I thought that today’s final results from Morrison Supermarkets (LSE: MRW) (NASDAQOTH: MRWSY.US) would contain few surprises, but I was wrong!
The supermarket has gone further to prepare the ground for the arrival of new chief executive David Potts than I expected.
The big news is that Morrisons’ 2015/16 dividend has been cut to “not less than 5p per share” — a cut of up to 63% on the 2014/15 payout of 13.65p, which was confirmed today.
The firm also said it would “significantly” slow the roll-out of its M local convenience stores, shutting a further 23 in 2015/16, and introducing much tougher selection criteria for new sites.
All of which suggests to me that the firm’s board has decided that outgoing chief executive Dalton Philip’s plans weren’t quite the right medicine for Morrisons’ problems.
Big losses
Morrisons reported a pre-tax loss of £792m this morning, down from a loss of £176m last year. Fortunately, this isn’t a cash loss — it’s the result of the supermarket booking a £1,273m impairment on the value of its property portfolio.
However, this isn’t great news for value investors, as one of the key appeals of Morrisons was the value of its freehold property: Morrisons’ book value is now just 154p per share, down from around 200p previously.
What about the good news?
Like-for-like sales were down by 5.9% on the year, but the quarterly figures show clear improvements, with sales falling by just 2.6% in the final quarter of the year, compared to 7.1% during the first quarter.
Total sales of £16.8bn were slightly below consensus forecasts for £17.0bn, but the firm’s underlying operating profit of £442m was broadly as expected, giving an underlying operating profit margin of 2.6%, which I expect will compare reasonably well with both Tesco and J Sainsbury‘s full-year figures.
Behind the scenes
The group managed to reduce net debt by from £2,817m to £2,340m, and capital expenditure was cut by more than 50% to just £520m, down from £1,086m during 2013/14.
Other positive developments include news that Morrisons’ new IT systems, which automatically order new stock for stores based on items sold, are moving into trial.
Is Morrisons a buy?
Morrisons didn’t issue any guidance for the current year today — that will come once new chief executive David Potts takes charge and has had a chance to review the firm’s plans.
Until then, I reckon Morrisons’ shares rate as a hold, as the outlook seems quite evenly balanced.
