Current Trading and Outlook
Trading has become more difficult since we last updated on current trading on 12 October. However, we do not believe this trend to be entirely Marks & Spencer specific. With Christmas, we still have our two key profit driving months ahead. It is therefore too early for us to predict the outcome for the second half at this stage.

Chairman's Statement:
This has been a period of great change for the company. In May, Stuart Rose, Charles Wilson and Steven Sharp joined Marks & Spencer and were immediately involved in leading the response to a possible bid for the company, and preparing a strategy to deliver the true value of Marks & Spencer to its shareholders. Over the past four months, the team has been deeply involved in implementing a comprehensive programme of change within the business and we are updating shareholders on this today. We have also delivered substantial structural change including returning £2.3bn to shareholders and agreeing the sale of M&S Money.

There can be little doubt as to the scale of the challenge which Stuart and his colleagues have inherited. However, we have made good progress on laying the foundations for our recovery. The management changes announced today are evidence of our determination to accelerate the pace of change within the business. I am confident that the benefits of all the work that is being done will become increasingly apparent through the course of next year.

Chief Executive's Statement:
Marks & Spencer is a business which requires radical change in the way that it operates. It needs to completely re-focus on the customer. It needs to move more swiftly and with greater confidence. It needs to rebuild its pride in its service and standards. Since becoming Chief Executive I have spent most of my time re-acquainting myself with all areas of the business, talking to our staff, customers and suppliers and visiting our stores. We face some serious issues but having spent time in the business I am in no doubt that we have the capability to address and overcome them.

Where there are challenges I can see opportunity. The solutions lie in strong retailing disciplines and a complete focus on delivering to the customer style, quality, value and innovation. We can buy better, market better, present our stores better and improve the speed and efficiency of our supply chain. We also have other strengths on which to build. The Brand is strong and relevant. We have a loyal customer base which wants us to get it right. We have excellent suppliers with whom we are working closely and when we produce the right product, at the right value, it sells in huge volumes. We have talented people throughout the business and I am in no doubt that when they are focused on the tasks in hand the pace and effectiveness of the business will improve substantially.

I have today announced substantial changes to the senior management team and on how we will operate the business in the future. These departures are not a reflection of the talents or qualities of the people involved. They have served the company well and I would like to thank them all for the substantial contributions they have made. However, if we are to succeed we need to change how M&S is led and how it operates. I will take direct responsibility for retailing, merchandising and buying. Charles Wilson will be responsible for our systems, logistics and property. We will be seeking a new Finance Director to take responsibility for all financial matters and our international business. We have a strong operational team running our trading divisions and we will be looking to strengthen it further.

On July 12, I outlined our plans to improve the performance of M&S, by focusing the business in 04/05, driving it in 05/06 and broadening in 06/07. This programme of action is designed to deliver substantial value for shareholders. We have made good progress.

We have completed much of the structural change to the Group. We have:

• acquired per una
• returned £2.3bn to shareholders through the Tender Offer
• taken steps to close the 'Lifestore' programme in January 2005
• stopped 21 of the 31 strategic initiatives in order to focus on our core business
• completed negotiations with suppliers to improve terms
• agreed the sale of M&S Money to HSBC

We have also started to implement a wide range of initiatives designed to improve the operating efficiency of the business. We will see the benefits of these changes through next year:

Board and senior management changes
Marks & Spencer is today announcing a number of changes to its management team and board structure. As a result, the company is to streamline its board, reducing the number of Executive Directors from six to three.

A number of senior executives will be leaving the company. Alison Reed, Finance Director, is to step down by mutual agreement and a search for a new Finance Director is now underway. After 20 successful years with Marks & Spencer, including over three years as Finance Director, Alison wishes to move on to the next stage in her career. However, she has agreed to stay on as Finance Director until February 2005 to ensure a smooth handover.

Maurice Helfgott, Executive Director Menswear, Childrenswear & Home, has made a significant contribution over 16 years. Having eliminated the role between the Chief Executive and the business unit directors, Maurice is stepping down from the board with immediate effect and leaving the company by mutual agreement. Mark McKeon, Executive Director Retail, International & Franchises, will similarly be leaving the board with immediate effect: neither board position will be replaced. Laurel Powers-Freeling, Chief Executive of M&S Money, is stepping down from the board with immediate effect as a result of the sale of the business to HSBC. She will continue to oversee the transition and will leave the company before the end of the financial year.

Jean Tomlin, Human Resources Director, and Jack Paterson, Business Unit Director Home, are also leaving the company.

Stuart Rose, Charles Wilson and the Finance Director will be the three Executive Directors to sit on the Marks & Spencer board. All buying and merchandising directors will now report directly to Stuart Rose, with IT, logistics and property reporting to Charles Wilson and finance, international and M&S Money reporting to the Finance Director. Marketing will continue to report to Steven Sharp.

As part of this management review, Stuart Rose has also made the following appointments. Anthony Thompson is to become Director of Retail. Fiona Holmes, currently Executive Assistant to the Chief Executive and former head of Men's Formalwear, is to become Childrenswear Director. Keith Cameron is to join as Human Resources Director. A new Director of Home will be appointed in due course. In the meantime, Steve Rowe will act as interim director of Home. A search is underway for an external candidate to become Director of Food.

The trading team will now comprise:

UK Retail
In the six months to 2 October 2004, UK Retail sales were down 0.4% at £3,307.6m (down 0.5% at £3,643.7m including VAT). However, on a
like-for-like basis sales were down 4.0%. Footfall remained broadly level on the year.

