Marks & Spencer outlines plans for rights issue

The estate remains under the knife. The group revealed a charge of £222m covering the accelerated store closure programme, which has been expanded to include several food outlets. The total includes accelerated depreciation, impairment of assets, estimated onerous leases and other closure costs. The figure was around £100m down on the comparable charge in FY2018, so the drag on statutory numbers wasn't as pronounced. However, strip out these adjustments – and other items – and profits were down 9.9 per cent to £523m. Even so, store closures translate into operating cost savings, and management generated £100m in efficiencies over the year. This is expected to reach "at least" £350m by 2021.

To fund the Ocado joint venture, announced in February, it plans to carry out a one-for-five rights issue, raising £601m by issuing 325m new shares – equal to 20 per cent of the existing issued share capital – at 185p. This represents a 26.3 per cent discount to the theoretical ex-rights price.

A mixed outcome across the business divisions, with UK food like-for-like (LFL) revenue down 2.3 per cent and a 15 basis point reduction in the gross margin. UK clothing and home LFL revenue was down 1.6 per cent, although the gross margin was up 20 basis points, driven by a reduction of stock put into sales. We can expect further top-line decline through FY2020 on the back of more store closures, while gross margins in both are expected to fluctuate up or down by as much as 25 basis points.

Tight controls on spending – including a 40 per cent cut to the dividend – have helped the balance sheet, leading net debt to fall 15 per cent. However, capital expenditure is due to pick up again next year, to £350-£400m from £235m, as the group ups its investment in new store trials and expands its logistics capacity in the clothing and home division.

Bloomberg consensus forecasts suggest adjusted EPS will fall to 24p in the year to March 2020, down from 25.4p in FY2019.