Underlying profit before tax, stripping out property costs, fell by 13% to £785M, while turnover dipped 2% to £17.7bn.
Like-for-like sales, excluding fuel, ex-VAT fell by 2.8%, after what chairman Sir Ian Gibson acknowledged was “a disappointing year”.
But Dalton Philips, chief executive, said Morrisons’ new “bold and comprehensive” strategy to strip £1bn of costs from the business, while reducing prices to combat discounters, such as Aldi and Lidl, will revive the retailer’s flagging fortunes.
‘Invest £1bn into our proposition’
“We are significantly reducing our cost base and will invest £1bn into our proposition over the next three years, to improve our value even further and to defend and strengthen our competitive position,” said Philips.
“Customers will see this in our stores as well as in our fast growing online and convenience offers. At the same time we will exit non-core activities, significantly reduce our capital expenditure and deliver improved operating cash flow and return on capital employed.”
Philips acknowledged Morrisons had some “very poor systems in our business“, which offered scope for massive cost savings. For example, until recently the retailer had 15 tinned tomatoes (lines), which it had cut to five.
Morrisons was determined its business should not suffer at the hands of discounters, as had other sectors. “The fact is there are new entrants in the market – they are called the discounters, customers do shop in them and we are going to recognise it”, Philips told BBC Radio 4's The Today programme. “It is no different to what we have seen in other sectors – the legacy airline issue of the ‘90s. The discounters came in and they really impacted that sector. We are not going to let that happen to us – we are making bold decisive moves today.”
‘We are not going to let that happen to us’
But Morrisons’ new strategy was not to become a discounter itself but to close the price gap between itself and discount stores, while capitalising on the quality and provenance benefits of its offer. “In our core, it’s about getting closer on price – it’s not about being a discounter,” said Philips. “That’s where all the other attributes [quality and provenance] Morrisons has – that no one else has – kicks into play and you get your customer reappraisal.”
Meanwhile, the firm's online operation and convenience stores were separate businesses that “just need to grow to maturity”, he added.
The retailer predicted the challenging conditions of 2013 will continue this year, which had impacted profit expectations. Underlying profits in 2014/15 were forecast at between £325M–375M, after charging £65M of new business development costs and £70M of one-off, non-recurring costs.
City analyst Panmure Gordon concluded Morrisons' profit prospects were “truly awful”.
Morrisons’ results – at a glance
• Turnover down 2% to £17.7bn
• Like-for-like sales (ex-fuel, ex-VAT) down 2.8%
• Underlying profit before tax down 13% to £785M
• Non-recurring exceptional costs of £903M
• Loss before tax £176M
• Earnings per share 10.2p compared with 26.7p in 2012/13
• Underlying earnings per share down 8% to 25.2p
Source: Morrisons