Morrisons Supermarkets PLC BUSINESS REPORT

BRIAN GIBBS STUDENT ASSESSMENT NUMBER: 2 INTRODUCTION FINANCIAL REPORT: MORRISONS FINANCIALS (2016-2020) 3 Business Summary .3 FINANCIAL REPORT 3 Morrisons Financial Summary.3 Financial Ratio Analysis 20205 Morrisons’ Supermarkets’ Financial Performance Drivers/Constraints .9 Conclusion: Financial Report 10 TRENDS & DEVELOPMENTS: THE RETAIL INDUSTRY 11 OPPORTUNITIES & THREATS TO MORRISONS IN THE FINANCIAL FUTURE .12

MORRISONS
SUPERMARKETS PLC
BUSINESS REPORT
Strategic Financial Management – BU7006
MODULE LEADER: DR. BRIAN GIBBS
STUDENT ASSESSMENT NUMBER:

Table of Contents
INTRODUCTION..................................................................................................................................... 2
BUSINESS & FINANCIAL REPORT: MORRISONS FINANCIALS (2016-2020)..............................................3
Business Summary.............................................................................................................................3
FINANCIAL REPORT............................................................................................................................3
Morrisons Financial Summary.......................................................................................................3
Financial Ratio Analysis..................................................................................................................5
Morrisons’ Supermarkets’ Financial Performance Drivers/Constraints.........................................9
Conclusion: Financial Report........................................................................................................10
TRENDS & DEVELOPMENTS: THE RETAIL INDUSTRY............................................................................11
OPPORTUNITIES & THREATS TO MORRISONS IN THE NEAR FUTURE...................................................12
Opportunities.................................................................................................................................. 12
Threats............................................................................................................................................. 12
CONCLUSION....................................................................................................................................... 13
References........................................................................................................................................... 14
Word Count: 4,000 Words
2

INTRODUCTION
The understanding of the financial position, financial performance, and economic standing
of a business is quintessential to effective decision making for investors (existing and
potential) as well as other classes of stakeholders in the business. As a result, this report is
prepared to critically evaluate the financial and economic healthiness of the case study;
Morrisons Supermarkets PLC. This report shall include relevant financial ratios that would
allow for better understanding of Morrisons’ financial position and performance, and shall
also utilise information available from various sources to provide more insight on the
positioning of the business, economically and in the markets, in the foreseeable future.
As required for the critical and independent review of Morrisons Supermarkets, this report
shall be considering financial data for 5 years (i.e., 2016-2020). It is on the selected years
that the computation of the required key-financial ratios shall be based. This will provide
understanding of the trends in the business’s profitability and long-term viability with
respect to the industry in which it operates. Also, as required for the performance of this
assessment, non-financial analysis shall be performed on the business, taking into
consideration the imperative industry trends, as well as the relevant business strategic
developments that pose as strengths and allow them exploit the various (existing and
prospective) opportunities available (now and in the near future) in the industry. This shall
also help to bring to light the areas of weaknesses for the business, not leaving out likely
threats to be on the look-out for as a business operating in the retail industry.
Like every other industry and entity across the globe, the retail industry, in which Morrisons
Supermarkets PLC operates in (as a major player), was massively hit by the COVID-19
pandemic situation, causing a paradigm shift in the general activities of the industry and in
the structure of operations of the major industry players. Therefore, this report has in it an
overview of the impact of the pandemic on business (in respect of profitability, efficiency,
and market share growth and retention among other things). Furthermore, there shall be
information on the business’ performance in the period and steps taken by the business to
promote positive growth in the market share whilst maintaining the safety policies put in
place by the authorities. At the end of this report, we will recommend line(s) of actions that
the business should factor into their working models, and give insights on policies and
2

