Marks and Spencer Group plc (MKS) Earnings Call Transcript & Summary

Good day, and welcome to the M&S Fixed Income Investor Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. David Surdeau. Please go ahead.

Thank you. Good afternoon, and welcome to the Fixed Income call. I'm David Surdeau, I'm the interim Group CFO, and I'm joined this afternoon by our group Treasurer, Dan Brook. I hope all of you and your families are keeping well in these difficult times. Look, I'm aware, there's lots of information to digest in today's RNS. So I'll quickly recap on the update we gave investors this morning before moving on to the questions and answers. Group sales were slightly down at GBP 10.2 billion and group adjusted profits reduced by 21%. There was an estimated adverse impact to our adjusted profit of around GBP 52 million in March, and we largely attribute that to the impact of COVID-19. Cash through profits were down 20%. We recognized GBP 213 million of COVID-specific adjusted items. So that makes the total impact of COVID-19 at around GBP 265 million. We generated GBP 225 billion of free cash flow, and our net debt, including leases, reduced 1.2% on last year. As we've already announced, we don't plan to pay a final dividend for the last financial year. Last year, we made good progress against our transformation priorities, particularly in Food and volumes strengthened throughout the year. During the year, we undertook a full review of the way operating costs are allocated between our businesses, and we are now reporting the full profit and loss account down to operating profit for each of our 3 segments: Food, Clothing & Home, and International. We've communicated what we believe to be a prudent COVID-19 cash scenario, which was formulated in the early days of the lockdown and it's been stress tested to give even greater downside, should that be required. Relative to our original budget, the scenario assumes a very substantial decline in Clothing & Home sales in the U.K. and International and volatile trading in Food. This does not represent a forecast, but it's the means against which we have planned over GBP 1 billion of debt to reduce cost and to manage cash flow. Under this scenario, we expect the group to experience an adverse movement in cash flow with a peak drawdown of facilities in early autumn. As you know, also last month, we agreed substantial waivers and relaxation of our covenants on our RCF facility. Relative to our GBP 1.4 billion of combined facilities under our RCF and the government CCFF facility, which we're eligible for, we still retain a very substantial headroom even at the peak. While the scenario assumes, we end the year with drawings of -- in the range of GBP 300 million to GBP 350 million, our recent trading performance has been substantially better than that scenario, and we've outperformed this by around GBP 150 million year-to-date. As we have communicated today, we intend to use the learning from the crisis to accelerate the group's transformation in the coming months and move forward at pace. So that's a brief summary of what we've been communicating this morning. And now I'd be happy to take any questions.

[Operator Instructions] Our first questioner.

I just had 3 questions, please. One is just on the online business. Could you talk about what online availability has been throughout the COVID period? And now just online, obviously, some of the seasonal products, especially for children's wear, the way that has fluctuated has not been that great. I was wondered if you could give us some comments underlying what's happened there? And you're obviously seeing strong growth more recently, but just talk us through the moving parts there? And secondly, on the COVID corporate financing facility, you mentioned your eligible book to GBP 300 million per the rating. Have you drawn on that yet? Can you disclose what do you have? I'm just wondering on the sort of cash and availability you're talking about, whether that figures includes in there? Or whether that's an additional amount? And then just on the store states. I think Steve discussed this morning looking at maybe accelerating some of that review. Or what point do you think the group can give any guidance you in talk to landlords, but just on what we might expect to see in terms of stores as the restrictions ease? Will all the stores open? Or are you keeping some closed or maybe you're thinking about whether those will stay permanently closed?

Thank you very much. Sorry, we didn't actually catch your name when you asked questions.

Oh, sorry, I thought it was announced. It's Vicki Gedge calling from PIMCO.

