TIDMMRW
RNS Number : 5602M
Morrison(Wm.)Supermarkets PLC
12 May 2020
News Release
Release date: 12 May 2020
COVID-19 and Q1 sales update
Playing our full part in feeding the nation
Strong Q1 LFL sales performance
2020/21
Q1 Weeks Q1 Weeks 12-14
1-14*
--------- ---------------
Retail contribution
to LFL 5.1% 9.6%
--------- ---------------
Wholesale contribution
to LFL 0.6% 1.2%
--------- ---------------
Group LFL ex-fuel 5.7% 10.8%
--------- ---------------
Reported in accordance with IFRS 15
COVID-19 update
COVID-19 has created unprecedented challenges and changed both
our near-term priorities and how we operate. In responding to the
crisis we have adopted an interim core purpose: 'To play our full
part in feeding the nation - it's more than our job'.
All our efforts are currently focussed on protecting our
colleagues and customers, and working together with our own food
makers and our other suppliers to ensure food is available to all
across Britain, especially the vulnerable and most in need.
David Potts, Chief Executive, said:
"We are facing into the unprecedented current challenges and are
playing our full part to help feed the nation: working with
determination, creativity and pace to serve customers as well as we
possibly can.
"The professionalism, enthusiasm and resourcefulness of our
frontline key worker colleagues is extraordinary and is showing
Morrisons at its very best. I'd like to thank every single
colleague: you are Morrisons most important and most valued assets
and are making a vital difference to so many people and communities
across Britain."
Protecting our colleagues and customers:
-- Protective screens introduced around the till area of almost
6,500 main bank checkouts in ten days, plus further screens
introduced in front of checkouts, pharmacy counters and customer
service desks
-- Social distancing measures at all Morrisons sites, including
marshal-controlled entry and reconfigured customer flow at all
our stores
-- Hand sanitiser, gloves, and masks available for all store colleagues
-- Increased cleaning and other health and safety initiatives at
all our sites
-- Temporarily closed all our in-store cafés, food-to-go and
service counters
-- Contactless in-store card payment limit lifted from GBP30 to
GBP45
Supporting colleagues, customers, suppliers, local communities
and the NHS:
-- Enhanced pay guarantees for sick, self-isolating and affected
colleagues, plus greater flexibility around shifts and annual
leave
-- A 6% 'thank you' guaranteed annual bonus for all frontline colleagues,
up threefold on last year, and payable quarterly rather than
at year end
-- Colleague in-store discount increased
-- A hardship fund to support colleagues in financial difficulty
due to the crisis
-- Recruited over 25,000 new colleagues in stores, manufacturing,
supply chain, and in online and home delivery as we significantly
expand capacity
-- No colleagues furloughed
-- A new bulk delivery service for local councils, care homes and
charities
-- Immediate payment to all our c.3,000 small suppliers, which
we estimate will be a temporary working capital investment of
c.GBP50m
-- A 5% Morrisons discount for our c.3,000 British farmer suppliers
-- GBP10m of food to be distributed by Morrisons Community Champions
to help re-stock Britain's food banks
-- GBP500,000 of emergency funds being donated by the Morrisons
Foundation to homeless charities to help them through the extra
demands of the crisis
-- NHS workers' hour early in the morning, allowing queue-free
access to Morrisons stores when our shelves are fully stocked
-- NHS workers' 10% Morrisons discount
-- NHS workers' click-and-collect food boxes delivered to hospital
car parks
Feeding the nation:
-- Over 100,000 Morrisons colleagues on the frontline, in stores,
manufacturing, supply chain and home delivery, recognised by
government as key workers
-- Morrisons store on Amazon Prime Now going nationwide, up from
17 stores to over 40 in the coming weeks, covering most British
cities and over 90% of Greater London postcodes
-- Morrisons.com online home delivery slots more than doubled through
a significant increase in store pick, and a new click-and-collect
service at almost 280 stores by mid-June
-- Ten types of home delivery food box introduced, initially providing
essentials for the vulnerable and self-isolating, and now expanding
into new options
-- A telephone order grocery doorstep delivery service introduced
at all our stores for the most vulnerable and elderly without
access to online or help
-- A partnership with Deliveroo to deliver groceries in as little
as 30 minutes to customers by courier from 130 Morrisons stores
Q1 sales update
Trading during the individual weeks of Q1 was highly volatile,
with stocking up, then the initial impact of lockdown and weak
Easter trading, followed by a significant improvement in recent
weeks.
