Marks & Spencer Regulatory News (MKS)

Issued: 7 November 2018

Press Release

Marks and Spencer Group Plc

Half Year Results For 26 Weeks Ended 29 September 2018

"Accelerated pace of change in the first phase of transformation"

1Adjusted results are consistent with how business performance is measured internally. 2Refer to adjusting items table below for further details. See glossary for definitions and reconciliations to statutory measures.

Strategic progress

· New management structure and significant change in organisation and direction under substantially new leadership team

· Reshaping buy and focusing on hero lines in Clothing & Home

· Initial steps to restore value and broaden family appeal in Food

· Closure programme of over 100 full-line stores generating encouraging transfer rates; significant further change required

· Initial steps to drive digital catch up and change in culture; 20.4% of UK C&H sales now online

· Process in place to reengineer end to end supply chain, removing costs, complexity and working capital

· At least £350m of cost savings targeted, to underpin delivery

Steve Rowe, Chief Executive:

"In May I set out in our "Facing the Facts" presentation, the challenges we face and the steps we are taking in this the first phase of our transformation programme. Against the background of profound structural change in our industry, we are leaving no stone unturned and reshaping our business, its organisation and culture.

"This phase is about rebuilding the foundations of the future M&S and we are judging progress as much by the pace of change as the trading outcomes. Already, we have reorganised into a family of strong businesses in the biggest change to our structure for decades. We now have a largely new, very determined and energetic management team in place. M&S is becoming a faster, more commercial and more digital business.

"We are on track to restructure our store portfolio with over 100 full-line closures and expect to see newly remodelled stores open next year. We are fixing the basics of our online channel and there are very early signs of improvement. Every aspect of our ranges, how we trade, our supply chain and marketing is undergoing scrutiny and change."

Financial headlines

· Profit before tax & adjusting items up 2.0% as a result of the phasing of costs with full year cost guidance unchanged

· Adjusting items of £96.8m, including £47.6m for UK store closure programme

· Clothing & Home revenue down 2.7% impacted by store closures, with like-for-like sales down 1.1%. Online Clothing sales growth ahead of market. Gross margin down 20bps as a result of sale timing

· Food revenue down 0.2% with like-for-like revenue down 2.9% reflecting tough trading and our actions to restore trusted value, including fewer promotions and price investment, and Easter timing. Gross margin down 25bps as a result

· Net debt reduced to £1.78bn as a result of tight capital expenditure control and slightly lower working capital year-on-year

RESTORING THE BASICS

In May we set out the nine key pillars of our first phase 'restoring the basics' transformation agenda and we will report on the performance against each of these as we progress. Our objective is to create a profitable, growing family of businesses within three to five years, bound together not only by shared sites but by a common consumer brand, employment values, technology and customer data.

This half year report is presented in three sections:

· An update on progress against nine key areas of our 'restoring the basics' agenda outlined in May

· A financial review of our half year performance

· Unaudited accounts for the 26 weeks to 29 September 2018

1. Reshaping the ranges and customer profile in Clothing & Home

In Clothing & Home our business has an ageing customer base, a very wide range, a weak supply chain and an ageing store portfolio. Despite this, we retain a very strong customer franchise and market position. Clothing & Home revenue decreased 2.7% as we closed 21 full-line stores and three outlets in the period. Like-for-like revenue decreased 1.1%. Discounted sales were broadly level, with the impact of sale timing offset by a planned reduction in promotions.

Our objective is to reshape our buy; reducing the number of options, buying more stylish and contemporary product in greater depth, and to deliver market leading value. By focusing on stylish and wearable "Must-Have" essentials and building on our strong customer franchises in denim, lingerie, back to school and workwear, we will shift back towards family aged customers seeking style, quality and value.

During the first half we made a start on reducing the number of lines and bought slightly deeper into key categories such as dresses, where sales were up by 3% with strong growth online. We also reduced the price of hundreds of everyday lines, including our £15 men's chinos, which generated an increase in sales of 8%. Our sales were held back by weakness in areas such as tops and in Kids daywear where range improvement is needed.