Okay. Thanks for your questions. Thank you. Well, I'll take them in the order that you asked them. So actually, online availability has held up pretty well, and demand has been good. Interestingly, when the crisis first kicked in, we were -- you're not noticing a particular increase in demand. And I think at that stage, customers were more focused on just their basic grocery requirements and on buying food. They weren't especially focused on buying Clothing & Home items. But as the weeks surpassed, the level of demand has increased, and we're now experiencing substantial like-for-like growth in our online Clothing & Home business. And availability has been reasonable. We do have a very modern facility at Donington, and we are able to keep that operating with the appropriate health and safety measures, social distancing and the rest. And as the weeks go on, we learn how to make that facility even more productive. So we're reasonably well -- in reasonably good shape there. And obviously, in terms of the other side of our business, we're also working to launch with Ocado in -- on the 1st of September. And the work around the ranging and sourcing of those products is proceeding well. So we're very much excited by the prospect of that major strategic move into the world of online food. Your second question concerned the CCFF. We have drawn on the facility. As you know from the IRS, we do have substantial headroom at combined GBP 1.4 billion from our RCF and the CCFF facility. And yes, the CCFF is provided by the Bank of England, Treasury for companies with credit ratings such as ours and/or -- such as ours was on the 1st of March, and we're appreciative of that. But clearly, we did already have a reasonable liquidity in place, and it just gives us more optionality and helps us at this time of uncertainty. And in terms of the store state, well, we have been keen to say today that this is the element of a program, which has been announced several years ago and is ongoing in terms of store closures, in terms of relocating our stores, in terms also of opening new stores because there is still many opportunities, especially for our Food business. And so we are moving into a situation in terms of relationships between retailers and landlords, which is quite fluid. What we know is that the market is changing. None of us know the pace of that change or where it's headed or where it will end. But nevertheless, landlord-by-landlord, we are entering into sort of fruitful and hopefully, mutually beneficial discussions as the nature of the high street and the nature of the shopping experience changes. So it's business as usual in terms of our transformation program and our previously announced store rationalization. But clearly, the nature of landlord-tenant relationships is in flux, and we will hopefully come out of this with the strengthened property position.

Just a couple of follow-ups, if I may. Just on the rent negotiations, have you secured any sort of rent-free periods or rent reductions as of yet? And then just on the online, with the shift, we talked in the release in the presentation this morning about more of moving in Clothing & Home from stores onto online, what's the capacity within the Donington facility? And would you need to build new facilities to accommodate the growth that you anticipate?

Well, on the first question, we want to maintain good relationships with our landlords, and this is a difficult situation for retailers. It's also a difficult situation for landlords. So we did pay our rent as -- it became June -- in March, and that is appreciated. I'm not really in a position to talk about individual discussions of individual landlords, which is a work in progress, really. But clearly, you would've read a lot of news flow around how the market is changing, and we'll seek to take advantage of that. Concerning the Clothing & Home, we do have some optionality at our Donington facility. There was a mezzanine floor there. We are looking at making some limited investment to be able to use that. So we do have some capacity at Donington to increase our throughput. And that's exactly what we embarked on that.

Our next questioner.

It's Karan Samtani here from Millennium. Just 2 questions. The first one is the split between the variable and fixed costs for the U.K. business. Could you break that out? And the second question is, where do you see your working capital at year-end?

So to your first question, I mean, I don't know if you had a chance to go through the RNS, we do have a P&L down to operating profit level.

Yes, I have, but you've said...

Also in the note to the back, there is some breakout, I think of depreciation, amortization. So I think there is a reasonable amount of disclosure in there. Hopefully, we'll get you to a -- you need to get to in terms of our operating profit split between the 3 parts of the business. And then your second question concerning working capital. I mean, hopefully, again, that can be derived from the information that we have disclosed around our headroom and our liquidity over the course of the year, and the peaks and troughs of our headwind and our drawings.

Okay. Can I just follow up? I mean you split the business up into the Clothing & Home and Food business by giving us the EBIT breakdown. Obviously, you've given us the percentage, costs that have been -- as a percentage of our sales, the costs have been allocated, but do you intend to give us the actual figures instead of just the percentages of revenues?

