust rat ive as sum ed m ovem ent s conti nu e to provide s uf ficie nt guidance. Th e ta bl e exclu des f i na nc ial i nst ru me nts th at e xp ose th e G roup to in terest r ate an d forei gn e xcha ng e ri sk wh ere su ch a r isk is f ul ly he dg ed w ith a not her f i na nci al i nst ru me nt. A l so excl ud ed a re tra de re ceiv a bles a nd p aya bl es as th ese a re eith er s terl i ng d eno mi na ted or th e fore ig n exch an ge r isk is h ed ge d. Interes t rates Th e im pa c t in th e in come s tate men t du e to cha ng es in in terest r ates ref le ct s the e f fe ct o n th e Gro up’s fl oati ng r ate de bt as at t he ba l an ce she et d ate. Th e im pa c t in e qui t y ref lec t s the f a ir v alu e move me nt in re l ati on to the G rou p’s cross- cu rre nc y sw aps . Foreign exchange Th e im pa c t fro m forei gn e xcha ng e move me nts ref le c ts th e cha ng e in th e f ai r va lu e of the G ro up’s tra ns ac tio na l fo reig n exch an ge ca sh f low he dg es at th e ba l an ce she et d ate. T he eq ui t y im pa c t show n for f orei gn e xcha ng e sen siti vi t y rel ates to de ri v ative s. T his v al ue is ex p ec ted to be m ater ia lly of fset by t he re -tr a nsl at ion o f the re l ated tr an sa c tio na l ex posu res. 2% decrease in interest rates £m 2% increase in interest rates £m 20% weakening in sterling £m 20% strengthening in sterling £m At 3 April 2021 Impact on income statement: (loss)/gain (9.2) 9.2 – – Impact on other comprehensive income: (loss)/gain (2.1) 4.7 199.4 (199.4) 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) NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 173 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 2 1 FINANC IAL INSTRUMENTS CONTI NUED Of fsettin g of financial assets and liabilities Th e fol low in g ta ble s set ou t the f i na nci al a sset s an d f ina nc ia l li ab il it ies w hic h are su bje ct to of fset t ing , e nfo rceab le m aster n et tin g ar ra ng em ent s an d sim il a r agre em ent s. A mo unt s wh ich a re of f set a ga ins t f in an cia l ass ets a nd l ia bi li tie s in th e Gro up’s ba l an ce she et are set o ut b elow. Fo r tr ade a nd o the r recei va bl es an d tra de a nd ot he r pay ab les , am ou nts n ot of f set i n the b al ance sh ee t but w hi ch coul d be of fse t und er ce r t ain c ircu mst an ces are al so set ou t. To reconci le th e am ou nt show n in t he t ab les be low to the s tate me nt of f in an cia l po siti on , ite ms w hic h are no t subj ec t to of f set tin g sho ul d be i nclu de d . Gross financial assets/ (liabilities) £m Gross financial (liabilities)/ assets offset £m Net financial assets/ (liabilities) per statement of financial position £m Related amounts not offset in the statement of financial position £m Net £m At 3 April 2021 Trade and other receivables 16.5 (12.8) 3.7 – 3.7 Derivative financial assets 33.1 – 33.1 (24.9) 8.2 49.6 (12.8) 36.8 (24.9) 11.9 Trade and other payables (257.4) 12.8 (244.6) – (244.6) Derivative financial liabilities (106.7) – (106.7) 24.9 (81.8) (364.1) 12.8 (351.3) 24.9 (326.4) Gross financial assets/ (liabilities) £m Gross financial (liabilities)/ assets offset £m Net financial assets/ (liabilities) per statement of financial position £m Related amounts not offset 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) Am ou nts w hi ch do n ot me et th e cri ter ia fo r of f set ti ng o n the b al a nce sh ee t but co uld b e set tl ed ne t in cer tai n circ ums ta nces pr in cip al ly rel ate to de ri v ative t ra ns ac tio ns u nde r In tern ati on al Sw ap s and D er iv ati ves A sso ci atio n (“ I SDA ” ) ag ree me nts w he re eac h pa r t y ha s the o pti on to set tle a mo unt s on a n et ba sis in t he eve nt of d ef aul t of th e oth er p ar t y. Fair v alue hierarchy Th e G roup u ses th e fol low in g hie r archy fo r deter mi ni ng a nd di sclo sing t he f ai r va lu e of f in an cia l in str um ent s by va lu atio n tech niq ue : – Level 1 : qu oted (unad jus ted) p ri ces in a ct ive m ar kets fo r id enti ca l ass ets a nd l ia bi li tie s. T he G rou p ha d no Leve l 1 inves tme nts or financial instruments. – Level 2: n ot tr ad ed i n an ac ti ve m ar ket but t he f ai r va lu es are b ase d on q uote d ma rket p ri ces or a lter nat ive p ri cin g sou rces wi th reaso na bl e level s o f pr ice tr an spa ren cy. Th e Gro up’s Level 2 f i na nci al i nst ru me nts i nclu d e interes t rate a nd fo reig n exch an ge de ri va tives . Fai r va lue i s ca lcu l ated u sin g disco unte d ca sh fl ow met hod olo g y , f utu re ca sh f lows a re esti mated b as ed o n for w a rd exch an ge r ates an d inte rest r ates (from o bse r v ab le ma rket c ur ve s ) a nd cont ra ct r ates , di scou nted at a r ate tha t refl ec ts t he cre di t ris k of th e va ri ous co unter p ar ti es fo r thos e wi th a lon g ma tur it y. – Level 3: tec hn iqu es th at use i np ut s wh ich h ave a sig nif i ca nt ef fec t o n the re corde d f air v a lue t hat a re not b ase d on o bse r v abl e market data. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 174 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 2 1 FINANC IAL INSTRUMENTS CONTI NUED At the e nd of t he re por tin g pe rio d , th e Gro up h eld th e fol low in g f in anc ia l ins tru me nts a t f air v al ue: 2022 2021 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 – 0.7 – 0.7 – other investments 1 – 17.6 4.5 22.1 – 18.4 – 18.4 Derivatives used for hedging – 64.4 – 64.4 – 32.4 – 32.4 Unlisted equity investments 2 – – – – – – 9.7 9.7 Liabilities measured at fair value Financial liabilities at fair value through profit or loss (FVTPL) – derivatives held at FVTPL – (0.9) – (0.9) – (12.1) – (12.1) – contingent consideration 3 – – (172.6) (172.6) – – (212.0) (212.0) Derivatives used for hedging – (2.7) – (2.7) – (94.6) – (94.6) Th ere we re no tr an sfe rs be t wee n the le vel s of th e f ai r va lue h ie ra rchy du ri ng th e pe ri od . T he re were al s o no ch an ges m ad e to any of th e va lu atio n tech niq ue s du ri ng th e pe rio d . 1. W it hi n Lev el 3 o the r in ves tm en ts , th e G rou p ho ld s £3.1 m o f ve ntu re c ap it a l inve st me nt s, m a na ge d by Tru e Ca p it al L im it ed , m eas ure d at F V TPL ( l as t yea r : £n il) (se e no te 1 6) wh ic h are Lev el 3 i ns tr um en ts . Th e f ai r va lu e of t he se i nves tm en ts h as b ee n de ter m in ed i n acc ord an ce w it h th e Int er na tio n al P ri va te Eq ui t y an d Vent ure C a pi ta l (“ I PE V ” ) Val ua ti on G ui d el in es . Where inves tments are e ither r ecently acquired or there have been recent funding round s with third parties, t he primary input when det er mining the valuat ion is the latest transac tion price. 2. T he G ro up h ol ds £n il i n un l is ted e qu it y s ec ur it ies m e asu re d at f ai r va lu e th ro ug h oth e r com pr eh en si ve in co me ( l as t yea r : £9.7m ) (see n ote 16) whi ch i s a Lev el 3 i nst ru m ent . T he f a ir va lu e of t hi s inv est me nt w as d ete rm i ne d wi th re fe ren ce to th e ne t as set v a lu e of th e e nti t y in w hi ch t he i nves tm en t wa s he ld , w hi ch i n tu rn d er i ved t he m aj or it y o f it s ne t as set v al ue th rou gh a t hi rd -p a r t y pro pe r t y v al ua tio n . 3. A s pa r t of t he i nve stm e nt in O c ad o Ret a il L im ite d , a co nti ng en t con si de ra ti on a rr a ng em en t wa s ag re ed . T he a rr a ng em en t com p ri ses t hre e se p ar ate e le me nt s wh ic h on ly b eco me pay a bl e on t he a ch iev em en t of t hre e se pa r ate ﬁ na nc ia l an d op e ra tio n al p er f or ma n ce ta rg ets . In J un e 2021 , £1 6 . 8m w as s et tl ed , re l ati n g to the ﬁ rs t of t he t hre e ta rg ets . I n Oc tob e r 202 1, £1 7.0 m wa s set t le d , rel a tin g to th e se co nd t arg et . T he ﬁ na l ta rg et re l ates to O c ad o Ret ai l L im ite d ac hi ev in g a sp ec iﬁ ed t arg et l eve l of e ar ni ng s in t he ﬁ na n ci al ye ar e nd i ng N ove mb er 2023. T he m a xi mu m p ote nti al u nd is cou nte d am o unt o f al l f ut ur e pay m ent s th at t he G ro up co ul d be r eq ui red to m a ke un de r th e ar r an ge m ent i s £1 56. 3m p lu s in tere st o f 4% . T h e f ai r va lu e of t he co nt in ge nt co nsi d er ati o n wa s est im ate d by a pp ly in g an a pp ro pr ia te di sco un t ra te to th e ex pe c ted f u tu re pay m en ts . Th e key a ss um pti on s ta ke i nto co nsi de r ati on th e pro ba b il it y o f me et in g ea ch p er f or ma nc e ta rg et an d th e di sco un t f ac tor. Th e p er f or ma n ce ta rg et is b in ar y an d, b a sed o n th e l ate st ﬁ ve -ye ar p l a n of O ca do R et ai l Li mi te d, i s ex pe c ted to b e m et an d th er efo re th e f ai r v alu e re ﬂe ct s th e fu l l , d isco u nted £1 56 . 3m p lus i nte res t , an d it i s th ere fo re ex pe c ted t ha t £1 90 . 8m w il l b eco me p ay ab le i n 2024/25. S h ou ld th e ta rge t no t be m et , no co ns id er at io n wo ul d be p ay ab le . Sh ou ld t he d isco u nt r ate a pp l ie d be c ha ng ed , t he f a ir v al ue o f th e con ti ng en t con sid e ra tio n wo ul d ch an ge , b ut th e a mo un t of co ns id er ati o n th at wo ul d ul ti ma tely b e pa id w ou ld n ot n ece ss ar il y ch an ge . A di sco un t ra te of 4 .2% w a s use d an d a 2. 0% c ha ng e i n the d is cou nt r ate w ou ld re su lt i n a ch an ge i n f ai r va lu e of £8 .0 m . A 5% ch an ge i n th e fo rec a st le ve l of ea r ni ng s use d to as se ss t he p er f or ma n ce ta rg et wo ul d not r esu lt i n a si gn iﬁ ca nt c ha ng e in f a ir v a lu e of th e co nti ng e nt co nsi de r ati on . Du ri n g the p e ri od , £33. 8 m of co nti ng e nt co nsi de r ati on w as s et tl ed a nd a g a in o f £5. 6m re cog n ise d in p roﬁ t or l os s in re l at io n to th e rem ea su rem en t (see n ote 5). Th e Ma rk s & S pen cer U K Pen sion S ch em e hol ds a nu mb er o f f ina nc ia l ins tru me nts w hi ch m ake up t he p ensi on a sset o f £ 1 0 , 09 0.7m (l a st yea r : £ 1 0 ,4 42.9m ). L evel 1 a nd Leve l 2 f ina nc ia l asse ts me asu red at f ai r va lu e thro ug h othe r com pre hen sive i nco me a mou nted to £ 4 ,998. 8m (l ast ye ar : £5, 4 46. 0 m). Addi tio na lly, the sc hem e as sets i ncl ud e £5, 09 1 .9m (l ast ye ar : £4,996 .9m) of Level 3 f in an cia l ass ets . Se e note 1 1 for i nfor m atio n on th e G roup’s reti reme nt b ene f its . Th e fol low in g ta ble re pres ent s the ch an ge s in Leve l 3 ins tru me nts h el d by the Pe nsio n Sc hem es: 2022 £m 2021 £m Opening balance 4,996.9 4,325.1 Fair value gain recognised in other comprehensive income 138.6 68.3 (Withdrawal)/additional investment (43.6) 603.5 Closing balance 5,091.9 4,996.9 Fair v alu e of f ina nc ial i nst ru men ts Wi th th e excep tio n of th e Gro up’s f ixe d rate b ond d eb t an d the P ar t ner shi p l ia bil i t y to the Ma r ks & S pe ncer U K Pen sio n Sch em e ( note 1 2 ) , the re were n o mate ri al di f fe ren ces bet we en t he c ar r y ing v al ue o f non - d er iv ati ve f in anc ia l ass ets an d f in an cia l l ia bil i ties a nd th ei r f air va lu es as at th e ba l an ce she et d ate. Th e c ar r yi ng v al ue of t he G rou p’s fi xed r ate bo nd de bt (Le vel 1 eq ui va le nt) was £ 1,482.5m (l ast ye ar : £ 1,682. 1 m ); th e f air v al ue o f this d eb t wa s £ 1,549.6m ( l ast ye ar : £ 1 ,8 07 .6 m ) wh ich h as b ee n ca lcu l ated u sing q uo ted ma rket p ri ces an d in clu des a ccru ed i nteres t. T he c ar r y in g va lu e of the P ar tne rsh ip l ia bi li t y to the M ar ks & S pe nce r UK Pe nsio n Sch em e (Leve l 2 eq ui va len t ) is £ 1 92.3m ( l as t year : £1 93.5m) and the f a ir v alu e of th is l ia bi li t y is £ 1 8 7 .9m (l a st yea r : £ 1 85. 5m). Capital policy Th e G roup’s ob jec ti ves w he n ma nag in g ca pi ta l ( d ef i ned a s net d ebt p lu s equ it y) are to f und i nvest men t in th e tr ans for ma tio n and rebu il d ba l an ce she et met ri cs towa rds leve l s cons isten t wit h inves tme nt gr ad e, to s afe gu ard it s ab il it y to conti nu e as a g oin g con cer n in o rder to p rovid e op tim al retu rn s for s ha reho lde rs a nd to ma int ai n an ef fi cie nt c ap it al str u ct ure to redu ce th e cost of c ap it al . NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 175 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 2 1 FINANC IAL INSTRUMENTS CONTI NUED In d oin g so, t he G rou p’s stra tegy i s to rebui ld a c ap it al st ru ct ure com me nsu rate w ith a n inves tme nt gr ad e cre di t rati ng a nd to reta in ap prop r iate leve l s of l iq uid it y h ead roo m to ensu re fi na nc ia l sta bi li t y an d fl ex ib il it y. T o ac hieve t his s tra tegy, the G rou p reg ul a rly m on itors key cred it m etri cs su ch a s the g ea rin g r atio , ca sh f low to net d ebt a nd f ixe d ch arg e cover to mai nta in t his p osit ion . In a dd iti on , the G rou p en sures a co mb ina tio n of ap pro pr iate com mi t ted sho r t -ter m l iq uid it y h ead roo m wi th a di ver se an d ba l an ced lo ng -te rm de bt ma tur it y p rof ile . As a t the b al a nce sh eet d ate, t he G rou p’s avera ge d ebt m atu ri t y prof i le wa s f ive ye ars ( l ast y ear : si x yea rs ). Du ri ng th e yea r , t he G rou p ma int ain ed c red it r atin gs of B a 1 ( st ab le ) wi th M ood y ’s and B B+ ( s ta bl e ) w it h Sta nd ard & Poo r ’s. In o rder to m ain ta in or re al ig n the c a pi tal s tr uc tu re, th e Gro up m ay adj ust th e am ou nt of d iv id end s pa id to sha reh old er s, ret ur n ca pi ta l to share ho lde rs , is sue n ew sha res or s el l ass ets to red uce d ebt . 2 2 PRO VISIONS Property £m Restructuring £m Other £m Total £m At 29 March 2020 60.0 12.6 5.4 78.0 Provided in the year – charged to profit or loss 22.5 105.2 9.6 137.3 Provided in the year – charged to property, plant and equipment 25.9 – – 25.9 Released in the year (29.8) (7.6) (0.1) (37.5) Utilised during the year (4.6) (81.6) (0.3) (86.5) Exchange differences – (0.1) – (0.1) Discount rate unwind 2.7 – – 2.7 Reclassified to the pension liability – – (2.5) (2.5) At 3 April 2021 76.7 28.5 12.1 117.3 Analysed as: Current 43.1 Non-current 74.2 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 Prop er t y p rovis ion s rel ate p ri ma ri ly to obl ig atio ns su ch as d il a pi dat ion s ar isin g as a resu lt of t he clo sure of s tores in th e UK , as p ar t o f the U K store es tate st rate gic p rog ra mm e. T hese p rovi sion s are e xp ec ted to be u til is ed ove r the p er io d to the en d of ea ch sp ec if ic l ease ( u p to 1 0 ye ars). Move me nts i n restr uc tu ri ng p rovisi ons re l ate to the u til is atio n an d f in al is atio n of cos ts as soci ated w ith t he st rate gic p rog ra mm e to red uce rol es acros s cent ra l sup po r t cent res, re gi on al m an ag eme nt a nd ou r UK a nd Re pu bl ic o f Irel and s tores; th e his tori ca l Inte rn atio na l ex it st rate gy ; t he str ateg ic p rog ra mm e to tra nsit ion to a si ngl e -ti er UK d is tri bu tio n net wo rk ; a nd cos ts as soc iated w it h the d ec isio n to fu l ly exi t ou r Rus sia n fr an ch ise o pe rati on s. Cl osin g prov isio ns rel a te pri ma ri ly to the str ateg ic p rog ra mm e to tra nsit ion to a si ngl e -ti er UK d istr ib uti on n et wor k , e xp ec ted to be u til is ed ove r the p er io d of closu re of si tes, a nd e xi t ou r Russ ian f r an chi se op er ati ons , ex pe c ted to be ut il ise d wi thi n the n ex t y ear. Ot her p rovi sion s in clu de a mou nts i n resp ec t of p rob ab le l ia bil i ties f or em pl oyee - rel ate d mat ter s. Provi sion s rel ate d to adju stin g item s were £ 1 24.9m at 2 A p ril 2022 (l as t yea r : £ 1 0 0. 8m), wit h a net ch arg e in th e yea r of £ 48 . 2m (l a st yea r : £90. 1 m) ( se e note 5). NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 176 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 2 3 DEF ERRED T A X Def er red t ax is p rovi de d und er t he b al a nce sh eet l i ab il it y m etho d usi ng th e ta x ra te at wh ich th e ba l a nces a re exp ec ted to u nwi nd of 1 9% an d 25 % a s ap pl ic a ble ( l ast ye ar : 1 9%) fo r UK d if fere nces a nd lo ca l ta x ra tes for ove rsea s di f fe rences . D eta il s of th e ch an ges to the UK co rp or ati on t ax r ate an d the i mp ac t on t he G rou p are d escr ib ed i n note 7 . Th e move me nts i n def er red ta x as sets a nd l i ab il iti es (af ter the o f f set tin g of b al a nces w ith in th e sa me j ur isd ic tio n as p er mit ted by IA S 1 2 – ‘ I ncom e T a xes’) d ur in g the ye ar a re show n be low. Deferred tax assets/(liabilities) Land and buildings temporary differences £m Capital allowances in excess of depreciation £m Pension temporary differences £m Other short-term temporary differences £m Total UK deferred tax £m Overseas deferred tax £m Total £m At 29 March 2020 (28.3) (0.2) (398.8) 95.2 (332.1) (0.3) (332.4) (Charged)/credited to income statement (22.0) 22.8 (7.6) 4.5 (2.3) 2.1 (0.2) Credited/(charged) to equity/ other comprehensive income – – 257.7 35.8 293.5 (3.2) 290.3 At 3 April 2021 (50.3) 22.6 (148.7) 135.5 (40.9) (1.4) (42.3) At 4 April 2021 (50.3) 22.6 (148.7) 135.5 (40.9) (1.4) (42.3) (Charged)/credited to income statement (15.4) 3.7 (14.7) 20.3 (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) 141.7 (189.8) 2.6 (187.2) Ot her s ho r t - term te mp or ar y d if fere nces rel ate mai nly to em ploye e sh are op tio ns , f in anc ia l ins tru me nts a nd I FRS 1 6 . Th e de fer red t ax l i ab il it y o n l an d an d bui ldi ng s temp or ar y di f fe rences i s red uced by t he b ene f it of c ap it al lo sses w ith a g ross v al ue of £236.6 m (l a st yea r : £22 8 .0 m) and a t ax v al ue o f £58.6m ( l as t year : £4 3. 3m). The t ax v al ue h as in crea sed i n com pa ris on to the p ri or yea r du e to the ef f ec ts o f the ch an ge i n ra te, wh ere by, UK defe rre d ta x ass ets a nd l ia bi li tie s have b ee n reme asu red at 25% where t hese are e xp ec ted to be re al ise d or se tt led o n or a f ter 1 A pr il 2023. Du e to unce r ta int y ove r th eir f ut ure us e, n o be nef i t has b ee n recog ni sed i n respe c t of tr ad in g losse s ca rr ie d for wa rd in over sea s jur isd ic ti ons w ith a g ross v al ue of £5 .6m ( l ast y ear : £ 1 1 . 0m) and a t a x va lue o f £ 1 .4 m (l a st yea r : £3. 0m). No d efe rre d ta x is recog ni sed i n resp ec t of u ndi str ib uted e ar ni ngs o f overse as su bsid ia ri es an d joi nt vent ures w ith a g ross v al ue of £34 . 2m (l a st yea r : £2 4 . 1 m) un less a m ater ia l l ia bil i t y is ex pe c ted to ari se on d ist ri bu tio n of the se ea rn ing s un de r ap pl ic ab le t ax l eg isl at ion . Th ere is a p otent ia l ta x li ab il i ty i n resp ec t of u nd istr ib uted e ar ni ngs o f £3. 1 m ( l as t year : £2. 3m) however th is h as not b ee n recog ni sed on th e ba sis th at th e dis tri bu tio n ca n be co ntrol le d by the G ro up, a nd it i s prob a ble t hat th e tem po ra r y di f fe ren ce wi ll n ot rever se in th e fores eea bl e fu tu re. In th e pr io r yea r , a d efe rre d ta x ass et of £ 10.5m re l atin g to tra di ng los ses i n the U K wa s recog nis ed . A s the a mou nt h as be en f u lly uti l ise d, n o de fer red t ax a sset re l ati ng to tra di ng lo sses i n the U K is reco gn ised i n th e cur rent p er io d. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 177 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 24 ORDI NAR Y SHARE CAPIT AL 2022 2021 Ordinary shares of £0.25 each Ordinary shares of £0.01 each Deferred shares of £0.24 each Ordinary shares of £0.25 each Shares £m Shares £m Shares £m Shares £m Issued and fully paid 1,950,059,808 487.6 At start of year 1,956,513,591 489.2 – – – – 6,453,783 1.6 Shares issued in respect of 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 share option schemes – – 1,125,718 0.1 – – – – At end of year – – 1,958,905,344 19.7 – – 1,956,513,591 489.2 Nominal value r educ tion In Ju ly 202 1, the Co mp any red uce d the n om in al v alu e of i ts ord in ar y sha res fro m £ 0. 25 to £ 0 . 0 1 . Th e red uc ti on w as com pl eted by sub di vi di ng ea ch £0.25 o rdin ar y sha re in is sue i nto one o rdi na r y sh are of £0. 0 1 a nd o ne d efer red s ha re of £0.24. Al l def er red sh ares were th en b ou ght b ac k for tot al ag gre ga te consid er ati on of £0. 0 1 a nd c an cel led . T he C om pa ny’s issu ed s ha re ca pi tal re ma in ed un cha ng ed a nd e ach sh are ho lde r ’s prop or ti on ate intere st in th e sh are c ap it al of th e Co mp any rem ai ne d un cha ng ed . A sid e fro m the cha ng e in n om in al v alu e, t he r igh ts at ta ch ing to th e ord in ar y s hare s (in clu di ng vot ing a nd d iv id en d rig hts a nd r ig hts o n a retur n of ca pi ta l) rem ain u nc ha ng ed . Th e rep urch ase a nd c an cel l ati on of t he sh ares resu lte d in an i nc rease to th e Com pa ny ’s cap it al red em ptio n reser ve of £46 9.9m . Iss ue of n ew sh ares A total o f 2,39 1, 7 53 (l as t year : 6 , 453,7 83 ) ord ina r y sh are s havi ng a n om in al v alu e of £0.4 m (l a st yea r : £ 1.6m) were all ot ted du ri ng th e yea r und er t he ter ms of t he Co mp any ’s sha re sch em es wh ich a re des cri be d in n ote 1 3 o f the G rou p f in an cia l st ateme nts . T he ag greg ate con sid er atio n recei ved w as £0. 