# WM Morrison Supermarkets “Playing our full part in feeding the nation”

- Link: https://www.directorstalkinterviews.com/wm-morrison-supermarkets-playing-our-full-part-in-feeding-the-nation/412820309
- Published: 2020-05-12T07:16:03+01:00
- Author: Amilia Stone

**WM Morrison Supermarkets PLC **(LON:MRW) has today announced its COVID-19 and 
Q1 sales update.

**Strong Q1 LFL sales performance 2020/21**

|  | **Q1** **Weeks 1-14*** | Q1 Weeks 12-14 | 
| Retail contribution to LFL | 5.1% | 9.6% | 
| Wholesale contribution to LFL | 0.6% | 1.2% | 
| **Group LFL ex-fuel** | **5.7%** | **10.8%** |

Reported in accordance with IFRS 15

**COVID-19 update**

COVID-19 has created unprecedented challenges and changed both our near-term priorities
and how we operate. In responding to the crisis we have adopted an interim core 
purpose: ‘To play our full part in feeding the nation – it’s more than our job’.

All our efforts are currently focussed on protecting our colleagues and customers,
and working together with our own food makers and our other suppliers to ensure 
food is available to all across Britain, especially the vulnerable and most in need.

**Protecting our colleagues and customers:**

| • | Protective screens introduced around the till area of almost 6,500 main bank checkouts in ten days, plus further screens introduced in front of checkouts, pharmacy counters and customer service desks | 
| • | Social distancing measures at all Morrisons sites, including marshal-controlled entry and reconfigured customer flow at all our stores | 
| • | Hand sanitiser, gloves, and masks available for all store colleagues | 
| • | Increased cleaning and other health and safety initiatives at all our sites | 
| • | Temporarily closed all our in-store cafés, food-to-go and service counters | 
| • | Contactless in-store card payment limit lifted from £30 to £45 |

**Supporting colleagues, customers, suppliers, local communities and the NHS:**

| • | Enhanced pay guarantees for sick, self-isolating and affected colleagues, plus greater flexibility around shifts and annual leave | 
| • | A 6% ‘thank you’ guaranteed annual bonus for all frontline colleagues, up threefold on last year, and payable quarterly rather than at year end | 
| • | Colleague in-store discount increased | 
| • | A hardship fund to support colleagues in financial difficulty due to the crisis | 
| • | Recruited over 25,000 new colleagues in stores, manufacturing, supply chain, and in online and home delivery as we significantly expand capacity | 
| • | No colleagues furloughed | 
| • | A new bulk delivery service for local councils, care homes and charities | 
| • | Immediate payment to all our c.3,000 small suppliers, which we estimate will be a temporary working capital investment of c.£50m | 
| • | A 5% Morrisons discount for our c.3,000 British farmer suppliers | 
| • | £10m of food to be distributed by Morrisons Community Champions to help re-stock Britain’s food banks | 
| • | £500,000 of emergency funds being donated by the Morrisons Foundation to homeless charities to help them through the extra demands of the crisis | 
| • | NHS workers’ hour early in the morning, allowing queue-free access to Morrisons stores when our shelves are fully stocked | 
| • | NHS workers’ 10% Morrisons discount | 
| • | NHS workers’ click-and-collect food boxes delivered to hospital car parks |

**Feeding the nation:**

| • | Over 100,000 Morrisons colleagues on the frontline, in stores, manufacturing, supply chain and home delivery, recognised by government as key workers | 
| • | Morrisons store on Amazon Prime Now going nationwide, up from 17 stores to over 40 in the coming weeks, covering most British cities and over 90% of Greater London postcodes | 
| • | Morrisons.com online home delivery slots more than doubled through a significant increase in store pick, and a new click-and-collect service at almost 280 stores by mid-June | 
| • | Ten types of home delivery food box introduced, initially providing essentials for the vulnerable and self-isolating, and now expanding into new options | 
| • | A telephone order grocery doorstep delivery service introduced at all our stores for the most vulnerable and elderly without access to online or help | 
| • | A partnership with Deliveroo to deliver groceries in as little as 30 minutes to customers by courier from 130 Morrisons stores |

**Q1 sales update**

Trading during the individual weeks of Q1 was highly volatile, with stocking up,
then the initial impact of lockdown and weak Easter trading, followed by a significant
improvement in recent weeks.