Well, this is the first time we've reported segmentally. It's the way we look at the business ourselves. So we felt that we gave a reasonable amount of disclosure in there in terms of the business units. And there is a breakdown of margin and staffing and other line items. And hopefully, with what you have, we have a revenue breakdown, but then you have a sufficient in there to come up with a pretty reasonable analysis of our operating profit between the business units.

Our next questioner.

This is Rebecca from Fidelity. I have a few questions. The first one, actually following on from, I believe, the PIMCO lady's question, the last one. When you were referring to extra capacity at Donington, was that with respect to offering additional brands? Or was there something else you were referring to?

No. That was with respect to our existing Clothing & Home offer, but obviously, clothing, principally. It doesn't particularly relate to other comments that have been made about introducing brands in the sense of not Marks & Spencer brand. So it's in respect of our existing online clothing offer.

Okay. I just wasn't sure I caught the context for the expansion. I don't know if that was related to fulfillment from store or curbside pickup or what that was about?

No, that's to -- for our existing online model, which is historically been a blend of delivery and click and collect.

Okay. And do you know if you have -- from the Marks & Spencer perspective, do you have an inventory view of all of your inventory? And can you fulfill from store? Or do you separately do online out of your e-com facilities? And then stores just whatever is in the store and isn't -- doesn't provide for fulfillment?

Well, in the current situation, we are delivering centrally. But when stores were trading and open, and there was an element of pick in the store and fulfillment from store. Actually, as the demand for online has increased, we've been increasingly switching that back on. So I think we have something like 80 stores now where you could actually have the option of picking and collecting in stores.

Okay. Okay. That's helpful. And then regarding the CCFF facility, do you have any details about when that matures? And what kind of rate you're paying on it?

Yes. To be a little bit careful because I'm not sure because Her Majesty's government through the HM's Treasury, Her Majesty's Treasury, have changed the regulations around the CCFF from time-to-time and the disclosure. And I think it's reasonably understood that the facility is for a year, but it's renewable. So potentially, will be available to us for 2 years because clearly, we could renew the facility towards the end of its life in its first year. So we expect the CCFF to be available to us for up to 2 years. I'll pass on answering the question about rates other than to say that it is alone, and they are commercial rates.

Okay. And then you did say that you've drawn on it since March. Would you be willing to say how much you've drawn? And also, would you be willing to say if you've drawn on your existing credit facility as well since your fiscal year-end?

Well, we -- at this moment in time, we have drawn on the CCFF facility. It's -- for a company with our credit rating on the 1st of March. There was a balance of -- drawn of GBP 300 million. And at that moment, that's what we've drawn.

Okay. Any draw on your other -- your existing RCF...

At the moment, we're not drawn on our RCF facility.

Okay. All right. So -- sorry, go ahead.

Sorry. Yes, the RCF is fully undrawn. And just on your point on the rates on the CCFF, they're in line with what's on the banking and website. So a short-term credit rating of A3 P-3, which we are attracted interest rate of 70 basis points over LIBOR. So whatever the applicable tenor that we draw down upon, it will be 70 basis points over that. So I think at the moment, for a week, it's -- LIBOR is about 7 basis points and for the full year, it's nearer to 70, 80. So it gives a range of between 70 basis points and 140, all in based on where rates are at the moment.

Okay. That's very helpful. And then I guess, going back to the Millennium gentlemen's question. In terms of working capital, I see that you have the business rate holiday, which is quite helpful, and that won't be a working capital impact. But in terms of the other deferrals or the lengthened payment time for various taxes and things like that. Do you expect those to be paid before the end of your next fiscal year? Or is that something that they've given you a longer-term schedule for when you have to pay that?

No, in terms of our scenario planning, we were assuming the benefit in cash flow terms in the current financial year, but we're not -- certainly not planning on those continuing into the following financial year.

