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Like-For-Like Sales Increase by 8.6% At Morrisons

Morrisons trolleys - CREDIT -James W Copeland  Shutterstockcom shutterstock_374627611 725 x 500.jpg

Morrisons has reported preliminary results for the year ended 31st January 2021.

2020/21 financial summary

• Group like-for-like (LFL) sales(1) ex-fuel/ex-VAT up 8.6% (2019/20: down 0.8%), with Q4 LFL up 9.0% (Q4 2019/20: down 2.1%)

• Total revenue up 0.4% to £17.6bn (2019/20: £17.5bn) 

• Profit before tax and exceptionals(2) down 50.7% to £201m (2019/20: £408m), including £290m direct COVID-19 costs to help feed the nation through the crisis

• Profit before tax and exceptionals(2) would have been up 5.6% to £431m before the payment of £230m of waived government business rates relief

• EPS before exceptionals(2) down 54.9% to 5.95p (2019/20: 13.18p)

• Profit before tax down 62.1% to £165m (2019/20: £435m) after net exceptional costs of £36m including online capacity transformation, impairment and restructuring

• Free cash outflow(3) £450m (2019/20: £238m inflow) due to lower profit and temporary impacts of lower fuel sales, higher stock and paying small suppliers immediately

• Net debt £3,169m (2019/20: £2,458m), or £1,798m pre-IFRS 16 (2019/20: £1,082m)

• Net pension accounting surplus £718m (2019/20: £944m)

• ROCE down to 3.9% (2019/20: 7.0%) due to lower profit before exceptionals

• Special dividend of 4.00p per share deferred from H2 2019/20 declared in December 2020 and paid in January 2021

• Final ordinary dividend 5.11p, taking the full-year ordinary dividend up 5.6% to 7.15p (2019/20: 6.77p) and full-year total dividend up 27.1% to 11.15p (2019/20: 8.77p) 

Strategic and operating highlights

• Proud to play our full part to help feed the nation. Our purpose, priorities and ways of
working are evolving and adapting well, and we are emerging broader and stronger

• Recognised by customers as best for brand warmth and net promoter score(4)

• Very strong absolute and relative sales, with deflation and high volume growth

• Strong operational gearing and profit growth when adjusted for waived rates relief

• Online sales tripled during the year, with capacity up fivefold. Both online and wholesale are profitable and we expect profits to keep improving

• ‘Morrisons on Amazon’ is now available in c.50 towns and cities, and already accounts for more than 10% of sales in the majority of our stores where we offer the service

• Morrisons is supplying the new Amazon Fresh grocery store which opened last week

• Wholesale supply roll-out to a further 236 McColl’s stores now complete

Guidance

• We expect 2021/22 profit before tax and exceptionals including rates paid to be higher than the £431m profit achieved in 2020/21 excluding the £230m waived rates relief

• During 2021/22, we expect strong free cash flow and a significant reduction in net debt, with net debt/EBITDA expected to be no higher than the 2019/20 level of 2.4x

• 300 McColl’s stores to be converted to Morrisons Daily over the next three years, and new contract with McColl’s signed to extend the partnership to 2027

• Plan for a 100% carbon-neutral direct British farm supply chain by 2030

Outlook

Our business has reacted and responded very well throughout the pandemic, and both our absolute and relative trading performance has been consistently strong. We are confident we can continue our momentum into the new year, and expect both profit growth and a significant reduction in net debt.

In early January we guided 2020/21 profit before tax and exceptionals to be in the range £420m–£440m prior to the waived rates relief payment of £230m. Our profit before tax and exceptionals of £431m, after adjusting for the waived rates relief, is in the middle of that range, and was achieved despite the impact of the third national lockdown. During January 2021 we again experienced higher colleague absence, thereby incurring £10m more direct COVID-19 costs than guided. In addition, our cafés were again required to close and fuel LFL fell to -43% (compared to -23% for the first 22 weeks of H2), both of which also had a negative effect on profit. However, retail LFL and operational gearing continued to be very strong thereby offsetting all of these impacts. Since year end colleague absence is gradually returning to lower levels and fuel sales have started to improve.

For 2021/22, with the anniversary of the first lockdown imminent and still some uncertainty as to how COVID-19 restrictions will evolve in future, there are many variables within our scenario sales and profit planning, especially so early in the new financial year. However, we recognise these are highly unusual times and want to provide whatever guidance we can for stakeholders for profit, debt and leverage.

We expect 2021/22 profit before tax and exceptionals including rates paid to be higher than the £431m profit achieved for 2020/21 excluding the £230m waived rates relief. This target assumes a gradual return to more normal trading conditions, no significant increases in expected direct COVID-19 costs such as elevated colleague absence, and no further restrictions such as another period of prolonged café closures. However, we enter 2021/22 with strong trading and operational gearing momentum, and further productivity and cost efficiency opportunities supported by our very robust underlying cash flow and balance sheet, all of which allows us flexibility around the choices we make for all stakeholders and gives us confidence in our profit guidance.

We expect free cash flow and net debt will now improve significantly. 2020/21 pre-IFRS 16 year-end net debt was £1,798m, broadly in line with our guidance of c.£1.7bn. Fuel LFL of -43% during January was lower than we had assumed, meaning fuel working capital outflow as at year end of £347m compared to £220m reported in early January. In addition, we continued to invest in both higher levels of stock availability and paying our smaller suppliers immediately.

We expect some of the working capital impacts to start to reverse during Q1 2021/22, and others to reverse as trading conditions normalise thereafter. Looking forward and beyond these temporary impacts, we expect strong free cash flow and a significant fall in net debt during 2021/22, with net debt/EBITDA expected to be no higher than the 2019/20 year-end level of 2.4x. As we have done consistently over recent years, we will retain a strong and flexible balance sheet, and will be guided each year by the principles of our capital allocation framework in assessing the uses of that free cash flow. As previously announced, we will take a decision regarding a potential special dividend once a year at the time of our preliminary results in March.

Andrew Higginson, Chair, said:
“This has been a year where Morrisons resilience has been severely tested and I could not be more proud of the way the whole business has met that test. As we look forward to brighter times ahead, Morrisons is developing into a stronger, better business with deeper and closer relationships with our customers and the communities we serve.”

David Potts, Chief Executive, said:
“Morrisons key workers have played a vital role for all our stakeholders during the pandemic, especially the most vulnerable in British society, and their achievements over the last year have been remarkable. I am delighted that we are recognising their enormous contribution by becoming the first supermarket to pay a minimum of £10 an hour to all store colleagues. We are also today showing our continuing gratitude and appreciation for the incredible work of other key workers in the nation, by extending our 10% discount for NHS staff for the whole of 2021.

“I'm pleased with the greater recognition, warmth and affection for the Morrisons brand from all corners of the nation, following a year like no other. We must now look forward with hope towards better times for all, and we’re confident we can take our strong momentum into the new year, targeting profit growth and significantly lower net debt during 2021/22.”

Source : Morrisons

Image : James W Copeland / Shutterstock.com 374627611 

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11 March 2021

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