3m (l a st yea r : £0.0 m). 25 CONTINGENCIES AND C OMMITME NTS A . Capital commitments 2022 £m 2021 £m Commitments in respect of properties in the course of construction 59.8 88.3 Software capital commitments 6.1 10.6 65.9 98.9 In a ddi tio n to the a bove , the G rou p ha s comm it ted to inve st up to £25.0 m , ove r a thre e -year p er io d to 20 2 4/25, i n an i nn ovati on a nd consu me r grow t h fu nd m an ag ed by T ru e C ap it al L im ited . T he f un d ca n dr awd own a mo unt s at any ti me ove r the th ree -ye ar p er iod to ma ke spe cif i c inves tme nts . Du ri ng th e pe ri od , th e G roup i nvested £3 .3m o f this co mm itm ent , w hic h is he ld as a n on - cu rren t oth er inves tme nt an d me asure d at f ai r va lu e throu gh p rof it o r los s ( s ee no te 1 6). B . Ot he r mate ria l con tra c ts In th e event o f ter min ati on of o ur tr ad in g ar ra ng em ent s wi th cer tai n wa reh ous e op er ators , th e G roup h as a nu mb er o f opt ion s an d com mit me nts to pu rcha se som e pro pe r t y, pl ant a nd e qu ip me nt , at va lu es ra ng ing f rom h isto ric a l net b oo k va lue to m ar ket va lue , wh ich a re cur rent ly own ed a nd op er ated by t he w are hou se op er ator s on th e G roup’s be ha lf. The se op tio ns an d com mit me nts wou ld have a n im mater ia l im pa c t on th e G roup’s st atem ent of f i na nc ial p osi tio n. Se e note 1 2 for d eta il s on t he P ar tn er shi p ar ra ng em ent w it h the M ar ks & S pe nce r UK Pe nsio n Sc hem e. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 178 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 26 ANA L YSI S O F CA S H FLOWS G I VE N I N TH E S TA TE M E NT O F C AS H FL OWS Cas h fl ows fro m op era tin g ac ti vi ties 2022 £m 2021 £m Profit/(loss) on ordinary activities after taxation 309.0 (201.2) Income tax expense/(credit) 82.7 (8.2) Finance costs 214.4 236.1 Finance income (33.9) (57.4) Operating profit/(loss) 572.2 (30.7) Share of results of Ocado Retail Limited (13.9) (78.4) (Increase)/decrease in inventories (46.5) 41.2 (Increase)/decrease in receivables (2.9) 67.4 Increase in payables 289.1 159.5 Depreciation, amortisation and write-offs 510.7 603.1 Non-cash share-based payment expense 38.8 19.3 Defined benefit pension funding (36.8) (37.1) Adjusting items net cash outflows 1,2 (45.8) (118.1) Adjusting items M&S Bank 3 (16.0) (2.4) Adjusting operating profit items 136.8 252.9 Cash generated from operations 1,385.7 876.7 1. Ex clu de s £5. 6m ( l as t yea r : £1 2.4 m) of su rr en de r pa ym en ts i nc lu de d wi th in re p aym e nt of l ea se l ia b il it ie s in th e co ns ol id ate d st ate m ent o f c ash ﬂ ows r el at in g to le as es wi th in t he U K sto re estat e programme. 2. Ad ju sti n g ite ms n et c ash o u tﬂ ows re l ate to s tr ate gi c p rog ra m me co st s ass oc ia ted w it h th e UK s tore e st ate , UK l og is tic s , an d th e ut il i sa tio n of t he p rov isi on s fo r In ter n ati on al s tor e clo su res a nd i mp ai r me nt s. 3. Ad ju sti ng i te ms M &S B an k rel a tes to M &S B an k in co me re co gn ise d i n op er at in g pro ﬁt o s et by ch a rge s in cu rre d i n rel a tio n to th e in su ra n ce mi s-s el l in g pr ovi si on , w hi ch is a n o n- c as h ite m . NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 179 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 27 ANA L YSI S OF N E T D EB T A . R eco nci lia tio n of move me nt in n et de bt At 29 March 2020 £m Cash flow £m Changes in fair values £m Lease additions and remeasurements £m Exchange and other non-cash movements 1 £m At 3 April 2021 £m Net debt Bank loans and overdrafts (see note 20) (15.5) 10.8 – – – (4.7) Cash and cash equivalents (see note 18) 254.2 423.5 – – (3.3) 674.4 Net cash per statement of cash flows 238.7 434.3 – – (3.3) 669.7 Current other financial assets (see note 16) 11.7 6.7 – – – 18.4 Liabilities from financing activities Medium Term Notes (see note 20) (1,536.2) (87.9) – – (58.0) (1,682.1) Lease liabilities (see note 20) (2,562.0) 316.7 – (48.3) (112.3) (2,405.9) Partnership liability to the Marks & Spencer UK Pension Scheme (see note 12) (202.7) 23.6 – – (6.4) (185.5) Derivatives held to hedge Medium Term Notes 102.2 (14.0) (96.3) – – (8.1) Liabilities from financing activities (4,198.7) 238.4 (96.3) (48.3) (176.7) (4,281.6) Less: Cashflows related to interest and derivative instruments (2.3) (212.6) 96.3 – 196.2 77.6 Net debt (3,950.6) 466.8 – (48.3) 16.2 (3,515.9) 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) B . Reco nc ili ati on of n et d ebt t o sta tem ent o f fi na nci al po sit ion 2022 £m 2021 £m Statement of financial position and related notes Cash and cash equivalents (see note 18) 1,197.9 674.4 Current other financial assets (see note 16) 17.6 18.4 Bank loans and overdrafts (see note 20) – (4.7) Medium Term Notes – net of foreign exchange revaluation (see note 20) (1,494.7) (1,657.9) Lease liabilities (see note 20) (2,278.7) (2,405.9) Partnership liability to the Marks & Spencer UK Pension Scheme (see notes 12 and 21) (192.3) (193.5) (2,750.2) (3,569.2) Interest payable included within related borrowing and the Partnership liability to the Marks & Spencer UK Pension Scheme 51.4 53.3 Net debt (2,698.8) (3,515.9) 1. E xc ha ng e an d ot he r no n - ca sh m ove me nt s in clu d es in ter est p ai d o n Me di um Ter m No tes of £79. 6m ( l as t yea r : £86 .4 m), in tere st p ai d on l ea se l ia bi l it ies o f £1 2 1. 1m (la st y ea r : £ 1 30 . 4m) an d in tere st p ai d on t he P ar tne rs hi p l ia bi l it y to th e M ar ks & S pe n cer U K Pe nsi on S ch em e of £4 .4 m (l a st y ea r: £4 .9m). NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 180 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS 2 8 RELA TED P ART Y TRANSACTIONS A . Subsidiaries T r an sa c tio ns bet we en t he Co mp any a nd it s sub sid iar ie s, w hi ch are re l ated p ar t ies , have b ee n el i min ated o n cons ol id ati on an d are n ot dis close d in t his n ote. T r an sa c tio ns bet w een t he Co mp any a nd i ts sub sid iar ie s are di sclos ed i n the Co mp any ’s sep ar ate f in an cia l st ateme nts . B . Joi nt ven ture s an d asso cia tes Oc ado R etai l Li mite d A sha reh old er lo a n fa ci li t y wi th Oc a do Ret ai l Li mi ted wa s est ab li she d in 20 1 9/20 , wi th Oc a do Ret ai l Li mite d hav in g the a bil i t y to draw dow n up to £30 m f rom ea ch sh are hol de r . T he f a cil it y w as n ot ut il ise d by Oc ad o Ret ail L im ite d dur in g th e year e nd ed 2 A pr il 2022 (l a st yea r : not u til is ed) . As p ar t of the O c ad o Reta il L im ited i nvestm ent , O ca do Re tai l L imi ted en tered i nto a £30m , th ree -ye ar revo lvin g cred it f a cil i ty. Alo ng w ith Oc ad o G roup P lc , the G rou p ha s prov ide d a p aren t gu ar ante e to cover 50% of th e £30 m revolvi ng c redi t f aci l it y p rovid ed by B NPP to Oc ado R eta il L im ited . T he revolv in g cred it f a cil it y w as u nd raw n at 2 A pr il 2022 (l ast ye ar : u nd raw n ). Th e fol low in g tr ans ac ti ons we re c ar ri ed ou t wi th O ca do Ret ai l Li mi ted , an a sso cia te of the G rou p. Sa les a nd p urch ases o f go ods a nd se r v ices: 2022 £m 2021 £m Sales of goods and services 36.1 28.5 Purchases of goods and services 0.2 – In clu de d wi thi n tra de a nd ot her re cei va ble s is a ba l an ce of £ 1 .9 m (l as t yea r : £2.3m) owed by Oc ad o Ret ail L i mite d. Nob ody ’s Chi ld Li mi ted No bo dy ’s Chi ld Li mi ted be c am e an as soc iate of th e G roup i n Nove mb er 202 1 ( s ee no te 29 ). Si nce Nove mb er 202 1 , t he G rou p ma de pu rch ases o f go ods a mo unti ng to £ 1.2m. At 2 A pr il 2022, inc lud ed w it hin t ra de a nd oth er pay ab les is a b al ance o f £ 0. 2m owed to No bo dy ’s Chi ld L im ited , a nd in clu de d wi thi n oth er f in an ci al as sets i s a ba l an ce of £0.7 m owe d fro m No bo dy ’s Chi ld Li mi ted . C . Ma rks & S pe nce r UK Pe nsi on S che me Det ai l s of oth er tr an sa c tio ns an d ba l an ces he ld w ith th e Ma rk s & Sp en cer U K Pen sion S ch em e are set o ut i n notes 1 1 and 1 2. D. Ke y management compensa tion Th e G roup h as d eter min ed t hat t he key ma na ge me nt pe rso nn el con sti tute th e Bo ard a nd th e me mb ers o f the E xe cut ive Co mm it tee . 2022 £m 2021 £m Salaries and short-term benefits 15.3 8.6 Share-based payments 2.1 3.2 Total 17.4 11.8 E . Other related part y tran sactions Th e G roup a cqu ired 77 .7 % of th e issu ed s ha re ca pi tal o f Th e Sp or ts Edi t Li mi ted (“ TSE ”) i n Fe br ua r y 2022. A fu r the r 4 .8% of T SE ’s issue d sha re c api ta l is cu rre ntly own ed by M r . J usti n K ing , a Non - E xec uti ve Di rec tor of t he G rou p (the “ JK TSE S ha res”). S ubj ec t to sha reh old er ap prov al , t he G rou p wi ll a cqu ire th e JK TS E Sh ares f rom M r . Ju sti n K ing a t a total p urch ase p ri ce of £0.3m i n Ju ly 20 22. NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 181 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS 29 INVESTMENTS IN JOINT VENTURES AND ASSOC IA TE S Th e G roup h old s a 50% i nterest i n Oc a do Ret ai l Li mite d , a comp any i nco rp or ated in t he U K . T he rem ai ni ng 50 % interes t is he ld by Oc ad o G roup P lc . Oc ad o Reta il L im ited i s an o nl in e gro cer y ret ai ler, ope rat ing t hrou gh t he oc a do.co m an d oc ad ozoom .com we bsi tes. Oc ad o Ret ail L im ite d is consi de red a n asso ci ate of th e Gro up as ce r ta in r ig hts a re confe rre d on O c ado G rou p Plc f or a n ini tia l pe ri od of at le ast f i ve yea rs f rom acq uis itio n in Au gu st 20 1 9, g iv in g Oc a do G rou p Plc con trol of th e com pa ny . Fo ll owi ng th is in iti al p er io d, a reas sess men t of cont rol wi ll b e req ui red as t he G rou p wi ll h ave an o ptio n to obt ai n more p ower ove r Oc a do Ret ai l Li mi ted if ce r ta in cond iti on s are me t. I f the G rou p is d eem ed to h ave obt ain ed co ntrol , Oc ad o Ret ail L im ited w il l th en b e cons ol id ated as a s ubsi di ar y of th e Gro up. T h roug h Bo ard rep rese ntat ion a nd s ha reho lde r voti ng r igh ts , the G ro up is cu r rently con sid ered to h ave sig nif i ca nt inf lu en ce, th eref ore th e invest me nt in O ca do R eta il L imi ted is t reated as a n as soci ate an d ap pl ie s the e qu it y me tho d of accou nti ng . Oc ad o Ret ail L im ite d has a f i na nci al ye ar e nd d ate of 28 Novemb er 202 1 , a l ig nin g wi th it s pa rent co mp any, Oc ad o Gro up Pl c. F or th e G roup’s pu rp ose of a pp lyi ng th e eq ui t y meth od of a ccou ntin g , Oc ad o Ret ail L im ite d has p rep are d f ina nc ia l info rm ati on to the n ea rest qu ar te r - e nd d ate of it s f in anc ia l year e nd , a s to do othe r w ise wo uld b e im pr ac ti ca bl e. T he resu lts o f Oc ad o Ret ail L im ite d are in cor po rate d in th ese f in an ci al st atem ent s fro m 1 Ma rch 202 1 to 27 Feb ru ar y 20 22. Th ere we re no sig ni f ic ant eve nts o r tr ans ac ti on s in th e pe rio d fro m 28 Febr u ar y 2022 to 2 Apr il 2022. Th e c ar r yi ng a mo unt o f the G rou p’s interest i n Oc a do Ret ai l Li mi ted is £80 0. 4m ( l as t year : £8 1 9.0 m). The G rou p’s sha re of Oc a do Ret ai l Li mi ted los s of £ 1 8 .6 m (l a st yea r : prof i t of £ 64 . 2m ) i ncl ud es the G rou p’s sha re of un de rly in g prof it s of £ 1 3.9m , w hi ch in clu de s £ 1 .3m of exce ptio na l in come b efo re ta x rel a ted to insu ra nce rece ipt s ( sha re of p rof it l as t yea r : £25.2m ) an d adj usti ng i tem ch arg es of £32.5m (l a st yea r : £ 1 4 .2m) ( se e note 5). Su mm ar ise d fi na nc ia l info rm ati on i n respe c t of Oc a do Ret ai l Li mite d (the G rou p’s only m ateri al a sso cia te ) is s et ou t be low an d rep resent s am ou nts in t he O ca do Re tai l Li mi ted f in an cia l st atem ent s prep are d in a ccorda nce w ith I FRS , a dju sted by th e G roup f or e qui t y acc ounting purposes. As at 27 Feb 2022 £m As at 28 Feb 2021 £m Ocado Retail Limited Current assets 291.2 353.9 Non-current assets 590.1 336.8 Current liabilities (223.3) (245.7) Non-current liabilities (449.8) (264.6) Net assets 208.2 180.4 29 Feb 2021 to 27 Feb 2022 £m 2 Mar 2020 to 28 Feb 2021 £m Revenue 2,248.8 2,353.2 Profit for the period 27.8 156.8 Other comprehensive income – – Total comprehensive income 27.8 156.8 Reco nci l iati on of t he a bove su mm ar ise d f ina nc ia l info rm ati on to the c a rr yin g am ou nt of th e inte rest in O c ado R eta il L im ited re cogn ise d in the consolidat ed financial stat ements: As at 2 Apr 2022 £m As at 3 Apr 2021 £m Ocado Retail Limited Net assets 208.2 180.4 Proportion of the Group's ownership interest 104.1 90.2 Goodwill 449.1 449.1 Brand 242.7 249.2 Customer relationships 77.7 88.3 Other adjustments to align accounting policies (78.9) (63.5) Acquisition costs 5.7 5.7 Carrying amount of the Group's interest in Ocado Retail Limited 800.4 819.0 In N ovem ber 202 1 , the G rou p acq ui red 27 % o f the i ssu ed sh are c ap it al of N ob od y ’s Child L im ite d, w hi ch is a ccoun ted for a s an i nvestm ent in as sociat e. Ot her t ha n its i nvestm en t in O ca do Ret ai l Li mi ted , the G rou p ho lds i mm ater ia l inves tme nts i n joi nt vent ures a nd as soc iates ( in clu din g it s inves tme nt in N ob od y ’s Child L im ited ) tota ll i ng £ 10.5m ( l ast ye ar : £6.8 m ). T he G rou p’s share of l osse s total le d £0.7 m (l ast yea r : £ 1.3m los s ). NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 182 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS NOT E S TO TH E F IN AN CIA L S T ATEM E NT S CONTINUED 30 GOVERNMENT SUP PORT Th e G roup h as n ot be nef i t ted f rom gove rn me nt gr an t in come i n the ye ar. Las t year, the G rou p recog nis ed £ 1 3 1.5m in rel a tio n to fur lo ug h prog r am mes , su ch as th e Coro nav ir us Jo b Retent ion S ch em e (“C JRS ” ) in th e UK , an d its e qu iv al ent s in oth er co untr ie s. T his i nco me w as recog nis ed as a d ed uc ti on a ga ins t the re l ated e xp en se. Th e G roup b en ef ite d fro m busi nes s ra tes rel ief of £6 2. 2m in the ye ar (l ast ye ar : £ 1 7 4.6 m). Th ere a re no un fu l fi l led co ndi tio ns o r conti ng en cies a tt ac he d to these g ra nts . 3 1 CONTINGENT ASSETS Th e G roup i s cur rent ly see ki ng d am ag es f rom an i nd ep en den t thi rd pa r t y fol low in g the ir i nvolvem ent i n ant i- com pe titi ve be hav io ur tha t ad vers ely im pa c ted the G rou p. T he G rou p ex pe c ts to recei ve an a mo unt f rom t he cl a im (eith er i n set tle me nt or f rom t he le ga l proce ed in gs ) , a posi tio n rei nforce d by recen t cour t jud ge me nts i n simi l a r cl ai ms . Th e va lu e of the c l ai m is conf i de nti al an d is th erefo re not disclosed . 3 2 SUBS EQU ENT EVENTS Th e Bo ard h ave ap proved a te nde r of fer to rep urch ase c . £ 1 50 m of th e G roup’s Me di um T er m No tes whi ch w il l be a nn oun ced o n 25 May 202 2. 183 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS COMP ANY ST A TEMENT OF FINANCIAL POSITION Notes As at 2 April 2022 £m As at 3 April 2021 £m Assets Non-current assets Investments in subsidiary undertakings C6 9,403.7 9,730.8 Total assets 9,403.7 9,730.8 Liabilities Current liabilities Amounts owed to subsidiary undertakings 2,541.2 2,541.8 Total liabilities 2,541.2 2,541.8 Net assets 6,862.5 7,189.0 Equity Ordinary share capital C7 19.7 489.2 Share premium account C7 910.6 910.4 Capital redemption reserve 2,680.4 2,210.5 Merger reserve C7 870.9 1,262.0 Retained earnings 2,380.9 2,316.9 Total equity 6,862.5 7,189.0 Th e Co mp any ’s loss fo r the ye ar w as £35 7 . 3m (l a st yea r : prof i t of £95 1.0m). Th e f in an cia l st ateme nts w ere ap prove d by the B oa rd and a uth or ise d for i ssu e on 24 May 20 22. Th e f in an cia l st ateme nts a l so com pr ise the n otes C 1 to C7 . Steve Rowe , Chi ef E xec ut ive O f fi cer E oi n T o ng e, Ch ie f Fin anc ial O f f ice r Regist ered number: 04 2 56 886 COM P AN Y S T ATEM E NT O F CH AN G E S IN S HA RE H OL DE R S’ E QUI T Y Ordinary share capital £m Share premium account £m Capital redemption reserve £m Merger reserve £m Retained earnings £m Total £m At 29 March 2020 487.6 910.4 2,210.5 311.0 2,300.3 6,219.8 Profit for the year – – – – 951.0 951.0 Capital contribution for share-based payments – – – – 16.6 16.6 Shares issued on exercise of employee share options 1.6 – – – – 1.6 Reclassification to merger reserve – – – 951.0 (951.0) – At 3 April 2021 489.2 910.4 2,210.5 1,262.0 2,316.9 7,189.0 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 Buy back and cancellation of own Shares 1 (469.9) – 469.9 – – – Reclassification to 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 1. O n 8 Ju ly 202 1, the C om pa ny re du ce d th e no mi na l va lu e of i ts 1,957 ,779, 626 ord in ar y s ha res i n is su e at th at d ate f ro m £0. 25 to £0. 01 . T he r ed uc ti on w a s com pl ete d by su bd iv i di ng ea ch £0. 25 o rdi na r y s ha re in i ss ue i nto 1 o rdi na r y s ha re of £0 .01 and 1 d ef er re d sh are o f £0. 24. Al l d efe r red s ha res w ere t he n bo u ght b a ck fo r tot al a g gre ga te co nsi de r ati on o f £0. 0 1 and canc elled. The Compan y ’s issued shar e capital remains u nchanged and each shareholder’s propor tionat e inter est i n the share capital of the Company r emains unchanged. As id e f rom t he c ha ng e in n om in a l va lu e, t he r ig ht s at t ac hi ng to th e o rdi na r y sh a res ( in cl ud in g vot in g an d di v id en d ri gh ts a nd r ig ht s on a r etu rn o f c ap it al) r em ai n un ch a ng ed . 184 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS COM P AN Y S T ATEM E NT O F C AS H FLOWS 52 weeks ended 2 April 2022 £m 53 weeks ended 3 April 2021 £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 0.6 1.6 Repayment of intercompany loan (0.6) (1.6) Net cash generated from/(used in) financing activities – – Net cash inflow from activities – – Cash and cash equivalents at beginning and end of year – – 185 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS NOT E S TO TH E COM PANY F IN AN CIA L S T ATEM E NT S C 1 A CC OUNTI NG POLIC IES Gene ral information Ma rk s an d Sp en cer G rou p plc (th e “Co mp any ” ) is a pu bl i c li mi ted com pa ny do mic ile d an d in corp or ated i n En gl a nd a nd Wal es un de r the C om pa nie s Act 20 0 6 . Th e ad dres s of th e Com pa ny’s reg iste red of fi ce is Watersi de H ous e, 35 No r th W ha r f Ro ad , Lon do n W2 1 NW, United K ingdom. Th e pr in cip al a c tiv it ies of t he Co mp any a nd th e nat ure of th e Co mp any ’s ope ra tio ns are as a h ol din g ent it y. Th ese f i na nci al st atem ent s are p resen ted in s terl i ng , w hic h is th e Com pa ny’s f un ct ion al c ur renc y, and a re roun de d to the ne ares t hundred t housand. Th e Co mp any ’s account ing p ol i cies a re the s am e as th ose se t out i n note 1 of t he G rou p f in an cia l sta teme nts , e xcept as n oted b elow. Inves tme nts i n subsi di ar ies a re st ated at cost l ess , w he re app rop ri ate, p rovisi ons f or im p air me nt . Th e Com p any gr an ts sh are - ba sed pay me nts to th e emp loye es of su bsid ia r y com pa ni es. E ac h pe ri od th e f air v al ue o f the e mp loyee se r v ices re ceive d by the s ubsi di ar y as a c ap ita l cont ri but ion f rom t he Co mp any i s refl ec ted as a n ad di tio n to investm ent s in su bsid ia ri es. Loa ns f rom oth er G rou p un de r t ak ing s an d al l oth er p aya ble s are in iti al ly record ed at f a ir v al ue , wh ich is g en er al ly th e proce eds recei ved . T hey a re the n sub seq ue ntly c ar ri ed at a mo r tise d cost . T he lo ans a re no n- i nterest b ea ri ng an d rep aya bl e on d em and . In a ccorda nce w ith th e exe mpt ion a l lowed by S ec ti on 4 08(3 ) of th e Co mp ani es Ac t 20 06 , t he Co mp any h as no t prese nted i ts ow n inc ome sta temen t or stat ement of comprehen sive income. Key sour ces of es ti mat ion u nce r ta int y Impairment of inv estments in subsidiary under takings Th e c ar r yi ng v al ue of t he inve stm ent i n subs idi ar y und er tak i ngs i s revie wed fo r im pa ir me nt or i mp ai rm ent reve rs al on a n an nu al ba sis. T h e recover ab le a mou nt is d eter mi ned b as ed on v a lue i n use w hi ch req ui res the d eter mi nat ion o f ap prop ri ate as sum ptio ns (whi ch are so urces o f esti mati on u nce r ta int y) in re l ati on to the c ash f low s over th e th ree -yea r str ateg ic pl an p er iod , t he lo ng -ter m grow th r ate to be a pp li ed b eyon d thi s thre e -year p er io d an d the r isk-a dju sted p re -ta x di scou nt ra te used to d iscou nt th e assu me d ca sh f lows to pres ent v alu e. Es tim atio n un cer t ai nt y ar ises d ue to ch an gi ng e cono mi c and m ar ket f ac tor s, t he ch an ne l shi f t f rom stores to o nl in e, i ncre asin g tech no log ic al a dv an cem ent a nd th e G roup’s on go ing s tr ategi c tr ans for ma tio n prog ra mm es . See n ote C6 for f u r the r de tai l s on t he assumptions and associated sensitivities. Th e Co mp any ’s fi na nci al r isk is m an ag ed a s pa r t of th e G roup’s str ateg y an d po l ici es as d iscus se d in no te 2 1 o f the G rou p financial stat ements. C2 EMPL O YEES Th e Co mp any ha d no e mp loyees d ur in g the c ur rent o r pr io r year. Direc tor s recei ved e mo lum en ts in res pe ct o f the ir se r v ices to the Com pa ny du ri ng th e yea r of £ 1, 1 7 4 ,7 90 ( l as t year : £1 ,0 93,458). The Co mp any d id n ot op er ate any p ensi on sc he mes d ur in g the cu r rent or p reced in g yea r . F or f ur t he r info rm ati on se e th e Rem une r atio n Rep or t. C3 AUDIT OR’S REMUNER A TION Aud itor ’s remu ne ra tio n in resp ec t of t he Co mp any ’s ann ua l au di t has b ee n bo rn e by it s subsi di ar y M ar k s and S p ence r pl c and h as be en d isclo sed o n a cons ol id ated b asis i n th e Com pa ny’s cons ol id ated f i na nci al s tatem en ts as re qu ired by S ec ti on 494(4 ) ( a) of the Com pa ni es Ac t 20 06 . C4 DIVIDENDS At the f u ll-ye ar resu lts i n May 202 1 , t he Bo ard a nn ou nced t hat p aym ent o f a di vi de nd in t he 202 1 /22 fin an ci al yea r wou ld b e unl i kely as we fo cus o n restor in g sust ai na ble p rof it ab il it y a nd recove ri ng th e ba l an ce she et towa rds me tri cs co nsis tent wi th inve stm ent g ra de . Con siste nt wi th th at an no un ceme nt , the B oa rd do es not e xp ec t to pay a d iv id en d this f i na nci al ye ar . C5 RE LA TED P ART Y TRANSACTIONS Du ri ng th e yea r , t he Co mp any h as rece ive d di vid en ds f rom M ar ks a nd S pe nce r plc o f £3 3. 