Okay. And in the case of the items there, you still actually owe them. You're just given a bit of a extension in terms of when you have to pay them. Is it fair to say that, that's a help to working capital this year, but it will probably be a drag in the following year? Is that a reasonable way to think about it?

Well, to the extent to which they reverse next year, yes, there will be some items potentially, which rolled over from this year until the next year. But clearly, next year, we have some other items which will help us. For example, we've made an announcement about not paying a dividend for this year. And the final dividend element of that, which was around GBP 130 million, that would normally be payable in the next financial year, and we don't plan to pay that. So there'll be some benefits, which will accrue next year as well.

Yes, absolutely fair. That's fair enough. And then regarding the stored inventory because your -- I think you said you're taking about GBP 200 million of seasonal inventory, and you're going to store that and bring that back for Spring/Summer next year. Is there any special accounting treatment for that? Or does it just basically sit on your balance sheet? And then you have a little bit of extra cost for the storage?

Yes, it will be in our stock, and it will be carried forward. And as you rightly pointed out, we have put some provisions into our COVID stock provision to the fact that because we're storing it for longer, some of it might deteriorate. There will be some product handling costs and some storage costs. So we've provided for those.

Okay. You provided for those in the plan for this year?

Yes, in -- that's right.

Okay. It wasn't taken last year, okay. I'm almost done. I have...

Sorry, sorry, just so we're clear. So the stockholding is in this year, but the actual provision against any deterioration, any losses, any handling, that was included in the stock provision that we made as an adjusting item in the year '19, '20.

Okay. Okay. All Right. Helpful. And then, I apologize, I have been spending quite a bit of time. There is a lot of information in detail, which is fantastic. I appreciate you guys providing that. But you referenced your -- through your historicals, you referenced gross profit and gross margin in the commentary, but you don't actually break it out in the financials. I didn't see any way. I mean are you not going to be reporting gross profit by segment going forward?

No. I mean our plan is to show operating profit margin. It's the way we look at the business. We think it's more helpful because from -- because there is a revenue figure and because there is an operating profit margin figure. It does mean you can get to a bottom line profitability for each of our business units, which we believe to be helpful. And it is the way we run our business.

Yes. And that is helpful from a segment perspective. But on a consolidated reporting basis, are you not going to have a cost of goods sold in gross margin? I'm just a bit surprised that I didn't see it, and I thought maybe I was missing it somewhere because it's rather important for retailers from an audited perspective, I would think, to show what their growth profit is?

Well, I think that's a matter of opinion. To be honest with you, I think, we -- it's extremely difficult to read across between retailers their gross margin percentages because everybody has a different view of how various things are accounted, waste, stock loss, distribution costs and such lights. Plus the fact that, ultimately, the most important thing is quantum profit. And if you look at the quantum of operating profit, you get a better feel for how the mix of price promotion, buying prices, and that's like are reflected through in quantum profit rather than bits of gross margin figure, which only tells part of the story.

Well, true, but it also gives you ability to track it. I guess I covered a lot of retailers, and I don't think I've ever had a retailer that doesn't actually report gross profit. So it's quite unusual from what I've seen historically. But again, I wasn't sure, if I was missing it or I guess I'll have to rebuild my model to report it in a different way. Two more questions for me. In terms of your ending inventory for fiscal '20, it looked like it was down significantly year-over-year, like almost like 20% in terms of the carrying value. And I was just wondering what drove that? Number one; and number two, do you have a unit -- inventory unit level of change year-over-year?

To the second part of your question, no, reflecting the different nature of our business is -- and the very different SKU profile and the changing nature of our customer offer. So it's very much value really rather than SKU. To the first part of your question, I'm not sure I actually recognize that comment about the reduction in our stock level year-on-year. And that's again...