Our marketing has pivoted from group level branding campaigns towards a more effective retail and digital programme. Our recent "Must-Haves" campaign together with "Holly's Picks", endorsed by our new brand ambassador Holly Willoughby, capture our central themes of stylish everyday essentials and a family age customer. The "Love it for Less" campaign underpins the beginnings of our value investment.

2. Protecting the magic but modernising the rest in Food

Food revenue decreased 0.2%, with like-for-like revenue down 2.9%. We opened 22 new Food stores in the period, the benefit from which was partly offset by full-line closures. As expected, reported revenue was adversely impacted by the timing of Easter and by the actions we are taking to restore "trusted value". These include reducing prices and removing complex and confusing promotions. Although we are starting to reshape the ranges and tackle the weakness in our supply chain, waste and availability remain worse than market comparator levels.

We are at the early stages of reengineering our food categories and development pipeline to broaden our appeal and frequency of shop. Over recent years the business has become excessively dependent on both short-term promotions and complex and confusing multi-buys including the profit dilutive "Dine In" programme. We have already reduced the prices of over 100 everyday lines with many more to go. Sales have been impacted by the pain of transition to "trusted value" and we expect this pattern to continue in the lead up to Christmas.

Illustrations of our actions include our Oakham whole chicken at a "New Lower Price" of £3.50, the "Best Ever" Burger and "Best Ever" Prawn Sandwich, and the £5 everyday value "Stag Tin" butter shortbread, all highly successful. As with Clothing & Home, marketing has been redirected towards sales driving programmes including "What's new at M&S" on social channels, appealing to a different audience at lower cost than traditional media.

3. Transforming our leadership

Both main UK businesses are building very strong leadership teams, so that two-thirds of our most senior business leaders are new in the last 18 months. In Clothing & Home Wes Taylor as Menswear Director and Jill Stanton as Womenswear Director are leading very substantial programmes of change alongside recent appointments in supply chain and marketing. The Food team is now substantially new with the appointment of George Wright, due to join next year from Tesco PLC as Commercial Director, April Preston as Product Development Director, Sharry Cramond as Marketing Director and Nick Hewitt as Finance Director. Dean Simpson has arrived to lead the store renewal programme. Kirsty Ward, formerly VP of Financial Services at Walmart Inc. and Jeremy Pee, formerly Digital Director at Loblaw Companies Limited, will be joining before Christmas.

We continue to attract and promote new talent interested in joining potentially the biggest turnaround project in UK retail.

4. Building greater accountability

The embedded M&S culture is siloed, slow, and hierarchical. We have now completed the first phase of restructuring, evolving to a simpler accountable family of businesses supported by common values, shared infrastructure and customer data, and a streamlined central team. Jill McDonald and Stuart Machin, as Managing Directors, have full accountability for Clothing & Home and Food, and complete functional business boards now including marketing, supply chain, finance and technology. This reorganisation included the redeployment of c.350 colleagues previously sitting in Group marketing. Our International business is also structured in the same manner as the UK.

5. Becoming a digital first retailer across M&S

As part of our digital first approach, Jeremy Pee joins us as Chief Digital & Data Officer in December to lead the turnaround of our data and loyalty programmes and the digital conversion of the business.

In advance we have launched the "Decoded programme", which involves sending 1,000 colleagues on a one-day digital immersion programme and 150 colleagues on an 18-month data analytics programme. To give M&S the opportunity to access the best of digital innovation and change our culture, we have also established incubation partnerships with Founders Factory and True Capital, partly to provide insight into the sector and partly to expose M&S colleagues to the speed and agility of entrepreneurial management.

Our website and online fulfilment capability remain well behind the best of our competitors. However, very early steps to improve our website have helped deliver UK Clothing & Home growth of 9.1% online, with clothing growth ahead of the market, and further improvement has been seen in recent weeks. Technology and supply chain resilience remains an issue but despite this 20.4% of UK Clothing & Home sales are now online compared with 18.2% in H1 2017/18. We have completed an investment in Castle Donington to improve the immediate capacity issues through peak trading. Further investment will be needed next year to meet our growth plans to 2021, after which additional despatch capacity will be required.

