26th May 2005 07:03
Morrison(Wm.)Supermarkets PLC26 May 2005 26 May 2005 Wm. MORRISON SUPERMARKETS PLC Trading Statement In conjunction with the annual general meeting the Directors release salesfigures for the 15 weeks ended 15 May 2005 and provide further background to thetrading statement issued on 13 May 2005. Sales Total group like for like sales in the first 15 weeks of the current financialyear are up 5.4% or 2.3% excluding fuel. This performance is in line with theBoard's expectations and shows improvement over the sales performance for thefirst six weeks of the current financial year (which was up 4.1% or 1.2%excluding fuel). The 15 week like for like performance is made up of the following: • Sales in the 108 converted Safeway stores open for at least 1 full week's trading continue to be very encouraging and excluding fuel are 12.5% above last year with a 21.3% increase in customer numbers. Average sales per square foot has now increased to £18 per square foot from £14.77 and is well on target to meeting our three year target sales density for Safeway converted stores of £19.72. We are also encouraged by the relative consistency of these uplifts between Northern and Southern stores. • Like for like sales increase in the core Morrisons estate of 1.9% in total but down 2.3% excluding fuel. As previously reported, this figure has been impacted by competition from divested stores and cannibalisation from Safeway conversions and compares with a very strong trading period last year. The 53 Morrisons stores that were unaffected by adjacent conversion or divestment achieved a total like for like sales growth of 5.7% and 1.5% excluding fuel. • During the same period it is pleasing to report that the trend in like for like sales of Safeway stores awaiting conversion to the Morrisons fascia has continued to improve. Having declined almost 7% during the last financial year, the first six weeks showed an overall gain of 1.3% (down 0.5% excluding fuel). After 15 weeks the sales trends have moved further forwards with overall growth of 4.4% (3% excluding fuel). Underlying this improvement has been an encouraging increase in customer numbers which are up 8.2% over the comparable period last year. Further detailed analysis of the current sales trends is set out in theAppendix. Gross Margin At the time of the preliminary announcement in March 2005 we said that near termimprovement in gross margins would be constrained by industry conditions. Thiscontinues to be the case. The gross margin reported for the first half of theprevious financial year was flattered by the phased reduction in Safeway pricesand by a one-off benefit of £47m as we started to accrue for supplier income. Weexpect most of these factors to be worked through during the course of thisfinancial year allowing the improved buying terms which we have beennegotiating, and the expansion of our vertical integration capabilities, tobecome more visible during 2006/7. Store conversion process We are fully on track to complete the conversion process by November 2005, bywhich time we will have converted almost 230 former Safeway stores to theMorrisons format within 18 months. This will result in a substantially freeholdproperty portfolio of some 360 Morrisons stores across the UK. So far thisyear, 55 stores have been converted on top of the 57 conversions completedduring 2004. The average cost of conversion is running at £1.5m per store ofwhich approximately two-thirds will be treated as an exceptional item. Distribution Since the acquisition of Safeway we have had to operate two separatedistribution systems. The Morrisons distribution system has been enlarged toservice both the core Morrisons estate and the converted stores. In parallelthe existing Safeway distribution system has had to be retained to serviceSafeway stores until either conversion or disposal. This has given rise to amajor increase in group distribution costs, much of which is fixed in nature,and which cannot be reduced significantly until the conclusion of the conversionand disposal process. Once the conversion process has been completed in November 2005, we expect tostart making significant savings through rationalisation of existing facilitiesand optimising the routing of deliveries. IT and Administration As with distribution, we have also had to operate two IT systems since weacquired Safeway. Total harmonisation of IT hardware and software will allowadditional savings in 2006/7. In addition, the final closure of Hayes by theend of the year will allow a further headcount reduction of 450. Staff costs During the last financial year, staff costs rose to 13.1% of turnover as aresult of the integration process. At the time of the preliminary announcementwe indicated that these costs would be likely to increase near term,particularly as we stepped up the pace of store conversion from 3 to 4 per week.Higher staffing levels within converted stores have given rise to asignificant increase in the staff to sales ratio and this factor will continueto affect results through the current year. In 2006/7, following the completionof the conversion programme and with growing sales momentum through convertedstores, this ratio will fall towards more normal operating ratios. Store and property disposals By the time the process of completing the remaining store and property sales hascompleted we expect total proceeds of over £1.3 billion. The overall estate willagain return to being over 90% freehold having dropped to 78% immediatelyfollowing the Safeway acquisition. The inherited Safeway estate included anumber of leasehold properties carrying a significant ongoing rent burden. As aresult of our ongoing store divestment programme we expect to reduce our rentaloutgoings by a further £20m in 2006/7. New store development We are opening seven new stores during the current year. Our new store atHamilton opened at the beginning of the month and is already trading well. Nextmonth we will open in Glasgow - at Auchinlea with a further store at Cardonaldopening in August. Subsequent months will see new store openings in Paisley,Livingston, Strood and Gloucester. We remain committed to an active new store expansion programme and are workingon a programme of openings for 2006/7 which is looking promising with eight newstores already consented and a number of further