WM Morrison Supermarkets PLC (LON:MRW) declared a further special dividend as it expects free cash flow generation to remain strong after a 17.5% jump in the 2018/19 financial year.
The supermarket group recommended a special dividend of 4.0p per share along with an ordinary dividend of 6.6p, taking the total payout for the year ended February 3 to 12.6p, up 24.9% on the previous year.
READ: WM Morrison falls as it warns of ‘change in consumer behaviour’ despite sales rise over Christmas
Free cash flow, adjusted for proceeds from the disposal of properties, operating working capital and onerous payments, came to £296mln, compared to £252mln last year.
The supermarket chain said statutory profit before tax fell by 15.8% to £380mln, in part due to costs associated with setting up a new warehouse in Erith for its own online delivery service and the accelerated roll-out of a wholesale supply contract with convenience store chain McColl’s.
McColl’s had to speed up the rollout of its new supply contract with Morrisons following the collapse of Palmer & Harvey in late 2017.
Start-up costs
As a result, Morrisons incurred extra online and wholesale supply start-up costs in the year but it achieved its target of £700mln annualised wholesale sales earlier than expected.
The net incremental profit from wholesale, services, internet and online rose by £12mln in the year and the group said it remains confident of meeting its medium-term target of £75mln to £125mln.
The retailer added that it was on track to achieve its target of £1bn of wholesale supply sales in “due course”. It expects to begin to supply McColl's remaining 300 convenience stores towards the end of 2019, with some sales benefit likely from the second half.
Adjusted profits and like-for-like sales gain
Excluding exceptional items, full-year adjusted pre-tax profit rose by 8.6% to £374mln.
Total revenue increased 2.7% to £17.7bn while like-for-like sales, excluding fuel, gained 4.8%.
Retail like-for-like sales rose 1.5%, including 1.2% growth in supermarket sales and a 0.3% gain in online sales through customer fulfilment centres.
Wholesale like-for-like sales edged up 3.3%.
Morrisons said it remains confident that is “still has many sales and profit growth opportunities ahead” and expects growth to be “meaningful and sustainable”.
Shares dropped 1% to 222.85p in morning trading.
Tough competition
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: “Credit where it’s due, today’s results are good going from Morrison, the in store like-for-like sales growth may not be impressive, but it’s something not all its competitors are managing.
"However, the real jewel in Morrisons crown is its wholesale supply deals with the likes of Amazon and McColl’s - £700mln of sales came from the wholesale division this year – and that number’s expected to hit £1bn soon enough. That added dough is needed to feed the bottom line, in what has become an increasingly competitive industry."
She added that Morrisons, like the other big four supermarkets, is still facing threat from the rise of German discounters Aldi and Lidl and the possibility that J Sainsbury PLC (LON:SBRY) plan to merge with Asda get approved by the UK competition watchdog.
The UK Competition and Markets Authority has raised concerns about the Sainsbury's/Asda merger ahead a final decision expected in April.
"The group may have sighed with relief on news the Sainsbury/Asda merger has run into trouble, but the possibility remains that someone else could snap up Asda, and that would put another helping of competition back on the table," said Lund-Yates.
"Another area management’s been scratching its head over for a while is the online business, with this only making up a meagre part of the overall story. A partnership with Ocado is getting things moving in the right direction, but Morrison still has a long way to go to catch up with the rest of the Big Four on this front.”