IT development and the transition from legacy systems remains challenging. A further IT development write-off was taken in the first half and we continue to experience teething problems with new systems, notably new warehouse management systems. Work is in hand to address basic weaknesses in merchandise and range planning processes. The migration to the new technology partner TCS has progressed, although inevitably this transition has created some bedding down issues.

6. Creating a high-quality store estate fit for the future

Our estate is older than those of our competitors with numerous legacy issues which urgently need to be addressed.

We are on track to close over 100 full-line stores and have now closed 29 under our accelerated UK store closure programme. The sales transfer rates from these early closures has been encouraging and most colleagues have been successfully redeployed. We are also at the early stages of planning the redevelopment of some of our older sites in city centres. Our UK stores are predominately leasehold and while around half of our lease liabilities fall due within 10 years our average remaining tenure on market rent leases is around 20 years. In addition, we retain a freehold interest or part interest in many of the problematic older stores. Future development will be undertaken under strict returns criteria, to ensure that we begin to reduce this historic burden on our business.

The combination of rising business rates and rent increases continues to put pressure on the cost base but we expect rent inflation to diminish substantially as the new reality dawns on landlords and centre owners. Combined rent and rates inflation on continuing stores in the first half was c.1%.

With this cost pressure we are moving towards a leaner operational structure. In the first half we implemented the streamlining of regional management structures removing around 500 roles.

Our store formats need renewing to create a more modern, customer and service friendly and digital environment for both main businesses. However, any evolution in format will fall into the second stage of transformation. At this stage, store expenditure remains tightly controlled with limited low-cost investment to improve sight lines and basic customer services.

7. Cost savings of at least £350m by 2020/21

M&S has in recent years become high cost to operate at all levels and we set out hard targets to reduce costs as part of the first phase of transformation. We are making good progress on our ambition to generate cost savings of at least £350m by 2020/21 to create a leaner, more efficient base for the business.

In the current year cost savings derive from the management restructure, IT transformation programme, property costs, and central costs including procurement, in addition to the operating costs of stores which have closed. We expect these will offset inflation, new space and channel shift, with the result that we are maintaining our guidance of up to 1% reduction in full year UK operating costs.

We expect our programme to build from its current base. The closure of marginal low contributing stores and the rationalisation of unprofitable categories and ranges will in time unlock significant cost, margin, working capital and maintenance capital savings. These include an improved shape and depth of buy reducing the cost of singles handling and stock clog in Clothing & Home. Improved rates of sale in Food will reduce unnecessary waste and through our closure programme we will eliminate the facilities maintenance costs of outdated equipment in legacy stores.

We will also further rationalise the number of holding centres for stock as we complete our single tier network. In addition, we will leverage technology to improve store operations from labour scheduling to stock management and replenishment to self-scan and checkout. We will maintain an intense focus on central costs, procurement and support functions which do not drive sales.

8. Modernising our Clothing & Home and Food supply chains

In both major businesses the supply chain infrastructure is well short of state of the art, management has been fragmented, and consequentially stock levels, availability, markdown and waste all remain at uncompetitive levels. However comprehensive programmes including "Fuse" are now underway to implement end to end changes supported by expert outside advice.

In Clothing & Home stock carrying levels remain at c.20 weeks and availability remains unsatisfactory. Supply chain and store operating costs are impacted by the complexity of stock handling and the volume of slow-moving lines. The initial assessment of Clothing & Home "Fuse" is promising, with significant reduction in stock and cost to operate. In physical distribution we are on track to open a further national distribution centre at Welham Green next spring and this will allow us to increase our single tier network coverage to c.85%.