So. Okay. So maybe it was changed. I believe, last March, you had GBP 700 million of inventory on your balance sheet. And this period, you had GBP 564 million. Did I not see that correctly?

The adjusting items provision attempting your...

I think maybe -- I think possibly the issues is really the deduction of the adjusting items provision. So because most of our adjusting items was actually a stock adjustment, so the cost of clearing that stock or, as we've said, potentially storing it, that's actually was around GBP 150 million. So that's quite a substantial reduction from the value of the stock. But obviously, for the most part, that stock physically exists at this moment.

Okay. Yes, it just came up in when I was looking at your numbers, and I was a bit surprised there was such a significant change. And that's why after if there was like a unit or SKU level. I didn't know if there was anything else going on there. Okay. Last one from me...

No, I think it's that provision.

Okay. That's helpful. I guess I should have drawn the conclusion that the provision was taken in the current fiscal year, but it's a lot of numbers today, I apologize. And then last -- just last question. Just in terms of rating agencies, I appreciate that you qualified for CCFF, and it's hardly the end of the world to be a BB retailer. But I was just wondering, have you had any recent discussions with the rating agencies? Or will you be having any upcoming discussions with the rating agencies?

Yes. We regularly touch base with the rating agencies. And obviously, we speak with them in advance of financial results, and we'll continue to do that going forward. So we disclose a lot of information to our rating agencies as part just the regular credit review process. And yes, that's about it.

[Operator Instructions] Our next questioner.

This is [ Leo Tessler from MFS. ] I have 2 very simple questions. One is, you've indicated that you expected the end -- by the end of the year -- fiscal year to have about GBP 300 million drawn on your credit facilities. What do you think given that inventories are building up at the moment? What do you think the maximum amount there will be -- that you will need to draw during the year? That's question one. And question two, in terms of the additional costs that you will have to incur in order to operate under the government's guidelines and requirements, can you quantify approximately how much additional costs -- operating cost this would entail?

Okay. So in terms of your first question, I think we have indicated that at the end of the year, we -- under our scenario, our drawings are in the range GBP 300 million to GBP 350 million. And I think we've also indicated that in the autumn, halfway through the year, we expect them to be around GBP 600 million. But I think we've also mentioned that after 6 weeks of performing against that scenario, which we believe to be very prudent, by the way, we were something like GBP 150 million favorable to it. So hopefully, we'll continue with that performance and actually be comfortably within the borrowing scenario, both at the half year and at the end of the year. Additional costs, well, mainly this year is actually about reducing costs. We've identified over GBP 1 billion worth of cost savings and cash savings right through our business. We've been through every discretionary cost line and identified items, which can either be canceled or deferred. And then because of the significantly lower sales, especially in our Clothing & Home business, there are some volume-related cost savings, too. So generally, most of our P&L cost lines are reducing, and that's how we're seeking to manage our business in these difficult times. There are one or two small areas with our additional spends. The obvious phase would be in Food logistics where -- to maintain the distribution centers at the operational level, you did need to spend more on cleaning. Some of the productivity is not so good because of the social distancing measures. And because of absence, there may be some temporary staff that we need to recruit. So there are some incremental costs in Food logistics, but they're not of a very high order. Generally, what we're doing this year is actually reducing costs, not increasing them.

So it's a reasonable expectation to assume that your overall operating cost this year will be lower than last year as a percentage of sales? Is that reasonable?

Well, I think there's still 2 questions there. I mean our cost without a doubt will be lower than last year. But of course, it's against a much lower sales base because of the closure of large parts of our business over recent weeks. There is a lockdown, notably for Clothing & Home. So on that basis, you would expect cost to be higher as a percentage of sales. But really, we're not especially looking at the P&L this year. This is a year about cash and liquidity, and that's what our scenario is seeking to do.

Okay. And I appreciate also all the details that were provided in the release today.

Our next questioner.