8m (l ast yea r : ni l) an d de creas ed it s lo an f rom Ma rk s an d Sp en cer p lc by £0.6m ( l ast ye ar : £ 1 . 6m). The o ut st and in g ba l an ce wa s £2,54 1.2m (l as t year : £2, 54 1 .8 m ) an d is no n -i nterest be ar ing . T he re were no o the r rel ate d pa r t y tr ans ac ti on s. 186 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS NOT E S TO TH E COM PANY F IN AN CIA L S T ATEM E NT S CONTINUED C6 IN V E S TM E N T S A . In vestments in subsidiary undertakings 2022 £m 2021 £m Beginning of the year 9,730.8 8,763.2 Contributions to subsidiary undertakings relating to share-based payments 30.2 16.6 Additions 33.8 – Impairment (charge)/reversal (391.1) 951.0 End of year 9,403.7 9,730.8 Sh ares i n subs idi ar y und er ta ki ngs re prese nt th e Com p any ’s investm ent i n Ma rk s an d Sp en cer p lc an d Ma rk s an d Sp en cer Ho ld ing s Li mi ted . Du ri ng th e yea r , t he Co mp any p urch ase d ad di tio nal s ha res in M ar ks a nd S pe ncer H ol din gs L im ited (£3 3. 8m). Thi s al lowed M ar k s and Sp en cer Ho ld ing s Li mi ted to set tle t he cont ing en t consi de rat ion t hat b ec am e p ayab le d ur in g the ye ar as a res ult o f the i nvestm ent in Ocado Re tail Limited. Impairment of inv estments i n subs idiary undertakings Th e Co mp any ev alu ates it s inves tme nts i n subs idi ar y und er ta ki ngs a nn ua lly fo r any i nd ic ators of i mp ai rm ent o r im pa ir me nt rever sa l . Th e Co mp any con sid ers th e rel a tio nshi p be t wee n its m ar ket c api ta l isa tio n and t he c ar r y in g va lue o f its i nvest men ts , am on g othe r f ac tors , w he n revie wi ng fo r ind ic ator s of im pa ir me nt. A s at 2 A pr il 2022, the m ar ket c api ta l isa tio n of the G ro up w as sig ni f ic ant ly be low th e ca rr yin g va lu e of it s inves tme nt in M ar ks a nd S pe nce r plc o f £9, 1 88. 6m , in di ca tin g a poten tia l im pa ir me nt, d esp ite stro ng er Group performance. Th e recover a ble a mo unt o f the i nvestm ent i n Ma rk s an d Sp en cer p lc ha s be en d eter min ed b ase d on a v al ue i n use c al cul a tio n. Th e Co mp any ha s up da ted it s assu mpt ion s as at 2 A pr il 2022, refl ec ti ng th e l atest b ud get a nd fo rec ast c as h fl ows cover ing a t hre e- yea r pe rio d . Th e pre -t a x disco unt r ate of 9. 8% (l a st yea r : 8.9%) w as d er ive d fro m the G rou p’s weig hted ave ra ge cost o f ca pi ta l , th e in pu ts of w hic h in clu de a cou ntr y risk-f re e rate , equ it y r isk p rem ium , G rou p size p rem ium a nd a r isk a djus tm ent ( bet a ). Th e lo ng -ter m grow th r ate of 2. 0% ( l ast ye ar : 1. 75 %), w as b ase d on i nf l ati on fo rec ast s by recog nis ed b od ies w ith ref eren ce to rates us ed w ith in th e retail industry . Th e Co mp any ha s dete rm ine d th at th e recover ab le am ou nt of i ts inve stm ent i n Ma rk s an d Sp en cer pl c is £8,7 97 .5m a nd a s a result has re cog nis ed an i mp ai rm ent o f £39 1. 1 m . Th is im pa ir me nt pr im ar ily re l ates to the im p ac t of m ar ket vol at il it y o n the d iscou nt r ate as a resul t of th e unfo ld ing h um an it ar ia n cri sis fo llow in g the i nva sio n in U kr ai ne a nd up d ated fo rec ast c ash fl ows , as rest ric ti on s on c ap it al expenditure impos ed during the Covid- 1 9 pandemic w ere lifted. Sensitivi ty analysis As d isc lose d in th e accou ntin g po l ici es note C 1 , the c as h fl ows use d wi thi n th e va lue i n use m od el , the lo ng -te rm g row th r ate and the d isco unt r ate are so urces of e stim ati on u ncer ta int y. Man ag em ent h as p er fo rm ed a s ensi ti vi ty a na lysis o n the key a ssu mpti on s an d usin g reas on ab ly possi bl e cha ng es wou ld resu lt i n the fo ll owi ng i mp ac ts: – A 5 % red uc ti on in c as h fl ows f rom th e thre e- year p l an w oul d resul t in an a dd iti on al i mp ai rm ent c ha rge of £447 .8 m . – A 50 - ba sis po in t de creas e in th e lon g- ter m grow th r ate wou ld resu lt in a n ad di tio na l im pa ir me nt ch arge o f £ 47 9. 1 m . – A 50 - ba sis po in t inc rease i n the d isco unt r ate wou ld resu lt in a n ad di tio na l im pai r men t cha rge o f £5 34. 8m . In th e event t hat a ll t hre e were to occu r sim ult an eo usly, an ad di tio na l imp ai rm en t cha rge of £1 ,356. 4m wo uld b e reco rded . 187 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS NOT E S TO TH E COM PANY F IN AN CIA L S T ATEM E NT S CONTINUED C6 IN V E S TM E N T S CONTINUE D B. Related undertakings In a ccorda nce w ith S ec tio n 4 09 of th e Co mp an ies Ac t 20 0 6, a f u ll l is t of rel ated un de r ta k ing s, t he cou ntr y of in cor por ati on a nd th e ef fe c tive p erce nta ge o f equ it y ow ne d , as at 2 A pr il 2022 is disc lose d be low. All u nd er t ak in gs are i nd irec tly ow ne d by the C om pa ny unless otherwise stat ed. Su bsi dia ry a nd oth er re late d un de rt aki ngs re gi ster ed in t he UK (i) Name Share class Proportion of shares held (%) Founders Factory Retail Limited Registered office: Northcliffe House, Young Street, London, England, W8 5EH £0.0001 ordinary (25.001% of total capital) 0.004 £0.0001 Preference (74.999% of total capital) 100 Hedge End Park Limited Registered Office: 33 Holborn, London, EC1N 2HT £1 ordinary A (50% of total capital) – £1 ordinary B (50% of total capital) 100 Marks and Spencer Company Archive (CIC) (ii) N/A – Marks and Spencer Guernsey Investments LLP Partnership interest 100 Marks and Spencer Pension Trust Limited (iii) £1 ordinary A 100 £1 ordinary B – £1 ordinary C – Marks and Spencer plc (v) £0.25 ordinary 100 Marks and Spencer Scottish Limited Partnership (iv) Registered Office: 2-28 St Nicholas Street, Aberdeen, AB10 1BU Partnership interest 100 Name Share class Proportion of shares held (%) Ocado Retail Limited Registered Office: Apollo Court 2 Bishop Square, Hatfield Business Park, Hatfield, Hertfordshire, United Kingdom, AL10 9EX £0.01 ordinary 50 Amethyst Leasing (Holdings) Limited £1 ordinary 100 M&S Limited £1 ordinary 100 Manford (Textiles) Limited £1 ordinary 100 Marks and Sparks Limited £1 ordinary 100 Marks and Spencer (Northern Ireland) Limited Registered Office: Waterfront Plaza, 8 Laganbank Road, Belfast, BT1 3LR £1 ordinary 100 Marks and Spencer Property Developments Limited £1 ordinary 100 Nobody’s Child Limited Registered Office: 10–11 Greenland Place, Camden, London, NW1 0AP £0.01 ordinary (72.910% of total capital) – £0.01 Preference (27.090% of total capital) 100 St. Michael (Textiles) Limited £1 ordinary 100 St. Michael Finance plc £1 ordinary 100 188 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS NOT E S TO TH E COM PANY F IN AN CIA L S T ATEM E NT S CONTINUED C6 IN V E S TM E N T S CONTINUE D B . Rel ate d un de r ta kin gs co nti n ue d UK REGISTERED SUBSIDIARIES EXEMPT FROM A UDIT Th e fol low in g UK su bsid ia ri es wi ll t ake a dv an tag e of th e au di t exem pti on se t out w it hin s ec tio n 47 9A of th e Com pa ni es Ac t 20 06 fo r the yea r end ed 2 A p ril 2022. Unl ess ot he r wi se st ated , th e un de r ta ki ng s li sted b elow a re reg istere d at Watersi de H ous e, 35 No r th W ha r f Ro ad , Lon do n , W2 1 NW, Uni ted K in gd om a nd have a s ing le cl ass of o rdi na r y sh are w ith a n om ina l v alu e of £ 1. All u nd er t ak in gs a re ind ire ct ly own ed by th e Co mp any u nles s oth er w ise s tate d. Name Proportion of shares held (%) Company number Amethyst Leasing (Properties) Limited 100 4246934 Busyexport Limited 100 4411320 Marks and Spencer (Initial LP) Limited (v) Registered Office: No. 2 Lochrin Square, 96 Fountainbridge, Edinburgh, Midlothian, EH3 9QA 100 SC315365 Marks and Spencer (Property Ventures) Limited 100 5502513 Marks and Spencer 2005 (Brooklands Store) Limited 100 5502608 Marks and Spencer 2005 (Chester Satellite Store) Limited 100 5502519 Marks and Spencer 2005 (Chester Store) Limited 100 5502542 Marks and Spencer 2005 (Fife Road Kingston Store) Limited 100 5502598 Marks and Spencer 2005 (Glasgow Sauchiehall Store) Limited 100 5502546 Marks and Spencer 2005 (Hedge End Store) Limited 100 5502538 Marks and Spencer 2005 (Kensington Store) Limited 100 5502478 Marks and Spencer 2005 (Kingston–on–Thames Satellite Store) Limited 100 5502523 Marks and Spencer 2005 (Kingston–on–Thames Store) Limited 100 5502520 Marks & Spencer Outlet Limited 100 4039568 Marks & Spencer Simply Foods Limited 100 4739922 Marks and Spencer (Property Investments) Limited 100 5502582 Marks and Spencer Chester Limited 100 5174129 Marks and Spencer France Limited 100 5502548 Name Proportion of shares held (%) Company number Marks and Spencer International Holdings Limited 100 2615081 Marks and Spencer (Investment Holdings) Limited 100 13587353 Marks and Spencer 2005 (Parman House Kingston Store) Limited 100 5502520 Marks and Spencer 2005 (Pudsey Store) Limited 100 5502544 Marks and Spencer 2005 (Warrington Gemini Store) Limited 100 5502502 Marks and Spencer Holdings Limited (v) 100 11845975 Marks and Spencer Hungary Limited 100 8540784 Marks and Spencer Investments 100 4903061 Marks and Spencer Property Holdings Limited 100 2100781 Ruby Properties (Cumbernauld) Limited 100 4922798 Ruby Properties (Hardwick) Limited 100 4716018 Ruby Properties (Long Eaton) Limited 100 4716031 Ruby Properties (Thorncliffe) Limited 100 4716110 Ruby Properties (Tunbridge) Limited 100 4716032 Simply Food (Property Investments) 100 5502543 Simply Food (Property Ventures) Limited 100 2239799 Minterton Services Limited 100 4763836 Marks and Spencer (Bradford) Limited 100 10011863 Marks and Spencer (Jaeger) Limited 100 13098074 The Sports Edit Limited Registered office: Studio 419, The Print Rooms, 164/180 Union Street, London, SE1 OLH (vi) 77.734 9331295 Th e Co mp any w il l gu ar ante e the d ebt s an d l iab il i ties o f the a bove U K subsi di ar y und er tak in gs at t he b al a nce sh eet d ate of £2 1 . 3m in a ccorda nce w ith se c tio n 4 79C of the C om pa nie s Ac t 200 6 . Th e Co mp any h as ass esse d th e prob ab il it y o f loss u nd er th e gu a ra ntee as r emote. (i ) Al l com pa n ies r eg is tere d at Wa ter sid e H ou se , 35 Nor th W ha r f Ro ad , Lo nd o n, W 2 1 NW, U ni ted K i ng do m , un le ss ot he r w ise s ta ted . (ii) No share capital , a s the company is l imited by guarant ee. Marks and Spenc er plc is the s ole member . (i ii ) In a cco rda n ce wi th t he a r ti cle s of a sso ci at io n of M ar k s an d Sp en ce r Pen si on Tru st L im it ed , th e ho ld er s of B a nd C o rd in ar y sha res a re b oth d i rec to rs of t ha t com p any. (iv) Marks and Spenc er (Ini tial LP ) Limited and Marks an d Spencer Pension T rust Limit ed are the limit ed partners; Marks and Spenc er plc is the General Partner . (v ) Interes t held directly b y Marks and Spenc er Group plc. (vi ) Ma rk s an d S pe nce r p lc ho ld s 94 .078% of A o rd in ar y s ha res (a nd w il l ac qu ire t he re m ai ni ng A o rd in ar y s ha res to b r in g it u p to 100% o n ce sh are h old e r ap pro va l ha s be e n obt a in ed at th e AG M), 10 0% o f B ord in ar y sh are s an d 0% o f C ord in ar y sh are s. Interna tional subsidiary undertakings (i) Name Registered address Country Share class Proportion of shares held by subsidiary (%) Marks and Spencer (Australia) Pty Limited Minter Ellison ‘Governor Macquarie Tower’ Level 40 1 Farrer Place Sydney NSW 2000 Australia Australia AUD 2 Ordinary 100 Marks and Spencer (Shanghai) Limited Unit 03-04 6/F, Eco City 1788, 1788 West Nan Jing Road, Shanghai, China China USD NPV 100 Marks and Spencer Czech Republic a.s Jemnická 1138/1, Michle, Praha 4, 140 00, Czech Republic Czech Republic CZK 1,000 Ordinary 100 CZK 100,000 Ordinary 100 CZK 1,000,000 Ordinary 100 Marks and Spencer Services S.R.O Jemnická 1138/1, Michle, Praha 4, 140 00, Czech Republic Czech Republic CZK NPV 100 Name Registered address Country Share class Proportion of shares held by subsidiary (%) Marks & Spencer Marinopoulos Greece SA 33-35 Ermou Street, Athens, Greece Greece €3 Ordinary €3 Preference 80(iv) 100 Ignazia Limited Heritage Hall, Le Marchant Street, St Peter Port, GY1 4JH, Guernsey Guernsey £1 Ordinary 99.99 Teranis Limited Heritage Hall, Le Marchant Street, St Peter Port, GY1 4JH, Guernsey Guernsey £1 Ordinary 99.99 M.S. General Insurance L.P. Heritage Hall, Le Marchant Street, St Peter Port, GY1 4JH, Guernsey Guernsey Partnership Interest 99.99 189 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS Name Registered address Country Share class Proportion of shares held by subsidiary (%) Marks and Spencer (Hong Kong) Investments Limited Suites 807-13, 8/F, South Tower, World Finance Centre, Harbour City, Kowloon, Hong Kong Hong Kong No Par Value Ordinary 100 Marks and Spencer (India) Pvt Limited Tower C, RMZ Millenia, 4th Floor, Lake Wing, #1 Murphy Road, Bangalore, 560008, India India INR10 Ordinary 100 Marks and Spencer Reliance India Pvt Limited 4th Floor, Court House, Lokmanya Tilak Marg, Dhobi Talao, Mumbai, 400 002, India India INR 10 Class A (14.619% of total capital) 51 INR 10 Class B (43.544% of total capital) 100 INR 5 Class C (ii) (41.837% of total capital) – Aprell Limited 24/29 Mary Street, Dublin 1, Ireland Ireland €1.25 Ordinary 100 Marks and Spencer (Ireland) Limited 24-27 Mary Street, Dublin 1, D01 YE83, Ireland Ireland Ordinary of €1.25 100 Marks and Spencer Pensions Trust (Ireland) Company Limited By Guarantee 24-27 Mary Street, Dublin 1, Ireland Ireland N/A (iii) – M & S Mode International B.V. Basisweg 10 1043 AP Amsterdam Netherlands Netherlands €100 Ordinary 100 Marks and Spencer (Nederland) B.V. Basisweg 10 1043 AP Amsterdam Netherlands Netherlands €450 Ordinary 100 Name Registered address Country Share class Proportion of shares held by subsidiary (%) Marks and Spencer BV Basisweg 10 1043 AP Amsterdam Netherlands Netherlands €100 Ordinary 100 Marks and Spencer Stores B.V. Basisweg 10 1043 AP Amsterdam Netherlands Netherlands €450 Ordinary 100 Marks & Spencer (Portugal) Lda. Avenida da Liberdade 249, 8º, 1250-143, Lisbon, Portugal Portugal €1 Ordinary 100 Marks and Spencer (Singapore) Investments Pte. Ltd. 77 Robinson Road, #13-00 Robinson 77, Singapore 068896, Singapore Singapore SGD NPV 100 Marks and Spencer (SA) (Pty) Limited Woolworths House, 93 Longmarket Street, Cape Town 8001, South Africa South Africa ZAR 2 Ordinary 100 Marks and Spencer Romania SA (in liquidation) 84 GEN. H. M. BERTHELOT Street, Space B, Room 5, Ground floor, 1st District, Bucharest, Romania Romania RON 18.30 Ordinary 100 M&S (Spain) S.L. (in liquidation) C / Boix Y Morer 11 Local A Madrid 28-Madrid Spain Spain €1 Ordinary 100 Marks and Spencer Clothing Textile Trading J.S.C Havalani Karsisi istanbul Dunya Ticaret Merkezi A3 Blok, Kat:11 Yesilkoy, Bakirkoy Istanbul, Turkey Turkey TRL 25.00 Ordinary 100 NOT E: A n um b er o f the c om pa ni es l is te d are l eg ac y co mp a ni es w hi ch n o lon g er s er ve a ny o pe r ati on al p u rp os e. (i ) Th e sh are s of a ll i nte r nat io na l su bs id ia r y un d er t ak i ng s are h el d by co mp an ie s wi th in t he G ro up o the r th a n the C om p any ( Ma rk s a nd S pe nc er G ro up p lc). (i i) IN R 5 Cl as s C sh ar es 100 % ow ne d by JV p a r tn er. (i ii ) No s ha re c ap it al a s th e com p any i s l im ite d by g ua ra nte e. (i v) 20% of o rd in ar y sha res a re ow n ed by J V pa r t ne r . C7 SH AR E C API TAL AN D OTH E R R E SE RV E S Iss ue of n ew sh ares In Ju ly 202 1, the Co mp any red uce d the n om in al v alu e of i ts ord in ar y sha res fro m £ 0. 25 to £ 0 . 0 1 . Th e red uc ti on w as com pl eted by sub di vi di ng ea ch £0.25 o rdin ar y sha re in is sue i nto one o rdi na r y sh are of £0. 0 1 a nd o ne d efer red s ha re of £0.24. Al l def er red sh ares were th en b ou ght b ac k for tot al ag gre ga te consid er ati on of £0. 0 1 a nd c an cel led . T he C om pa ny’s issu ed s ha re ca pi tal re ma in ed un cha ng ed a nd e ach sh are ho lde r ’s prop or ti on ate intere st in th e sh are c ap it al of th e Co mp any rem ai ne d un cha ng ed . A sid e fro m the c ha ng e in no mi na l va lu e, th e ri ght s at ta chi ng to the o rdi na r y sh ares ( in clu din g voti ng an d di vi de nd r ig hts a nd r igh ts on a ret ur n of c ap ita l) rem ai n un cha ng ed . T he rep urc has e and c a ncel l at ion o f the s ha res resul ted in a n in creas e to the Co mp any ’s cap it al red em ptio n reser ve of £46 9.9m . Merger r eserve Th e Co mp any ’s merg er rese r ve w as crea ted as p ar t o f a G roup re org ani sat ion t hat o ccur red i n 20 0 1 /02 an d ha s an eco no mic a l rel at ion shi p to the Co mp any ’s investm en t in M ar ks a nd S pe ncer p lc . In 20 1 8/1 9, an a mo unt e qu al to th e im pa ir men t cha rge o f £ 1,086 .3m wa s tra ns fer red f rom th e me rge r reser ve to retai ned e ar ni ngs a s tha t amo un t had b eco me a rea l ise d prof i t in acco rda nce w ith TECH 02/1 7 . Fo ll owi ng th e revers al o f im pa ir me nt recog ni sed i n 20 1 9/20, a n am oun t eq ua l to the rever sa l of £95 1.0 m was t ra nsf er red fro m reta ine d ea rn in gs to the m erg er rese r ve, i n acco rda nce wi th TE CH 02/1 7 . I n th e cur rent ye ar, an amo un t equ a l to the im pa ir me nt of £39 1 . 1 m ha s be en tr an sfe rre d fro m the m erg er rese r ve to reta in ed ea rn in gs in a ccord ance w it h TECH 02/1 7 . NOT E S TO TH E COM PANY F IN AN CIA L S T ATEM E NT S CONTINUED 190 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS GROUP FINANCIAL RECORD 2022 52 weeks £m 2021 53 weeks £m 2020 52 weeks £m 2019 52 weeks £m 2018 52 weeks £m Income statement Revenue¹ UK Clothing & Home 3,308.3 2,239.0 3,209.1 3,499.8 UK Food 6,639.6 6,138.5 6,028.2 5,903.4 Total UK 9,947.9 8,377.5 9,237.3 9,403.2 9,611.0 International 937.2 789.4 944.6 974.1 1,087.2 Revenue before adjusting items 10,885.1 9,166.9 10,181.9 10,377.3 10,698.2 Adjusting items included in revenue – (11.2) – – – Revenue 10,885.1 9,155.7 10,181.9 10,377.3 10,698.2 Operating profit/(loss)¹ UK Clothing & Home 330.7 (130.8) 223.9 355.2 UK Food 277.8 228.6 236.7 212.9 Ocado 13.9 78.4 2.6 – Other 13.0 1.9 16.8 27.0 Total UK 635.4 178.1 480.0 595.1 535.4 International 73.6 44.1 110.7 130.5 135.2 Total operating profit before adjusting items 709.0 222.2 590.7 725.6 670.6 Adjusting items included in operating profit (136.8) (252.9) (335.9) (427.5) (514.1) Total operating profit/(loss) 572.2 (30.7) 254.8 298.1 156.5 Net interest payable (199.3) (219.1) (211.2) (239.7) (107.4) Pension finance income 13.2 47.2 23.6 25.8 17.7 Net finance costs before adjusting items (186.1) (171.9) (187.6) (213.9) (89.7) Adjusting items included in net finance costs 5.6 (6.8) – – – Net finance costs (180.5) (178.7) (187.6) (213.9) (89.7) Profit before tax and adjusting items 522.9 50.3 403.1 511.7 580.9 Profit/(loss) on ordinary activities before taxation 391.7 (209.4) 67.2 84.2 66.8 Income tax (expense)/credit (82.7) 8.2 (39.8) (38.9) (37.7) Profit/(loss) after taxation 309.0 (201.2) 27.4 45.3 29.1 191 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS G ROU P FI N AN CIA L RE COR D CONTINUE D 2022 52 weeks 2021 53 weeks 2020 52 weeks 2019 52 weeks 2018 52 weeks Basic earnings per share¹ Basic earnings/ Weighted average ordinary shares in issue 15.7p (10.1)p 1.3p 2.5p 1.6p Adjusted basic earnings per share¹ Adjusted basic earnings/ Weighted average ordinary shares in issue 21.7p 1.4p 16.7p 23.7p 27.8p Dividend per share declared in respect of the year – – 3.9p 13.3p 18.7p Dividend cover Adjusted earnings per share/Dividend per share – – 4.3x 1.8x 1.5x Retail fixed charge cover Operating profit before depreciation/Fixed charges 3.5x 2.0x 3.4x 3.6x 3.8x Statement of financial position Net assets (£m) 2,917.9 2,285.8 3,708.5 2,469.2 2,954.2 Net debt 2 (£m) 2,698.8 3,515.9 3,950.6 3,981.5 1,827.5 Capital expenditure (£m) 300.2 146.9 332.0 294.5 300.5 Stor es an d space UK stores 1,035 1,037 1,038 1,043 1,035 UK selling space (m sq ft) 16.7 16.8 16.8 17.2 17.6 International stores 452 472 483 445 429 International selling space (m sq ft) 5.0 5.1 5.0 4.9 5.2 Staffing (full-time equivalent) UK 42,550 44,423 49,094 50,578 53,273 International 4,558 4,754 4,894 4,862 5,655 Th e a bov e resu lt s ar e pre p are d un de r I FRS f or e ac h rep o r tin g p er io d on a co ns is ten t ba sis , w it h th e exce pt io n of th e a do pti on o f IF RS 9 a nd I FR S 1 5 i n 201 9 fo r wh ic h com p ar at ive pe ri od s h ave no t be e n rest ate d a nd th e a do pti on o f IF RS 16 in 2020 fo r wh ic h th e com p ar ati ve p er i od o f 20 1 9 ha s be en r est ate d . 