For Q1 (the 14-week period from 3 February to 10 May * ), Group
LFL excluding fuel was up 5.7%, comprising contributions from
retail of 5.1% and wholesale of 0.6%. Inflation during the period
was broadly flat. Group LFL including fuel was down 3.9%, with fuel
LFL down 39.3%, and down c.70% since lockdown, as customers are
currently taking significantly fewer car journeys. Total sales were
up 5.7% excluding fuel, and down 4.0% including fuel. Two new
stores were opened in the period, in Amble and Bradwell.
As previously announced, retail contribution to LFL was 5.0% for
the first six weeks of 2020/21. Sales had been on an improving
trend since the start of 2020 and improved again, before the impact
of COVID-19, to flat for the first four weeks of 2020/21. For our
weeks five to seven during early/mid-March there was considerable
stocking up and sales pull-forward.
Lockdown began in our week eight, with reduced trading hours
plus extensive social distancing and reconfiguration measures
introduced. This included capping in-store customer numbers, and
temporarily only opening every second checkout. In addition, Easter
in lockdown was not the normal occasion, so sales were
significantly down year on year. As a result, retail contribution
to LFL was negative for weeks eight to 11.
In the most recent weeks, we have gradually returned to normal
trading hours, introduced more protective screens to enable all
checkouts to open safely at the same time, and availability has
continued to improve. Customers have become more accustomed to the
social distancing protocol in stores, and are spreading their
shopping trips throughout the week rather than focusing on the
traditional weekend peak. Retail contribution to LFL for weeks
12-14 was 9.6%.
Our online offer is expanding significantly and at pace,
providing different home delivery options especially for those
customers most vulnerable and in need.
For Morrisons.com, we have more than doubled the number of
weekly home delivery slots, well in excess of the 60% increase we
initially planned for. This has been achieved, together with our
partner Ocado, through a substantial increase in the number of
store-pick stores. We have also further stretched the capacity of
the Dordon customer fulfilment centre. In addition, from a trial of
just six stores in March, we will offer click-and-collect pick-up
from almost 280 Morrisons stores by mid-June. We are confident we
can again significantly increase the number of Morrisons.com home
delivery slots over the coming weeks.
Home delivery for customers has been further extended beyond
Morrisons.com. We very quickly set up production facilities at four
of our food manufacturing sites to prepare food boxes, which are
delivered direct to customers' houses by a third party. Ten
different home delivery food boxes have been introduced so far,
available either online or via a telephone call, aimed initially at
providing essentials to vulnerable and self-isolating people, and
recently extended to other options such as British meat, gluten
free, BBQ, and Ramadan. In addition, we have formed a partnership
with Deliveroo to deliver groceries in as little as 30 minutes to
customers by courier from 130 Morrisons stores. The service is
proving popular with customers, and has been extended to more
deliveries and items, including a selection of beer and wine.
During the period, we also significantly expanded the Morrisons
store on Amazon Prime Now, the ultra-fast, same-day online home
delivery service. At the time of the 2019/20 preliminary results in
March, the service operated from 17 Morrisons stores in eight
cities. By the end of May, it will have been extended nationwide to
over 40 stores, covering most major cities and many towns. New
areas covered include Edinburgh, Cardiff, Bristol, Portsmouth, and
most of the major conurbations of the West and East Midlands. In
addition, more London stores have been added, now expanding
delivery coverage to over 90% of Greater London postcodes.
In wholesale, there has been a significant recent increase in
our sales to our convenience store operator partners, particularly
since the start of the lockdown period. Also, we have recently
started to supply local councils, care homes, and some charities
(such as The Salvation Army) across Britain with great-value bulk
supplies for distribution to those in need in the local
community.
Within the 0.6% wholesale contribution to Group LFL in Q1, weeks
1-6 were 0.2% and weeks seven to 14 were 0.9%. In addition, as we
stated at our recent preliminary results, McColl's has over 240
remaining ex-Co-op stores, which will transition to Morrisons
wholesale supply during 2020.
Throughout the period our manufacturing businesses and supply
chain coped well, often under extreme pressure, with the
unprecedented volatility of demand, colleague absences, and the
challenges of so many new initiatives.
Morrisons continues to operate from a very robust financial
position, with a strong balance sheet, low debt and strong debt
maturity profile. During Q1, we took the opportunity to further
improve our liquidity. On attractive financial terms, we extended
one GBP100m revolving credit facility (RCF) from July, and put in
place another three new GBP100m RCFs, taking our total RCF
facilities from GBP1.45bn to GBP1.75bn. Of the GBP1.75bn, GBP1.35bn
runs until 2024 with an option to extend by a year, and the four
GBP100m facilities run for a year with two having options to extend
by six months. As at the end of Q1, we were GBP70m drawn on our RCF
and, while we expect this to increase during Q2, all our scenario
planning suggests we will sustain very significant liquidity
headroom.
