FT reports the MTC suspended its dividend, announced a refinance of its borrowings, and is now planning to close 66 more stores than it had originally envisaged.
Retailers have been dropping like flies this year. MTC is interesting because I recently highlighted it as a company that was in the Footsie. Now is seems to be battling for survival.
One important lesson we can learn about retailers: gearing ratios, interest cover and net cash/debt can be highly misleading for retailers, as lease obligations are fixed obligations not shown on the balance sheet.
GMG (Game Group), for example, reported a z-score of 3.33, which is a great figure. They had an interest cover of 8.05, usually considered safe. Gearing was negative, though. They had net debt of £91m, and a massive net cash outflow of £194m in the interims that they reported on 27-Sep-2011. GMG is now pretty much dead.
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