In Clothing, Womenswear generally had a disappointing half with a poor Summer season and despite an initial encouraging start to Autumn in knitwear and formalwear, we failed to sustain momentum to the end of the half. However, per una maintained its strong double digit growth. Childrenswear also had a difficult summer but schoolwear performed well. We continue to work on improving opening price points and ranging, especially in newborn and boys. Lingerie has improved performance throughout Autumn driven by improvements in availability, fit and ranging. Menswear performed relatively well throughout the half with good sales in casualwear and a strong suit and formalwear offer.

Home sales were particularly weak with the product being out of line with customer needs. We have now focused on rebuilding the core categories of bath, bed, kitchen and home accessories.

In Food, sales excluding VAT were up 3.2% (including VAT +3.4%), although like-for-like sales were down 2.1%. We have a clear lead on quality but competition is intense. Our offer is too complicated with too many sub brands and too much product proliferation. Our performance varies significantly between our stores. We are addressing issues of ranging, availability, waste, markdowns, promotions, and pricing. We are also focusing on the environment of our food offer: Simply Food is being simplified from five different formats to two.

Action on operating costs has enabled us to reduce costs, including logistics costs, over the half by 0.9%. In the second half, we will continue to focus on reducing our operating costs and we are maintaining our previously published guidance of a 1% increase for the full year.

International
M&S has performed well internationally. Sales in the Marks & Spencer branded businesses (Republic of Ireland, Hong Kong and franchises) increased by 9.3% over the half (+13.3% at constant exchange rates). Operating profit increased by 58.6% to £27.6m.

Our franchisees have seen good like-for-like sales increases and are investing in new footage. The stores in the Republic of Ireland have traded well over the half. On 4th November 2004, 25 years on from our first store opening in the Republic of Ireland, we opened one of our new look M&S stores in Blanchardstown. We will be opening a new 90,000 square foot store in Dundrum in March 2005.

Sales at Kings Super Markets were broadly level over the period at constant exchange rates, compared with the same period last year. Operating profit at Kings over the period was £1.2m as a result of actions taken last year to improve financial performance.

Financial Services
The first half presented several challenges for the Money business, with 3 base rate rises and the sale of the business to HSBC. Despite this, key targets were achieved and operating profit at £24.5m was in line with our plans.

New credit card recruitment has been successful, with 314,000 accounts recruited in the first half against a target of 263,000. At the half year we had 2.4m credit card accounts and 2.9m cards in issue. Since the launch of the '&more' card and loyalty scheme, we have issued £42.5m in '&more' loyalty vouchers to our card customers. Total lending to customers was £2.5bn, with the growth in card balances to £1.3bn offset by a fall in personal lending balances to £1.2bn. Bad debt performance continues to be substantially better than industry averages, with the bad debt charge for the period running at 1.9% of balances (annualised).

Our motor insurance product was rolled out during the period, and the outsourcing of our home and contents insurance business to Norwich Union in Perth has been completed. Overall insurance policy sales are 66% up on the same period last year.

Net interest expense
Net interest expense was £36.2m compared to £23.9m for the same period last year with the increase largely attributable to the interest on the £400 million Public Bond issued to fund the contribution to the UK pension scheme. The average rate of interest on borrowings during the period was 5.5% and interest cover was 6.7 times.

Taxation
The tax charge reflects an estimated effective tax rate for the full year of 30.2% before exceptional charges, compared to 30.1% for the last full year.

Dividend
The Board has declared an interim dividend of 4.6 pence per share. This will be paid on 14 January 2005 to shareholders on the register at close of business on 19 November 2004. The shares will trade ex-dividend from 17 November 2004.

Earnings per share
Adjusted earnings per share, which excludes the effect of exceptional items, has decreased by 7.3% to 8.9 pence per share.

Balance sheet and cash flow
The Group generated a net cash inflow for the period of £534.0m compared with £41.9m last year. The movement compared with last year reflects the launch by M&S Money of the mini cash ISA in March 2004. At the end of the period, net debt was £1,351m, a decrease of £644m from the year end, giving rise to retail gearing of 51.5%, with total gearing at 55.8%.

UK Retail capital expenditure for the period was £109.4m. UK Retail capital expenditure for the full year is now expected to be in the region of £240m (£290m for the Group as a whole).

In August, we signed two new banking facilities totalling £2bn. These facilities, together with existing resources, were used to fund the return of £2.3bn to shareholders.

On 28 October, we repurchased 635,359,116 ordinary shares, representing 27.9% of the issued share capital, for cancellation at a price of 362 pence per share and a total cost of £2.3bn. Following completion of the Tender Offer and the cancellation of those shares which have been repurchased, the number of ordinary shares in issue was 1,645m.

Exceptional items
The Group has recorded exceptional charges of £81.0m in the first half of this year, as follows:

'Lifestore' closure costs represent the anticipated cost of closing the 'Lifestore' programme. These costs include stock provisions, asset write-offs and other property related costs.

Defence costs represent the cost incurred, primarily for professional advice, in defending the possible offer from Revival Acquisitions Limited. Included in these costs is £4.6m which has been incurred in making the necessary changes to the Board.

During the first half of this year, £8.3m of revenue costs were incurred in connection with the relocation of the Head Office and have been charged as exceptional operating costs. This relocation was completed at the end of October.

We have also incurred £3.8m of costs in the first half of the year in connection with the implementation of the Head Office restructuring programme which was announced prior to the year end.

Pensions
Under FRS 17 - 'Retirement Benefits' - there is only a requirement to perform a full valuation at the end of each financial year. The last formal valuation of the Group's post-retirement schemes was carried out as at 3 April 2004. However, at the half year, we have updated this FRS17 valuation for market related movements, being the market value of scheme assets and the discount rate used for liabilities. This update has resulted in an increase in the deficit to £772.8m (£565.2m after deferred tax).

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 such forward-looking statements are subject to various risks and uncertainties, including 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.

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