Morrisons shares slump on earnings drop

Morrisons shares slump on earnings drop

Morrisons this morning (13 March) reported an annual loss of GBP176m (US$293.6m), rounding off a challenging year for the UK's fourth-largest grocer.

The retailer reported a 2.8% fall in like-for-like sales, excluding fuel and VAT, for the 12 months to 2 February.

Morrisons has seen its sales hit by a range of factors, including its smaller presence in the UK's online and convenience channels but also the rise of more price-focused discounters like Aldi and Lidl.

The company booked GBP903m in "non-recurring exceptional costs", which led to the pre-tax loss.

It incurred a GBP163m charge linked to child products retailer Kiddicare, which the retailer plans to sell. Morrisons also filed charges of GBP319m relating to "elements of our store pipeline" and GBP379m "in respect of trading stores".

Morrisons said it planned to "exit from non-core activities", including Kiddicare and its stake in US online grocer FreshDirect. It also plans to spend GBP300m on its "proposition" this year.

The retailer forecast underlying profits for the new financial year 2014/15 would be GBP325-375m - less than half the GBP785 it filed for the past fiscal year, which itself was down 13% on the previous 12 months.

Shares in Morrisons were down 7.77% at 214.9p.

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Financial summary

·       Turnover down 2% to £17.7bn (2012/13: £18.1bn)

·       Like-for-like sales (ex-fuel, ex-VAT) down 2.8% (2012/13: down 2.1%)(1)

·       Underlying profit before tax down 13% to £785m (2012/13: £901m)(2)

·       Non-recurring exceptional costs of £903m

·       Loss before tax £176m (2012/13: profit of £879m)

·       Earnings per share (10.2)p (2012/13: 26.7p)

·       Underlying earnings per share down 8% to 25.2p (2012/13: 27.3p)

·      Final dividend of 9.2p. Total dividend for the year up 10% to 13.0p (2012/13: 11.8p) in line with guidance

·      Net debt £2,817m (2012/13: £2,181m) after capital investment of £1,086m (2012/13: £1,016m)

Operating highlights

· launched in January 2014 – performing ahead of plan

·      Over 100 M local convenience stores now trading; second convenience distribution centre now operational

·      IT systems programme development progressing well – providing platform for significant future cost savings

·      18 new supermarkets opened(3) 

·      Fresh Formats – tailored fresh food proposition now in over 200 stores

·      6,500 Own Brand products successfully launched in year; own label conversion programme complete

·      Vertical integration – good progress in expanding manufacturing capability

·      £300m, three year cost saving targets delivered

Strategic update


Comprehensive strategic review completed

  • Enhanced focus on core supermarket business
    • major investment in proposition; £300m in 2014/15
    • £1bn of self help over three years identified – implementation underway
  • Acceleration of new channel development – online and convenience
  • Planned exit from non-core activities, including Kiddicare and Fresh Direct
  • Property review completed
  • New space pipeline reassessed
  • Total non-recurring costs of £0.9bn

                                                                                                                   Resulting in:


  • Stronger value leadership and a customer winning proposition
  • Rebased profit outlook
  • Strong balance sheet
    • strong investment grade credit rating
    • predominantly freehold property estate maintained
  • Substantial cash flow generation

·       £1bn over three years from operating improvements, working capital and reduced capex

·                   £1bn of property disposals over three years

  • Generation of meaningful shareholder value over the medium term
    • commitment to 5% minimum increase in dividend for 2014/15 and a progressive and sustainable dividend thereafter
    • return of surplus capital as appropriate

Commenting on the results, Sir Ian Gibson, Chairman, said:

“In trading terms this has been a disappointing year for Morrisons, with consumer confidence and market conditions continuing to be challenging. It has however been a period of significant strategic progress as we lay the foundations for a stronger future. Our financial position remains strong. 

The review of our business undertaken by the Board, underpins our confidence in Morrisons strategic direction and the long-term prospects of the business. This is reflected in an increased dividend for the year ended 2 February 2014, in line with our previous commitment and consistent with our progressive dividend policy.

In respect of the year ending 1 February 2015 the Board anticipates that the total annual dividend will be not less than 13.65p. Thereafter we expect dividends to grow more slowly than earnings, as dividend cover rebuilds towards our target level of around two times.”

Dalton Philips, Chief Executive, said:

“The strategy we are announcing today is a bold and comprehensive response to the fundamental structural changes that are taking place in grocery retail.   

We are significantly reducing our cost base and will invest £1bn into our proposition over the next three years, to improve our value even further and to defend and strengthen our competitive position. Customers will see this in our stores as well as in our fast growing online and convenience offers. At the same time we will exit non-core activities, significantly reduce our capital expenditure and deliver improved operating cashflow and return on capital employed.  

Together with the strategic value of our vertically integrated supply chain, these measures will provide a firm foundation from which to provide outstanding value to our customers and to generate meaningful shareholder returns over the medium term.

I’m confident that Morrisons will emerge from this period of necessary change as a more focused, more distinctive value leader and well positioned to compete sustainably in the new grocery landscape.”



We will continue to implement a wide range of measures to address the sales performance of the business and progress our strategic initiatives. Our expectations are that the challenging consumer and market environment we saw in 2013 will persist through the coming year. Our profit expectations reflect this, and our determination to be a stronger value leader for our customers. At this early stage in the year, we anticipate that underlying profits(4) in 2014/15 will be in the range of £325m - £375m, after charging £65m of new business development costs and £70m of one-off, non-recurring costs.

Original source: Morrisons