Morrisons today slipped into the red, reporting a pre-tax loss for last year of £176 million, from a profit of £879 million last year. Chairman Sir Ian Gibson called it a "disappointing year for Morrisons", the price it has paid for being slow into the convenience store and online shopping sectors.
This has happened because the firm has lost market share, principally to Aldi and Lidl, with LFL sales down on the previous year by 2.8%, when that years sales were a already 2.1% down on 2011. Having said that the firm's sales were still a hefty £17.7 billion, but the supermarket business is one of fine margins.
Looking at the detail we find that Morrisons has charged £903 million of exceptional non-recurring costs to it's P&L. These include £163 million for the internet retailer Kiddicare, which it paid £70 million for in 2011, which was supposed to boost it's online presence. It then bought the closed Best Buy chain of 10 stores to clone the single Kiddicare Peterborough store into. It is now looking to sell the failed experiment and its stake in New York based food retailer, Fresh Direct.
Morrisons underlying operating margin of 4.9% fell by 50bps after adjusting for lower fuel sales. the UK grocery market grew during the year by 3.4% due to inflation, but Aldi and Lidl grew more, by around 20%, a structural change which all the big four supermarkets have to address.
CEO Dalton Philips told the BBC: "This isn't about being a discounter. This is about offering really great value. There is a tipping point where the price perception gap has just widened too far between the discounters and the big four and we're going to address that."
As for store development, investment in new space will be primarily concentrated on building out the core grocery space pipeline which will add around 300,000 sq ft in each of the next two years and on the development of their M local convenience format, adding around 250,000 sq ft each year to that.
Vertical integration has made the firm the second biggest food manufacturer in the UK. During the year the firm added to it's seafood processing facility in Grimsby, expanded it's Colne abattoir and bakery in Wakefield, and opened a modern banana ripening facility in Boston. This should all translate into a competitive advantage in fresh food.
Unlike most of it's peers Morrisons owns over 90% of it's 503 major stores, and while it has had to write down the value of some, it's balance sheet is strong with around £9 billion worth of property. It has 102 M convenience stores, having opened 90 this year. It plans to monetise around 10% of the value of this estate, but not let the freehold element fall beow 80%, by disposing of development assets, recent distribution assets and investment property.
Despite sticking to it's dividend policy and paying an increased dividend, shares in the firm, which closed at 233p last night, have opened sharply down this morning, valuing the firm at only around £5 billion.