May 20, 2020 / 11:38 AM / 9 days ago

FACTBOX-How British retailer M&S is attacking costs to survive COVID-19

(Adds charge in paragraph 19)

By Kate Holton

LONDON, May 20 (Reuters) - Marks & Spencer, one of the biggest names on the British high street, is defending its business from the coronavirus pandemic by negotiating property savings, cutting investment and cancelling stock and marketing.

Showing the scale of the challenge facing companies, below are the steps the 136-year-old retailer has taken to respond to the temporary closure of its clothing and home store space and the surge in online demand for food.

Liquidity:

- Its banks have agreed to relax or remove covenant conditions on its 1.1 billion pound ($1.4 billion) revolving credit facility.

- Company has confirmed it is eligible for Britain’s COVID Corporate Financing Facility and been allocated an issuer limit of 300 million pounds.

- Scrapped its dividend.

Cost savings:

- To cut around 500 million pounds in 2020/21 by reducing Clothing & Home marketing by around 50 million pounds, freezing pay levels and recruitment to save around 40 million pounds, and technology costs will be down around 40 million pounds.

- Will also make savings from the international business, reduced logistics, expected declines in property and service costs.

- Is examining further savings including a streamlined support centre, changes to leadership structure and is negotiating terms on lease contracts with landlords.

Attempts to stabilise cashflow:

- Unsold stock is leading to a steep increase in working capital and a cash outflow that could require the company to draw on its credit facilities in the months ahead.

- Capital expenditure has been reduced, with only essential and short payback plans retained such as investment in a food depot, online delivery and digital services.

- Cash management initiatives include deferral of corporation tax, sales tax and duty payments.

Management of stock:

- It has cancelled late summer stock.

- Around 400 million pounds of basic year-round stock will be carried forward, creating a short-term increase in stock carrying levels.

- It has secured storage to hibernate around 200 million pounds of stock until spring 2021.

- Also taken a charge of 145.3 million pounds in its accounts to reflect the cumulative impact of the combined handling, clearance, hibernation and write-off of stock.

Impact on trading:

In the six weeks to May 9, organic sales fell by 75% in the Clothing & Home business and by 8.8% in food. Clothing & Home.com and M&S.com grew sales by 6.4% and by 19.9% respectively.

$1 = 0.8162 pounds Reporting by Kate Holton; Editing by Mark Potter

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