Struggling retailer Marks & Spencer (MKS) has taken further major steps to shore up its finances for the next 18 months as it plans for a slow return to shopping amid the coronavirus crisis.
Today’s liquidity update includes news of a formal agreement with its banking syndicate on forthcoming revolving credit facility (RCF) covenant tests, confirmation of eligibility to the COVID Corporate Finance Fund (CCFF) and the waiving of the full year 2021 dividend, which will save the high street institution some £210m of cash.
HARD YARDS AHEAD
Steered by chief executive Steve Rowe and chaired by Archie Norman, shares in Marks & Spencer cheapened 1.2% to 93.3p as the retailer warned it is planning for its Clothing & Home business to be ‘severely constrained during lockdown and highly uncertain trading conditions in a prolonged exit period.
'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.’
The British retail institution benefits from a strong food business and is on track with its work with Ocado (OCDO) for a September 2020 online launch, although Marks & Spencer also cautioned that ‘food trading has been adversely affected by lockdown due to the closure of cafes and slowdown in travel and some city centre locations.’
SHORING UP ITS FINANCES
In March, Marks & Spencer warned the coronavirus pandemic would ‘severely impact’ its Clothing & Home and international businesses, withdrew financial guidance and cancelled its dividend for the 2019-20 financial year ending 31 March.
Today, Marks & Spencer added it ‘does not at this stage anticipate paying a dividend for the 2020/21 financial year, generating a cash saving of circa £210m’. This is much-needed with lower profits expected, many employees currently furloughed and net debt likely to rise.
In terms of liquidity, Marks & Spencer has formally entered into an agreement with its syndicate of lenders to substantially relax or to remove requirements around the next three tests on its £1.1bn revolving credit facility (RCF), so September 2020, March 2021 and September 2021.
This gives management more flexibility to steer the business forward in turbulent times, as does the news Marks & Spencer is eligible for the Bank of England’s COVID Corporate Finance Fund.
‘We deem this to be good news in the context of particularly difficult times, notably given the group’s expectation to have significant undrawn credit for the next eighteen months under base and more cautious scenarios,’ commented Shore Capital.