strategic changes that could be made to hedge against economic, social and financial risk in
the periods to come.
BUSINESS & FINANCIAL REPORT: MORRISONS
FINANCIALS (2016-2020)
Business Summary
As earlier indicated, the company being assessed in this report is Morrisons Supermarkets
PLC, one of the four (4) big operators in the retail industry in the United Kingdom (UK). It
operates a large chain of supermarkets and has its headquarters situated at Bradford,
England, United Kingdom. According to information gathered online at Wikipedia (2021),
Morrisons Supermarkets PLC was founded in the year 1899 by William Morrison, and began
as an egg and butter stall in Rawson Market, Bradford, England, UK. Presently, the business
has as its Chairman Andrew Higginson, and David Potts as the Chief Executive Officer (CEO)
(Wikipedia, 2021). Further information available (online) about the business includes
information about the number of employees (110,000 as at February 2021), number of
stores (494 stores as at 2020), etc. The company services around 11 million customers every
week, and deals in products in the categories of food and drinks, clothing, books, magazines,
CDs and DVDs. In line with their service offering, Morrisons boasts of a unique quality
assurance process of sourcing a major share of fresh food being sold through privately
owned manufacturing facilities. Morrisons also operate an online home delivery service, and
are characterised with considerably low prices that encourage savings for customers.
FINANCIAL REPORT
As a major player in the UK retail market industry, Morrisons Supermarkets PLC ranks as the
fourth largest operator in terms of revenue, generating £17.5 billion in 2020 with an
operating income and net income of £513 million and £348 million respectively. We kick off
the financial report by presenting an updated version of the financial summary (2014-2016)
made available to us previously. Subsequently, the results from computed financial ratios
shall be discussed and analysed to properly represent the financial situation of the business,
provide information on past performances, and give insights into the possible future
financial trends of the business.
2

Morrisons Financial Summary
Below is the updated financial summary for Morrisons, presented in a table:
Year Sales (£/M) Profit Before Taxes
(£/M)
Earnings Per
Share (in Pence)
2014 17,680 -176 -10.2
2015 16,816 -792 -32.6
2016 16,122 217 9.5
2017 16,317 325 13.1
2018 17,262 380 13.3
2019 17,735 303 9.9
2020 17,536 435 14.6
The financial summary above displays a consistent (revenue) performance over the course of
the years (from 2014 to 2020) with the business maintaining a solid ability to generate
revenue through sales, despite the poor profit performance displayed in the earlier periods
(2014 and 2015). Notwithstanding the fact that there has been no significant change in the
trend displayed by the revenue performance of Morrisons, there has been a gradual change
in the profitability of the company. This has evidently brought about an equally positive
change in the trend of the business’ EPS over the years.
The bad performances in the earlier periods were as a result of a write down in the property
value of Morrisons’ supermarkets which pushed the business to a loss of about £800 million
and also led to the closure to 23 existing stores at the time (Felsted, 2015). The business
went further slash dividends with a view to give the financial headroom required for the
revitalisation of the business (BBC News, 2015). Additionally, the financial statements of the
business show high cost of sales which directly reduces the attainable gross income of the
business before accounting for operational expenses (the accounting of which would further
bring down the operating income of the business, and in the long-run, result in low final
profits as seen in the records).
Based on further information gathered from the review of the trends associated with the
financial report of Morrisons, we can also deduce that the business is currently trying to
achieve a steady and well nurtured growth in the value of the business (i.e., capital gains)
and as well build a solid base for expansion and reinvestment into the business where and
when needed. This is evident from the retained earnings trend in the company’s financial
report in recent times. This is also in line with the goal of the business, pioneered by the
2