In our Food supply chain we operate high and demanding standards of freshness and code life. However, both waste and availability remain at uncompetitive levels compared to our major rivals. The Food programme aims to address this problem and to date has focussed largely on changing processes at store level. Initial results from the "academy" stores are encouraging, but there was no significant benefit in the first half results. Longer term progress will require more far reaching restructuring of the supply chain.

9. Rebuilding profitable growth in International

Our International business is now emerging from the fundamental restructuring to reshape it around a number of very strong franchise partners and to exit some of the loss-making owned businesses. This now provides a viable platform for implementing essential improvements, in pricing to become market competitive, in supply chain, and online.

In the first half International revenue decreased by 18.4% at constant currency primarily as a result of the sale of our business in Hong Kong to a franchise partner in December 2017. Excluding Hong Kong and exit markets, revenue grew by 1.6% at constant currency.

Our International competitiveness is increasingly impacted by the growth of other international fashion brands. Our objective is to adapt our International ranges and prices to compete in local markets not just as a premium priced British brand. Price reductions have delivered encouraging volume uplifts where implemented. As we roll out the programme to larger markets, price deflation will impact margins, but we are repositioning the businesses for future growth.

Full year guidance 2018/19

Trading conditions remain challenging and the headwinds from the growth of online competition and the march of the discounters remain strong in all our markets. Therefore, as we embark on the difficult early stages of transformation we are expecting little improvement in sales trajectory.

· In Clothing & Home we now expect a space reduction of c.4% (previously 5%) as at year end. Our programme remains on track

· Capital expenditure remains under tight control and we expect it to be between £300-350m before disposals (previously £350-£400m)

· All other full year guidance remains unchanged and is shown in detail on page 16

First half group revenue: constant currency

Group revenue decreased by 3.0% at constant currency. First half revenue was adversely impacted by Easter timing by an estimated 0.8% in Food and 0.2% in Clothing & Home and the Group's accelerated UK store closures. International revenue reflects the sale of our retail operations in Hong Kong to a franchise partner at the end of December 2017. Excluding Hong Kong and exit markets, International revenue grew by 1.6%.

See glossary for definitions. Prior year revenue has been restated for the reclassification of cards & gift wrap from Clothing & Home to Food.

We will report our third quarter trading update on 10 January 2019.

For further information, please contact:

Investor Relations:

Fraser Ramzan: +44 (0)20 3884 7080

Mark Davies +44 (0)20 3884 6508

Rebecca Edelman +44 (0)20 3884 6029

Media enquiries:

Corporate Press Office: +44 (0)20 8718 1919

Investor & Analyst webcast:

Investor and analyst presentation will be held at 9.00am on 7 November 2018. This presentation can be viewed live on the Marks and Spencer Group plc website.

Fixed Income Investor conference call:

This will be hosted by Humphrey Singer, Chief Finance Officer, at 2.00pm on 7 November 2018:

Dial in number: +44 (0)330 336 9125 Access code: 8343136

A recording of this call will be available until 5.00pm on 14 November 2018:

Dial in number: +44 (0) 207 660 0134 Access code: 8343136

HALF YEAR FINANCIAL REVIEW

1. Prior year revenue has been restated for the reclassification of cards & gift wrap from Clothing & Home to Food. For further detail please see Note 2 to the financial statements.

UK: Food

Food revenue decreased 0.2%, with like-for-like revenue down 2.9%. As expected, reported revenue was adversely impacted by the timing of Easter, a planned reduction in promotions and price investment.

We opened 22 new Food stores during the period in line with our plan to focus store expansion on only the highest returning locations. As expected, the sales contribution from new stores was partly offset by our store closure programme.

Gross margin was down 25bps year-on-year. While we continued to absorb input cost inflation, we also made initial investments in trusted value, although we partly offset this by reduced promotional spend.

UK: Clothing & Home

Clothing & Home revenue decreased by 2.7% as we closed 21 full-line stores and three outlets. Like-for-like revenue decreased 1.1%. Discounted sales were broadly level, with the impact of sale timing offset by a planned reduction in promotions.