Outlook
All our efforts are fully focussed on deploying our assets in
the best way to enable our colleagues to help feed the nation. Our
longer-term strategy remains to continue building a broader,
stronger, and more popular and accessible new Morrisons, and to be
guided by the principles of our capital allocation framework.
At this stage, the impact of COVID-19 remains uncertain. The
outlook for our sales is also uncertain, although we are adapting
well to the new day-to-day circumstances, while being both
proactive and reactive in taking new opportunities. In addition, we
are confident that we can satisfy any ongoing increased demand if
the eat-at-home market continues to be temporarily larger than
usual.
Day-to-day operations and challenges are currently very
different from normal, and we are operating in a more volatile
trading environment, which is costly. In addition, many of the
payroll, bonus, seasonal waste and markdown, distribution,
community, and colleague and customer protection initiatives
described above come at considerable cost. For example, at times we
have been experiencing temporary absence rates running at up to
20,000 colleagues.
We continue to monitor various 2020/21 sales, profit and cash
flow scenarios, but have minimal certainty or visibility around a
precise outcome. At this stage, our best estimate is that the
2020/21 costs relating directly to COVID-19 are likely to be
broadly offset by the in-year business rates cost saving ** , but
the actual net effect is highly dependent on the length of the
crisis and how customers respond as lockdown eases. In addition,
there are other current impacts on profit such as the temporary
closure of our significant café business, and the considerably
lower fuel sales. As these costs and profit impacts are more
weighted to the first half of our financial year and the rates
relief benefit more to the second half, we expect the net adverse
impact on profit to be considerably more weighted to the first
half.
As we stated at our preliminary results in March, with sales on
an improving trend, profit growing for a fourth consecutive year,
and both free cash flow and liquidity continuing to be strong, we
had anticipated announcing another special dividend for 2019/20.
Instead, given the unprecedented nature of events around COVID-19,
we determined it would be prudent to defer the decision. This
continues to be the case, and we are keeping our capital allocation
options under review, giving us maximum future flexibility around
how we prioritise uses of our strong cash flow. In the near term,
the negative fuel LFL is having a temporary impact on working
capital and net debt, which we expect to reverse quickly when fuel
sales normalise.
Figure 1 - LFL sales performance (ex-VAT)
2019/20 2020/21
Q1 Q2 Q3 Q4 Q1 *
----- ------- ------- ------- --------
Retail contribution
to LFL 0.2% (2.4)% (1.1)% (2.2)% 5.1%
----- ------- ------- ------- --------
Wholesale contribution
to LFL 2.1% 0.5% (0.1)% 0.1% 0.6%
----- ------- ------- ------- --------
Group LFL ex-fuel 2.3% (1.9)% (1.2)% (2.1)% 5.7%
----- ------- ------- ------- --------
Group LFL inc-fuel 2.7% (2.2)% (2.5)% (2.4)% (3.9%)
----- ------- ------- ------- --------
Reported in accordance with IFRS 15
* As previously announced, Q1 2020/21 was extended by a week to
14 weeks and compares with the same 14 weeks last year, to allow
for the later May bank holiday this year and to ensure comparable
trading periods. Q2 will be 12 weeks in duration, and will be
reported within the first-half results as usual in September.
** On 18 March 2020, after the government announced business
rates relief for all retailers, we announced that we paid business
rates in the UK of GBP308m for our 2019/20 financial year, of which
c.GBP290m related to stores. For our 2020/21 financial year, we
estimate April to January business rates relief of GBP228m in
England and Scotland (the Welsh authority has subsequently reversed
its decision since the original announcement), of which four
monthly instalments would have been due in the first half and six
in the second half. For 2021/22, we will receive business rates
relief for February and March, and resume payments in April.
Notes:
This announcement includes inside information.
Enquiries:
Wm Morrison Supermarkets PLC
Michael Gleeson - Chief Financial Officer 0845 611 5000
Andrew Kasoulis - Investor Relations Director 0778 534 3515
Media Relations
Wm Morrison Supermarkets PLC: Julian Bailey 0796 906 1092
Citigate Dewe Rogerson: Simon Rigby 0203 926 8522
Kevin Smith 0203 926 8509
Nick Hayns 0203 926 8503
- ENDS -
There will be an analyst conference call at 8.15 a.m. today, the
details of which are as follows:
Dial-in number: +44 (0)33 3300 0804
Access Pin: 83245255#
Replay facility available for 7 days:
Replay dial-in number: +44 (0)33 3300 0819
Access Pin: 301322118#
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END
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