1. B ase d o n con tin u in g op er at io ns . 2. E xc lu des a cc ru ed i nte res t. 192 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS G LO S SA RY Th e G roup t ra cks a n um be r of a lter nat ive p er fo rm a nce me asu res in m an agi ng i ts bu sin ess , w hic h are no t def i ne d or sp ec if ie d un de r the re qu irem en ts of I FRS b ec aus e they e xclu de a mo unt s that a re in clu de d in , or i nc lud e am ou nts th at a re exclu de d fro m , the m ost di rec tly com pa ra bl e mea sure c alc ul ate d an d prese nted i n accord an ce wi th IFR S , or a re ca lcu l ated u sin g fi na nc ial m ea sures th at are not c al cul ated in a ccorda nce w ith I FRS . Th e G roup b el i eves th at thes e al tern ati ve pe r fo rm an ce mea sures , w hic h are no t consi de red to be a su bsti tu te for or su pe ri or to IF RS me asures , p rovid e st ake hol de rs wi th ad di tio na l he l pfu l in for ma tio n on th e pe r fo rm an ce of the b usi nes s. T hes e al tern ati ve pe r fo rm an ce me asures a re consi stent w it h how th e bus ine ss pe r fo rm an ce is pl ann ed a nd re po r ted w ith in th e inter n al m an age me nt rep or tin g to the B oa rd. S om e of th ese al ter nati ve p er fo rm an ce me asure s are al s o use d for th e pu rp ose o f set tin g remu ne r atio n ta rgets . Th ese a lter nat ive p er f or ma nce me asu res sho uld b e vi ewe d as sup pl em ent al to, b ut no t as a su bsti tute fo r , m ea sures p resen ted in th e conso l id ated f in an ci al in for ma tio n rel at ing to th e G roup, w hi ch are p rep are d in a ccorda nce w ith I FRS . T he G rou p be li eves th at th ese al tern ati ve pe r fo rm an ce mea sures a re usef ul i nd ic ators o f its p er for ma nce. H oweve r , th ey m ay not b e comp ar ab le w ith s imi l ar ly-t itl ed me asures re po r ted by ot her co mp an ies d ue to di f fe ren ces in th e way th ey are c al cul ated . 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) before the impact of adjusting items. Clothing & Home store/Clothing & Home online sales None Not applicable 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 revenue through stores and through the Clothing & Home online platforms. These revenues are reported within the UK Clothing & Home segment results. Store revenue excludes revenue from “shop your way” and click & collect, which are included in online revenue. The gr o w t h in revenues on a year-on-year basis is a good indicator of the pe rf or ma nc e of the stores and online channels. The growth in revenues on a year-on-year basis is a good indicator of the performance of the stores and online channels. 2021/22 £m 2020/21 £m % UK Clothing & Home Store sales 1 2,209.5 1,088.9 102.9 Consignment sales (8.6) – Store revenue 2,200.9 1,088.9 102.1 Online sales 1 1,122.7 1,109.7 1.2 Consignment sales (15.3) – Online revenue 1,107.4 1,109.7 (0.2) UK Clothing & Home sales 1 – 52-week basis 3,332.2 2,198.6 51.6 Consignment sales (23.9) – UK Clothing & Home revenue – 52-week basis 3,308.3 2,198.6 50.5 Week 53 – 40.4 Total UK Clothing & Home revenue 3,308.3 2,239.0 47.8 1. U K Clo th in g & Ho me s tore s a les e xcl ud es r eve nu e fr om “s ho p yo ur w ay ” an d cl i ck & co ll ec t , wh ic h are i n clu d ed i n UK C lot hi ng & H om e on l in e s al es. There is no material difference between sales and revenue for UK Food and International. 193 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS G LO S SA RY C ONTINUED APM Closest equivalent statutory measure Reconciling items to statutory measure Definition and purpose Income statement measures continued Like-for-like revenue growth Movement in revenue per the income statement Revenue from non like-for-like stores The period-on-period change in revenue (excluding VAT) from stores which have been trading and where there has been no significant change (greater than 10%) in footage for at least 52 weeks and online sales. The measure is used widely in the retail industry as an indicator of sales performance. It excludes the impact of new stores, closed stores or stores with significant footage change. 2021/22 £m 2020/21 £m UK Food Like-for-like 6,414.1 5,831.1 Net new space 1 225.5 163.7 Week 53 – 143.7 Total UK Food revenue 6,639.6 6,138.5 UK Clothing & Home Like-for-like 3,218.3 2,164.5 Net new space 90.0 34.1 Week 53 – 40.4 Total UK Clothing & Home revenue 3,308.3 2,239.0 1. U K Fo od n et n ew sp ac e in cl ud es s al es to O ca do R et ai l Li mi ted . Food ex hospitality and franchise Movement in revenue per the income statement Revenue from hospitality and franchise categories and sales to Ocado Retail Limited The period-on-period change in Food revenue (before sales to Ocado Retail Limited) excluding the hospitality and franchise categories’ revenue (excluding VAT). The hospitality category includes cafes, counters and marketplace. This measure is based on Food total revenue rather than like-for-like revenue which was presented in the 2020/21 annual report. This measure is used to provide consistency with other measures provided within this report. 2021/22 £m 2020/21 £m % UK Food Revenue 6,639.6 6,138.5 8.2 Sales to Ocado Retail (32.1) (24.2) 32.6 Hospitality (167.0) (54.0) 209.3 Franchise (586.6) (438.4) 33.8 Food ex hospitality and franchise 5,853.9 5,621.9 4.1 M&S.com revenue/ Online revenue None Not applicable Total revenue through the Group’s online platforms. These revenues are reported within the relevant UK Clothing & Home, UK Food and International segment results. The growth in revenues on a year-on- year basis is a good indicator of the performance of the online channel and is a measure used within the Group’s incentive plans. Refer to the Remuneration Report for an explanation of why this measure is used within incentive plans. International online None Not applicable International revenue through International online platforms. These revenues are reported within the International segment results. The growth in revenues 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. 2021/22 £m 2020/21 £m % International revenue Stores 764.7 613.6 24.6 Online 172.5 165.7 4.1 Week 53 – 10.1 At reported currency 937.2 789.4 18.7 194 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS G LO S SA RY C ONTINUED APM Closest equivalent statutory measure Reconciling items to statutory measure Definition and purpose Income statement measures continued Revenue growth at constant currency None Not applicable The period-on-period change in revenue retranslating the previous year revenue 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. 2021/22 £m 2020/21 £m % International revenue At constant currency 937.2 761.8 23.0 Impact of FX retranslation – 17.5 International revenue – 52-week basis 937.2 779.3 20.3 Week 53 – 10.1 At reported currency 937.2 789.4 18.7 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. Revenue before adjusting items Revenue Adjusting items (See note 5) Revenue before the impact of adjusting items. The Group considers this to be an important measure of Group performance and is consistent wi t h how the business performance is reported and assessed by the Board an d the Executive Committee. This measure has been introduced as certain adjustments have been made to revenue for the first time in accordance with the Group’s policy for adjusting items. Operating profit before adjusting items Operating profit Adjusting items (See note 5) Operating profit before the impact of adjusting items. The Group considers this to be an important measure of Group performance and is consistent with how the business performance is reported and assessed by the Board and the Executive Committee. Finance income before adjusting items Finance income Adjusting items (See note 5) Finance income before the impact of adjusting items. The Group considers this to be an important measure of Group performance and is consistent with how the business performance is reported and assessed by the Board and the Executive Committee. Finance costs before adjusting items Finance costs Adjusting items (See note 5) Finance costs before the impact of adjusting items. The Group considers this to be an important measure of Group performance and is consistent with how the business performance is reported and assessed by the Board and the Executive Committee. Net interest payable on leases Finance income/ costs Finance income/ costs (See note 6) The net of interest income on subleases and interest payable on lease liabilities. This measure has been introduced as it allows the Board and Executive Committee to assess the impact of IFRS 16 Leases. Net financial interest Finance income/costs Finance income/costs (See note 6) Calculated as net finance costs, excluding interest on leases and adjusting items. The Group considers this to be an important measure of Group performance and is consistent with how the business performance is reported and assessed by the Board and the Executive Committee. EBIT before adjusting items EBIT 1 Adjusting items (See note 5) Calculated as profit before the impact of adjusting items, net finance costs and tax as disclosed on the face of the consolidated income statement. This measure is used in calculating the return on capital employed for the Group. Ocado Retail Limited EBITDA EBIT 1 Not applicable Calculated as Ocado Retail Limited earnings before interest, tax, depreciation, amortisation, impairment and exceptional items. Profit before tax and adjusting items Profit before tax Adjusting items (See note 5) Profit before the impact of adjusting items and tax. The Group considers this to be an important measure of Group performance and is consistent with how the business performance is reported 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. 195 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS APM Closest equivalent statutory measure Reconciling items to statutory measure Definition and purpose Income statement measures continued Adjusted basic earnings per share Earnings per share Adjusting items (See note 5) Profit after tax attributable to owners of the parent and before the impact of adjusting items, divided by the weighted average 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. Adjusted diluted earnings per share Diluted earnings per share Adjusting items (See note 5) Profit after tax attributable to owners of the parent and before the impact of adjusting items, divided by the weighted average number of ordinary shares in issue during the financial year adjusted for the effects of any potentially dilutive options. Effective tax rate before adjusting items Effective tax rate Adjusting items and their tax impact (See note 5) Total income tax charge for the Group excluding the 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 the Group. 52-week basis for the 2020/21 financial year Corresponding equivalent statutory measure Last trading week of 2020/21 The Group’s financial year ends on the nearest Saturday to 31 March. The current financial year is for the 52 weeks ended 2 April 2022 with the comparative financial year being for the 53 weeks ended 3 April 2021. In order to provide comparability with the prior year results, adjustments have been made to the 2020/21 53-week income statement to remove sales, operating costs and other items relating to the last trading week of the 2020/21 financial year. In determining the we e k 53 a d ju s t m en t , revenue and cost of goods sold represent the actual trading performance in that week, with overhead expenses allocated proportionally to week 53. 2021/22 £m Exclude week 53 £m 2020/21 52-week basis Revenue UK Food 6,138.5 (143.7) 5,994.8 UK Clothing & Home 2,239.0 (40.4) 2,198.6 Total UK Retail 8,377.5 (184.1) 8,193.4 International 789.4 (10.1) 779.3 Total Group 9,166.9 (194.2) 8,972.7 Operating profit/(loss) before adjusting items UK Food 228.6 (15.0) 213.6 UK Clothing & Home (130.8) 1.4 (129.4) International 44.1 1.0 45.1 Adjusted profit before tax Total Group 50.3 (8.7) 41.6 Loss before tax Total Group (209.4) 8.2 (201.2) G LO S SA RY C ONTINUED 196 Ma rks a nd S pe nc er G ro up p lc FINANCIAL ST ATEMENTS G LO S SA RY C ONTINUED APM Closest equivalent statutory measure Reconciling items to statutory measure Definition and purpose Balance sheet measures Net debt None Reconciliation of net debt (see note 27) Net debt comprises total borrowings (bank and bonds net of 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 lease liabilities None Reconciliation of net debt (see note 27) Lease liabilities (see note 20) Calculated as net debt less lease liabilities. This measure is a good indication of the strength of the Group’s balance sheet position and is widely used by credit rating agencies. Cash flow measures Free cash flow after shareholder returns Net cash inflow from operating activities See Financial Review The cash generated from the Group’s operating activities less capital expenditure, cash lease payments and interest paid. This measure shows the cash retained by the Group in the year. Free cash flow Net cash inflow from operating activities See Financial Review Calculated as the cash generated from the Group’s operating activities less capital expenditure and interest paid, excluding returns to shareholders (dividends and share buyback). This measure shows the cash generated by the Group during the year that is available for returning to shareholders and is used within the Group’s incentive plans. Other measures Covid-19 scenario None Not applicable As part of the Group’s normal financial planning process, the Board approved the 2020/21 budget and three-year plan. As a result of the UK government restrictions on trade that were announced in response to the Covid-19 pandemic, the Group revisited the 2020/21 budget and three-year plan to determine a downside scenario. The downside scenario assumed the government guidelines at the period end continued for a period of at least four months, resulting in a significant decline in sales for the remainder of 2020/21, as outlined in the basis of preparation in the Group’s 2020 Annual Report and Financial Statements. This downside scenario was approved by the directors and is defined as the Covid-19 scenario. 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. 197 Annual Report & Financial Stat ements 2022 FINANCIAL ST A TEMENTS APM Closest equivalent statutory measure Reconciling items to statutory measure Definition and purpose Other measures continued Return on capital employed (“ROCE”) None Not applicable Calculated as being EBIT 1 before adjusting items divided by the average of opening and closing capital employed. The measures used in this calculation are set out below: 2021/22 £m 2020/21 £m EBIT before adjusting items 709.0 222.2 Net assets 2,917.9 2,285.8 Add back: Partnership liability to the Marks & Spencer UK Pension Scheme 192.3 193.5 Deferred tax liabilities 187.2 42.3 Non-current borrowings and other financial liabilities 3,561.0 3,659.9 Retirement benefit deficit 5.7 7.8 Derivative financial instruments – 73.6 Current tax liabilities 34.0 – Less: Investment property (15.0) (15.2) Derivative financial instruments (61.4) – Retirement benefit asset (1,043.9) (639.2) Current tax assets – (35.4) Net operating assets 5,777.8 5,573.1 Add back: Provisions related to adjusting items 124.9 100.8 Capital employed 5,902.7 5,673.9 Average capital employed 5,788.3 5,874.8 ROCE % 12.2% 3.8% 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. EB IT i s no t de ﬁn ed w it hi n IF RS bu t is a w i de ly acc ep ted p roﬁ t me asu re b ei ng e ar ni n gs b efo re i nte rest a n d ta x . G LO S SA RY C ONTINUED I m p o r t a n t no t i c e T h i s d o c u m e n t i s i m p o r t a n t a n d re q u i re s y o u r i m m e d i a t e a t t e n t i o n If you a re in a ny do ubt a s to the ac ti on yo u sho uld t ake , you sh oul d im me di ately consu lt you r stock b roker, ban k ma na ger, sol ic itor, account ant o r oth er i nde pe nd ent p rofes sio na l ad vis er a uth or ise d und er t he F in an cia l Se r v ices an d Ma rket s Ac t 20 0 0 if yo u are resid en t in th e Un ited K in gd om o r , if yo u resid e el sew he re, a noth er a pp rop ri ately au tho ri sed f i na nci al a dv ise r . If you h ave so ld or ot he r wi se tr an sfe rred a l l you r sha res in th e Co mp any, plea se for wa rd thi s document and acc ompanying do cuments (e xc ept any personalise d form of pro x y , if applicable ) to the pu rch ase r or tr an sfe ree, o r to the s tock broke r or ot he r ag ent th rou gh w ho m the s al e or tr an sfe r wa s ef fe c ted , for t ra nsm issi on to th e purc has er o r tra nsf ere e. T uesda y 5 July 2 02 2 at 1 1 am Held at , and b roadcast from , W aterside House 3 5 Nor th W har f Road, Lo ndon W2 1 NW NO TIC E O F ANNU AL G E NE R AL ME E TING 2 0 2 2 Ma rks a nd S pe nc er G ro up p lc 198 Annual Report & Financial Stat ements 2022 199 AN N UAL G E NE R AL M E E TI NG ( “ AGM ” ) As we h ave no ted in o ur A nn ua l Rep or t , the AG M is a key da te in the B oa rd ’s calendar . Alongside p re senting the Com pa ny ’s per fo r ma nce an d str ateg y to sha reh old er s, i t is th e Bo ard ’s opp or tun it y to lis ten an d resp ond to yo ur qu est ion s. L ast ye ar ’s dig it al AG M on ce aga in rec eived higher le vels of shar eholder en ga ge me nt tha n th e prev iou s yea r’s. As su ch , we h eard v iew s an d recei ved qu esti ons f rom f a r mo re of you t ha n in rec ent year s, and particularly when com pa red wi th o ur p hysic al ly he ld me etin gs . We are the refore co nf id ent that our appr oach to a digitally-enabled AGM is f a r mo re accessi bl e, en g agi ng and democrat ic. For t his r easo n , the 2 022 A G M wil l again be a full y digitally - enabled meeting, broa dcast from M&S’ W aters ide Hous e Support C entre at 1 1 am o n 5 Ju ly 2022. I ’m ver y pl eas ed th at we w il l al so b e joi ne d by An it a An an d wh o wi ll b e ac ti ng as th is yea r’s sh areh ol de r ad voc ate. An it a wi ll b e kn own to m any of yo u as a le adi ng r ad io and t elevision br o adcaster , j ournalist and au tho r . A s you r sha reh old er a dvo c ate, she w il l en sure yo ur v iews a nd q ues tio ns are p ut to the B oa rd. For sta tut or y and regul at or y purpose s, the p l ace o f me etin g wi ll b e Watersi de Ho use , 35 Nor th W h ar f Ro ad , Lo nd on W2 1 NW. Sha reh old er s are inv ite d to pa r tic ip ate in th e AGM el ec tro nic al ly vi a the L umi AG M pl a t for m , wh ich yo u ca n access by l og gin g on to h t t p s : // w e b . lumiagm .com/1 24 -849 -1 27 . On t his webs ite, yo u wi ll b e ab le to sub mi t qu esti ons a nd yo ur vot ing i nst ru c tio ns , both during the mee ting and in advance. A step - by-s tep gu id e on h ow to join t he meeting electronically and submit your votes an d qu esti ons c a n be fo un d on page 2 09. We strong ly en cour ag e you to lo g on a nd sub mi t any qu est ion s you m igh t have in ad va nce of t he m eeti ng , so t hat yo ur vi ews are h ea rd even if yo u are u na ble to participat e live. Sh are hol de rs ar e adv ise d not t o trave l to th e venu e on t he d ay , a s the meeting will b e full y digitall y enabled. Bo ard me mb er s wi ll n ot be av ai l ab le fo r int eraction with sharehol ders in per son, as th ey wi ll b e ta ki ng p ar t in th e mee tin g broadcas t under studio condition s. Any sh are ho lde rs tr avel l in g to the ven ue against the Board’ s rec ommendation wi ll b e ad vi sed to jo in th e me etin g ele c tron ic al