Sunday, October 17, 2021

Has Marks and Spencer really got it right at last? | Nils Pratley

Green shoots at M&S? That was chairman Archie Norman’s boast as he peered through the thicket of exceptional charges that dominated yet another set of annual results and turned a small headline pre-tax profit of £41.6m into a large statutory loss of £201m.

“We are emerging from the chrysalis of Covid as a reshaped business and I think for the first time for three and half years there is a lot to feel confident about,” he declared.

M&S chairmen have made similar boasts in the past and turned out to be wrong (as Norman acknowledged) but, yes, there is a fair argument that the moment of maximum danger has passed.

First, M&S, unlike Debenhams, is still standing. While it can’t yet afford to restore dividends to shareholders, the balance sheet is not under strain. With help from Rishi Sunak’s generosity on business rates, net debt actually fell by £279m last year to £1.1bn, which ought to be manageable if profits now recover to the promised £300m-£350m.

Second, after years of angst over property, M&S finally seems to know the number of “full line” stores it wants: 180, rather than current 255. It also has a plan, rather than a sketch of one, to fund closures, switches and conversions to food-only shops. Some £200m can be released by turning freehold stores into offices or flats, it thinks.

Third, M&S’s website is no longer an industry joke. Online should account for 40% of clothing and home revenues in three years’ time, or at least that’s the aim. Fourth, the pre-pandemic timing of the purchase of half of Ocado’s UK retail business was either brilliant or lucky. M&S got a solid-looking stream of income at a price that now looks excellent.

Never underestimate M&S’s ability to create fresh messes, especially in the fashion department. But the 8.5% rise in the share price on Wednesday tells the story – the umpteenth round of restructuring may be working.

A timid capitulation to venture capital

One can moan about private equity buying up FTSE 250 companies by the bucket-load, but part of the story is lack of ambition on the part of boards and shareholders.

Back in mid-March, the outlook for Vectura, the Wiltshire-based pharmaceutical firm specialising in dry inhalers, seemed much improved – or that’s what management said.

The business had delivered a financial performance “ahead of expectations” and it was “an exciting time for the group”, trumpeted the chief executive, Will Downie. The 18-month-old strategy of concentrating on contract work, as opposed to the riskier business of developing the company’s own assets, was providing “continued momentum” and should mean “a positive 2021”.

Yet the board has now decided the £958m offer from Carlyle is too good to turn down, even though it’s pitched only 27% above a Tuesday share price that hadn’t moved much since March. That level of premium is about the bare minimum a board of a healthy and growing company can credibly accept, but it’s hardly smacks of bold thinking.

One hopes the shareholders insist on a better explanation than a few wooly words about “uncertainties … many of which are beyond Vectura’s control”. Come on, you only get to sell the company once. Given some of sums that private equity is splashing around, this surrender looks timid.

No profit in nonsensical claim against AstraZeneca

The good news story out of Brussels this week was that EU leaders had agreed to donate “at least” 100m doses of coronavirus vaccines to poorer countries by the end of this year.

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Now here comes the European commission, demonstrating that the new spirit of goodwill and collaboration only goes so far. It wants to pursue AstraZeneca for damages at a rate of €10 a dose a day if the company does not improve the pace of deliveries by the end of June.

AstraZeneca, naturally, believes its “best reasonable efforts” contract protects it. But ignore the legal quarrel and consider the absurdity of the commission’s position.

Brussels is suing for vaccines the EU does not need. And it wants to claim millions – and potentially billions – of euros from a company that is producing vaccines for no profit during a pandemic, thereby virtually guaranteeing that no board could ever again agree “at cost” terms. The case is a nonsense.

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