13th Mar 2014 14:32
LONDON (Alliance News) - Wm Morrison Supermarket PLC Thursday announced a raft of measures aimed at turning around the business, after it lost further ground to bigger rivals in 2013 and was hit by growing heavy discounters like Aldi and Lidl.
The measures, which include heavy investments in price cuts, property disposals, sales of businesses including baby products retailer Kiddicare, and cuts to capital expenditure, will weigh heavily on its results in 2014, but the country's fourth-biggest supermarket business by market share hopes it will rebound strongly from 2015.
Morrisons has been struggling to keep pace with bigger supermarkets like Tesco PLC and J Sainsbury PLC, and Asda in recent years, and has already had to invest heavily in trying to catch up in the fast-growing online and convenience store sectors. The fast growth of the heavy discounters during the recent economic downturn have only added to its woes.
"We held our own against the big three supermarkets, but lost share against big discounters," Chief Executive Dalton Philips told journalists in a call Thursday.
Morrisons swung to a pretax loss of GBP176 million in the twelve months to February 2, compared with a pretax profit of GBP879 million the prior year, as revenues declined 2% and as it booked a total of GBP903 million in exceptional costs. Those costs included a GBP163 million writedown on Kiddicare, a GBP319 million impairment of sites it no longer wants to build on, and GBP379 million in respect to stores that are trading.
Excluding the charges, its profit was down 13% to GBP785 million, from GBP901 million a year earlier.
Morrison joined the growing price war in the sector, saying it will invest GBP300 million this year in customer propositions, including price cuts, although Philips did not specify how much of that would be invested directly on price reductions. A decision to start offering a customer loyalty card marks a big turnaround for a company that for years has said it doubted the benefits of such a scheme.
"We will have lower prices on a permanent basis, offer fewer more impacting promotions, and will offer a Morrisons card to our customers," said Philips.
Last month, Tesco announced it would be investing GBP200million to drive down prices on everyday items, but was trumped by Asda, owned by US retail giant Wal-Mart Stores Inc, which at the same time said it would add GBP100 million to its planned GBP200 million in price cuts this year.
Morrisons also said it would sell about GBP1 billion in property, including between GBP400 million and GBP500 million this year, and dispose of its Kiddicare business as well as its stake in US online grocer Fresh Direct, businesses it now deems as non-core.
"The market has structurally changed. Our focus has to be on our core business with food, and Kiddicare doesn't fit. We are reducing our cost base, and cannot run both," Philips told journalists Thursday, adding that "in our opinion, large stores are not sustainable."
Rivals have all sold and leased back stores in recent years. Morrison's property portfolio has an estimated market value of around GBP9 billion, of which over 90% of its core estate is freehold. Philips said the group's freehold ownership will not fall below 80%.
Morrisons also followed its peers by announcing big cuts in capital expenditure, to GBP550 million in the current year, and GBP400 million thereafter. It will also make GBP600 million in working capital savings over the next three years.
"We will strengthen our business by GBP1 billion over three years from operating improvements, reducing sourcing costs, working capital and reduced capital expenditure," Philips said.
The measures are set to weigh heavily on the company's margins in 2014, and the company also warned that the consumer spending environment will remain challenging.
"At this early stage in the year, we anticipate that underlying profits in 2014/15 will be in the range of GBP325 million to GBP375 million, after charging GBP65 million of new business development costs and GBP70 million of one-off, non-recurring costs," the company said in a statement.
Excluding the charges, Morrisons said it is expecting an underlying profit of between GBP460 million and GBP510 million for the current year, down from the GBP785 million it posted last year.
Revenues in the last year were GBP17.7 billion, down from GBP18.1 billion the prior year, and the chain reported a steeper decline in like-for-like sales excluding fuel and VAT, of 2.8%, compared with 2.1% a year earlier.
Morrisons finally launched its online food business at the end of December, with the help of online delivery company Ocado Group PLC which is delivering Morrisons' goods from Ocado?s recently opened Dordon customer fulfilment centre in the Midlands. It commenced deliveries across the Midlands on January 10, and Morrisons reaffirmed that it expects to have the capacity to reach half of UK households by the end of the current financial year.
"The online business has only been running eight weeks, but it is going well so far. We are looking to add more vans already as we are full to capacity," said Philips.
"We spent GBP200 million last year on the Daldon facility. We will exit this current year at a run rate of GBP200 million, but as we go into 2016, we will have to look capex going past that," Philips told journalists.
Morrisons said it has made progress developing its convenience store network, with now over 100 Morrison locals.
Morrisons was the biggest faller on the FTSE 100 Thursday, trading down 12.0% at 205.10 pence, its lowest level for nearly eight years. The results were weighing on the whole sector, with J Sainsbury and Tesco down 7.3% and 4.6%, respectively.
Despite the poor results and heavy investments, Morrisons management reiterated that it is committed to its progressive dividend policy, having raised its total dividend for the recent year by 10%, and committed itself to a minimum 5% dividend per share increase this year.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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