ly , an d wi ll b e prov id ed wi th as sist an ce to do so, i f ne ed ed . Ref reshm en ts wi l l not b e prov ide d . Y OUR V OTE C OUNTS Y ou r vote is im po r t ant to us . Y ou c a n: – Joi n the AG M li ve on l in e and vo te ele c tron ic al ly vi a the Lu mi AG M pl a tf or m. P leas e see p ag e 209 of thi s Noti ce for f ur the r det ai l s. – Regi ster yo ur p rox y vote ele ct roni ca l ly by log gi ng o n to eith er th e Lum i AGM platform , our Regist rar’s webs ite, sharevie w .co.uk , or by usi ng th e se r vi ce of f ered by Eu rocle ar U K & Irel and Li mi ted fo r mem be rs of C REST. – Com plete a nd retu rn a p ap er p rox y for m (enclos ed w ith th is N otice i f you hav e elected for hard copy documents, or ot her wi se ava il a ble f rom Eq ui ni ti on reques t, by call ing t he shar eholder he lp l in e on 0345 609 0 8 1 0). VOTI NG B E FO R E TH E M EE T I NG Al l sha reh old er s are en cou ra ge d to vote eit he r in ad v an ce or on t he d ay . Th ere are seve ra l w ays to subm it yo ur voti ng ins tr uc tio ns b efore t he m eeti ng , w hic h are av ail abl e fro m the p ub l ic atio n da te of th is Not ice: ( 1 ) The L um i AGM pl at for m. (2 ) Equ ini ti ’s Sh arev iew we bsite. (3 ) Th e CRE ST or P rox ym it y el ec tron ic pro x y appoint ment platforms. ( 4) By com plet ing a nd ret ur nin g a pa pe r pro x y form. V otes su bmi t ted el ec tron ic al ly vi a th e Lum i or S ha revi ew web sites , or v ia t he CRES T or Prox y mi t y pl a tf or ms , ( opt ion s 1 , 2 an d 3 ab ove ) s hou ld b e regi stere d by no l ate r tha n 1 1 am o n Fri day 1 J uly 2022. Af te r the n , you w il l no lo ng er b e ab le to sub mi t you r prox y vote vi a Sh arev iew, CRES T or Prox y mi t y. V oti ng v ia th e Lum i web site wi ll a l so clo se at th is ti me , bu t wi ll re op en fo r votin g on t he d ay of the mee ting. Pa pe r prox y votes (optio n 4 ab ove ) m us t be re ceive d by no l a ter th an 1 1 am o n Fri day 1 J uly 2022. Pap er p roxy f or ms are avail able fr om Equiniti on reques t; you c an c al l o ur sh are hol de r he lp l in e on 0345 609 08 10, or u se any o f Equ ini ti ’s al tern ati ve cont ac t de tai l s l isted o n page 2 1 0. Y ou w il l b e abl e to vote in on e of th ree ways f or ea ch of t he reso lu tio ns: “ Fo r ”, “ Ag ai ns t” o r “ Vote Wi thh eld ”. Pleas e note tha t a “ Vote Wit hhe ld ” is n ot a vote in l aw an d wi ll n ot be co unte d in th e ca lcu l ati on of vo tes “F or ” a nd “ Ag ain st ” each resolution. DE AR SHARE HOLD E R I AM PLE AS ED TO AN NOUN CE THE 2 1 ST AN NUAL GE NE R AL ME E TI NG OF MARKS AN D SPE NCER G ROUP PLC WILL B E HE LD O N 5 JUL Y 2 0 2 2 . Nick Folland, General Counsel and Company Secretary ‘‘ ’’ Ma rks a nd S pe nc er G ro up p lc 200 NO TIC E OF MEE TING 2 0 2 2 C ONTINUED NO TI CE O F ME E T IN G 2022 TO R ECE I VE T HE R E PO R T S AN D ACCOU NT S 1 Th e Bo ard as ks th at sh are hol de rs rece ive th e An nu al Re po r t an d Fi na nci al St atem ent s for t he 52 week s en de d 2 Ap ri l 202 2. AP PROVAL OF T H E DI RE C TO RS ’ REMUNER A TION REPORT 2 Th e Di rec tors’ Re mun er ati on Re po r t set s ou t the p ay an d be nef i ts rece ive d by eac h of th e di rec tors fo r the ye ar e nd ed 2 Ap ri l 202 2. In l i ne w ith l egi sl ati on , th is vote is ad v iso r y an d the di rec tors’ ent itl eme nt to remu ne r atio n is no t cond iti on al o n it . E LE C TI ON O F D IR EC TO RS 3 - 13 Th e di rec tors b el ie ve that t he B oa rd contin ue s to mai nta in an ap prop r iate ba l a nce of k now le dg e an d sk il l s and t hat a ll t he non- execut ive dir ec tors are independent in character and jud ge me nt . Th is fol low s a proces s of fo rm al ev al uat ion , wh ich co nf ir ms th at ea ch d irec tor i n of f i ce at the ti me o f the ev al ua tio n ma kes an ef fec ti ve an d va lua bl e contr ib uti on to the Bo ard a nd d em ons tr ates comm itm en t to the role (i ncl ud ing m ak in g suf f ici ent ti me av ai l ab le fo r Bo ard an d Committee meetings and other duti es a s r equired) . As a nn ou nced o n 1 0 M a rch 202 2, Steve Rowe w il l st an d dow n as CEO o n 25 May 202 2 as p ar t o f a pl a nn ed su ccessi on prog r am me. S tua r t M ach in a nd K ati e Bic kers taf fe wi ll b oth jo in the B oa rd on 25 May 2022 as CEO an d Co - CEO resp ec ti vely. Stu ar t j oin ed M &S as F oo d Ma na gi ng D irec tor i n Ap ri l 20 1 8 wi th ne ar ly 30 year s’ exp er ie nce i n the fo od , f as hio n an d ho me ret ail s ec tor, and wa s ap po inted j oin t Chi ef Op er ati ng Of f icer i n May 202 1 . K ati e prev iou sly ser ved o n the B oa rd as a non- execut ive dir ec tor from 2 0 1 8, bringing extensive ex pe ri en ce of di git al , reta il an d op er ati ons a nd l ead in g cons u mer -focused business es. She j oined the business as Chi ef Str ateg y an d T r a nsfo rm ati on D irec tor i n Ap ri l 2020 and wa s l ater a pp oin ted Ch ief O pe ra tin g Of fi cer in M ay 202 1. Th e Bo ard n otes that w hi le A nd y Ha lf ord ha s be en a no n- e xecu ti ve dire c tor for m ore th an n in e yea rs , he is sti ll co nsid ere d to be in de pe nd ent i n both c ha ra c ter an d jud ge me nt . He h as no ot he r sign if i ca nt l in ks to the C om pa ny , an d conti nu es to make a n ef fe c tive a nd v al ua ble co ntr ib uti on . Th e Bo ard b el ieve s An dy ’s re- e lec ti on w il l prov ide v al ua bl e conti nu it y du ri ng t he CEO tr an siti on . Fu r th er d eta il s on t he Bo ard ’s asses sm ent of A nd y ’s ind ep en de nce c an b e fou nd in the A nn ua l Rep or t on p ag es 5 9 an d 67 . In a ccorda nce w ith th e UK C or po rate G over na nce C od e, al l di rec tors w il l st and f or e lec ti on o r re- e lec ti on , as re lev ant , at th e AGM th is yea r . B iog r ap hies a re ava il a bl e on p ag es 60 a nd 6 1 of the A nn ua l Rep or t, w ith f u r th er d etai l s ava il a bl e on o ur we bsite , marksandspencer .com/thecompan y . It i s the B oa rd ’s view th at the d ire cto rs’ bio gr ap hi es il lus tr ate why ea ch di rec tor ’s contr ib uti on i s, a nd con tin ues to be , im po r t ant to the Compan y’s long-term s ustainable s ucce ss. APPOINTMENT AND REMUNER A TION OF AUDIT OR 14 – 15 On t he reco mm en dat ion o f the Au di t Com mi t tee, t he Bo ard prop ose s in reso lut ion 1 4 th at D elo it te LL P be rea pp oi nted as audit or of t he Compan y. Res olution 1 5 pr oposes t hat the Audit Committee be au tho ris ed to dete rm ine t he le vel of th e au di tor ’s remun er ati on . AUT HO R IT Y TO MA KE POLITICAL DONA TIONS 16 Th e Co mp ani es Ac t 20 06 (t he “ 200 6 Ac t ” ) proh ib its co mp an ies fro m ma ki ng p ol it ic al d on atio ns to UK p ol iti c al org an is atio ns o r independent candidate s, or incurring UK pol itical expenditure, un less a ut hor ise d by sh areh old er s in a dv an ce. EXPL ANA TOR Y NOTES T O THE RESOL UTIONS JOINING T HE MEETING AND VOTI NG O N T HE DA Y Y ou c a n watch t he b road ca st l ive , vote an d ask q ues tio ns on t he d ay of th e mee tin g vi a the L um i websi te. Ple ase ref er to pa ges 208 to 209 for i nst ru ct ion s on h ow to join the m eet ing a nd su bm it yo ur votes a nd qu esti ons o n th e day. V oti ng o n al l resol uti ons o n th e day w il l be by w ay of a po l l and t he Lu mi we bsi te wi ll re op en at 9. 30 a m on T ues day 5 Ju ly for t his p ur pos e. Votes can b e ca st o nce the C ha ir ma n has d ec l are d the p ol l op en . QUESTIONS On t he d ay , you r qu esti ons w il l b e pos ed to the B oa rd by An it a An an d. Wh ere we re ceive a n um be r of q ues tio ns cover ing t he s am e topic , A ni ta w il l gro up thes e to add ress as m any o f you r qu er ies as po ssible . It is , of co urs e, im po r t ant to us th at we have th e op po r tu ni ty to h ear f rom yo u , ou r sha reh old ers , d ire ct ly . Y ou w il l have the o pp or tun it y to ask a q ues tio n li ve during the mee ting b y telephone; full det ai l s an d ins tru c tio ns wi l l be p rovid ed on th e Lu mi AGM p l at fo rm o n the d ay of th e AGM . If you w oul d li ke to ask you r qu esti on at th e AGM in p er son , yo u ca n sen d us a v id eo reco rdin g of you rse lf as ki ng yo ur q ues tio n by em ai l to A GM question submission@ marks-and-spencer .com , to be rece ive d by no l ate r tha n 5pm o n Fr id ay 1 July. V OTING RESUL TS Th e resul ts of t he voti ng w il l be announced through a Regul at or y Info r mati on S er vice a nd w il l be p ub l ishe d on o ur we bsite , marksandspenc er .com/ thecompan y , on 5 Ju ly 202 2, or a s soo n as r easonably practicable therea f ter . In 202 1 , a ll res olu tio ns we re pas sed a t the me etin g wi th votes r ang in g fro m 93.27 % to 99.98% in f avou r . E X P L A N AT O RY N O T E S An e xp l an ati on of e ach o f the res olu tio ns to be voted o n at th e AGM is set o ut b elo w an d on p ag es 20 1 to 20 2. M&S W E BS I TE Our c or porat e webs it e, marksandspencer .com/thecompan y , is th e pr in cip al m ean s we use to comm unicat e with our shar eholders. Th ere is a w eal th of i nfor m atio n online including: A c opy of o ur f ul l An nu al Re po r t , which includes our Str ategic Report . A ll t he l ate st M &S n ews , pr es s releases and investor presen tations . A detailed account o f our approach to co rp ora te gov ern an ce at M &S . Annual Report & Financial Stat ements 2022 201 Th e Co mp any do es n ot ma ke, a nd do es n ot inten d to make, donations to pol itical organi sation s or independent ele c tio n ca nd id ates , nor d oe s it in cu r or in tend to in cur a ny political expenditure. Howe ver , the definiti ons of political donations, political org an isa tio ns an d po li tic a l ex pe ndi tu re used i n th e 200 6 Ac t are ve r y wi de . As a resu lt , th ey ca n cover ac ti v itie s such a s spo nso rsh ip, su bsc ri ptio ns , pay me nt of e xp en ses , pa id le ave for emplo yees f ulfilling certain public duties, and s upport for bo di es rep resent ing t he bu sin ess co mm uni t y in p ol ic y revi ew or r eform. Sharehol der appro val is being sough t on a pr ecautionary ba sis on ly, t o a l low the C om pa ny and a ny com pa ny whi ch , at any ti me d ur in g the p er io d for w hi ch th is resol uti on h as ef fe c t, i s a subs idi ar y of the C om pa ny , to conti nu e to supp or t the co mm uni t y an d pu t for wa rd its v iew s to wid er bu sin ess a nd government intere sts, without running the risk of inadver t entl y breach ing leg isl ation . Th e Bo ard is t here fore se ek in g au tho ri t y to make p ol iti c al donations and t o incur political expenditure no t exc eeding £50, 0 0 0 in tot al . I n l in e wi th bes t pr ac ti ce gu ide l in es pu bl ish ed by the I nvestm ent A s soci ati on ( “ IA ”) , this res olu tio n is p ut to share holders ann ually ra ther t han ev er y four years as requir ed by the 20 0 6 Ac t. RE N E WAL OF T HE P OWE R S OF T H E BOAR D TO A LLO T SH AR E S 17 Pa ra gr ap h (A) of this res olu tio n 1 7 wo ul d gi ve the d irec tor s the a uth or it y to al lot o rdi na r y sh ares of t he Co mp any u p to an ag gre gate n omi na l am ou nt eq ua l to £ 6 , 5 29, 88 1 .95 ( rep resen tin g 65 2,988 , 1 95 ordi na r y sh ares o f £ 0. 0 1 e ach). Th is am ou nt rep rese nts a pp roxim ately o ne -th ird (33.33 %) of the C om pa ny’s issu ed o rdi na r y sh are c ap it al as a t 2 4 M ay 202 2, the l atest pr ac ti ca bl e date b efo re the p ub li ca tio n of thi s Noti ce. In l in e wi th gu id an ce issu ed by t he IA , p ar ag ra ph (B) of th is resol uti on wo uld g ive t he di rec tors a ut hor it y to al lot o rdi na r y sha res in co nn ec tio n wi th a r igh ts is sue i n f avour o f ordi na r y sha reh old er s up to an a gg reg ate nom in al a mo unt e qu al to £ 1 3,05 9,7 63. 9 1 ( repr esenting 1 ,305, 9 7 6 ,3 9 1 or dinar y s hare s ), as red uce d by the n om in al a mou nt of a ny sha res is sue d und er pa ra gr ap h (A) of this res olu tio n . Th is am ou nt (b efo re any red uc tio n) r ep rese nts a pp roxim ately t wo -th ird s ( 66. 66%) of th e Com pa ny ’s issue d ord in ar y s ha re ca pit al a s at 2 4 May 2022, the l atest pr ac ti ca bl e date b efo re the p ub li ca tio n of thi s Noti ce. Th e au tho ri ties s ou ght u nd er p ar ag ra ph s (A) and (B) of this resol uti on w il l ex pi re at the co ncl usio n of th e AGM i n 202 3 or on 1 O c tobe r 202 3, w hi che ver is so on er. The d irec tor s have no prese nt i ntenti on to exe rcise e ith er of t he au tho ri tie s sou ght un de r this res olu tio n; h owever, the Bo ard w ish es to ensu re tha t the C ompany has maximum flexibil ity in managing the G roup’ s capital re sourc es. As a t the d ate of th is Not ice, n o sh ares a re hel d by the Compan y in tr easury . AUTHOR IT Y TO DISAPPL Y PR E - EM P T IO N R IG H TS 18 - 19 Reso lut ion s 1 8 an d 1 9 are pro pos ed as s pe cia l resol uti ons . If t he di rec tors w ish to al lot n ew sh ares o r othe r eq ui t y secu r iti es, or se l l treasu r y sh ares , fo r ca sh (other th an i n con ne cti on w it h an e mp loyee sh are s che me), comp any l aw re qu ires th at th ese sha res are f i rst o f fe red to sha reh old ers i n pro po r tio n to the ir existing holdings. At l ast y ear ’s AGM , a sp ec ial res olu tio n w as pa sse d , in l in e wi th institut ional sharehol der guidelines, empowering the dir ectors to all ot eq ui t y secu ri tie s for c ash w it hou t f ir st of f er in g the m to existing shareholders in pr opor tion t o their exist ing holdings. It is p rop osed , u nd er res olu tio n 1 8 , tha t this a uth or it y b e ren ewed . If a pp roved , th e resol uti on w il l au tho ris e the d ire cto rs to issu e sha res in co nne c tio n wi th pre - e mpti ve of fers , o r oth er w ise to is sue sh ares f or c ash u p to an ag gre gate n om ina l am ou nt of £9 79,482.29 (represe nti ng 97 ,948 , 229 ordin ar y sha res ) wh ich i ncl ud es th e sa le on a n on - pre - em pti ve ba sis of a ny sha res th e Com pa ny ho lds i n treasu r y fo r ca sh . Th is ag gre ga te no min al a mo unt re pres ent s ap proxi mate ly 5 % of th e Com pa ny ’s issue d ord in ar y s ha re ca pit al a s at 2 4 May 2022, be ing t he l ates t pr ac ti ca ble d ate b efore th e pu bl i cat ion o f thi s No tice . Th e Pre - Em ptio n G roup’s St ateme nt of P ri nci ple s al so su pp or t s the a nn ua l dis ap pl i ca tio n of pre - em pti on r ig hts i n respe c t of al lotm ent s of sh ares a nd ot he r equ it y s ecu ri ties a nd s ale s of treasu r y s ha res for c ash w he re the se rep resen t no mo re th an an a dd itio na l 5% of issu ed o rdin ar y sha re ca pi ta l ( excl usive of trea sur y sha res ) a nd a re use d only i n conn ec ti on w ith a n acqu isi tio n or sp ec if ie d c api ta l inves tme nt . Th e Pre - Emp tio n Group’ s Stat em ent of Principle s defines “ specified capital inves tme nt ” as me an in g one o r mo re sp eci f ic c ap ita l inves tme nt rel a ted uses f or th e proce ed s of an i ssu e of eq ui t y sec ur iti es , in resp ec t of w hi ch suf f ici ent i nfo rm atio n reg ard ing the e f fe ct o f the t ra nsa c tio n on th e Co mp any, the as sets th e sub jec t of th e tr an sa cti on a nd (wh ere a pp ropr ia te ) th e prof i ts at tri bu ta bl e to them i s mad e av ail a bl e to sha reho ld ers to en ab le th em to reac h an as sess me nt of th e pote ntia l retu rn . Accordi ng ly , th e pur po se of reso lu tio n 1 9 is to aut hor ise t he di rec tors to al lot n ew sh ares a nd oth er e qu it y se cur iti es pu rsu ant to th e al lotm ent a uth or it y g ive n by resol uti on 1 7 , or se l l treasu r y sh ares fo r c ash , w ith ou t fi rst b ei ng re qu ired to of f er su ch se cur iti es to ex isti ng sh are hol de rs , up to a f ur t her nominal amount of £ 97 9,48 2.29 (r ep re senting 9 7 ,948,22 9 ord ina r y sh are s ), b ei ng ap prox im ately 5% of the Co mp any ’s issu ed o rdi na r y sh are c ap it al as at 24 May 202 2, th e l atest pr ac ti ca bl e date b efore t he pu bl i cat ion o f thi s Noti ce. T he au tho ri t y gr ante d by this res olu tio n , if p ass ed , w il l on ly be use d in c onnec tion with an acquisit ion or specified capital inv estmen t wh ich i s an nou nce d contem po ra ne ou sly wi th the a l lotm ent , or w hi ch ha s ta ken pl ace in th e pre ced ing s ix- mon th pe ri od an d is di sclos ed in t he a nno un cem ent o f the is sue . If th e au tho ri t y gi ven in res olu tio n 1 9 is us ed , th e Com pa ny wi ll pu bl ish d eta il s o f its u se in i ts n ex t A nn ua l Rep or t . Th e au tho ri t y gr ante d by resol uti on 1 9 wou ld b e in a dd itio n to the g ene r al au tho ri t y to dis ap ply pre - e mpt ion r ig hts u nd er resol uti on 1 8 . T he m ax im um no mi na l va lu e of eq ui t y sec ur iti es tha t coul d be al lo tte d if bo th au tho ri ties w ere use d wou ld b e £ 1, 958,96 4. 59, whi ch rep rese nts a pp roxim ately 1 0% of t he Com pa ny ’s issue d ord in ar y s ha re ca pit al a s at 2 4 May 2022, be ing t he l ates t pr ac ti ca ble d ate b efore th e pu bl i cat ion o f thi s No tice . Th e di rec tors i nten d to adh ere to the p rovisi ons i n th e Pre - Emp tio n Gro up’s Sta teme nt of Pr in ci ples a nd n ot to al lot sha res or o the r eq ui ty s ecu ri tie s or se ll t reasu r y sh ares fo r ca sh on a n on - pre - em pti ve ba sis pu rsu an t to the au tho ri t y in reso lu tio n 1 8 in exces s of a n amo un t equ a l to 7 .5% of th e t otal i ssued or dinar y shar e capital o f the Company , exc luding treasu r y s ha res, w it hin a ro ll i ng th ree -yea r pe ri od , oth er t ha n: (i) with prior consulta tion with shareholder s; or (ii) in c onnection with an acquis ition or speci fied capital inv estment whi ch is announced c ontemporaneousl y with the a ll otm ent o r wh ich h as t aken p l ace i n the p rece di ng six- mo nth p er iod a nd i s disc lose d in th e an no un ceme nt of the allo tment. E X PL A NATORY NOT E S TO TH E RE S OLU TI O NS CONTINUED Ma rks a nd S pe nc er G ro up p lc 202 E X PL A NATORY NOT E S TO TH E RE S OLU TI O NS CONTINUED Th e di rec tors h ave no cu rre nt in tentio n to al lot sh ares excep t in con ne c tio n wit h em ploye e sha re sch em es. Th ese a uth or iti es wi ll e xp ire at t he con clu sio n of th e AGM in 2023 or on 1 O c tobe r 2023, whi ch ever is s oon er. AUT HO R IT Y FO R TH E COM PANY TO PU RCH AS E IT S OW N SH AR E S 20 Auth or it y i s sou ght fo r th e Com pa ny to purch ase u p to 1 0% o f its i ssu ed o rdin ar y sha res ren ewi ng th e au tho ri t y gr ante d by the s ha reho ld ers at p revi ou s AGMs . Th e di rec tors h ave no p resen t inten tio n of exe rcisi ng th e authority t o pur chase the Compan y’s own or dinar y s hare s; howe ver , this aut horit y w ould pr ovide t hem with t he flexibilit y to do so in t he f ut ure, i f the p rev ail i ng m ar ket cond iti ons m ad e such purchas es in the best int eres ts of sharehol ders generally . Ord in ar y s ha res pu rcha sed by th e Co mp any pu rsu ant to thi s aut hor it y m ay be h eld i n trea sur y o r m ay be c an cel led . It rem ai ns th e Com pa ny ’s intenti on to ca nce l any sh ares i t bu ys b ack r ath er th an h old t he m in trea sur y . T h e Com pa ny cur rent ly hol ds no s ha res in trea sur y . T h e resol uti on sp ec if ies the m in imu m an d ma x imu m pr ices w hi ch m ay be p aid fo r any ordinary shar es pur chased under this aut hority , r eflecting the req uire me nts o f the L ist ing R ule s. Th e Co mp any ha s opt ion s ou tst an di ng over 1 1 0 . 1 m il l io n ord ina r y sh are s, re prese nti ng 5 .62 % of th e Com p any ’s issue d ord ina r y sh are c a pit al a s at 2 4 M ay 2022, the l atest p r ac tic ab le date b efo re the p ub li ca tio n of thi s Not ice. If th e ex isti ng a uth or it y g ive n at the 202 1 AGM a nd th e au tho ri t y now b ein g sou gh t by this res olu tio n were to be f u lly use d , thes e opt ion s wou ld rep resen t 6. 