I have a couple as well, please. The first one is a follow-up on the working capital. Few clarifications there, please. So as I understand, obviously, the balance sheet number of GBP 564 million inventory is after the write-down of about GBP 157 million of inventory. Whereas, I understand where you talk about the COVID-19 impact and the FY '19 Clothing & Home inventory ending about GBP 500 million, that GBP 500 million is net after the write-off? Is it correct?

So actually, we didn't catch your name. Sorry, we -- I thought you would state your name at the beginning of the question.

Yes, sure. My name is [indiscernible] from JPMorgan.

Okay. Thank you. Thank you for the question. I didn't personally hear the last part of your question. You were asking about stock.

Yes. So on Page 6, you mentioned that we closed FY '20, the Clothing & Home stock of GBP 500 million. Is that GBP 500 million before or after the GBP 145 million stock write-down?

The GBP 540 million is before the stock provision.

GBP 500 million...

So we are holding that provision for the ultimate clearance for the stock in the new financial year.

But in the footnote regarding the inventory, the balance sheet number GBP 564 million, which is for the combined business, this actually is after the...

Yes. The divestment. And I think that's where we're slightly disconnected at the moment because I thought you were asking about Clothing & Home. But yes, so GBP 564 million actually is the combined, Food and Clothing & Home. And that is after the COVID-19 provisions, yes.

Exactly. Okay. So that's clear. So then following up on that one, you mentioned the first half '21 stock coming in, it's about GBP 560 million. Am I right thinking that's about a 30% reduction year-on-year in purchases?

That's -- yes, it's -- yes, there is a lot of GBP 560 million down there, which makes life confusing. But you're right, we did have committed stock coming in to meet the expected -- originally expected customer demand of around GBP 560 million. And we've taken various measures, as you will have seen. We actually managed to cancel GBP 100 million of that to reduce that level. And then we have various activities planned. Some of that is continuity stock. So it can actually be flow through to subsequent seasons, some of which will hibernate until Spring/Summer next year. And some of it will clear as well. So it's effectively why our cash flow is negative in the first half of this year because we have to pay down the value of that stock. We've taken measures to actually reduce the orders and manage it that way. So that's how we're seeking to flow that stock through or to clear it.

Yes. And then looking into the second half of '21, shall we -- is it fair to assume a similar rate of reduction in the incoming stock. Can you talk a little bit about the second half of '21 stock planning?

Honestly, we just really -- at this stage, we could only deal with what we know now. And it's very difficult to know how the market will behave when it reopens as stores begin to reopen and customers begin to come back and what will change conditions and change customer behaviors will be like. So this is why we've constructed the scenario in a certain way. And exactly how that will pan out in the second half of the year, it's difficult to tell.

Okay. My next question is on the employee cost. You mentioned about GBP 15 million savings from the government job retention scheme. Can you tell us, how many weeks have you applied for that scheme? And is it also possible to sort of talk a little bit about the employee cost breakdown with respect to variable and fixed component? Essentially, is there any variable component that should we see more savings as a result of that component as well?

Yes. Well, I think there's 2 questions there. I mean, certainly, the government scheme is extremely welcome and helpful. We've -- in our scenario, we've assumed that's available until June. And obviously, as you know, last week, the Chancellor made an announcement, and the scheme will continue in one way, shape or form until October. There will be some requirement for employers to make a bigger contribution. But nevertheless, it's very helpful to us, and more beneficial than we actually put in our COVID-19 scenario. We don't have a split of variable and fixed costs. But in stores, there will be some staff there will be some flexibility about hours. Some people have a variable-hour contract. And to the extent to which volume is declining, then some of that can be flexed through in lower hours as well.

Okay. And the next one is on the marketing spend. You mentioned year-on-year spend will go down by GBP 50 million. Is it possible to give a number on what the absolute amount was last year? So where is it coming down from GBP 350 million?