CEO, David Potts, which involves the creation of the financial headroom necessary for the
revitalisation of the business.
The next section makes use of computed ratios to analyse the financial situation at
Morrisons’ and provide guidance for effective decision making.
Financial Ratio Analysis
The areas of top priority with respect to the performance of a critical review of the financial
health of any business entity, using financial ratios, includes the following ratio classes (Inc.,
2020):
Profitability Ratios
Liquidity Ratios
Activity and Efficiency Ratios
Leverage Ratios
Profitability Ratios
This class of ratios are concerned with the assessment of an entity’s ability to generate
returns (i.e., profits) from operating activities to cater for the profit and wealth maximisation
needs of shareholders as well as other needs required by other categories of stakeholders.
The profitability ratios computed for the evaluation of Morrisons’ performance are
presented in the table below:
Details 2020 2019 2018 2017 2016
Gross Income Margin 3.59% 3.68% 3.67% 3.70% 3.83%
Net Income Margin 1.98% 1.31% 1.80% 1.87% 1.38%
Return on Equity 7.66% 5.39% 7.32% 7.51% 5.91%
Return on Capital Employed 6.92% 5.90% 6.20% 7.33% 4.79%
Return on Assets 3.22% 2.21% 3.16% 3.29% 2.41%
From the financial summary, we established a stable, less-volatile trend for Morrisons
revenue streams over the highlighted periods. The above results from the profitability ratios
further establishes this trend as there is no significant indication as to the direction with
greater persistence in terms of profitability performance.
The gross margins indicate a gradual fall from 2016 to 2020, while the net margin results
show rises and falls over the years with the highest point at 1.98% in 2020. This has been the
same for the other ratios computed under this category.
2

These results are indicators of a poor performance for Morrisons Supermarkets PLC in
respect of their performance under profitability for the respective years being reported.
However, in comparison to the earlier periods discussed in the financial summary, the
business can be said to be recovering gradually from the losses and restructuring caused by
the property value write-down in the periods leading to those under the scope of our
assessment. Nonetheless, there is no gainsaying that more efforts, ideas, resources, and
policies need to be coordinated, developed and allocated to facilitate the full financial
recovery of the company so as to reinforce the faith and confidence of investors in the
business, and also to attract new investors by displaying attractive growth prospects.
Furthermore, the management of the company must formulate policies on the efficient
management and minimisation of costs associated with the generation of revenue.
Strategies must be put in place to promote cost savings for the business (which would in
turn lead to better income margins as time goes on).
Liquidity Ratios
The liquidity ratios are a class of ratios that focus on ensuring an adequate understanding of
the current liquidity position of the business with respect to working capital and the
availability of funds to meet up with short-term debt obligations as they fall due. Morrisons
Supermarkets’ liquidity ratios are highlighted thus:
Details 2020 2019 2018 2017 2016
Current Ratio 0.39 0.40 0.41 0.41 0.48
Acid Test Ratio 0.19 0.19 0.19 0.20 0.25
In line with generally acceptable standards, there are set (pre-defined) liquidity benchmarks
that serve as bases of comparing entities’ ratios determining the liquidity situation of the
companies. These benchmarks also help businesses to guide their actions towards the
effective utilisation and efficient management of their respective working capital. For
current ratio, the acceptable benchmark is at 2:1 which simply means that for every £1
current liability (debt owed in the short-run), the entity’s current assets (short-term
liquidity/revenue sources) must be able to cover up twice as much (i.e., £2). Likewise, for the
acid test ratio, the acceptable benchmark is set at 1.5:1. This is interpreted as the ability of a
business entity to cover the most pressing liabilities in the short-run with its most liquid
short-run assets. According to Hayes (2021), it compares a company's most short-term
2

assets to its most short-term liabilities to see if a company has enough cash to pay its
immediate liabilities, such as short-term debt. The acid test ratio is also referred as the
working capital ratio (because it does not include assets that are characterised with low
liquidity, like inventory, in its computation), or the quick ratio.
Based on our results, Morrisons Supermarkets PLC should be facing serious liquidity
problems, struggling to finance day-to-day operations, or even be suffering from a massive
financial crisis with inability to meet up with short-term debt obligations. However, the
interpretations of liquidity ratios (amongst a class of other ratios) can be relative, depending
on the nature of the industry in which the business operates. For operators in the retail
industry, like Morrisons, having really low liquidity ratios does not necessarily spell doom for
the businesses. This is because a significantly large portion of their income (if not the
entirety of it) is tied to their inventory which is naturally characterised as having low
liquidity. This point is to be deeply considered in making decisions about the financial health
of Morrisons PLC.
Activity Ratios
These ratios are popularly classed as efficiency ratios. They are used to assess the
productivity of assets and other resources, and to evaluate the efficiency of the
management process of the daily operations and activities of the business.
For Morrisons’ activity-based ratios, we have:
Details 2020 2019 2018 2017 2016
Annual Sales per Employee £159,418.18 £161,227.27 £156,927.27 £148,336.36 £146,563.64
Inventory Turnover 24.63 24.42 25.58 25.55 24.34
Debtors' Turnover 50.32 60.02 74.89 80.38 74.81
Creditors' Turnover 5.52 5.70 5.78 5.87 6.54
Total Assets Turnover 1.62 1.68 1.75 1.76 1.75
The reason behind Morrisons’ ability to continue operations despite having performed
poorly, theoretically, under liquidity management is displayed in the table above. Morrisons’
efficiency performance is a remarkable one, peculiar to the industry in which it operates.
Through these results presented above, there is enough evidence to provide clarity on how
the business has been able to generate such large sales volumes over time. The average
annual sales per employee (with consideration of 110,000 employees of the company) was
at £159,418.18 in the year 2020; a slight drop from £161,227.27 attained in 2019 (which
2

