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Morrison (Wm) Supermarkets (MRW) Ordinary 10p

Sell: 202.00pBuy: 202.20p1.20p (0.60%)
FTSE 1000.65%
Market closed. Prices as at close on 16 April 2014.
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HL comment (13 March 2014)

Full year results: In drawing a strategic line in the sand, Morrisons is attempting to close the widening gap with its rivals. The discount supermarkets have become a thorn in the side for the bigger players, and Morrison's lack of a properly established online or convenience store offering has seen its progress limited over recent times. The company has now decided that it is time to revitalise the business, which will inevitably come at a cost. Indeed, the outlook for next year is significantly lower and, whilst the new strategy is being implemented, the fiercely competitive supermarket sector will move on apace. Not all is doom and gloom within the numbers. The online and convenience store presence has at least now started, significant cost savings have been identified and, from an investment perspective, the current dividend yield of 4.7% will be boosted by another hike which reflects a continuation of the progressive policy. However, this sharp change of direction will require time and patience, which have been in short supply from investors. Even prior to today's tumble, the shares had fallen 23% over the last six months alone, as compared to a 1% hike for the wider FTSE100. Opinion remains divided over prospects for this beleaguered company, and the current market consensus opinion of the shares as a hold may well remain in place for now.

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Financial Highlights:
  • The supermarket chain reported a pre-tax loss of £179 million compared with a profit of £879 million from a year earlier.
  • Revenues for the full year ended 2nd February was £17.7 billion, down 2%.
  • Exceptional one-off costs of £903 million were charged in the year. This included £163 million in relation to Kiddicare, £319 million relating to elements of its store pipeline and £379 million in respect of trading stores.
  • Net debt increased to £2.8 billion from £2.18 billion, after capital expenditure of £1.08 billion.
  • £9 million was generated through the sale of investment properties.
  • The Board is proposing a final dividend of 9.2p per share. This would bring the total dividend for the year to 13p per share, an increase of 10% on 2012/13 (in line with its policy).
  • A strong balance sheet was declared by the company.

Negative Points:
  • Morrisons, the fourth largest grocery chain reported its lowest profit in five years and saw its share price drop 10% in early trade following today's announcement. It also warned that profits would be less than £375 million, around half the level of last year. "At this early stage in the year, we anticipate that underlying profits in 2014/15 will be in the range of £325 million to £375 million, after charging £65 million of new business development costs and £70 million of one-off, non-recurring costs," Chief Executive Dalton Philips said.
  • The company was hurt by a one-off £903 million exceptional write-down, due to property and IT costs and a disappointing performance from Kiddicare, its baby products business. The group said it will look to sell Kiddicare in 2014.
  • Competition remains fierce in the supermarket space. The discount supermarkets have become a thorn in the side for the bigger players. Convenience, online and the discount channels are seen as the fastest growing sectors of the market.
  • Consumers have continued to face challenging economic conditions. Many customers have been constrained financially and have had to choose carefully where they shopped.
  • Morrisons remains significantly under-represented in London and the South East. 
  • Unlike some rivals, the group does not enjoy any degree of international diversity.
  • The grocer has also been slow to recognise the move from big out-of-town stores to local convenience stores.

Positive Points:
  • Chief Executive Dalton Philips said the group would reduce its cost base and invest more than £1 billion in price cuts over the next three years to defend and strengthen its competitive position.
  • Morrisons long awaited online offering - Morrison.com launched in January 2014 and was reported as being ahead of plan.
  • Operationally, 18 new supermarkets opened in 2013, and over 100 M local convenience stores were now trading. Ttotal net selling space increased by 812,000 square feet, of which 37,000 square feet came from extensions.
  • The supermarket chain plans to invest £300 million in its core supermarket business in 2014-15.
  • Morrisons property portfolio has an estimated market value of around £9 billion. Over 90% of its core estate is freehold, a considerably greater proportion than its major competitors (source: Morrison (Wm) full year results 13 March 2014).
  • In a sign of confidence in Morrisons strategic direction, the Board said it is committed to 5% minimum increase in the dividend for 2014/15 and a progressive and sustainable dividend thereafter.

All yield figures are variable and not guaranteed.

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