For Q1 (the 14-week period from 3 February to 10 May*), Group LFL excluding fuel
was up 5.7%, comprising contributions from retail of 5.1% and wholesale of 0.6%.
Inflation during the period was broadly flat. Group LFL including fuel was down 
3.9%, with fuel LFL down 39.3%, and down c.70% since lockdown, as customers are 
currently taking significantly fewer car journeys. Total sales were up 5.7% excluding
fuel, and down 4.0% including fuel. Two new stores were opened in the period, in
Amble and Bradwell.

As previously announced, retail contribution to LFL was 5.0% for the first six weeks
of 2020/21. Sales had been on an improving trend since the start of 2020 and improved
again, before the impact of COVID-19, to flat for the first four weeks of 2020/21.
For our weeks five to seven during early/mid-March there was considerable stocking
up and sales pull-forward.

Lockdown began in our week eight, with reduced trading hours plus extensive social
distancing and reconfiguration measures introduced. This included capping in-store
customer numbers, and temporarily only opening every second checkout. In addition,
Easter in lockdown was not the normal occasion, so sales were significantly down
year on year. As a result, retail contribution to LFL was negative for weeks eight
to 11.

In the most recent weeks, we have gradually returned to normal trading hours, introduced
more protective screens to enable all checkouts to open safely at the same time,
and availability has continued to improve. Customers have become more accustomed
to the social distancing protocol in stores, and are spreading their shopping trips
throughout the week rather than focusing on the traditional weekend peak. Retail
contribution to LFL for weeks 12-14 was 9.6%.

Our online offer is expanding significantly and at pace, providing different home
delivery options especially for those customers most vulnerable and in need.

For Morrisons.com, we have more than doubled the number of weekly home delivery 
slots, well in excess of the 60% increase we initially planned for. This has been
achieved, together with our partner Ocado, through a substantial increase in the
number of store-pick stores. We have also further stretched the capacity of the 
Dordon customer fulfilment centre. In addition, from a trial of just six stores 
in March, we will offer click-and-collect pick-up from almost 280 Morrisons stores
by mid-June. We are confident we can again significantly increase the number of 
Morrisons.com home delivery slots over the coming weeks.

Home delivery for customers has been further extended beyond Morrisons.com. We very
quickly set up production facilities at four of our food manufacturing sites to 
prepare food boxes, which are delivered direct to customers’ houses by a third party.
Ten different home delivery food boxes have been introduced so far, available either
online or via a telephone call, aimed initially at providing essentials to vulnerable
and self-isolating people, and recently extended to other options such as British
meat, gluten free, BBQ, and Ramadan. In addition, we have formed a partnership with
Deliveroo to deliver groceries in as little as 30 minutes to customers by courier
from 130 Morrisons stores. The service is proving popular with customers, and has
been extended to more deliveries and items, including a selection of beer and wine.

During the period, we also significantly expanded the Morrisons store on Amazon 
Prime Now, the ultra-fast, same-day online home delivery service. At the time of
the 2019/20 preliminary results in March, the service operated from 17 Morrisons
stores in eight cities. By the end of May, it will have been extended nationwide
to over 40 stores, covering most major cities and many towns. New areas covered 
include Edinburgh, Cardiff, Bristol, Portsmouth, and most of the major conurbations
of the West and East Midlands. In addition, more London stores have been added, 
now expanding delivery coverage to over 90% of Greater London postcodes.

In wholesale, there has been a significant recent increase in our sales to our convenience
store operator partners, particularly since the start of the lockdown period. Also,
we have recently started to supply local councils, care homes, and some charities(
such as The Salvation Army) across Britain with great-value bulk supplies for distribution
to those in need in the local community.

Within the 0.6% wholesale contribution to Group LFL in Q1, weeks 1-6 were 0.2% and
weeks seven to 14 were 0.9%. In addition, as we stated at our recent preliminary
results, McColl’s has over 240 remaining ex-Co-op stores, which will transition 
to Morrisons wholesale supply during 2020.

Throughout the period our manufacturing businesses and supply chain coped well, 
often under extreme pressure, with the unprecedented volatility of demand, colleague
absences, and the challenges of so many new initiatives.

