Since the inception of Morrison plc 1899, it has risen to become one of the largest supermarket chains in UK, currently having a turnover in excess of £14bn. It is estimated to serve 10 million customers each week in its 382 stores country wide with over 124,000 employees. The fresh produce is normally washed, categorized in their packing facility. There are three bakeries producing over 6 million loaves, muffins and rolls each week. Morrison has abattoirs and supplies meat to stores, where the trained butchers cut in-stores, making fresh products like pies, burgers and sausages in the meat processing plant. It makes use of Market Street where stores in different areas where all fresh foods are stocked, prepared and served by the staff hence giving the feel of a traditional market.
With its vision – To become the ‘Food Specialist for everyone’ which is aimed at being attained through fresh, value and Service?
Morrison’s financial performance is moving at an upwards drift, which shows a steady progress, in a record sales and profits – the 42nd successive improvement in FY2009 since the company went public in 1967.
Morrison turnover grew by £1.5bn from £14.5bn to £16bn, a 12% increase, compared to Tesco plc which had a downturn of at least 15% last year. Part of the increase (c.3%) was because of high prices of energy in the forecast business in the previous year due to worldwide spike in gas and oil prices. The effect is expected to decrease this year due to the reduced pump prices of oil.
Morrison’s profit before tax was £655m to £612m last year. This included £2m of property gains, compared with £32m last year. Underlying basic earnings per share
(EPS) increased by 16% to 16.7p, whilst statutory basic EPS decreased by 16% due to an abnormally low tax charge last year. The Board is recommending a final dividend of 5.0p per share, to bring the total for the year to 5.8p – an increase of 21%. At this level, the dividend is covered 2.9 times, and it will continue the progressive policy of incrementing the dividend by the underlying earnings and additionally movement of dividend cover toward the average for the sector, which is around 2.5 times, by January 2010.
Cash generation was strong – with cash from operations of £964m, a year-on-year increase of £208m, or 28%. The Group’s pace of investment picked up, with capital
Expenditure in the year increasing to £678m following the opening of nine new
Stores and the acquisition of the freehold of our new distribution centre at
Sitting Bourne, in Kent. Additionally, the firm completed the planned second instalment
Payment into its defined benefit pension schemes of £100m and bought back
58 million shares in the market for £146m, an average share price of 251p. Following
These investments, net debt increased from £543m to £642m. As previously reported,
New five year term debt facilities of £1.1bn were agreed in September 2007, and
Only £250m of this facility was drawn at the year end, leaving gearing at 14%.
Financial ratios provide a quick and relatively simple means of examining the financial condition of a business. Hereby, the following section will concentrate on Morrison’s financial ratio analysis from the perspective of Profitability, Efficiency, Liquidity, Gearing and Investment, to assess Morrison’s financial strengths and weaknesses against its historical performance. Moreover, “10 years average” figures will credit a more comprehensive analysis in this financial review.
Profitability of the Morrison’s firm solemnly depends on the turnover and the turndown, which in this case 2010 seems to be favouring the group. Although Morrison is lagging behind compared to Tesco, its improvement rate is spectacular.
Stock turnover ratio and Asset turnover ratio are mainly selected to illustrate operations efficiency.
Credit payment period is used to measures how quickly the company can pay its debts to creditors. Morrison’s has a relative longer credit payment period, with 35 days for an average settlement, which to some extent gives the company some flexibility. Table 1 shows the relations.
The current ratio signifies the point towards which short-term assets are obtainable to meet short-term liabilities. Acid test ratio denotes the company’s ability to repay immediate commitments using liquid cash or near-cash. It excludes the value of stock in order to show the immediate solvency of the company. Higher liquidity ratios are desired. And Morrison’s liquidity ratio increasing trend, except FY2004, implies the business is running at a stable liquidity statue. The ratio reveals that the assets cover liabilities at a standard rate. This becomes possible since Morrison’s holds fast-moving goods and generated mostly sales that generate cash. The upwards tendency definitely will provide the Group with potential to pursue even better liquidity capacity.
Morrison’s plc is operating in a tight competition environment and needs to benchmark against its peers in order to actively stand in the market and improve its market shares. Although it’s currently not in the top 3 companies, Morrison comes in at a fourth place and can immensely increase its standing through the discovery of its strengths in comparative advantage. Morrison’s could heavily increase its productivity measures in several productive ways.
If Morrison’s could give more to its capital expenditure, a great deal of market growth will be realized. They currently have a total of 11.1m square feet of retail space and a total of 382 stores. An increase in the investments and general assets of the company will lead to increased sales and profit. Tesco, the leading multiple store, has consistently been increasing its capital investments, sometimes in a way that looks like a great risk, but they have successfully managed to grow market-wise and in turnover over the years. They have a total of 4331 stores worldwide.
Employees play a great role in the running of successful company. Well trained and disciplined staff can greatly increase a customer’s trip to a company. Morrison’s have 124000 employees that facilitate the running of the organization. In some of the successful companies, employees are rewarded for a great sale. An employee in the advertising department is rewarded if an advertisement they made has stunning reception from the consumers. If another in the creative department comes up with a product or idea that is well bought, they are well rewarded as well. A store attendant who receives customers, who trip a store they serve, ensures they get what they need and provides a warm environment for even further shopping is as well rewarded. Tesco have a strategy of employing well trained graduate staff. This is the winning staff for a wining company. This kind of staff knows what is expected of them in their lines of duty.
A suggestion from a research shows that 58% of consumers who trip a store do so because of low prices. And of the total shoppers, 68% remain loyal to a certain store due to the same reason. If Morrisons cuts down the prices, more customers will stream the store.
Morrison’s has a greater turnover to shopper ratio than Tesco. This ratio is currently at an impressive 14.5B to 550,000 shoppers per week.
Morrison’s has a lower debt to cash flow ratio compared to Tesco. Tesco is in a more difficult debt scenario compared to Morrison’s. There are fears among analysts that Tesco’s cash flow to debt ratio is to increase in future.
Tesco has a lower price to earnings ratio of its shares compared to Tesco making it a favourable investement option for stock traders.
Morisson’s has a lower staff to turnover ratio than Tesco increasing its productivity per unit of labour. This has helped in saving on expenses and increasing profits.
Tesco has a higher employee to shoppers ratio that ensures their clients are well attended to. Morrison’s is however more conscious when it comes to cost cutting and thus fall short in this ratio.