I don't think we actually disclose our marketing spend. And I think that would be probably commercially not a good thing, given there will be a significant interest out to competitors, I think, our marketing spend. So we don't disclose that. But as we said, because the Clothing & Home store operations largely closed down over recent weeks. So it wasn't appropriate to carry on with that. And then frankly, one thing what we can say is that figure that we've quoted is the majority of our Clothing & Home marketing spend.

Okay. So essentially, because up until this reporting, you used to give a breakdown on your total operating cost. And I had something about GBP 150 million for last year, but it's for the combined Food and Clothing business. So I was sort of trying to understand, is it half/half play across Food and Clothing? Or is it 2/3, 1/3 -- it looks like, it's 2/3 is Food, 1/3 is Clothing & Home, and you'll be pretty much bringing that down to a few million.

Yes.

The next one is on the VAT deferral. Is it possible to quantify that? I guess it's going to obviously -- so we're going to see in the working capital the swing to benefit in the first half '21. That's probably going to be seeing the first half '22. Is it possible to sort of give a rough number, how much of that benefit is going to be in the first half '21?

It's not something we've disclosed. And frankly, because the big changes on government regulations about how often VAT is paid, it frankly and it's fairly confusing. So I'm not actually sure. Even if we disclosed, it would be that helpful.

Okay. All right. The last one is more of a comment. You mentioned you provided depreciation, G&A split in the north, which you do. I guess from our standpoint, the problem is there, obviously, there are lots of adjustments and that line in the Food and also breakdown. It's not adjusted. So it's very hard for us to reconcile, and as could have invested, we are very much focused on EBITDA and mostly EBITDA prior to IFRS 16. So we do -- we need to do a quite detailed work to sort of back through all the numbers. So we would appreciate it. Going forward, you'll be able to sort of provide the G&A sort of impairment breakdown prior to the adjustments.

Our next questioner.

It's Sophie Aldrich from Aberdeen Standard Investments. Three questions from me. One was in the Food division. Just wondered whether you could discuss your product special half between fresh Food and non-Fresh? And whether your intention is to maintain that split? And how that's impacted by the Ocado partnership? And my second question was on the pension, and I had a more general question on Brexit. So maybe we can deal with those after.

Yes. I mean in terms of our current Food offer, around 70% is fresh and around 8% is food on the move. But you rightly point out, with Ocado, the product mix will change. And there will be something like 6,000 new lines going into the new offer for Ocado. And that will require us to have a bigger range in some ambient grocery items to make sure that our range is bigger, better and better priced than the current Waitrose offer through Ocado. You wanted to ask, say, about pension, I think, you mentioned?

Yes. It was related to the Scottish Limited partnership aspect of the pension scheme. And I believe you have a certain amount of property in that scheme. I think last year, it was around GBP 1.4 billion of properties, which are leased that M&S within the scheme. Just wondered if you could discuss how or whether that these properties can be transferred out of the scheme? And sort of the implications that this relationship has on the way you can adapt your store state?

Yes. I mean, interestingly, one of the analysts on the call this morning mentioned the comment that they noticed that our pension surplus is not the same as the market cap now, which was quite an interesting observation actually. But it's -- the SLP is established. You rightly pointed out the GBP 1.4 billion of the properties, the pension scheme is showing currently a big surplus, which is obviously a good situation to be in, in the current environment. Clearly, the way these things are measured, they can change when assumptions changed. And we've been used to operating in this way for some time. So it's not particularly constricting on our operations and properties can be moved in and out of the SLP relatively easily. So I don't know if Dan wanted to add anything on that topic.

Yes, it's very easy to move properties in and out as and when required by the business. Agreement is required with the trustee, but this is done on a regular basis just so property renovations and the likes. So it's very easily transferable. We just need to replace. To the extent that we take out property, we need to just replace that with one of a similar value.

Thanks, Dan. I think we've probably got time for one more question, if there was something else someone wanted to ask.

