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11 March 2021
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11 March 2021

Morrisons this morning reported end of year sales up 8.6% on a year ago, as CEO David Pott’s hailed the retailers “strong momentum” as it approaches the easing of lockdown.

The results, compared to 0.8% sales fall a year ago, included total revenues up 0.4% to £17.6bn, despite profits being down by more than 60%, in part because of £290m of Covid related costs.

Total revenue excluding fuel was up 8.9% as fuel sales slumped 32.1% to £2.49bn during the pandemic.

Morrisons said online sales had tripled during the year, with capacity now up fivefold whilst both its online and wholesale operation were already profitable and expected to become more so.

The year has also seen Morrisons on Amazon become available in 50 towns and cities, already accounting for more than 10% of sales in the majority of stores offering the service, it said.

Other highlights included the rollout of a wholesale supply deal to 236 McColl’s stores

The supermarket said profit before tax and exceptionals would have been up 5.6% to £431m before the payment of £230m of waived government business rates relief

Headline profit before tax and exceptionals was down 50.7% to £201m, including £290m direct COVID-19 costs to “help feed the nation through the crisis”.

Including exceptional costs, profit before tax was down 62.1% to £165m.

Exceptional costs included £36m on online capacity transformation, impairments and restructuring.

Today Morrisons told stakeholders it expected greater profits in 2021/22, despite uncertainty as to how COVID-19 restrictions will evolve

It said the target assumed 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”

But the supermarket said it entered 2021/22 with “strong trading and operational gearing momentum” as well as “further productivity and cost efficiency opportunities” supported by robust underlying cash flow and balance sheet

A decision regarding a potential special dividend will be taken at its preliminary results in March.

“This has been a year where Morrisons resilience has been severely tested and I could not be prouder of the way the whole business has met that test,” said Morrisons chairman Andy Higginson.

“This has been a year where Morrisons resilience has been severely tested and I could not be prouder 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.”

“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,” added David Potts, Morrison’s chief executive.

“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.”

Morrisons shares are down 0.7% to 175.7p after a volatile morning.

Moring update

The John Lewis Partnership has plunged to a loss of more than half a billion pounds as it restructured its business and wrote down the value of John Lewis shops in the wake of a slump in sales during the COVID period at the department store.

In total the Partnership recorded a loss before tax of £517m, compared to a profit before tax of £146m in the previous year.

This was driven by exceptional costs of £648m, mainly the write down in the value of John Lewis shops owing to the pronounced shift to online, as well as restructuring and redundancy costs from store closures and changes to its head office.

John Lewis shops are now held on the Partnership’s balance sheet at almost half the value they were before this year’s and last year’s write downs.

Before the pandemic £6 in every £10 spent online with John Lewis was driven by shops, but that ratio has since fallen to £3 in every £10.

Profit before exceptionals was actually up £61m on the previous year to £131m, thought the Partnership would have made a pre-exceptional loss if it weren’t for £190m of crisis-related support from the Government in business rates relief and furlough support.

Trading operating profit was significantly challenged as the improvement seen in Waitrose, in part helped by the closure of the hospitality industry, was insufficient to cover the substantial decline in John Lewis as “non-essential” physical retailing closed temporarily.

Waitrose trading profit was up to £1.15b from £1.06bn, while John Lewis trading profit fell from £734m to £554m.

Total trading sales across the group were up 5% to £12.3bn with revenues up 6% to £10.8bn.

Waitrose trading sales were up 10% with like-for-like growth at the same level, while John Lewis trading sales fell 2% to £4.7bn like flat like-for-like sales.

At the start of the financial year, online accounted for 5% of Waitrose sales; it is now 20% with the average across the year being 14%.

It said the end of the Ocado relationship on 1 September 2020 and the start of the trial with Deliveroo on the same day provided a boost to online sales. It said its trial with Deliveroo – through which customers can order over 650 products, delivered in as little as 30 minutes – has helped to attract younger shoppers, many of whom are new to Waitrose.

