Morrisons Interims

This first set of result since they reset their business model back in March this year bear the scars of that. The financial highlights from their statement are as follows:

·    Total turnover down 4.9% to £8.5bn (2013/14: £8.9bn)

·    Like-for-like sales (ex-fuel/ex-VAT) down 7.4% (2013/14: down 1.6%)

·    Underlying profit before tax(1) down 51% to £181m (2013/14: £371m(2))

·    Underlying earnings per share(1) down 52% to 5.74p (2013/14: 11.92p(2))

·    Profit before tax £239m (2013/14: £344m)

·    Interim dividend up 5.0% to 4.03p (2013/14: 3.84p)

·    Net debt reduced by £209m to £2,608m (FY 2013/14: £2,817m)

·    2014/15 underlying profit before tax guidance confirmed at £325-£375m

They also highlighted strong cash flow helped by working capital movements and property disposals, while debt was reduced and some new funding arrangements put in place. They acknowledge that it is still early into their three year plan which aims to generate £2 billion of cash and £1 billion of cost savings. A new Chairman elect, Andrew Higginson is due to arrive in October and they are also due to launch a Morrisons card too (loyalty presumably). They also reiterated their full year profits forecasts and a commitment to an increased dividend as reflected in the 5% increase posted with these figures and a commitment to full year dividend of 13.65 pence for a yield of 7.5%. However they acknowledged that LFL sales had yet to improve but anticipated that these would improve toward the end of the second half. Dalton Philips, Chief Executive, also said:

"We are six months into the three-year plan that we set out in March and, although it is early days, I am encouraged by the progress we have made. There is an enormous amount of change and modernisation flowing through our core business, much of it enabled by new systems. Price investment, in-store improvements, and better products were all key components of the work undertaken in the first half, and the Morrisons card launches soon. Our new growth channels - online and convenience - are progressing well, and our cost-savings and cash flow plans are both on track to achieve our ambitious three-year targets.

Although it is too early to see the benefits of the three-year plan in the sales line, Morrisons is getting back on the front foot, and implementing change and innovation at real pace throughout the business. We are meeting the challenges of structural change with decisive action and are on track to become a more distinctive value retailer for the next generation of grocery retail."

Summary & Conclusion
The plan seems to be on track so far, but it is probably too early to say whether it will succeed in the medium term. With a new Chief Executive at Tesco and them seeming likely to invest in price as well the possibility of an on going price war continues to hang over the sector and may negate Morrison's shift in pricing. As it stands the value case remains in Morrisons with the yield and asset backing from their properties. However, the sustainability of the dividend and doubts about the value of the properties in the medium term will continue to dog them as the sector remains in turmoil and the competitor responses are awaited and as such it could equally be a value trap, so as ever you pay your money and take your choice.