WM Morrison Supermarkets PLC (LON:MRW) has today announced its preliminary results for the 52 weeks ended 2 February 2020.
COVID-19 update – Immediate actions include:
● Pay guarantee for colleagues
● Expanding online delivery capability to pick from more than 100 stores
● Immediate payments for small suppliers, funded by Morrisons strong cash flow
2019/20 financial summary
● Group like-for-like (LFL) sales(1) ex-fuel/ex-VAT down 0.8% (2018/19: up 4.8%)
● Total revenue down 1.1% to £17.5bn (2018/19: £17.7bn)
● Profit before tax and exceptionals(2) up 3.0% to £408m (2018/19: £396m)
● EPS before exceptionals(2) up 2.6% to 13.18p (2018/19: 12.85p)
● Statutory profit before tax up 43.6% to £435m (2018/19: £303m)
● Free cash flow(3) £238m (2018/19: £281m)
● Free cash flow excluding £57m other non-cash movements, £295m (2018/19: £271m)
● Net debt £2,458m (2018/19: £2,394m)
● Net pension accounting surplus £944m (2018/19: £688m). Triennial pension valuation complete, with funding surplus of £682m (2016/17: £111m)
● ROCE increased to 7.0% (2018/19: 6.9%)
● Final ordinary dividend of 4.84p, taking the full-year ordinary dividend to 6.77p, and full-year total dividend to 8.77p (2018/19: 12.60p). Decision on further special dividend deferred, maximising flexibility around how we prioritise uses of our strong cash flow
Strategic and operating highlights
● EBITDA margin before exceptionals up 22 basis points to 5.9%, as cost control and productivity initiatives offset some of the impact of the tougher sales environment
● Significant investments in price, service, and Market Street improving the shopping trip
● Sales in the first ten McColl’s to Morrisons Daily conversions have been strong and customer feedback has been positive. Further 20 converted since year end
● £1.1bn disposal proceeds target exceeded, after c.£120m consideration for Camden
● Morrisons store on Amazon Prime Now extended to eight cities across the UK
● A further 44 Fresh Look store improvements complete, bringing the total to almost 350
● New overseas export wholesale supply partner, CP Lotus in China
Current trading and targets update
● Retail contribution to LFL improved to flat for the first four weeks of 2020/21, and 5.0% for the first six weeks, after considerable stocking up and sales pull-forward recently
● Over 240 McColl’s stores to transition to Morrisons wholesale supply during 2020, and we remain on track for our £1bn annualised wholesale supply sales target
● Further £14m incremental profit from wholesale, services, interest and online, taking the total so far to £68m. On track for our £75m-£125m target
● Five new stores to open during 2020/21
Note: 2018/19 has been restated for the new lease accounting standard, IFRS 16 Leases
COVID-19 is a severe threat to Britain and worldwide. Morrisons primary focus is the health and safety of our colleagues and customers, and we are doing all we can to mitigate that threat. We are liaising and co-operating with all the relevant authorities to plan for different scenarios. Our colleagues in stores, offices, manufacturing and distribution are working to ensure the supply chain operates as smoothly as possible and we keep stock on the shelves. We are putting in place some immediate initiatives to help our key stakeholders, including:
● Colleagues. A pay guarantee for sick and affected colleagues, and more flexibility around shifts and annual leave
● Customers. Expanding our online Morrisons.com and Morrisons store on Amazon Prime Now store-pick capacity to more than 100 stores over coming weeks
● Suppliers. Immediate payments for small suppliers, funded by our strong cash flow
Sales have been on an improving trend since the start of 2020, and improved again recently with retail contribution to LFL flat for the first four weeks of 2020/21. This is despite the significant deflationary impact of our continued investment in becoming more competitive for customers. During the last two weeks, there has been considerable stocking up and sales pull-forward as customers plan for the impact of COVID-19. Overall, for the first six weeks of 2020/21, retail contribution to LFL was 5.0%.
With sales on an improving trend, profit growing for a fourth consecutive year, and free cash flow continuing to be strong, we had anticipated announcing another special dividend today. Instead, during the usual process of reviewing capital allocation, we determined it would be prudent to defer the decision given current unprecedented events around COVID-19. This gives us maximum future flexibility around how we prioritise uses of our strong cash flow, and we will keep our capital allocation options under review.
Morrisons is operating from a very robust financial position. We have a strong balance sheet, with low debt and a strong maturity profile. Cash flows and liquidity are also very strong. As at the end of 2019/20, we had cash and cash-equivalents of £305m and access to undrawn revolving credit facilities (RCFs) of £1.45bn. Our store portfolio is overwhelmingly freehold (87%), and our pensions are in surplus.