could be attributable to the effects of the pandemic situation during the period). However,
there has been a steady but slow growth in the ability of employees to generate revenue for
the business (accounting for the periods before the pandemic outbreak).
The debtors and creditors turnover ratios are also very important ratios to consider here.
The results above reflect a solid credit relationship being maintained with Morrisons’
creditors, and as well, reflects an effective debtors’ collection system that facilitates speedy
receipts from trade debtors. The ratios further indicate that the business enjoys leeway with
the significant gap between the number of times that creditors come for their receipts and
the number of times Morrisons’ are able to generate receipts from their debtors. Also, the
business has maintained an acceptable inventory turnover ratio with a 5-year average of 25
times, annually. However, the asset turnover rate; which measures the contribution of the
assets of a business to the generation of revenue, was on the low side and this stands as an
area in which there is need for investments.
Leverage Ratios
This is the class of ratios that measures the exposure of a business to finance risk as a result
of the extent to which the business is financed by debt (Non-current liabilities) or by equity
(shareholders’ fund). It is also classified as solvency ratios or gearing ratios. Like the liquidity
ratios that measure short-term ability to meet debt obligations, this class of ratios measure
the ability of a business to pay and/or service its long-term debts using long-term funds. The
results of the ratios computed in this category are presented below:
Details 2020 2019 2018 2017 2016
Debt Ratio 0.58 0.59 0.59 0.56 0.60
Debt to Capital Employed 0.40 0.41 0.42 0.36 0.43
Debt to Equity Ratio 0.66 0.69 0.74 0.57 0.74
Interest coverage 4.69 2.82 4.87 2.93 2.80
The findings in this category show indications of a solid long-run performance of the
business over the course of the years being assessed. The management of Morrisons
Supermarkets PLC has been proactive in the formulation of debt management strategies and
policies, ensuring that the business is adequately hedged against finance risk among others,
in the long-run. The debt ratio (measuring the ratio of total debt to total assets) is examining
the extent to which Morrisons’ assets is financed by debt, and the above results are
indicators that the company is well within the range of efficiency in terms of long-term
2

finance and management of funds. The ratio of debt capital (non-current liabilities) to the
total capital employed (shareholders’ fund + non-current liabilities) provides better insights
on the sources of Morrisons’ capital base and the extent to which its capital structure is
geared: debt capital taking up to 40% of the total capital, while 60% of the business is
funded by the ordinary shareholders. A generally healthy performance as a result of an
efficient and consistent management process of the company’s long-term sources of
finance.
Morrisons’ Supermarkets’ Financial Performance
Drivers/Constraints
Morrisons’ financial performance has been primarily driven by the need to re-establish a
presence in the market (and the industry) that was threatened by the property value write-
down and the resulting losses from the activity. Ever since that period, there have been
strategic business developments that have greatly contributed to the steady financial
performance and growth of the business. These strategic business developments, identified
from the company’s financial statements, are discussed below:
 Morrisons Supermarkets YoY Business Growth: The company has been experiencing
positive growth, steadily and consistently, for the highlighted periods with an
indication of the third year of such growth being the year 2019. The CEO, David Potts
(2019), indicated that the company is looking to develop the “Morrisons Makes It”
brand into an individual brand through the integration of the retail offerings of the
business with its unique manufacturing services. The expected outcome of this
integration being to serve as a catalyst to further the growth of the entity. There has
also been an increased focus in brands under the Morrisons’ banner, with the goal of
fostering further development on existing products and services, and the promotion
of newer innovative ones.
 Morrisons Wholesale and Services Growth: The outperformance of Morrisons’
wholesale wing in 2019 is another significant contribution to the performance
persistency and recent growth trends of the business. Revenue generated through
wholesale activities far exceeded predefined expectations with a contribution of over
3% based of revenue generated for the period from wholesale activities compared to
revenue generated in the preceding period, for the same activity. The wholesale side
2