Morrisons continues to operate from a very robust financial position, with a strong
balance sheet, low debt and strong debt maturity profile. During Q1, we took the
opportunity to further improve our liquidity. On attractive financial terms, we 
extended one £100m revolving credit facility (RCF) from July, and put in place another
three new £100m RCFs, taking our total RCF facilities from £1.45bn to £1.75bn. Of
the £1.75bn, £1.35bn runs until 2024 with an option to extend by a year, and the
four £100m facilities run for a year with two having options to extend by six months.
As at the end of Q1, we were £70m drawn on our RCF and, while we expect this to 
increase during Q2, all our scenario planning suggests we will sustain very significant
liquidity headroom.

**Outlook**

All our efforts are fully focussed on deploying our assets in the best way to enable
our colleagues to help feed the nation. Our longer-term strategy remains to continue
building a broader, stronger, and more popular and accessible new Morrisons, and
to be guided by the principles of our capital allocation framework.

At this stage, the impact of COVID-19 remains uncertain. The outlook for our sales
is also uncertain, although we are adapting well to the new day-to-day circumstances,
while being both proactive and reactive in taking new opportunities. In addition,
we are confident that we can satisfy any ongoing increased demand if the eat-at-
home market continues to be temporarily larger than usual.

Day-to-day operations and challenges are currently very different from normal, and
we are operating in a more volatile trading environment, which is costly. In addition,
many of the payroll, bonus, seasonal waste and markdown, distribution, community,
and colleague and customer protection initiatives described above come at considerable
cost. For example, at times we have been experiencing temporary absence rates running
at up to 20,000 colleagues.

We continue to monitor various 2020/21 sales, profit and cash flow scenarios, but
have minimal certainty or visibility around a precise outcome. At this stage, our
best estimate is that the 2020/21 costs relating directly to COVID-19 are likely
to be broadly offset by the in-year business rates cost saving**, but the actual
net effect is highly dependent on the length of the crisis and how customers respond
as lockdown eases. In addition, there are other current impacts on profit such as
the temporary closure of our significant café business, and the considerably lower
fuel sales. As these costs and profit impacts are more weighted to the first half
of our financial year and the rates relief benefit more to the second half, we expect
the net adverse impact on profit to be considerably more weighted to the first half.

As we stated at our preliminary results in March, with sales on an improving trend,
profit growing for a fourth consecutive year, and both free cash flow and liquidity
continuing to be strong, we had anticipated announcing another special dividend 
for 2019/20. Instead, given the unprecedented nature of events around COVID-19, 
we determined it would be prudent to defer the decision. This continues to be the
case, and we are keeping our capital allocation options under review, giving us 
maximum future flexibility around how we prioritise uses of our strong cash flow.
In the near term, the negative fuel LFL is having a temporary impact on working 
capital and net debt, which we expect to reverse quickly when fuel sales normalise.

_* As previously announced, Q1 2020/21 was extended by a week to 14 weeks and compares
with the same 14 weeks last year, to allow for the later May bank holiday this year
and to ensure comparable trading periods. Q2 will be 12 weeks in duration, and will
be reported within the first-half results as usual in September._

_** On 18 March 2020, after the government announced business rates relief for all
retailers, we announced that we paid business rates in the UK of £308m for our 2019/
20 financial year, of which   c.£290m related to stores. For our 2020/21 financial
year, we estimate April to January business rates relief of £228m in England and
Scotland (the Welsh authority has subsequently reversed its decision since the original
announcement), of which four monthly instalments would have been due in the first
half and six in the second half. For 2021/22, we will receive business rates relief
for February and March, and resume payments in April._

> **David Potts, Chief Executive WM Morrison Supermarkets, said:**
> “We are facing into the unprecedented current challenges and are playing our full
> part to help feed the nation: working with determination, creativity and pace 
> to serve customers as well as we possibly can.
> “The professionalism, enthusiasm and resourcefulness of our frontline key worker
> colleagues is extraordinary and is showing Morrisons at its very best. I’d like
> to thank every single colleague: you are Morrisons most important and most valued
> assets and are making a vital difference to so many people and communities across
> Britain.”

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