25 % of th e Com pa ny ’s ord ina r y sh are c a pit al i n issu e at th at d ate. NOTICE OF GENERAL M EETING 21 In a ccorda nce w ith th e 20 06 A ct , th e not ice pe ri od fo r ge ne ra l me etin gs (other t ha n an AGM) i s 2 1 clea r day s’ notice u nl ess the Comp any: (i) Has gained shar eholder appr oval for the holdin g of general me etin gs o n 1 4 clea r days’ no tice by p assi ng a sp ec ia l resol uti on at t he mo st rece nt AGM ; an d (i i) O f fe rs th e fa ci li t y for a ll s ha reho ld ers to vote by electronic means. Th e Co mp any wou ld l ike to pres er ve i ts a bi li t y to cal l g en er al me etin gs (other t ha n an AGM) o n 1 4 cle ar d ays’ noti ce. Th is sho r ter n otice p er io d wou ld not b e use d as a m at ter of rou ti ne, bu t on ly whe re the f l ex ibi l it y is m er ited by t he bu sin ess of t he me etin g an d is tho ug ht to be i n the i nterest s of sh are ho lde rs as a w hol e. Reso lut ion 2 1 se ek s suc h ap prov al a nd , sho ul d this res olu tio n be a pp roved , it w il l rem ai n va l id un til th e en d of th e nex t AGM . Th is is th e sa me a uth or it y a s was s ou ght a nd g ra nted at l a st ye a r ’s AG M . SH AR E I NC EN T IV E PL A N R EN E WAL 22 Auth or it y i s sou ght to ap prove th e ren ewa l of th e ex ist ing Ma rk s an d Sp en cer G rou p plc S ha re In centi ve Pl a n (“ S IP ” ), w hic h is cu rre ntly op er ated to en ab le e mp loyees to bu y sh ares i n the Com pa ny f rom the ir p re -ta x s al a r y (Sh areB uy). T he S IP is a sh are in cent ive p l an w hi ch w as or ig in al ly ap proved by sha reh old er s in 20 0 0 an d wa s ren ewed by sh are ho lde rs at th e Com pa ny ’s Ann ua l Ge ne ra l Me eti ng in 20 1 2. T h e Com pa ny is seeking shar eholder appro val t o amend and r enew the SI P to all ow awa rds to conti nu e to be ma de u nd er i t for a f ur the r 1 0 ye ars . T he m ain te rms o f the S IP a re sum ma ris ed o n pa ges 20 6 to 20 7 of t his N otice . SECTION 1 90 TR ANSA CTION 23 Auth or it y i s sou ght fo r th e Com pa ny ’s subsid ia r y, Mar ks a nd Sp en cer p lc (“ M &S pl c”) , to purch ase 565,952 A Ordi na r y Sh ares in T he S po r ts Ed it L im ited ( “ TS E” ), a mo unti ng to 4 .8% of T SE ’s issu ed s ha re ca pi tal f rom M r . J ust in K in g (the “ JK TSE S ha res”). M&S pl c ac quired 7 7 .7 % of T SE’s issued s hare capital in February 202 2 as p ar t o f the Co mp any ’s thi rd- p ar t y b ra nd s str ateg y for Clo thing & Home, and agr eed s imultaneousl y a time table for acquiring another 1 7 .5% from T SE’s owner /founder wit h the ul tim ate aim o f acq uir in g 1 0 0 % of TS E’s issu ed s ha re ca pi ta l . Th e f in al 4 .8% o f TSE ’s issu ed sh are c ap it al is c ur rently ow ne d by Mr . Jus tin K i ng , a No n - E xecu tive D ire c tor of th e Com pa ny . As a resu lt , pu rch ase of t he JK T SE S ha res is con di tio nal o n th e pa ssin g of th is reso lut ion u nd er S ec ti on 1 9 0 of th e Ac t, a s it is a sub st anti al p rop er t y tr an sa c tio n as de f ine d in th e Ac t. Th e Bo ard b el ieve t hat th e 1 0 0% acq uisi tio n of TS E is a st rate gic inves tme nt an d lea rn in g op po r tu nit y ; t he b ra nd is we ll posi tio ne d in th e grow in g ac ti vewea r ma rket a nd h as prove n capability in cu st omer segmen tation, brand c ur ati on and em ergi ng b ra nd i de ntif i cat ion . M r . Ju sti n K ing h as b ee n a mi nor it y s ha reho ld er in T SE si nce 20 1 8 , w hi ch pre - d ates his ap po intm ent a s a No n- E xe cu tive D ire ctor o f the C om pa ny , de cl a red hi s interes t in TS E up on a pp oi ntm ent as a N on - E xecu ti ve Di rec tor of th e Com p any an d di d not p ar t ici pate i n any d ecis ion-making regar ding th e ac quisit ion of TSE. Su bje ct to sh are hol de r ap prova l , M &S p lc wi ll a cqu ire th e JK TS E Sh ares f rom M r . J usti n K in g wit hi n fi ve bu sin ess d ays of th e AGM at a tota l pu rcha se pr ice o f £2 79,582. Thi s pr ice am ou nts to £ 0. 490 4 p er sh are , an d is the s am e pr ice p er sh are at wh ic h M&S p lc acq ui red it s cu rren t 77 .7% hold in g of TS E pu rsu ant to a sh are pu rch ase ag ree me nt in F eb ru ar y 202 2. REC OMMENDA TION Y ou r di rec tors b el i eve that t he p ropo sa l s des cri be d ab ove are in th e bes t inte rests o f the Co mp any a nd i ts sh are hol de rs as a wh ole , an d reco mm end yo u gi ve the m you r sup po r t by voti ng in f avou r of a ll th e reso lut ion s, a s they i nten d to in respe c t of their own beneficial sharehol dings. Y ours faithfully , Nick Folland General C ounsel and Company Secr etar y Lo nd on , 24 May 2022 NO TIC E OF MEE TING 2 0 2 2 C ONTINUED NO TI CE O F ME E T IN G 2022 Annual Report & Financial Stat ements 2022 203 MA RK S AN D S PE NC ER G R OU P PLC Not ice is g ive n tha t th e An nua l Ge ne ral Me eti ng of M ar ks an d Sp en cer G ro up plc ( the “ Co mpa ny” ) w ill b e he ld at and br oadcast fr om Wa terside Hous e, 35 Nor t h Wh ar f Ro ad , Lo nd on W2 1NW , in ac cordanc e with the informa tion prov ide d on p age 2 08 , o n T u esd ay 5 Ju ly 202 2 at 1 1 a m (th e “ AG M ” ) fo r the p ur pose s set o ut b elow. Reso lut ion s 1 to 1 7 an d 22 to 2 3 wi l l be pr oposed as ordinary res olutions, and resol uti ons 1 8 to 2 1 w il l be p ropo sed as special resolutions. 1. To r ece ive th e An nu al Re po r t a nd Financial Sta tement s for the 5 2 w eeks en de d 2 Ap ri l 202 2. 2. T o appr ove the Di rect ors ’ Remunerat ion Rep or t f or th e yea r end ed 2 A p ri l 20 22, as set o ut o n pa ges 95 to 1 07 of th e An nu alRe po r t . T o re - el ec t th e fol low ing d ire cto rs wh o are seeking annual re- election in ac cor dance wi th th e UK Co rp or ate G over na nce Co de: 3. Archie Norman 4 . E oin T onge 5. Ev elyn Bourk e 6. Fiona Da wson 7. Andrew F isher 8. A nd y H al fo rd 9. T amara Ingram 10 . Justin King 11 . Sapna Sood T o elect the following direct o rs appoin ted to the Bo ard si nce th e l as t An nu al General Meeting: 12 . Stuar t Ma chin 13 . Katie Bickerst af fe 14 . T o resolve th at D elo it te LLP b e, a nd is he reby, reap po inted a s au dito r of the C om pa ny to hold of f ice un til th e conc lusion of t he next general meetin g at wh ic h accou nts a re l aid b efo re the Comp any . 15 . T o res olve th at th e Aud it Co mm it tee det ermine the remunerat ion of the au dito r on b eh al f of th e Boa rd . 1 6. POLITICAL DONA TIONS T o reso lve tha t, i n accord an ce wi th Se c tio n 366 of the C om pa nie s Ac t 200 6 , th e Com pa ny, and any co mp any w hic h , at any tim e du ri ng th e pe ri od fo r wh ich t his resol uti on h as ef fec t , is a sub sid iar y of th e Com pa ny, be and a re au tho ri sed to: (A) m ake p ol it ic al d on atio ns to po li tic a l par ties or independent election candidates, no t exceeding £5 0 ,0 00 in tot a l ; (B) ma ke po l itic a l do nati on s to pol it ic al organisat ions other than political par ties, no t ex ceeding £ 50,0 0 0 in t otal ; and (C) incur political expenditure no t exc e eding £ 50,0 0 0 in t otal ; prov ide d th at the a gg reg ate am ou nt of any such dona tions and expendit ure shall not e xceed £50 , 0 0 0 , du ri ng th e pe ri od be gi nni ng w ith t he d ate of th e pas sin g of th is reso luti on a nd e nd ing a t the conc lusi on of t he AGM to b e he ld in 2023 or o n 1 Oc tob er 2023, wh ich ever i s soo ne r . Fo r the p ur pos e of th is reso luti on , th e terms “pol itical donat ions” , “political par ties ”, “ independ ent e lection candidat es ” , “political or ganisation s” and “political expenditure ” ha ve t he me ani ng s set ou t in S ec tio ns 363 to 365 of the Co mp an ies Ac t 20 0 6. 1 7 . DIRECTORS’ AUTHORITY TO ALLOT SHAR ES T o reso lve tha t the d ire ctor s be a nd a re authorised g enerally and unc onditionally to exerci se al l th e powe rs of th e Com p any to all ot sh ares in t he Co mp any a nd to gr ant r ig hts to su bscr ib e for o r conve r t any se cur it y i nto sha res in th e Co mp any : (A) Up to a no mi na l am oun t of £ 6 , 5 29,8 8 1 .95 ( suc h amo un t to be red uced by a ny al lotm en ts or g r ant s ma de u nd er p ar ag ra ph (B) be low in e xcess of su ch su m ) ; an d (B) Comprising equity sec urities ( as d ef in ed in S ec ti on 560 (1 ) of the C om pa nie s Act 20 0 6) up to a nominal a mount o f £ 1 3,05 9, 7 63. 9 1 ( suc h amo un t to be red uced by a ny allot ments made under paragraph (A) above) in conn ec tio n w ith a n of f er by w ay of a ri ght s issu e: (i) T o o rdi na r y sh are hol de rs in prop or tio n ( as ne ar ly as may b e practicable ) t o their existing holdings; and (ii) T o h old er s of oth er e qu it y securit ies a s r equired by the ri ght s of tho se se cur iti es or as th e di rec tors oth er wis e cons ider necessary ; an d so th at the d ire cto rs may i mp ose any l im it s or rest ric ti on s and m ake a ny arrangements which they consider ne cess ar y o r ap pro pr iate to de al w ith a ny tre asury share s, fractional entit lements, record d ates , leg a l , reg ul a tor y o r pr ac tic a l prob le ms in , o r un de r the l aws of, any terr ito r y or a ny oth er m at ter . Th e au tho ri ties co nfe rre d on th e di rec tors to all ot se cur iti es un de r pa ra gr ap hs (A) an d (B) wil l ex pi re at the co ncl usio n of th e AGM of t he Co mp any to be h eld i n 2023 or on 1 O c tobe r 202 3, w hi che ver is so on er, un less p revi ou sly revoked o r va ri ed by th e Compan y , and s uch aut hority shall ex t end to the m ak in g befo re suc h ex pir y of an of f er o r an ag ree me nt th at wou ld or m ig ht requir e rele v ant securitie s to b e allo t ted af ter s uch e xp ir y , an d the d ire cto rs may al lot rel eva nt se cur it ies i n pur sua nce of tha t of fe r or a gre em ent a s if th e aut ho ri ty conf erred her e by h ad no t expired. 1 8. GENER AL DISAP PLICA TION OF P RE - E M P TI O N RI G HT S T o reso lve as a sp eci al res olu tio n th at, sub jec t to the p as sing o f resol uti on 1 7 , the direct ors be empo wered to all ot equity sec ur iti es ( as d ef in ed in t he Co mp an ies Ac t 20 06) for c as h un der t he a uth or it y gi ven by th at reso lut ion 1 7 ( set o ut i n this Noti ce of M eeti ng), an d/or to sel l ord in ar y sha res he ld by th e Com pa ny as trea sur y sha res fo r ca sh , as if S ec ti on 56 1 of th e Com pa ni es Ac t 20 06 d id n ot ap ply to any suc h al lotm ent o r sa le , provi de d th at suc h authority be limited: (A) to the a llo tme nt of e qu it y se cur iti es an d sa le of tre asur y sha res in conn ec ti on w ith a n of f er of, or invita tion t o appl y for , equity sec ur iti es (b ut in t he c ase o f the authority gran ted under paragraph (B) of resolu tio n 1 7 , by w ay of a r ig hts iss ue onl y): (i) to ordin ar y sha reho ld ers i n prop or tio n ( as ne ar ly as may b e practicable ) t o their existing holdings; and (ii) t o ho lde rs of o the r eq uit y securit ies a s r equired by the ri ght s of tho se se cur iti es or as th e di rec tors oth er wis e cons ider necessary ; NO TIC E OF ME E TING 5 J U LY 2 0 2 2 T o v iew o ur Bo a rd bio gr ap hi es go to the I nvestor s sec ti on of our c orporate webs it e, marksandspencer .com/thecompan y Ma rks a nd S pe nc er G ro up p lc 204 NOTICE OF ME E T ING 5 JUL Y 2 0 2 2 C ONTINUED MA RK S AN D S PE NC ER G R OU P PLC an d so th at the d ire cto rs may i mp ose any l im it s or rest ric ti on s and m ake a ny arrangements which they consider ne cess ar y o r ap pro pr iate to de al w ith a ny tre asury share s, fractional entit lements, record d ates , leg a l , reg ul a tor y o r pr ac tic a l prob le ms in , o r un de r the l aws of, any terr ito r y or a ny oth er m at ter ; an d (B) in th e c ase of t he au th or it y gr a nted un de r pa ra gr ap h (A) of resolu tio n 1 7 an d/or in t he c ase of a ny sa le of treasu r y s hare s, to th e al lotm ent o f eq ui ty s ecu ri ties o r s ale o f treasu r y sha res ( oth er wise t ha n un de r pa ra gr ap h (A) above) up to a nom in al am ou nt of £9 79,482.29; an d sha ll e xp ire at t he con clu sio n of the AGM to be h eld i n 202 3 or o n 1 Oc tob er 20 23, whic hever is sooner ( unless prev iou sly revoke d or v ar ie d by the Com pa ny in g en er al m eeti ng), prov id ed tha t the Co mp any m ay be fore th at d ate ma ke of fe rs , an d ente r into ag ree me nts , which w ould, or might, requir e equity sec ur iti es to be al lot ted (and t reasu r y sha res to be so ld) a f ter th e au tho ri t y en ds an d the d ire c tors may a ll ot eq ui t y sec ur iti es ( an d sel l trea sur y sha res ) un de r any su ch of f er o r agre em ent as if t he au th or it y ha d not e nd ed . 1 9. ADDITIONAL DISAPP LICA TION OF P RE - E M P TI O N RI G HT S T o reso lve as a sp eci al res olu tio n th at, sub jec t to the p as sing o f resol uti on 1 7 , the d ire cto rs be e mp owere d in a dd itio n t o an y aut hority grant ed under r esol ution 1 8 to all ot eq ui t y secu ri tie s ( as d ef ine d in the C om pa nie s Act 20 0 6) for c ash u nd er the a uth or it y g ive n by tha t resol uti on 1 7 ( set ou t in t his N otice o f Mee tin g) and/or to sel l ordi na r y sh ares h el d by the Com pa ny as tre asur y sha res for c as h as if Se ct ion 56 1 o f the Co mp a nies A ct 20 0 6 di d not a pp ly to any such a llo tme nt o r sa le, p rovi de d tha t such a uth or it y b e: (A) l im ited to the a l lotm ent of e qu it y sec ur iti es or s al e of trea sur y s ha res up to a no mi na l amo un t of £ 9 79,48 2.29; and (B) use d on ly for th e pu rp oses o f financing ( or refinancing, if the au tho ri t y is to be us ed w ith in si x months af ter t he original t ransaction ) a tr ans ac ti on w hic h the d ire cto rs of th e Com pa ny dete rm ine to be a n acqu isi tio n or ot he r ca pi tal inves tme nt of a k in d contem pl a ted by the S tatem en t of Pr inc ip les o n Disapplying Pre-Em ption Rights mos t recen tly pu bl ish ed by th e Pre - Emp tio n Gro up p ri or to the d ate of th is Not ice of M eeti ng ; an d sha ll e xp ire at t he con clu sio n of the AG M to be he ld in 2023 or o n 1 Oc tob er 2023, wh ich ever i s soo ne r ( u nl ess p revi ous ly revoked o r va ri ed by the C om pa ny in ge ne ra l me etin g), prov ide d th at the C om pa ny may b efore tha t date m ake of fer s, a nd e nter in to agreeme nts, whic h w ould, or m ight, requir e equity securitie s to be allotted ( an d treasu r y sh are s to be sol d) af ter the au tho ri t y end s an d the d ire ctor s may a llo t equity securit ies ( and sell tr easury share s ) un de r any su ch of f er o r agre em ent a s if the aut horit y had not ended. 20. CO MPAN Y ’ S AUTH O RI T Y T O PU RCH AS E IT S OW N SH AR E S T o reso lve as a sp eci al res olu tio n th at the Compan y is authorised for t he purpo ses of Se c tio n 7 0 1 o f the Co mp an ies A ct 20 0 6 to make o ne o r mo re ma rket p urch ases ( as d ef in ed in S ec ti on 693( 4) of the Com pa ni es Ac t 20 06) of i ts ord in ar y sha res of £0. 0 1 ea ch , suc h powe r to be limited: (A) to a ma xi mu m num be r of 1 95,896,45 9 or dinar y share s; (B) by the co nd iti on th at th e mi nim um pr ice w hic h may b e pa id fo r an ord ina r y sh are i s £ 0. 0 1 a nd th e ma xi mu m pr ice w hic h may b e pa id fo r an o rdin ar y sha re is th e hig hes t of : (i) an a mou nt e qu al to 1 05% of th e aver ag e ma rket v al ue of a n ord in ar y sha re for t he f i ve busi nes s day s immediat ely preceding the day on w hi ch th at ord ina r y sh are i s contr ac ted to b e pu rchas ed ; and (ii) th e hig he r of th e pr ice of t he l as t independent trade of an ordinar y sha re an d the h ig hes t cur rent independent bid f o r an ordinary sha re on t he tr ad ing v enu e wh ere the p urch ase i s ca rr ie d ou t; in ea ch c ase , excl usi ve of ex pe nse s, su ch powe r to app ly unt il th e end o f the AG M to be he ld in 2023 or u ntil 1 O c tobe r 202 3, wh ich ever i s soo ne r , b ut i n eac h ca se so th at the C om pa ny may en ter into a con tract t o purc hase ordinary shar es wh ich w il l or m ay be co mp leted o r exe cuted w ho l ly or pa r tly af ter th e powe r en ds an d the C om pa ny may pu rch ase ord ina r y sh are s pur sua nt to any su ch contr ac t a s if th e powe r ha d not e nd ed . 2 1 . CALLING OF G ENE RAL MEE TINGS ON 1 4 DA YS ’ N OT IC E T o reso lve as a sp eci al res olu tio n th at a general meetin g other than an Annual G ene r al Me eti ng m ay be c al le d on n o fewe r tha n 1 4 clea r day s’ notice . 2 2 . RENEW AL OF SHARE INCENTIVE PLAN T o reso lve tha t the a me nd me nt an d ren ewa l of th e am end ed M ar k s and Sp en cer G rou p plc S ha re In centi ve Pl a n (the “ S IP ” ), th e pr in cip al ter ms o f wh ich a re sum ma ri sed o n pa ges 20 6 to 20 7 o f this Noti ce an d the a me nd ed r ule s of wh ic h are p rodu ced to thi s me etin g , be ap proved a nd t he di rec tors o f the Compan y aut horised: (A) to conti nue to o pe rate th e SI P and do a ll a c ts an d thi ng s they co nsid er nece ssar y or desirable to impl ement an d gi ve ef fe c t to the SI P; a nd (B) to establish further plans based on the S IP b ut m odi f ie d to take a ccount of lo ca l ta x , exc ha ng e control o r sec ur iti es l aws i n overs eas ter ri tor ies , prov ide d th at any sh ares m ad e ava il a ble u nd er su ch f ur the r pl a ns are tre ated as count ing against the limits on i nd iv idu al o r over al l p ar t ici pati on in th e SI P . 2 3. SECTION 1 90 TRANSA CTION T o reso lve tha t the p urch ase by t he Company’ s subs idiar y, Mar ks and Sp encer plc , of 4 . 8% of T he S po r ts Ed it L im ited ’s issu ed s ha re ca pi tal f or th e sum o f £2 79,582 from M r . J usti n K in g , bei ng a Non-E xecut ive Dir ector of t he C ompany , be a pp roved in a ccord ance w it h Sec ti on 1 90 o f the Co mp an ies A ct 20 0 6 . By o rder o f the B oa rd Nick Folland General C ounsel and C ompany Sec re tar y Lo nd on , 24 May 2022 Regis tered of f ice Wa terside House, 35 Nor t h Wh ar f Ro ad , Lo nd on W2 1 NW. Regist ered in Engl and and Wale s N o . 42 56 8 8 6 . Annual Report & Financial Stat ements 2022 205 1. Biographies of t he dir ectors seeking ele c tio n ( o r re - ele c tio n ) are g ive n in th e An nu al Re po r t on p ag es 6 0 and 6 1 , including t heir membership o f the principal Committ ees. The t erms of t he cu rre nt d ire c tors’ se r v ice co ntr a ct s are su ch th at al l exe cut ive d irec tor ap po intm ent s may b e ter min ated by t he Com pa ny gi vi ng 1 2 mo nths’ not ice an d by the individual giving s i x mont hs ’ noti ce; non-executiv e direct ors hav e agreemen ts for s er v ice w hi ch ca n be te rm in ated o n thre e mo nths’ no tice by ei the r pa r t y ; the C ha ir ma n has a n ag ree me nt for ser vi ce whi ch req ui res six m on ths’ noti ce by eit he r pa r t y. 2. Regist ered shar eholders: Members are enti tle d to app oi nt a prox y to exe rcise a l l or a ny of the ir r ig hts to at tend , s pea k an d vote on th ei r be hal f at th e AGM . M em be rs may a pp oin t mo re tha n on e prox y in rel at ion to th e AGM , p rovid ed th at ea ch prox y is a pp oi nted to exe rcise th e ri ght s at ta che d to a dif fere nt sh are or s ha res he ld by tha t sha reh old er. A proxy n ee d not b e a sh areh old er o f the C om pa ny . T o re qu est on e or m ore p ap er p rox y for ms (to app oin t mo re tha n on e prox y), pl ease con tact our shar eholder helpl ine on 0345 609 08 10. Ple ase in di ca te the nu mb er of sh ares i n rel ati on to w hic h eac h prox y is au tho ri sed to ac t i n the b ox be low the prox y h old er ’s na me. P leas e al so i nd ic ate if th e ins tr uc tio n is o ne of m ul tip le ins tr uc tio ns b ein g gi ven , a nd if a p rox y is be in g ap po inted fo r les s tha n you r f ul l entit lement, plea se ent er the n umber of sh ares i n rel ati on to w hic h eac h such prox y is e nti tle d to act i n th e box be low the re lev ant p rox y ho lde r ’s nam e. T he prox y fo rm a ssu mes yo u wis h to vote on al l you r sha res in t he s am e way. T o vote on ly pa r t of you r ho ldi ng o r to vote some sha res on e w ay and so me a no the r , p lea se con tact the s hareholder helpl ine. A ll pro x y for ms m ust b e sig ne d an d sho uld b e re turned t ogether . 3. If you wo ul d li ke to subm it yo ur vote ele c tron ic al ly in ad v an ce of the AG M , you ca n do s o by accessi ng th e Lu mi we bsite , https: / /web.lumiag m.com/1 24 - 849 - 1 27 . Ins tru c tio ns a re avai l ab le o n pa ge 209 of th is Not ice. Al ter nati vely, you c an submit y our inst ruc tion by vis iting sharevie w .co.uk . A ll a dv an ce prox y votes reg ard less o f how th ey are c ast a re to be retur ne d by 1 1 am o n Fri day 1 J uly 2022. If you re tur n pa pe r an d ele c tron ic ins tr uc tio ns , th ose rece ive d l ast by t he Reg ist ra r befo re 1 1 am o n Fri day 1 J uly 20 22 will tak e pr ecedenc e. E lectroni c communication facilities are a v aila ble to all s ha reho ld ers a nd th ose th at us e the m wi ll n ot b e dis ad va nt age d . 4 . In the c as e of joi nt ho ld ers , w he re mo re tha n on e of th e joi nt ho ld ers p ur po r ts to ap po int a p rox y, only the a pp oi ntme nt sub mi tte d by the m ost s eni or h old er w il l be ac cept ed. Seniority is det ermined by the o rde r in w hic h the n am es of t he jo int ho lde rs ap p ear i n the C om pa ny’s reg ister of me mb er s in resp ec t of t he jo int h old in g (the f i rst - n am ed b ein g th e mos t sen ior). 5. Vot es su bm it ted in a dv a nce of th e me etin g usi ng th e Lum i web site wi ll cons titu te an i nstr uc ti on to ap po int t he Cha ir ma n of th e me etin g as p rox y . Th e sha res covere d by the i nstr u cti on w il l be voted as d ire cte d by the sh are ho lde r in respe c t of th e resol uti ons re fer red to in thi s Noti ce of Me eti ng at th e me etin g an d at any a djou r nme nt of i t. 6 . T o be v al id , a ny prox y fo rm o r oth er instrument appoin ting a pro x y must be re ceive d by po st ( du ri ng n or ma l bus ine ss ho ur s only) or by h an d at Equ in iti , Aspect House, Spenc er Road, Lancing , West Sus sex B N99 6DA no l ate r tha n 1 1 am on Fr id ay 1 Ju ly 20 22. 