applications pending. Capital expenditure Capital expenditure for the current financial year is expected to be around£650m as previously indicated. Other than new stores, the significant items ofexpenditure include the new head office in Bradford which we expect to becompleted by early 2006, the new regional distribution depot at Kettering, a newfrozen food facility at Corby and further expansion of our vertically integratedoperations. For 2006/7 the level of capital expenditure is anticipated to reduce to around£400m, comprising primarily new store developments and further investment tooptimise our distribution footprint and production capacity. Board and governance Statement by the Deputy Chairman, David Jones Following the Board changes in March, the Chairman has stepped down from theMorrisons operations board and handed over the chairmanship to Bob Stott, GroupChief Executive. The Chairman has previously stated his commitment to seeingthrough the integration of Safeway and this remains the case. The Boardtherefore expects to make a statement about the Chairman's intentions and thecompany's succession plans at the time of the next AGM. Bob Stott has alsocommitted to completing the Safeway integration and has deferred his retirementuntil spring 2007. We are delighted to announce that Richard Pennycook has accepted the Board'soffer to become Group Finance Director with effect from 1 October 2005. Aseparate announcement has today been issued announcing this appointment. The Board has asked me to lead the search for a further four non-executivedirectors and we have been working closely with an external search agency toidentify suitable candidates. Discussions are currently underway with a varietyof candidates and the Board is committed to achieving a balance between thosewith particular specialist knowledge and individuals who have significantexperience of applying insight to a broad range of issues at quoted publiccompany board level. Once the non-executive appointments have been made, the company intends, in linewith the Revised Combined Code, that the Audit and Remuneration Committees willconsist solely of non-executive directors who will also comprise the majority ofthe Nominations Committee. Financial outlook As we stated at the time of the preliminary announcement the considerableincrease in the size of the group following the acquisition of Safeway, thecomplexities associated with the acquisition, the need to standardise proceduresand the historic problems with the inherited Safeway accounting system havetogether put significant strain on the existing accounting resource. This isimpacting the ability of the Board to forecast likely trends in profitabilityand the Directors are therefore not currently in a position to provide reliableguidance on the level of profitability for the year as a whole. On 13 May 2005, the Board issued a trading announcement which indicated that itexpected operating margins to run significantly short of last year's level formuch of 2005. Based on current financial trends this remains the Board'sexpectation. However, the level of operating profit to be reported for thecurrent financial year will remain unclear until the completion of furtherdetailed work on the financial forecasts which is currently underway. The Boardhas asked KPMG to assist with this work. The Board expects to be in a positionto provide clearer guidance at the time of its half year results. These areexpected to be released in the second half of October which will allow review bythe new finance director. The Board will, however, provide a further salesupdate at the end of July. In 2006/7 there remains every indication that financial performance will improvesignificantly following completion of the conversion process and as the benefitsof the actions taken to normalise the cost structure of the business arereflected in improving margins. Prospects 2005/6 is proving to be a challenging year. However, by the end of November wewill have converted all the ongoing stores to the Morrisons format which willallow the elimination of double running costs and provide opportunities toachieve additional economies of scale. We have always maintained that theSafeway acquisition was a property deal. This has proved to be the case and toachieve the conversion of 230 Safeway stores in less than 18 months is in itselfa major achievement. The performance of the converted stores is encouraging in terms of both customerflow and sales per square foot. The existing Morrisons stores are holding theirown in a highly competitive market place and in comparison with a particularlysuccessful period in the prior year. The Board is confident that Morrisons can reinforce its position as a leadingsupermarket chain continuing to provide our customers with products that arewell priced, the best value, and with the good service that is Morrisonshallmark. Analyst/ Investor conference call: There will be a conference call at 08:30am UK time for Analysts and Investorsplease find dial in details below: +44(0)20 7365 1849 UK+33(0)1 71 23 04 18 France+1 718 354 1172 USA The password for the call will be Morrisons. For further enquiries, please contact: Wm Morrisons Supermarkets PLC 020 7638 9571Sir Kenneth Morrison CBEBob StottGillian Hall Citigate Dewe Rogerson 020 7638 9571Jonathan ClareSimon RigbySarah Gestetner Appendix Store comparatives 15 weeks to 15 May 2005 Safeway Safeway Total Group Unconverted RemainingWeekly averages per store Morrisons Conversions Number of stores in comparison 122 108 118 73 421 This yearAverage store size (sq ft) 36,632 24,066 24,951 17,972 26,899Sales per sq ft £20.36 £17.99 £15.11 £11.91 £17.47Customers 30,046 21,040 18,558 14,228 21,773Spend £24.82 £20.58 £20.31 £15.04 £21.58Take per store £745,662 £433,061 £376,979 £214,052 £469,954 Last yearAverage store size (sq ft) 36,632 26,069 24,951 17,972 27,413Sales per sq ft £20.83 £14.77 £14.67 £11.79 £16.75Customers 30,454 17,348 17,158 13,516 20,428Spend £25.06 £22.19 £21.34 £15.67 £22.48Take per store £763,060 £384,977 £366,070 £211,847 £459,221 % ChangeSales per sq ft (2.3%) 21.8% 3.0% 1.0% 4.3%Customers (1.3%) 21.3% 8.2% 5.3% 6.6%Spend (1.0%) (7.3%) (4.8%) (4.0%) (4.0%)Take per store (2.3%) 12.5% 3.0% 1.0% 2.3% This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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