Referencing its recently announced new five year strategy this morning, chairman Dame Sharon White said the first priority is to “reduce our costs and reinvest the proceeds in improved customer service to ensure that John Lewis and Waitrose remain the go-to brands for quality, value and sustainability, with greater ease and convenience”.

With retail margins declining, it is aiming that by 2030, 40% of profits will come from areas outside retail, namely financial services, housing and outdoor living.

However, the immediate outlook is “uniquely uncertain” as the country charts its exit from lockdown, with non-essential retail in England due to open on 12 April at the earliest; and the timetable varying in Scotland and Wales.

White said: “No one has a crystal ball to predict the strength and pace of the recovery – or the future course of the virus. Our priority is to make sure that the Partnership is well placed to serve our customers, however they want to shop with us.

“We are expecting working from home to be at higher levels than before the crisis as more people work a ‘hybrid’ of home and office.”

“Many customers will have accumulated savings over the past year, having been less able to spend on holidays and going out. This pent up demand might be spent shopping or on the experiences that they have been deprived of in the past year. Equally, with unemployment and inflation both forecast to rise our customers may be more hesitant about spending and more cost conscious.”

JLP is targeting a £300m a year cost reduction by 2022/23, while it plans to invest £800m in 2021/22 to support its turnaround, approximately 40% higher than recent years.

Given this raised level of investment, JLP expects its financial results – including liquidity, debt ratio, and profit before exceptionals – to worsen in 2021/22 and then improve in later years.

Investment will focus on digital investment across both brands, improvements in its store estate, updating of major category propositions, new capacity at its John Lewis Magna Park distribution site and restructuring to reduce costs.

Elsewhere, this morning, Mitchells & Butlers has updated the market on its rights issue to raise £351m.

The company said it has received valid acceptances from qualifying shareholders for 153,400,408 new shares, representing approximately 91.9% of the 166,911,444 shares. In addition, the company has received applications from qualifying shareholders under the ‘excess application facility’ in respect of 96,033,311 New Shares.

Therefore, in total 166,911,444 new shares will be issued raising £350.5m.

Finally, the listing of Applegreen Shares on Euronext Growth and AIM exchanges has been cancelled with effect from this morning, following the deal to take the forecourt operator back into private hands.

Applegreen first announced in December 2020 that it will be sold to a consortium comprising Blackstone Infrastructure Partners and B&J Holdings, which wholly owned by Applegreen founders Robert Etchingham and Joseph Barrett, and already owns 41% of Applegreen.

On the markets this morning, the FTSE 100 is up 0.2% to 6,735.8pts.

Risers this morning include Ocado, up 2.4% to 2,130.4p, THG, up 2.1% to 673.5p and Nichols, up 1.7% to 1,205.3p.

The day’s fallers include Bakkavor, down 1.8% to 98.2p, Finsbury Food Group, down 1% to 81.6p and Tesco, down 1% to 220.1p.

Yesterday in the City

The FTSE 100 ended the day edging down 0.1% to 6,725.6pts.

Just Eat Takeaway.com was one of the market’s notable risers, climbing 6.1% to 7,262p after posting a surge in annual sales during the coronavirus lockdown.

Other risers included Bakkavor, up 6.8% to 100p, Wynnstay, up 3.7% to 518p, Sainsbury’s, up 2% to 235.4p, FeverTree, up 1.8% to 2,441p, Marks & Spencer, up 1.8% t 156.8p and Diageo, up 1.6% to 3,007.5p.

The day’s fallers included Glanbia, down 5.8% to €10.64, McColl’s Retail Group, down 2.9% to 30p, Kerry Group, down 2.8% to 103.5p, Hotel Chocolat, down 2.4% to 405p, Compass Group, down 2% to 1,542p, Greencore, down 1.8% to 151.9p, PZ Cussons, down 1.7% to 265p and SSP Group, down 1.6% to 342.4p.

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