7. T he ret ur n of a com pl eted p ap er prox y for m , oth er su ch in str um ent o r any CRES T prox y i nstr uc ti on (as des cri be d in pa ra gr ap h 1 5 on th e fol low in g pa ge) wil l not p revent a s ha reho ld er voti ng l a ter if they w ish to d o so. Y o u mus t info r m the Com pa ny ’s Regis tr ar in w r iti ng of a ny term in ati on of t he au tho ri t y of a p rox y . 8 . Indi rec t sh areh ol de rs: A ny per son to wh om th is No tice is s ent w ho is a p er son no min ated u nd er S ec ti on 1 46 of t he Com pa ni es Ac t 20 06 to en joy inf or mat ion ri ght s ( a “ No min ated Pe rso n”) m ay, under an a greement between them and the s hareholder by whom the y wer e no min ated , h ave a ri ght to be a pp oi nted ( o r to have so me on e el se a pp oi nted) a s a prox y fo r the AG M . If a No mi na ted Pers on has n o suc h pr ox y appo intmen t right or do es not w ish to e xercis e it , they m ay, un de r any su ch ag ree men t, h ave a ri ght to give i nst ru ct ion s to the sh are hol de r as to the e xercis e of voti ng r ig hts . 9. Th e sta teme nt of th e ri ght s of sha reh old er s in rel atio n to the ap po intm ent o f prox ies in p a ra gr ap hs 2 to 7 do es not a pp ly to Nom in ated Pe rso ns. Th e ri ght s des cri be d in t hese p ar ag ra ph s ca n on ly be e xercis ed by sh are hol de rs of the Comp any . 10 . Nominat ed P ersons ar e reminded that they should c ontact the regist ered holder of th eir s ha res ( an d not th e Co mp any) on m at ters re l ati ng to the ir inves tm ent s in th e Com p any. 11 . T o be e ntit led to jo in th e me etin g , sub mi t qu esti ons a nd vote (and fo r the pu rp ose of t he d eterm in ati on by th e Com pa ny of th e votes they m ay c ast), sharehol ders must be enter ed on the Reg iste r of Me mb er s of the C om pa ny by 6. 30 p m on Fr id ay 1 July 2022 ( o r , i n the event o f any ad jou rn me nt , 6. 30 p m on th e da te whi ch is t wo wo rk in g day s pr io r to the ad jou rn ed m eeti ng). Ch ang es to the Re gis ter of M em be rs af te r the relev an t dea dl i ne sh al l be d isre ga rde d in dete rm ini ng th e ri ght s of a ny per son to join , su bm it q ues tio ns an d vote at the mee ting. 12 . Th e fol low ing d oc um ent s are ava il a bl e for i nsp ec ti on at a n ag reed t im e at the Company’ s regi ster ed off ice: Wat erside Ho use , 35 Nor th W h ar f Ro ad , Lo nd on W2 1 NW. Ema il company .secretary@ marks-and-spencer .com during normal bus ine ss ho ur s on any we ekd ay ( excluding public holiday s ). (i) Co pi es of th e exe cuti ve di rec tors’ ser vice c o ntracts. (ii) Co pie s of th e non - e xecu tive d ire cto rs’ let ters o f ap po intm ent . (iii) C opi es of th e di rec tors’ D ee ds of Indemnity . (i v) A copy of t he A r tic les of A ss oci ati on of th e Com pa ny . (v) A copy of th e am en de d ru les o f the Ma rk s an d Sp en cer G rou p plc S ha re Incen tive Plan . Cop ies o f thes e do cum ent s wi ll a l so b e ava il a ble a t the AG M up on req ue st , fro m 9.3 0a m on t he mo r nin g of th e AGM unt il th e me etin g’s concl usio n . A copy of (v) above w il l al so b e ava il a bl e for inspection on the Na tional St orage Me cha ni sm at ht tps: / /data.f ca .org .uk /# / nsm/na tionals toragemechanism f rom the p ub l ic atio n da te of this d oc um ent . 13 . Sh are hol de rs are a dv ise d tha t, u nl ess otherwise specified, the tel ephone nu mb ers , we bsite a nd em ai l ad dres ses set ou t in t his N otice o r prox y fo rm s are not to be u sed f or th e pu rp ose of s er v in g informa tion or documen ts on the Com pa ny, inclu di ng th e se r vi ce of document s or informat ion relating to proc eedings at the C ompany’ s A GM . 14 . As a t 2 4 M ay 202 2 (the l a test pr ac ti ca bl e date b efore t he pu bl i cat ion of th is Not ice ), th e Com pa ny ’s issue d sha re c api ta l consi sts o f 1 ,958 ,964 ,586 ord ina r y sh are s ca rr yin g on e vote eac h. No sh ares a re he ld in tre asu r y. The refore , the tot al voti ng r ig hts i n the Co mp a ny as at 24 May 20 22 are 1, 958 ,964 , 586. NOT ES Ma rks a nd S pe nc er G ro up p lc 206 MA RK S AN D S PE NC ER G R OU P PLC NOT E S CONTINUED 15 . CR EST me mb er s wh o wi sh to app oi nt a prox y o r proxi es th roug h the C REST ele c tron ic prox y a pp oi ntm ent se r v ice m ay do so f or th e AGM an d any a djo ur nm ent the reof by u sin g the p roce dure s desc ri be d in th e CRE ST ma nu al . CREST p er son al members or other C REST -spon sored me mb ers , a nd th ose CR EST m em be rs wh o have a pp oin ted a se r vi ce provi de r , sho ul d refer to th ei r CRES T spo nso r or vot ing ser vi ce provi de r , w ho w il l b e abl e to take the appropria te ac tion on th eir behalf . 16 . For a pro x y appoint ment or instruction ma de u sing t he CR EST se r v ice to be v al id , the a pp rop ri ate CRES T mes sa ge (a “CRES T pro x y inst ruction”) must be pr oper l y authent icated in acc ordance with Eur oclear UK & Ireland Limited’ s spe ci fi c atio ns an d mu st cont ai n the informa tion requir ed for s uch inst ruction, as d escr ib ed i n the CR EST m an ua l ( available via euroclear .com ). T he mes sa ge , reg ard less o f wh ethe r it cons titu tes the a pp oi ntm ent of a p rox y or is an a me nd me nt to the i nstr uc ti on g ive n to a previ ous ly app oi nted p rox y mus t, i n ord er to be v al id , b e tr ans mi tte d so as to be re ceive d by Equ in iti (I D R A 1 9) by 1 1 a m on Fr id ay 1 Ju ly 20 22. Fo r this p ur po se, th e tim e of rece ipt w il l be t ake n to be th e tim e ( as d eterm in ed by th e ti me st am p ap pl ie d to the me ss ag e by the CR EST A pp l ic atio n Hos t) from wh ic h Equi ni ti is a ble to retr ieve the m ess ag e by en qu ir y to CR EST in t he ma nn er p rescr ib ed by CR EST. Af ter th is tim e, a ny cha ng e of i nstr uc ti ons to p roxies appointed through CRE ST shoul d be comm unicat ed t o the appoint ee thr ough other means. 17. CRE ST members and , wher e applicable, the ir CR EST sp on sor s, o r voti ng se r v ice prov ide rs sh ou ld note th at Euro clea r UK & Ireland Limited does not m ake avail able special proc edures in CREST f o r an y pa r tic ul a r mes sa ge . Nor m al sys tem timings and l imitations will , there fore, ap ply in re l ati on to the i np ut of C REST prox y i nstr uc ti on s. It i s the res po nsib il it y of t he CRE ST member c oncerned t o ta ke ( o r , if th e CRE ST me mb er is a C REST personal member , or sponsor ed member , or h as ap po inte d a votin g se r vi ce provi de r , to procu re tha t the ir CR EST sp ons or o r votin g se r vi ce prov ide r(s ) ta ke(s ) ) suc h ac tio n as sh al l b e ne cess ar y to en sure th at a mes sa ge is t ra nsm it ted by m ean s of th e CRES T syste m by any p ar ti cul ar ti me. In th is con ne ct ion , CR EST m em be rs a nd , where applicable, their CRES T spons o rs or vot ing s ystem p rovid er s are refe rre d in pa r tic ul a r to those s ec tio ns o f the CR EST manual c oncerning practical limitat ions of th e CRES T syste m and t im ing s. 18 . T he Co mp any m ay treat a s inv al id a CRES T prox y i nstr uc ti on i n the circu ms tan ces set o ut i n Reg ul a tio n 3 5( 5)( a ) of the Unc er tificated Sec urities Regulations 200 1 . 19 . I f you a re an in stit uti on al i nvestor, you m ay be a ble to ap po int a p rox y ele c tron ic al ly vi a the P roxy mi t y pl atf or m , a proce ss w hic h has b ee n ag ree d by the C om pa ny and a pp roved by th e Regist rar . For further in formation reg ardi ng P rox ym it y, plea se go to w ww.proxy mity.io . Y our p rox y mu st be lod ge d by 1 1 am o n Fri day 1 J uly 2022 in ord er to be co nsid ere d va li d . Befo re you ca n ap po int a p rox y vi a thi s proces s you wi ll n ee d to have ag ree d to Proxy mi t y ’s ass oci ated ter ms a nd con di tio ns . It is im po r ta nt th at you rea d th ese c aref ul ly as you w il l b e bou nd by t hem a nd t hey wi ll g over n th e ele ct roni c ap po intm en t of you r prox y. 20 . An y corporat ion t hat i s a member can appoin t one or mor e c orporate rep resent ati ves w ho m ay exerci se on its b eh al f al l of i ts p owers a s a me mb er, prov ide d th at they d o no t do so i n rel at ion to th e sa me sh ares . 21. Un de r Se c tio n 5 27 of the C om pa ni es Ac t 20 06 , m em be rs me etin g th e thresh ol d req uire me nts s et ou t in th at se cti on have th e ri ght to req ui re the C om pa ny to pu bl ish o n a web site a st atem ent se tt ing ou t any m at ter rel at ing to: (i) th e au dit o f the C om pa ny’s accou nts (i ncl ud ing t he au di tor ’s repo r t an d the cond uc t of t he au di t) that are to be l ai d befo re th e AGM; o r (ii) any circumstanc e connect ed with an a udi tor of th e Co mp any cea sin g to hold o f f ice si nce th e prev io us me etin g at w hic h an nu al accou nt s an d repo r ts w ere l a id in a ccorda nce wi th Se c tio n 43 7 of th e Com p ani es Act 2 006. Th e Co mp any m ay not req ui re the sha reh old er s requ est ing a ny suc h websi te pu bl ic ati on to pay i ts ex p ens es in com plyi ng w ith S ec ti ons 52 7 o r 52 8 of the C om pa nie s Act 20 0 6 . Wh ere th e Company is requir ed to pl ace a statemen t on a we bsite u nd er S ec tio n 52 7 of th e Com pa ni es Ac t 20 06 , i t mus t for wa rd the st ateme nt to the C om pa ny’s au dito r no l ater th an t he ti me w he n it m akes th e st ateme nt av ail a bl e on th e web site. T he bus ine ss th at may b e de alt w it h at the AGM in clu de s any st atem ent th at th e Company has been r equired to publish on a we bsite u nd er S ec tio n 52 7 of th e Com pa ni es Ac t 20 06 . 22 . A ny m ember joining the meeting has the r ig ht to ask q ues tio ns. T he C om pa ny mus t ca use to b e ans wered a ny suc h question relating t o the bus iness being de alt w it h at the m eet ing b ut n o suc h ans wer n ee d be g ive n if : (i) to do so wou ld i nter fe re un du ly wi th th e prep ar ati on fo r th e mee tin g or i nvolve the d isc losu re of con fidential informa tion; (ii) th e ans wer h as al rea dy b ee n gi ven on a we bsite i n the fo rm o f an a nswe r to a ques tio n; o r (iii) i t is u nde sir ab le in t he in terest s of th e Com pa ny or th e go od o rde r of th e me etin g tha t the q ues tio n be ans wer ed. 23. A copy of t his N otice , an d othe r inf or mati on re qu ired by S ec ti on 3 1 1 A of the C om pa nie s Act 20 0 6 , c an b e fou nd at marksand spencer .com/thecomp any . 24 . Ple ase se e the l et ter da ted 2 4 May 202 2 fro m the G e ne ra l Cou nse l an d Com pa ny Se cret ar y o n pa ges 1 99 to 20 0 for fur ther expl anat or y not es. SU MM ARY O F PR IN CI P A L TE R MS O F MA R KS AN D SP E NCE R G RO UP P LC SH AR E I NCE N TI VE PL AN 1 . 1 GENERAL Th e Ma rk s an d Sp en cer G rou p plc S h are In centi ve Pl a n (the “ S IP ” ) wa s or ig in al ly ap proved by s ha reho ld ers i n 20 0 0 an d subs eq ue ntly ad opte d by the Co mp a ny in 2003 . Sharehol der appr oval was o btained at t he Compan y’s Annual General Meeting on 1 0 Ju ly 20 1 2 to ren ew th e SIP a nd th e Company is s eeking shar eholder appr oval to ame nd th e ru les o f the S IP to al low awa rds to be m ad e un de r the S IP un til 5 Ju ly 20 32, bein g th e tenth a nni ver sa r y of th e An nu al G en er al M eet ing to b e hel d on 5 J uly 2022. Th e SI P has b ee n de sign ed to m eet th e requir ements of a tax a dvantaged shar e in centi ve pl a n un de r Sc hed ul e 2 of th e In come Tax (E ar nin gs a nd Pe nsio ns ) Ac t 20 03 so that s ha res in th e Com pa ny c an be p rovid ed to UK e mp loye es in a t ax eff icient manner . The Compan y curr ently op er ates th e SIP to prov id e em ploye es NOTICE OF ME E T ING 5 JUL Y 2 0 2 2 C ONTINUED Annual Report & Financial Stat ements 2022 207 SU MM ARY O F PR IN CI P A L TE R MS O F MA R KS AN D SP E NCE R G RO UP P LC SH AR E I NCE N TI VE PL AN CONTINUED wi th th e op po r tun it y to bu y sh ares f rom pre -t ax s al ar y u nd er th e SI P (Sha reBu y), al tho ug h it may d ec id e to ope rate ot her ele me nts o f the S IP in t he f ut ure. 1 .2 OPERA TION Th e SI P op er ates in co njun c tio n wi th a tru st a nd cont ai ns th ree e lem ent s. Th e Co mp any w il l de cid e wh ich ( if a ny) of th ese el em ent s wi ll b e of f ered to em ploye es , prov ide d th at awa rds of sha res may n ot b e mad e u nde r th e SIP af ter 5 J uly 203 2. Th e th ree el em ent s are: (A) ‘Free Sha res’ , whic h may b e al loc ated to an em ploye e by the C om pa ny . Th e ma rket v al ue of F ree Sh are s al loc ated to an em ploye e in a ny ta x yea r may not e xceed £3 ,6 0 0 or su ch oth er l i mit as m ay be pe r mit ted by t he rel eva nt tax legis l ation. Fr ee Shares must be a ll oc ated o n the s am e ter ms , al tho ug h they m ay be p rovid ed o n the b asi s of rem un er atio n , len gth o f ser vi ce or ho ur s wor ked , or o n th e ba sis of th e pe r fo rm an ce ta rgets , wi thi n the l i mi ts sp eci f ied by t he rel evant legislation. (B) ‘Par tnership Shar es’ , w hi ch an em ploye e may p urch ase o ut of t hei r pre -t ax e ar ni ngs . T he m ar ket va lu e of Pa r tn er shi p Sh ares w hi ch an em ploye e ca n ag ree to pu rcha se in any t ax ye ar un de r cu rre nt ta x leg isl atio n may no t excee d £ 1,80 0 (or 1 0 % of an e mp loyee’s sa l a r y if lo wer). Partnership Shar es are purchased on b eh al f of an e mp loye e by the tru stees o f the S IP (th e “ T r us tees”). Th e f und s use d to purc has e sha res wi ll b e de du c ted f rom the e mp loye e’s salar y. Funds deducted f rom sal ar y wi ll b e he ld on t he e mp loyee’s be ha lf unt il th ey are us ed to bu y Pa r tn ersh ip Sh ares . Th e f un ds may b e use d to bu y Par tn ership Sh ares shor tly following deduction, or acc umulated for up to 1 2 m ont hs be fore th ey are u sed to bu y Pa r tn ers hip S ha res in w hi ch c ase sha res may b e acq ui red at th e lowe r of th e ma rket v al ue of t he sh ares at the b eg in ni ng or e nd o f the acc umulation peri od. (C) ‘ Matching Shares’ , w hic h may b e al loc ate d to an em ploye e by the Com pa ny fol low in g a pu rcha se of Partnership Shares. Mat ching Shar es are ad di tio na l f ree sh ares . Th e ma xi mu m nu mb er of M atch ing Sh ares w hi ch th e Com pa ny ca n al loc ate to an e mp loyee fo ll owi ng a pu rcha se of P ar tn er shi p Sh ares by the e mp loyee i s t wo Match in g Sh ares for eve r y o ne P ar t ner shi p Sh are pu rcha sed by th e em ploye e, o r suc h hig he r l im it as m ay be p er mi t ted by the re lev ant l eg isl ati on . T he re is no mi nim um r ati o of Ma tchin g Sh ares wh ich t he Co mp any m ust p rovid e fol low in g a purc has e of Pa r tn ers hi p Sh ares . Th e sa me r ati o wi ll a pp ly to all emplo yee s who p urcha se Partners hip Sh ares u nd er th e SI P at th at tim e. Benefits pr ovided under the SIP ar e not pensionable . 1 . 3 ELIGIBILIT Y Wh en i t op er ates the S IP , th e Co mp any mus t of f er a ll U K ta x-resi de nt em ploye es of t he Compan y and sub sidiarie s pa r tic ip atin g in t he SI P the o pp or tun it y to par tici pate i n the S IP a nd may e x ten d the i nvi tati on to oth er e mp loyees m ee tin g the l egislative requiremen ts. The Company may r equire employ ees t o hav e c ompleted a minimum qualif ying pe ri od of e mp loym en t befo re they c a n pa r tic ip ate bu t that p er io d mus t not b e more than, broadl y, 1 8 mont hs prior to share s being a warded. 1.4 SO UR CE O F SH AR E S Th e T r us tees m ay eith er su bsc ri be fo r new sh ares , a cqu ire trea sur y s ha res or pu rcha se sh ares in t he m ar ket for t he pu rp oses o f the S IP . Th e mo ney to bu y sha res wi l l be p rovid ed e ith er by th e emplo yee ’ s emplo ying compan y or , in respe c t of th e acqu isi tio n of Pa r tn er shi p Sh ares , by th e em ploye es. N o new s ha res wi ll b e iss ue d und er t he S IP w here su ch issu e wou ld c aus e the n um be r of sh ares wh ich h ave be en o r may b e issu ed pursuant to awards made (inc luding option s grant ed) under all emplo yee shar e pl a ns a dop ted by th e Com pa ny over th e prec eding 1 0 -ye ar period t o ex ceed 1 0% of th e Com pa ny ’s issue d ord ina r y sh are ca pi ta l fro m tim e to time . T re asur y sha res wi ll co unt a s new is sue sh are s for th e pu rp ose of t his l im it u nl ess i nsti tut ion al inves tor bo die s de cid e tha t they n ee d not coun t. O pti ons o r awa rds w hic h l ap se are exclu d ed f rom th is l im it. 1 .5 RETENTION OF SHARES Th e T r us tees w il l in iti al ly hol d al l Free Sh ares o r Match in g Sh ares a ll oc ated to emplo yees and any Par tners hip Shar es acquir ed on the empl oy ees ’ behalf . Emplo yees c an wit hdraw Partnershi p Sh ares f rom th e SI P tru st at a ny tim e. Free S ha res an d Match in g Sh ares h eld by em ploye es wi ll b e su bje ct to a req uire me nt th at the s ha res are h eld by the Truste es for a p er io d af ter t he i nit ial al loc at ion . T his p er io d wi ll b e not if ie d to em ploye es at th e tim e of a llo c atio n an d wi ll n ot no rm al ly be f or les s th an th ree yea rs or m ore th an f i ve yea rs. T h e SIP m ay prov ide t hat i f an e mp loyee cea ses to be em ploye d by a G roup co mp any w ith in thr ee ye ars of being allocat ed Fr ee Shares or M atchi ng S ha res ( o r su ch oth er p er iod as th e Com pa ny may sp ec if y), thei r ri ght s to those s hare s wil l b e for feite d. Howeve r , in ce r ta in ci rcum sta nces , fo r example dea th, injury , redundancy , tr ans fer o f the e mp loyi ng b usin ess o r compan y or r etiremen t, emplo yees will reta in any F ree Sh are s and M atch ing Sh ares . Th e SI P may si mi l ar ly provi de t hat Match in g Sh ares w il l be f or fe ited i f th e corr esponding Partnership Sh are s are wi thd raw n w ith in up to th ree ye ars . Sp ec ia l prov isio ns ap ply i n accord an ce wi th the relev an t leg isl a tio n in th e event o f cer t ai n corpora te transactions. 1.6 DIV ID E ND S ON S H AR E S HE L D B Y THE TRUSTEES Wh ere o rdin ar y sha res are h eld by the Truste es for p ar tici pa nts i n the SI P , the p ar ti cip a nts w il l be tre ated as the bene ficial owners of t he shar es. So me o r al l of any d iv id en ds rece ive d in respe c t of sh ares h eld by th e T ru stees may b e use d to acqu ire ad di tio na l sha res for e mp loyee s wh ich m ust n or ma lly b e he ld in th e SI P for a p er io d of th ree yea rs or ot her wi se di vi de nds m ay be d ist ri bute d t o emplo yees. 1 .7 AL TER A TIONS TO THE SIP Th e SI P may at a ny tim e be a ltere d by the di rec tors i n any resp ec t , prov ide d th at the prior appr oval of sharehol ders i s obtain ed for a lter ati ons to th e ad va nta ge o f pa r tic ip ant s to the r ule s gover ni ng eligibilit y , the individual limits on pa r tic ip atio n , the ove ra l l li mi ts o n the issu e or s ha res or tr an sfe r of trea sur y sha res , the b asi s for d eter min in g a pa r tic ip ant ’s enti tle me nt to, an d ter ms of, shares p rovi de d un de r the S IP an d any adj ust men ts w hic h may b e ma de i n the event o f a va ri atio n of c ap it al , except for minor alterations to bene fit the ad min ist rat ion o f the S IP , to ta ke accou nt of a ch an ge i n leg isl a tio n or to obt ai n or maintain fav ourable tax , ex change contr ol or r egul at or y tr eatment for participants or Group companie s. As p revi ou sly aut hor ise d by sh areh ol de rs , the C o mpany may also e stablish plans ba sed o n the S IP to ta ke accou nt of lo ca l ta x , exc ha nge co ntrol a nd se cu ri ties l aw s in ove rsea s jur isd ic ti ons p rovid ed t hat a ny sha res ma de av ai l ab le u nd er su ch f ur t her pl a ns a re treated a s count ing a g ain st th e l imi ts o n in div id ua l or ove ra l l pa r tic ip atio n in th e SI P . Ma rks a nd S pe nc er G ro up p lc 208 TIMINGS Date : Tuesd ay 7 Jun e 2022 9:0 0am Regist r ati on opens for vote ca sti ng an d qu esti on sub mis sio n in a dv an ce of the mee ting. Date : Fr iday 1 Ju ly 2022 11 : 0 0 a m Oppor tunity t o submi t v ot es an d qu esti ons i n ad va nce of the m eet ing c loses . Date : Tuesd ay 5 July 2022 9. 30am Onl ine meet ing opens and quest ion s ubmissi on r eopens. 1 1 .0 0am AGM b eg in s an d you w il l be a ble to vote o nce th e Chairman dec l are s the poll open. 1. 