Gross margin was down 20bps at 58.1%. Buying margin was up 30bps, as we offset currency headwinds and price investment with better buying. Discounting increased by 50bps. While stock into sale was down, as expected margin was adversely impacted by greater sell through of sale stock in the reporting period.

Clothing & Home online performance was encouraging, with revenue growth of 9.1%, with Clothing growth ahead of the market. Total M&S.com revenue increased 5.6% at constant currency, adversely impacted by the planned change to our food offer and by the closure of our website in China.

UK operating costs

1. See Note 2 to the financial statements.

UK operating costs decreased by 2.1%. The costs of new space and channel shift were largely offset by store closures in the period. Inflation related cost increases were more than offset by our cost saving programmes and the timing of a number of expenses which will rebuild in the second half.

Store staffing costs and other store costs reduced as closures and efficiencies more than offset cost inflation.

Supply chain efficiencies were insufficient to offset the costs of inflation and channel shift in distribution and warehousing.

Marketing costs declined, although this largely reflected the timing of campaigns.

Central costs reduced as a result of lower incentives year-on-year, offsetting investment in the "Fuse" programme and increased IT expenses which were driven by the write off of a systems investment.

M&S Bank

M&S Bank income before adjusting items was down £1.9m to £18.7m. This was predominantly a result of a decline in the travel business and an increase in bad debt provisioning.

International

1Last year restated for closure of our online business in China. Hong Kong results reported in owned retained until the business was sold to our franchise partner in December 2017.

International revenue decreased 18.4% at constant currency, as a result of the closure of stores in loss making exit markets and the sale of our operations in Hong Kong to our franchise partner in December 2017. Excluding these effects, revenue at constant currency increased 1.6%. Growth in franchise revenue was driven by the further expansion of our Food business, particularly in France. The decline in revenue in owned retained markets, reflects difficult trading in the Republic of Ireland which was largely offset by continued growth in India and other owned retained markets.

International operating profit before adjusting items increased by 3.0% to £62.1m. Total retained profit declined 2.7% driven by lower franchise operating profit. This was adversely impacted by a change in mix and a reallocation of central costs to franchise markets following the exit of loss-making owned stores. We also benefited from the recovery of an historical VAT receivable in our owned exit markets.

Net finance costs

Net finance costs decreased by £8.0m to £(39.0)m. This was primarily due to a £10.3m decrease in interest payable as a result of the repayment of the US$500m bond in December 2017. Pension net finance income increased by £3.9m driven by a higher UK defined benefit pension scheme surplus at the start of the year. The unwind of discount on provisions reflects the central London office reorganisation as well as our UK store estate programme.  

Group profit before tax & adjusting items

Group profit before tax & adjusting items was £223.5m, up 2.0% on last year benefiting from lower first half costs.

Adjustments to profit before tax

The Group makes certain adjustments to statutory profit measures in order to derive alternative performance measures that provide stakeholders with additional helpful information on the performance of the business. For further detail on adjusting items please see Note 3 to the financial statements.

We have recognised a number of charges in the period relating to the implementation of our strategic programmes including:

· A charge of £47.6m in relation to stores proposed for closure. This includes accelerated depreciation, impairment of assets and other closure costs

· A charge of £11.1m in relation to the redundancy costs associated with the review of the retail organisational structure and accelerated depreciation related to centralising our London offices

· A charge of £8.3m in relation to our technology transformation programme which we began in the prior year

· A net charge of £9.0m as we continue to transition to a single tier UK Clothing & Home distribution network, including the closure of two of our distribution centres

In FY 16/17 the Group announced its intention to close owned stores in ten international markets. A net charge of £2.3m has been recognised in the period reflecting the actualisation of previously estimated closure costs.

We continue to incur charges in relation to M&S Bank insurance mis-selling provision resulting in a charge of £15.3m.

