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M&S gets cash flow deal with banks, says fashion sales to stay weak in 2020

Published
Apr 28, 2020
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Marks & Spencer issued an intriguing release on Tuesday that on the surface was all about securing its cash flow to see it through the coronavirus crisis. But it also talked about how tough this year will be for its already-under-pressure Clothing & Home division and suggested it’s planning to radically change the way it approaches its business.


M&S is facing a tough future but has plans to deal with it and has enough cash to do so - Reuters



The company said it’s expecting the Clothing & Home business “to be severely constrained during lockdown” and is planning for “highly uncertain trading conditions in a prolonged exit period”. That means not much improvement for most of the year with the firm adding that “in the absence of a clear basis for forecasting, our scenario planning and stress tests are based on materially subdued trading for the balance of 2020 in Clothing & Home”.

Fortunately, the retailer has a thriving foods business to counteract the downturn, although it won’t fully do so. Its premium image and fresh foods offer mean it’s not benefited from panic-buying as much as ‘everyday essentials’ supermarkets have. Additionally, its usually booming food sales in town and city centres are taking a hit from many of its usual customers now working from home. And with its cafés closed, this important revenue stream is producing nothing at present. But at least the transition to a home delivery option with Ocado is “on track” to proceed in September.

The company is due to report its preliminary full-year results on May 20 and said it will also provide “a further update on the very significant measures being taken to reduce costs and protect cash flow during the crisis period”.

And it added that the crisis has created “a very different way of working and rapid learning for the business at all levels. At the time of the results presentation we will also outline measures being taken to accelerate the transformation programme and change ways of working permanently under our ‘never the same again’ programme currently being prepared for implementation”.

That means the results announcement next month will be much more interesting than a set of dry figures. The retailer isn’t sharing any information in advance though, so we’ll have to be patient until then.

For now, we know that M&S has put steps in place to protect its cash flow while the lockdown carries on and during the period that it’s gradually lifted. It said it “has now completed steps to secure liquidity for the likely duration of the Covid crisis and to underpin the recovery strategy and accelerated transformation in 2021”.

It’s reached agreement with the banks that provide its £1.1 billion revolving credit facility to “substantially relax or remove covenant conditions for the tests arising in September 2020, March 2021 and September 2021”.

And it has been “confirmed as an eligible issuer under the UK Government's Covid Corporate Financing Facility (CCFF), providing significant further liquidity headroom”.

It all means that under its base planning scenarios “and even more adverse assumptions, the business would have significant undrawn credit available for the 18 months ahead”.

But unhappily for shareholders, its cash flow planning mean it has cancelled its dividend for the 2020/21 financial year, generating a cash saving of around £210 million.

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