And I just had a final question on Brexit, if that was okay. And I know it's quite a general question. And we haven't talked about Brexit as much, which is probably a relief for everyone. But I just wondered what the key risks that you are seeing and as retailer, as U.K. retailer? And in this process? And what are your main concerns going forward?

Well, I think, as you say, it's something we haven't been talking about because of COVID-19. But clearly, it's another source of significant uncertainty for us. There was a lot of contingency planning done around Brexit, and particularly, the potential of a no-deal Brexit done last year. So I think we're reasonably well prepared. It's an impact not just on our U.K. business, but also on our European businesses as well. So we do have contingency plans in place to deal with that. And we have built in some resilience. But clearly, it's rather like how COVID-19 will unwind. There is a level of uncertainty which is not welcome. So thanks, Sophie.

And our last questioner.

It's [ Scott Telin ] from Western Asset. Just a couple from my side. One is, you noticed -- you put GBP 100 million in the [indiscernible] group. A bit new to this name. So maybe you can just speak to how easy it is for you guys to shift up and down on the orders? Second one, in terms of the percentage, in terms of your lease portfolio, just curious what percentage of your stores that you lease are profitable? Any kind of directional sort of view on that would be good? And then finally, now that you're obviously in a different type of world, are you still sort of -- you still see yourself as an unsecured bond issuer? Or how are your thoughts evolving on raising new finance in the public markets?

Okay. I'll ask Dan to comment on your last question there about bond issuance. But first to your other 2 questions, I think your first question was the -- our Clothing & Home ordering, wasn't it? And our ability to flex that?

Yes, yes, exactly. I mean missing demand surprise you to the upside. And how quickly can you give those orders back up? And vice versa, let's see, your surprisingly does it through Delta. How flexible are you guys on that?

Well, I think, importantly, we've not made some of the aggressive adversarial moves to some of our competitors have with their supply base. We think ultimately, it's important to maintain that relationship and come out of the other side with a strengthened base. I think it's likely we will have a smaller number of suppliers in our supply base and in many ways, that will be a good thing for its strength and security. We're working with them in many ways. So for example, where suppliers have had to purchase. Trough and textiles, we paid for that and stored that and instructed them not to make it up. So obviously, that significantly reduces our costs and gives us more flexibility in the long term. And we, probably, through our new ways of working will actually put more power into our local sourcing offices to give us shorter supply chains and more flexibility. So we see some benefits in our new way of working. A simple answer to your second question, all our stores are profitable. So that's not much more to say about that really. And if I could just ask Dan to pick up on the third question.

Yes. So we've got quite a simple debt portfolio. So as you say, we haven't got any subordinated or preferential debt. Our intention is to keep things that way at the moment. But obviously, if it's something that's economically better via providing any sort of security, then we are amenable to that. But currently, we have no intentions to provide any security against upcoming debt issuances.

So thank you very much for your questions this afternoon. As I mentioned, we're comfortable with the measures that we've taken. We took them early. We were decisive around our cost base and our capital and cash commitments. We took tough decisions on our dividends, on employee pay. We have some benefit as well from government support through CCFF and furloughing payments and timing of tax payments. So we're very comfortable with the level of liquidity that we have in the business and our management of that. So we believe ourselves to be resilient through the next difficult months and for the rest of the financial year. And as a business, we've learned a lot from this crisis. There is a handful of us sitting in our office at Waterside today. And normally, there'll be several thousand here, and yet, the business is still running on -- running substantially the same. So there will be a lot of important operational learnings. But generally, we're making decisions quicker, faster, and we feel that the pace of our transformation will accelerate, and that acceleration will be the -- will be helped by the additions of some key senior executives to our ExCo and other leadership positions over the next few weeks and months. So generally, we are feeling in good shape to deal with whatever the market environment proved to be in the very uncertain weeks and months ahead. So thank you very much for your time this afternoon.

Thank you. Ladies and gentlemen, this concludes today's presentation. You may now disconnect.