For wholesale, over 240 additional McColl’s stores will convert to Morrisons wholesale supply during 2020, which we expect will more than offset the impact of any further store closures already announced by McColl’s. Our plan for £1bn of wholesale supply sales in due course remains unchanged.
Net incremental profit from wholesale, services, interest and online was £14m during the period, bringing the cumulative total so far to £68m. We remain on track for our £75m-£125m medium-term target.
Figure 1 – 2019/20 profit reconciliation
|£m||FY18/19||H1 19/20||H2 19/20||FY 19/20||Y-on-Y|
|Statutory operating profit||432||246||275||521||20.6%|
|Statutory profit before tax||303||202||233||435||43.6%|
|– Net impairment and provision for onerous contracts||10||–||(2)||(2)|
|– (Profit)/loss on disposal and exit of properties||–||–||(66)||(66)|
|– Costs associated with repayment of borrowings*||33||–||–||–|
|– Retirement benefit exceptional items||26||–||–||–|
|– Store restructuring and closure costs||–||–||51||51|
|– Net retirement benefit interest income*||(18)||(10)||(9)||(19)|
|– Other exceptional items||42||6||3||9|
|Operating profit before exceptionals||510||252||261||513||0.6%|
|Profit before tax and exceptionals||396||198||210||408||3.0%|
* Adjusted in profit before tax and exceptionals, but not operating profit before exceptionals
Figure 2 – LFL sales performance (ex-VAT)
|Retail contribution to LFL||1.5%||0.2%||(2.4)%||(1.1)%||(1.1)%||(2.2)%||(1.7)%||(1.4)%|
|Wholesale contribution to LFL||3.3%||2.1%||0.5%||1.3%||(0.1)%||0.1%||0.0%||0.6%|
|Group LFL ex-fuel||4.8%||2.3%||(1.9)%||0.2%||(1.2)%||(2.1)%||(1.7)%||(0.8)%|
|Group LFL inc-fuel||4.3%||2.7%||(2.2)%||0.2%||(2.5)%||(2.4)%||(2.5)%||(1.1)%|
Reported in accordance with IFRS 15
This announcement includes inside information.
Alternative Performance Measures
Guidelines on Alternative Performance Measures issued by the European Securities and Markets Authority came into effect for all communications released on or after 3 July 2016 for issuers of securities on a regulated market. The key alternative performance measures identified by the Group and contained in this announcement are detailed below.
The Directors measure the performance of the Group based on the following financial measures which are not recognised under EU-adopted IFRS, and consider these to be important measures in evaluating the Group’s results and financial position.
Definitions and additional requirements:
A full glossary of terms and alternative measures is provided in this announcement. The Directors believe the key metrics are the ones outlined below because they are used for internal reporting of the performance of the Group, they provide key information on the underlying trends and performance, and they are key measures for director and management remuneration.
(1) Like-for-like (LFL) sales: percentage change in year-on-year sales (excluding VAT), removing the impact of new store openings and closures in the current or previous financial year. A reconciliation between LFL sales and total revenue is provided in the glossary at the end of this announcement
(2) Profit before tax and exceptionals: defined as profit before tax, exceptional items and net retirement benefit interest. Earnings per share (EPS) before exceptionals: defined as profit before exceptional items and net retirement benefit interest, adjusted for a normalised tax charge.
A reconciliation between statutory profit before tax, statutory operating profit, profit before tax and exceptionals, and operating profit before exceptionals is shown in Figure 1. See Note 8 for a reconciliation between basic EPS and EPS before exceptionals.
(3) Free cash flow: defined as movement in net debt before the payment of dividends. Free cash flow for the period is £238m (2018/19: £281m), being the movement in net debt of £(64)m (2018/19: £(8)m) adjusted for dividends paid of £302m (2018/19: £289m).
WM Morrison Supermarkets Andrew Higginson, Chair, and David Potts, Chief Executive, said:
“We are currently facing unprecedented challenges and uncertainty dealing with COVID-19. Looking after our colleagues and customers is our priority, ensuring that we have a clean, safe place to shop and work.
“At Morrisons, we have a strong, experienced, and above all, determined team of the best food makers and shopkeepers in Britain. We promise to work as hard as we can for customers, suppliers, and all stakeholders to keep our shops operating as smoothly as possible. Thank you to all our colleagues for your incredible efforts so far.”