Taxation

The effective tax rate on profit before tax and adjusting items was 22.0% (last year 21.0%). This is higher than the UK statutory rate due to the recapture of previous tax relief under the Marks and Spencer Scottish Limited Partnership ("SLP") structure. The effective tax rate on statutory profit before tax was 29.1% (last year 28.5%) due to the impact of disallowable adjusting items.

Earnings per share

Basic earnings per share increased by 3.8% to 5.4p, due to the increase in profit year-on-year. The weighted average number of shares in issue during the period was 1,624.0m (last year 1,624.3m).

Adjusted basic earnings per share decreased by 0.9% to 10.6p as higher adjusted profit year-on-year was offset by higher profits attributable to non-controlling interests in the period.

Capital expenditure

Group capital expenditure before disposals decreased by 2.9% to £109.0m.

UK store environment spend was slightly down reflecting the investment in store layouts in the prior year. This was partially offset by our investment in the renewal and rebranding of Foodhalls. Spend on UK store space was also down as we opened ten new owned Food stores in the current year compared to ten Food and four full-line stores in the prior year.

Supply chain expenditure increased, reflecting our investment in the Welham Green distribution centre and our investment to increase capacity at Castle Donington. Maintenance spend also increased as we have invested in energy efficiency projects and we have reconfigured our central London office building.

Cash flow & net debt

The business generated free cash flow before adjusting items of £300.4m, up £82.0m on last year, driven by a working capital inflow, lower capital expenditure and lower interest and taxation payments. The working capital inflow was largely a result of a lower build-up of seasonal stock year-on-year and the timing of payments. Lower interest and taxation payments reflect both the repayment of a bond in December 2017 and lower taxable profit in the prior year.

Defined benefit scheme pension funding of £36.8m reflects the second limited partnership interest distribution to the pension scheme.

Adjusting items in cash flow during the period include £15.3m for M&S Bank, £14.8m in relation to our store closure programme, £9.4m of net restructuring and redundancy in our stores and warehouses, £7.8m in relation to our IT transformation programme and £8.5m relating to the closure of stores in International markets.

After the payment of our final dividend from FY 17/18, net debt was down £46.4m from the start of the financial year.

Dividend

We have announced an interim dividend of 6.8p. This will be paid on 11 January 2019 to shareholders on the register of members as at close of business on 16 November 2018.

Pension

On an IAS 19 basis, the net retirement benefit surplus was £970.9m (last full year £948.2m) as at 29 September 2018.

We have reached agreement with the Marks and Spencer plc (the Company) UK Defined Benefit Pension Scheme Trustee with regards to the triennial actuarial valuation of the scheme.

The valuation as at 31 March 2018 has resulted in a statutory surplus of £652m. This is an improvement on the previous position at 31 March 2015 (statutory surplus of £204m), primarily due to lower assumed life expectancy. The Company and Trustee have confirmed, in line with the current funding arrangement, that no further contributions will be required to fund past service as a result of this valuation (other than those already contractually committed under the existing Marks and Spencer Scottish Limited Partnership arrangements - see Note 9).

On 26 October 2018, the High Court issued a judgement in a claim involving Lloyds Banking Group's defined benefit pension schemes. This judgement concluded the schemes should be amended to equalise pension benefits for men and women in relation to guaranteed minimum pension benefits. The issues determined by the judgement have a potential consequence for many other defined benefit pension schemes and are likely to result in an increase in the liabilities of the Marks and Spencer UK Defined Benefit Pension Scheme. This increase has not been reflected in either the actuarial surplus agreed with the Trustee or the interim results.

Guidance

We expect Clothing & Home space to decrease by 4% (previously 5%) as at year end and capital expenditure to be between £300-£350m (previously £350-£400m) before disposals. All other full year guidance remains unchanged.

1. As at year end

Brexit

The impact of the United Kingdom's decision to leave the European Union remains unknown for the UK and the Group. The implications for the Group could include, but are not limited to:

· Uncertainty on international trade tariffs

· Changes to logistics operations and the practicalities of movement of goods

· Tightening of the labour market and the potential for increased costs

· Volatility in currency and corporate bond rates which could have an impact on the Group's trading performance and pension valuation and charges

· Changes in consumer confidence which may impact on the Group's ongoing trading performance

The Board continues to monitor the ongoing negotiations between the UK and the EU to assess the potential impact and any transitional arrangements that may be agreed.