0 0 p m AGM clos es. T he re sult s of the p ol l w il l be rel eas ed to the Lo ndo n Stoc k E xcha ng e on ce col l ated . INFORMA TION FOR THE D A Y ELECTRONIC PA R T I C I PAT I O N Shareholders are enc ouraged t o vi ew an d pa r tic ip ate in th e 202 2 AGM ele c tron ic al ly . Th is c an b e do ne by access ing t he AGM we bsi te: h t t p s : // web.lumiagm .com/1 24 -8 49-1 27 A CC E SSING THE AG M W E B S I TE Lum i AGM c an b e acces sed o nl i ne using most w ell-known int er net brows ers su ch as C hrom e, F ire fox an d Saf a ri o n a PC , l aptop o r inte rn et - en ab le d dev ice su ch as a ta ble t or sm ar t ph on e. If yo u wis h to access t he AGM u sin g thi s meth od , ple ase g o to https:/ /web.lumiagm. c o m / 12 4 - 8 4 9 - 12 7 on t he d ay . LOGGING IN G o to https:/ /web. lumiagm .com/ 1 24- 8 4 9 -12 7 whe re you w il l the n be prom pted to e nter you r Sh are ho lde r Refe ren ce Num be r an d PIN . T hese c a n be fo un d pr inte d on you r No tice of Avai l ab il it y o r Voting C ard s ent to you by pos t. Acces s to the AGM we bsi te to vot e an d sub mi t qu estio ns in ad vance w il l be ava il a ble f rom 9 am o n 7 Ju ne 2022 until 1 1 am o n 1 July 2022. Access to the AGM webs ite wi ll re op en to pa r ti cip ate on the day fro m 9.3 0a m on 5 J uly 2022. QUESTIONS Y ou a re ab le to sub mi t qu esti ons l ive d ur ing t he m eeti ng o n the Lu mi webs ite by c licking on the “Messaging” bu tto n. T he re wi ll a l so b e det ai l s and ins tr uc tio ns o n the Lu mi we bsi te if you wo uld l i ke to ask a qu esti on l ive by telephone. Alte rn ativ ely, you ca n sub mi t qu esti ons in a dv an ce vi a Lum i – a step - by-s tep gu id e to voting a nd q ues tio n sub mis sio n in a dv an ce an d on the d ay is o n pa ge 209. As n oted i n the Co mp a ny Sec reta r y ’s let ter o n pa ges 1 99 to 20 0 of th is Noti ce, A ni ta A na nd w il l be p osi ng you r qu esti ons to th e Bo ard du r ing t he me etin g. I f you wo uld l i ke to ask you r qu esti on i n pe rso n tho ug h, yo u c an sub mi t you r record ed v id eo qu est ion by em ail to AGMquestions ubmission@ marks-and-spencer .com , to be recei ved by n o l ater th an 5 pm o n Fri day 1 J uly 2022. Please e nsu re tha t you r qu esti on reco rdi ng l as ts no lon ge r tha n on e mi nu te, so th at we ca n he ar f rom as m any s ha reho lde rs as po ssi ble . By su bmi t tin g a vi de o qu esti on , you co nse nt to your v id eo be ing p l ayed d ur in g the AG M bro adc as t; p le ase no te that t he AGM reco rdin g wi l l be m ad e pub l icly ava il a ble o n ou r cor po rate we bsite af ter t he m eeti ng . Sh are hol de r qu esti ons a nd a nswe rs w il l be p ub li she d on t he cor po ra te websi te as so on as p r ac tic ab le a f ter th e me etin g. W h ere we rece ive a n um be r of qu est ion s cover ing t he s am e topic , we wi ll p ub l ish su mm ar ise d qu esti ons an d ans wers a dd ressi ng as m any questi ons r eceived as pos sible. VOT I N G If you ’re voting l i ve du ri ng th e me etin g , the vo tin g opti on s wi ll ap pe ar on t he sc reen a f ter th e re solut ions ha ve been propo sed. Press o r cl ic k the o ptio n th at cor respo nd s wi th the w ay in w hi ch you w ish to vote: “ Fo r ”, “ Aga in st ” or “ W ithhe ld”. If you m a ke a mist ake o r wi sh to change your voting ins truction, sim ply p ress or c li ck th e cor rec t cho ice fo r tha t resol uti on u ntil t he po ll i s close d . If you w ish to c an cel you r “ li ve” vote, p ress “ C ance l ” . Ple ase n ote that a n ac ti ve inte rn et connection is requir ed in or d er t o succes sf ul ly ca st you r vote wh en the C hairman commenc es polling on th e reso luti on s. It i s you r re sponsibility to e nsur e connectivity for t he du r atio n of th e me etin g. Adv a nce voti ng is a l so ava il a bl e fro m 7 Ju ne 2022, and d eta il s o n the dif feren t method s for vot ing in ad va nce a re set ou t in th e Co mp any Se creta r y ’s let ter on p ag es 1 99 to 20 0 of thi s Noti ce. A step - by-s tep gu id e to votin g vi a the L umi w ebsi te li ve on t he d ay , an d in ad v an ce, is o n pa ge 209. PRO XIES & C ORPOR A TE REPR ESENT A TIVES If you a re a du ly ap po inted p rox y or c orpor at e repr esentat ive, ple ase co nta c t the Co mp any ’s Regist rar , Equinit i, befor e 1 1 am on Mo nd ay 4 July 2022 by ema il in g [email protected] , fo r you r un iqu e us er na me an d pa sswo rd to joi n the m eet ing . Pl eas e ensu re a va l id prox y a pp oi ntm ent h as be en ma de by n o l ater th an t he voti ng de adl i ne d eta ile d on p ag e 1 99. Ma il boxes a re mo ni tored 9. 0 0 am to 5. 0 0 pm M on day to Fri day (exclu di ng pu bl ic h ol id ays i n Eng l an d & Wales). appro x. PHY SICAL A T TENDANCE Fo llow in g th e conti nu ed su ccess of th e Com pa ny ’s digi ta l AGMs , th is yea r’s me eti ng w il l on ce ag ain b e fully digi tally-enabled. Shar eholders are ad v ise d not to tr avel to the ven ue o n the d ay . Ple ase ref er to the fol low in g info rm ati on a nd th e use r gu id e provi de d on p ag e 209 for det ai l s of how to jo in an d pa r ti cip ate in the meeting electronically . MA RK S AN D S PE NC ER G R OU P PLC NOTICE OF ME E T ING 5 JUL Y 2 0 2 2 C ONTINUED Annual Report & Financial Stat ements 2022 209 Fo r ea ch res ol uti on , s ele c t th e cho ice corre sponding with the way in w hich you w is h to vote. W he n se lec te d , a con firmation me ssage will appear . T o c ha ng e yo ur m in d , sim ply p res s th e cor rec t ch oi ce wh ic h wi l l over r id e you r pre vi ou s sel ec ti on . To can cel you r vote , pre ss “C a nce l ” . Y o u c an vote f or a ll m oti on s at th e sa m e tim e by cl i ck in g on t he “ Vote Al l ” di rec t io n bu t ton at t he top o f th e pa ge . Y o u wi ll s ti ll be a bl e to cha ng e yo ur m in d on i nd iv id u al mot io ns i f usi ng th is f eat ure . If yo u wou ld l i ke to ask a q ues ti on , se le c t th e mes sa gi ng o pti on i n th e nav ig at io n ba r at th e top o f the p a ge. Typ e you r mes s ag e wi thi n th e ch at b ox at th e top of th e me ss ag in g scre en . C li ck th e se nd button to s ubmit. Th e AGM w i ll co mm en ce at 1 1am on T ue sda y 5 July 2022. I t ca n be a cces se d th rou gh th e s am e pl a tf or m: https://w eb. lumiagm.com/1 24 -849 - 1 27 . Y ou w il l b e pro mp ted to en ter yo ur S RN a nd PI N , bo th of w hi ch c an b e fo un d on yo ur Notic e of Availabilit y . Th e me eti ng p res ent at ion w i ll b eg in a t th e st ar t o f th e AGM , w he n th e Bro ad ca st Pa ne l wi l l au tom atic a lly a p pea r at t he sid e of t he sc ree n . Y o u ca n ex p an d an d mi ni mi se th e scre en b y pres si ng th e Bro ad c ast a rro w at th e top of t he p ag e. Wh en t he C ha ir ma n de cl a res t he p ol l op en , a l is t of a ll re sol ut io ns a nd vot in g ch oic es wi l l ap pe ar o n you r de vi ce. S crol l th rou gh th e l ist to v ie w al l reso lu tio ns . Sc rol l dow n th e f ul l l ist o f reso lu ti ons a nd vote o n eac h . On ce com pl eted , a t the bo tto m of th e p ag e, se le c t the “ S ub mi t ” bu t ton to se nd yo ur vo te. If yo u wou ld l i ke to cha ng e yo ur mi nd , yo u ca n d o so by cl ic k in g “Ed it Respons es” . Du ri ng t he p rox y vot in g pe ri od , sh are ho ld ers c a n sub m it a q ues tio n by typing it int o the “Messaging” f eature . G o to htt ps:/ /web. lumiagm.com/1 24- 849 - 12 7. You wi ll b e pro m pted to e nter yo ur Shareholder Refer ence Number (“SRN”) an d PIN , b oth o f wh ic h ca n b e fou nd o n you r No tice o f Ava il a bi l it y. If you d o no t have y ou r SR N , pl eas e cont ac t Eq ui ni ti by emailing [email protected] qu oti ng yo ur f u ll n a me a nd a dd ress . W he n succ essfully authen ticat ed, shareholders wi ll b e t ake n to the H om e Pa g e. T o c a st a p rox y vote , sel ec t th e vot in g bu t ton at t he top o f th e scre en . T he reso lu tio ns a nd vo tin g ch oi ces w il l be di spl ayed w it hi n the n av ig ati on b ar. Fu r th er i nst ru c tio ns o n how to vo te ca n b e fou nd o n th e Ho me P ag e an d at th e top o f the vo tin g p ag e. T o v ote, s ele c t you r vot in g di rec ti on fro m th e op tio ns s how n on s cre en . T o c ha ng e yo ur m in d , sim ply s el ec t a dif ferent opti on. Note : Prox y vo tin g w il l clo se at 1 1am on F ri day 1 J uly 2022. LUM I AG M PL ATFO RM G UI D E: B E FO RE T HE AG M LUM I AG M PL ATFO RM G UI D E: O N TH E DA Y 2 4 5 6 3 ONLINE USER GUIDE TO THE ELECTRONIC 2 02 2 ANNU AL GENER AL MEETING 1 7 10 8 11 9 12 Ma rks a nd S pe nc er G ro up p lc 210 SHAREHOLDER INF ORMA TION AN AL YS IS O F S HA RE R E G IS T ER Ordinary shares As a t 2 Ap ri l 202 2, th e Com pa ny ha d 1 4 1 , 039 r eg iste red ho ld ers o f ordi na r y sh ares . T hei r sh areh old in gs a re ana lyse d be low. It shou ld be n oted th at ma ny of o ur p ri vate i nvestors h old t hei r sh ares th roug h no mi ne e comp an ies ; the refo re, th e ac tu al nu mb er o f sha res he ld pr iv ately w il l be h ig her t ha n ind ic ated b elow. Range of shareholding Number o f shareholder s Perc entage of to ta l shareholder s Number o f ordinary sha res Perc entage of i ssu ed share capital 1- 5 0 0 7 4 ,666 52 . 9 4 1 3 ,733,929 0 .70 5 0 1 - 1 ,000 2 5 , 919 18 . 3 8 19 , 3 3 0 , 6 81 0 .99 1 , 00 1 - 2 ,000 2 0 , 5 01 14 . 5 3 2 9,2 7 3,2 86 1. 4 9 2 ,00 1 - 5,000 14 , 1 15 10 . 01 4 3 , 0 3 6 , 371 2 . 20 5, 00 1 - 1 0,000 3 , 679 2 . 61 2 5,2 40 ,06 6 1. 2 9 1 0,00 1 - 1 00, 000 1, 6 8 7 1. 2 0 3 7, 7 76 , 214 1. 93 1 00,00 1 - 1 ,000, 000 2 97 0 . 21 1 1 2 ,75 6 , 675 5 .75 1 ,0 00 ,00 1 - Highes t 17 5 0 . 12 1 , 6 7 7, 7 5 8 , 12 2 85 . 65 To t a l 141, 0 3 9 10 0 1 ,958,905, 344 10 0 Category of shareholder Number o f shareholder s Perc entage of to ta l shareholder s Number o f ordinary sha res Perc entage of i ssu ed share capital Pr i v ate 1 3 7 , 808 9 7. 71 1 52 , 8 55 , 826 7. 8 0 Inst itutional and corpora te 3 , 2 31 2 . 29 1 ,806 ,04 9,5 1 8 92. 20 To t a l 141, 0 3 9 10 0 1 ,958,905, 344 10 0 USEFUL CONT ACTS Ma rks a nd Sp en cer G ro up p lc Regis tered O ff ice Wat erside House 35 Nor t h Wh ar f Ro ad London W2 1 NW T e lep ho ne +4 4 (0)20 7 935 442 2 Regist ered in Engl and and Wale s (n o . 425 6 8 8 6) General queri es C u s to m e r q u e r i e s : 0 333 01 4 8 555 Sh are hol de r qu er ies: 0345 60 9 08 1 0 Or email : chairma n@marks-and-spencer .com Registrar / shareholder queries Equiniti Limited, Aspect House, Sp en cer Ro ad , L a nci ng , West S usse x BN99 6DA , Uni ted K in gd om T e lep ho ne 0345 609 0 8 1 0 a nd o uts ide the U K +4 4 (0) 1 2 1 4 1 5 70 7 1 Online: help.share view .co.uk (from h ere , you w il l be a bl e to secu rely em ai l Equi ni ti wi th you r en qu ir y). Students Ple ase n ote, stu de nts a re ad vi sed to sour ce information f r om our webs ite. Additional documents An i nter ac ti ve vers ion o f ou r An nu al Re po r t is av ai l ab le on l in e at marksandspencer .com/ annualreport202 2 . Additionall y , the Annual R epor t (whi ch cont ai ns th e Str ategi c Rep or t ) is ava il a bl e for d own lo ad in p df f or mat at marksandspencer .com/ annualreport202 2 . General Coun sel and Compan y Secretary Nick Folland 5 J u ly 20 22 Annual General Meet ing ( 1 1 am ) 9 No vember 20 22 * Resu lts , H al f Y ea r † 1 2 J anuary 202 3 * Resu lts , Q ua r ter 3 Trad ing U pd ate † † Th ose w h o hav e reg is ter ed fo r el ec t ron ic co m mu ni ca ti on o r ne ws a ler ts at marksandspencer .com/thecompan y w il l rec ei ve no ti ﬁc at io n by em ai l w he n th is is a va il a bl e. * P rov isi o na l da tes . 20 2 1 /2 2 FINANCIAL CALENDAR AND KE Y D A TE S Annual Report & Financial Stat ements 2022 211 SHAREHOLDER QUERIES Th e Co mp any ’s share re gis ter is maintained by our Regi strar , E quiniti. Shareholders with queries r el ating t o their s hareholding s hould c ontac t E quiniti di rec tly usi ng o ne of th e me tho ds l iste d on p ag e 2 1 0 . Fo r mo re gen er al q ue ri es , shareho lders shou ld consult the Invest ors sec ti on of o ur co rp or ate web site. MANA GING Y OUR SHARES ONLINE Shareholders can manage their hol dings on li ne by re gis teri ng w ith S h arev iew, a sec ure on l in e pl at fo rm p rovi de d by Equ ini ti . Reg istr ati on i s a str aig ht fo r w ard proce ss an d al lows s ha reho ld ers to: – Sign up for electronic shareholder comm unication s. – Recei ve tr ad in g upd ates a nd oth er electr onic - onl y br oadcasts by the Compan y via ema il. – Vi ew al l of th ei r sha reh old in gs in one place. – Upd ate th eir re cords fo l lowi ng a change of addr ess. – Have d iv ide nd s pa id in to thei r bank ac coun t. – V ote in a dv an ce of Com p any general meetin gs. M&S enc our ages sharehol ders t o sign up f or electr onic c ommunicati ons (“e-comms ”) as t he Compan y has f ound thi s creates a m ore en ga ge d sh areh old er ba se. T he re du cti on i n pr int ing cos ts a nd pa pe r us ag e al so m akes a v al ua ble con tributi on t o our Plan A commitment s. T o f in d ou t mo re info r mati on a bo ut th e ser vi ces of fe red by S ha revi ew an d to reg ister, plea se vi sit shareview .co.uk . DIVIDENDS Further t o the a nnouncemen ts made by the C om pa ny on 1 0 N ovem be r 202 1 an d ag ain o n 1 3 Jan ua r y 2022, the Bo ard wi ll n ot be m ak i ng a f in al d iv id en d pay me nt for t he 202 1 /22 fi nan ci al yea r . DUPLICA TE DOCUMENTS Ma ny sha reh old er s have mo re th an on e accou nt on t he S ha re Reg ister a nd rec eive duplicat e documenta tion from us as a resu lt . If yo u f al l into th is grou p, ple ase co nta c t Equi ni ti to comb in e you r accou nts . SHAREGIF T If you h ave a ver y sma l l sha reho ld ing tha t is un eco nom ic al to se ll , you m ay wa nt to consi de r do nati ng i t to Sha reG if t (Reg iste red ch ar it y n o. 1 0 5 2686), a cha ri t y tha t spe ci al ises i n the d on ati on of small , un w ant ed sharehol dings t o go od c au ses. Y ou c an f i nd o ut m ore by visiting share gif t .org or by ca l li ng +4 4 20 7 930 3 73 7 . SHAREHO LDER SECURITY An incr easing number of shar eholders have b ee n cont ac tin g us to rep or t unsolicited and sus picious phone cal ls rec eived fr om purpor te d “brok ers” who of f er to bu y the ir sh ares a t a pr ice f ar i n excess o f the ir m ar ket va lu e. It is u nl i kely tha t f ir ms au tho ri sed by th e F ina nc ia l Con du c t Auth or it y ( “ FC A ” ) w il l cont ac t you wi th of f ers l i ke this . A s suc h, we b el i eve thes e ca l l s are p ar t of a s ca m , com mo nly refer red to as a “ b oi ler ro om”. The c al le rs obt ai n you r det ai l s fro m pub l icly av ail abl e sourc es of in formation, including the Company’ s Share Regist er , and can be extremely persist ent and persuasiv e. Sh are hol de rs are c au tio ne d to be ver y wa r y of a ny un sol ic ited a dv ice , of fe rs to bu y sha res at a d iscou nt , sel l you r sh ares at a pre mi um o r requ est s to comp lete confident ialit y agr eements wit h the callers. Reme mb er , if it s ou nds to o go od to b e tru e, i t pro ba bly is! More d etail ed inf ormation and guidanc e is ava il a bl e on o ur cor po r ate websi te. W e also enc our age shar eholders t o r ead the F CA’ s g ui da nce o n how to avoid s ca ms at fca.org.uk/con sumers/ protect- yourself -scams . A n over vi ew of cu rre nt com mon s ca ms is av ai l ab le o n the Ac ti on Fr aud we bsi te actionfraud . police.uk . AG M Th is yea r ’s A G M wi ll b e he ld an d bro adc as t fro m Watersi de H ous e on 5 Ju ly 202 2. Th e me eti ng wi l l sta r t at 1 1 a m. Th e 2022 A G M w il l be f ul ly digitally enabled once again and wi ll b e bro ad ca st on l in e fro m Watersi de H ous e. We stron gly encourage sharehol ders t o par ticipat e in th e me etin g el ec tron ic al ly by access ing t he AGM we bsi te, https: / /web.lumiag m.com/1 24 - 849 - 1 27 . Fur the r det ai l s ca n be fo un d on pa ge 208 o f the N otice o f Me etin g an d in th e use r gu id e on p ag e 209. Th e me eti ng wi l l al so b e ava il a ble to v iew online after the event at marksandspencer .com/thecompan y . M&S re ser ves the r ig ht to retai n an d use foot ag e or s til l s fo r any pu rp ose , in clu di ng Annual Reports, marke ting mat erials and other pu bl icatio ns. Ma rks a nd S pe nc er G ro up p lc 212 A Page Ac count ing policies 1 30 Adjust ing it ems 1 4 3 Appointment and retir ement of di rec tors 6 0 , 1 0 8 Audit Committ ee Rep or t 7 8-84 Audit or 8 3 Audit or ’ s remunera tion 1 4 2 Audit or ’ s report 1 1 3- 1 2 3 Annual General Meeting 1 98- 209 B B o a r d 6 0 - 62 Borro wing facilities 1 64 Busi nes s mo de l 0 9 C Capital commitments 1 77 Capital expenditure 4 3 Colleague in volv ement 1 1 0 Con ﬂi c ts of i nterest 1 08 Corporat e gov ernance 56 Cost o f sa les 1 4 1 Critical ac count ing judgements 1 3 7 D Deadlines for exer cising vot ing rights 1 1 0 Def er red t ax 1 7 6 De pre ci ati on 1 34 , 1 59 Derivativ es 1 65 Di lute d ear ni ng s per s ha re 1 48 , 1 49 Direct ors’ ind emnities 1 08 D ir ec tor s’ i n te res t s 1 02 Direct ors’ responsibilities 1 1 2 Direct ors’ single ﬁgure of r emuner ati on 1 04 Dis closu re of in for ma tio n to audi tor 1 1 2 Di vi de nd cover 1 9 1 Di vi de nd p er sh are 35 E Pag e Ea rn in gs p er sh are 1 48 Emplo yees 1 49 Emplo yees with disabilities 1 1 1 Equal opportunities 1 1 1 ESG Co mm it tee Re po r t 7 0 - 77 F Finance income/ costs 1 46 Fi na nci al a sset s 1 6 2 Fi na nci al i nst ru me nts 1 35 , 1 65 Financial liabilities 1 64 Fi na nci al rev iew 36 Fi xed c ha rge cover 1 9 1 G G loss ar y of al tern ati ve performance me asur es 1 9 2 Going conc er n 1 30 Goodwill 1 57 G rocer ies S up ply Co de of P ra c tice 1 1 1 H Hedging r eser ve 1 2 8 I Income statement 1 2 4 Intangible assets 1 5 7 Intere sts i n votin g ri ght s 1 0 9 Int ernational Financial Reporting Stan dards 1 30 I n v e n t o r i e s 13 4 , 13 9 Inv estment propert y 1 26 K Ke y performance in dic ator s 1 3, 1 8 , 22, 35 L Page Leas e liabilities 1 64 N Nominat ion Comm ittee Report 66- 69 P Pri nc ip al r isk s and u nce r ta int ies 47 Proﬁt a nd d iv id end s 109 Power to is sue sh ares 1 0 9 Political donations 1 1 1 R Ris k ma na ge me nt 4 5 Remunerati on Policy 9 1 Remunerati on Committee 85 Remunerati on Report 95 S Segmental information 1 40 Shareholder informat ion 2 1 0 Sh are c ap it al 1 77 , 1 89 Sh are sc he mes 1 5 4 Signiﬁcant agreements 1 1 0 Sta teme nt of c ash ﬂo ws 1 29 Stat ement of c omprehensive income 1 2 5 Sta teme nt of ﬁ na nci al p osit ion 1 26 Str ateg ic pr io ri ties 0 6 Subsi diar y undertakings 1 86 T Ta x a t i o n 14 6 T otal s hareholder re turn 1 03 T r ad e an d oth er p aya bles 1 63 T r ad e an d oth er rece iv ab les 1 62 T r an sfe r of se cur iti es 1 09 V Vari ati on of r ig hts 1 09 Viabilit y sta temen t 55 FINANCIAL ST ATEMENTS Consolidat ed income s tat ement 1 2 4 Consol id ated statement of compr ehensive income 1 25 Consol id ated statement of ﬁnancial posit ion 1 2 6 Consol id ated statement of changes in equity 1 2 7 Con sol i date d ca sh ﬂow st atem ent 1 29 Note 1 Acc ounting policies 1 30 2 Segmental inf orm at ion 1 40 3 E x pense ana lysis 1 4 1 4 P roﬁt be fore t ax ati on 1 42 5 Adjusting items 1 43 6 F inance income/ costs 1 46 7 I ncom e ta x e xp ens e 1 46 8 E a rni ng s pe r sha re 1 4 8 9 Dividends 1 49 10 Emplo yees 1 49 11 Retiremen t beneﬁt s 1 49 12 Marks and Spencer Scottish Li mited Par tne rship 1 54 13 Sha re- b ase d pay me nts 1 54 14 Intangible asse ts 1 5 7 15 Pr opert y , plant and equipment 1 5 9 16 Other ﬁnancial as sets 1 6 2 17 T r ad e and o the r recei v abl es 1 62 18 Cas h an d cas h eq ui va len ts 1 63 19 T ra de a nd ot he r pay ab les 1 63 20 Bor ro w ings and other ﬁnancial liabil itie s 1 64 21 Financial instruments 1 6 5 22 P r o v i s i o n s 17 5 23 D efe rre d ta x 1 7 6 24 Ordinary share c apital 1 77 25 Contingencies and c ommitments 1 7 7 26 An alysi s of c ash ﬂows g ive n in the s tate men t of c ash ﬂow s 1 7 8 27 An alysi s of net d eb t 1 79 28 Related party transactions 1 80 29 I nvestments in joint ventu res and associa te s 1 8 1 30 Go vernment suppor t 1 8 2 31 Co ntin ge nt as sets 1 82 32 S ubs eq ue nt even ts 1 82 Company ﬁnancial sta temen ts 1 83 Notes to the C om pa ny ﬁnancial sta temen ts 1 85 G roup ﬁ na nci al re cord 1 90 INDEX Th is re p or t i s pr in ted o n Re vi ve 100 o f fs et , a 100 % rec yc le d pa pe r m ad e fr om p os t - con su me r wa ste . Rev i ve is m an uf a c tu red to the certified en vironmental management s ystem ISO 1 4001 . Designed and produced by Friend w w w .friendstudio.com Pr in ted a t Pu rep ri nt G ro up , IS O 1 4 0 01 . FSC ® certified and CarbonNeutral ® . Th is re p or t w as p r inte d u sin g ve ge ta bl e oi l ba se d in ks b y Pureprint G roup a CarbonNeutral ® pr in ter c er t if ie d to IS O 1 40 01 envir onmental management system and r egister ed t o EMAS the E co Management Audit Sc heme. Both manufacturing mill and the print er are register ed t o the Envir onmental Management System ISO400 1 and are Fore st Stewardship Council ® (FSC ® ) ch ai n of c usto d y cer t if i ed . Mar ks an d Spe nce r Gro up pl c An nua l Rep or t & F in anci al St atement s 20 22

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