Statements made in this announcement that look forward in time or that express management's beliefs, expectations or estimates regarding future occurrences and prospects are "forward-looking statements" within the meaning of the United States federal securities laws. These forward-looking statements reflect Marks & Spencer's current expectations concerning future events and actual results may differ materially from current expectations or historical results. Any forward-looking statements are subject to various risks and uncertainties, including, but not limited to, failure by Marks & Spencer to predict accurately customer preferences; decline in the demand for products offered by Marks & Spencer; competitive influences; changes in levels of store traffic or consumer spending habits; effectiveness of Marks & Spencer's brand awareness and marketing programmes; general economic conditions or a downturn in the retail or financial services industries; acts of war or terrorism worldwide; work stoppages, slowdowns or strikes; and changes in financial and equity markets. For further information regarding risks to Marks & Spencer's business, please consult the risk management section of the 2018 Annual Report (pages 20-24).

The forward-looking statements contained in this document speak only as of the date of this announcement, and Marks & Spencer does not undertake to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

- Ends -

Principal risks and uncertainties

The principal risks and uncertainties which could impact the Group's long-term performance remain those detailed on pages 23-24 of the Group's 2018 Annual Report and Financial Statements, along with mitigating activities relevant to each risk. Information on financial risk management is also set out on pages 106-108 of the Annual Report, a copy of which is available on the Group's website www.marksandspencer.com. These principal risks cover:

- Trading environment

- Business transformation

- Food safety & integrity

- Corporate compliance & responsibility

- Information security (including Cyber)

- Technology

- Talent & capability

- Brand & customer experience

- Third party management

The impact of the United Kingdom's decision to leave the European Union on 29 March 2019 remains uncertain for the UK and the Group. The implications for the Group could include, but are not limited to:

- uncertainty on international trade tariffs;

- changes to logistics operations and the practicalities of movement of goods;

- tightening of the labour market and the potential for increased costs;

- volatility in currency and corporate bond rates which could have an impact on the Group's trading performance and pension valuation and charges; and

- changes in consumer confidence which may impact the Group's ongoing trading performance.

The Board continues to monitor the ongoing negotiations between the UK and the EU to assess the potential impact and any transition arrangements that may be agreed.

Statement of directors' responsibilities

The directors confirm that, to the best of their knowledge, this condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.4R, DTR 4.2.7R and DTR 4.2.8R, namely:

- the condensed set of financial statements gives a true and fair view of the assets, liabilities, financial position, cash flows and profit or loss of the issuer, or undertakings included in the consolidation;

- an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

- material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.

There have been the following changes to the directors of Marks and Spencer Group plc to those listed in the Group's 2018 Annual Report and financial statements; Humphrey Singer (appointed 9 July 2018), Katie Bickerstaffe (appointed 10 July 2018), Pip McCrostie (appointed 10 July 2018), Richard Solomons (resigned 10 July 2018) and Vindi Banga (resigned 1 October 2018). A list of current directors is maintained on the Group's website: www.marksandspencer.com.

By order of the Board

Steve Rowe

Chief Executive

1The 'Other reserve' was originally created as part of the capital restructuring that took place in 2002. It represents the difference between the nominal value of the shares issued prior to the capital reduction by the Company (being the carrying value of the investment in Marks and Spencer plc) and the share capital, share premium and capital redemption reserve of Marks and Spencer plc at the date of the transaction.

1The 'Other reserve' was originally created as part of the capital restructuring that took place in 2002. It represents the difference between the nominal value of the shares issued prior to the capital reduction by the Company (being the carrying value of the investment in Marks and Spencer plc) and the share capital, share premium and capital redemption reserve of Marks and Spencer plc at the date of the transaction.