of the business aims to make their brands more popular and accessible, and increase
volume through the existing assets of the business (Morrisons Annual Report, 2019).
 Morrisons Team of Highly Skilled, Highly Trained Professionals and Employees:
According to Morrisons’ annual (strategic) report (2019), the primary growth drivers
of the business are the employees; classified as the “key to continued company
success” (catalysts of positive business growth).
 Morrisons Online Services Growth: “Over 75% of British households now have access
to our online offer, and we continue to expand our ‘reach’,” (Morrisons’ Strategic
Report, 2019). This development was just in time for the company as a gift to the
business, considering the shocking effects of the pandemic on the various sectors of
the economy.
 Morrisons’ Improved Customer Feedback: Morrisons’ response and feedback game
also improved by a really great deal as the business now considers customer inputs in
the business, with an understanding of the power of customer feedback to
businesses. The business’ CEO also admits the importance of this feat by stating that
the company manages data from communities being serviced by Morrisons, from
local and environmental engagements, as well as from suppliers and shareholders
among other categories.
Conclusion: Financial Report
In conclusion of the segment on the financial performance of the business, there is a need to
acknowledge the high level of consistency displayed by the business over the course of the
financial/accounting periods placed under review. There have been obvious improvements
in the financial performance of the business with reference to the areas of profitability,
capital structure management, and operational efficiency. From the financial summary of
the business, there were clear indications of a poor performance of the business in the
earlier periods leading to the periods of review. However, following the appointment of a
new CEO and some quintessential restructuring done to the business, positive growth
indications have been the story for the business. Although, this has been the case, the need
to ensure sustainability in the business’ performance, and also to foster even more growth
in the profit margins for the business cannot be downplayed. Since the goal of every private
establishment is to maximise profit and ensure the growth of shareholders’ wealth, and also
2

protect the interests of other relevant stakeholders to the business, there must the strategic
policies put in place by the management to position the business, strategically, in these
regards.
TRENDS & DEVELOPMENTS: THE RETAIL
INDUSTRY
Extracted from an article by BBC News (2021, January 5), the following information is made
available to this report.
“Supermarket chain Morrisons has said it saw a shift in shoppers' behaviour in the run-up to
Christmas as a result of Covid-19 restrictions. It said that customers started shopping early to
secure their festive treats, with traditional Christmas goods in strong demand. Champagne
sales jumped 64% over the key Christmas trading period, while sales of whole salmon
increased by 40%. Overall sales at Morrisons rose by 9.3% in the three weeks to 3 January,
compared with the same period last year. The supermarket also suggested that festive sales
had been driven by the fact that rules around larger family gatherings changed in England,
meaning customers had to buy for last-minute smaller festivities. In the nine weeks to 3
January, like-for-like sales, stripping out the effect of new shops opening and fuel sales, were
up 8.5% and in the six months to the same date they rose 8.1% compared with a year ago,
boosted by strong online sales and that of its wholesale business.”
Hence, the fact that the COVID-19 pandemic situation has greatly impacted both the retail
industry and its operators alike (as well as other industries and sectors of the world) must
not be played down. In essence, some of the significant trends that are relevant to the
business and industry, as a result of recent developments, are highlighted below:
 Less on-site interactions and more online interactions as a way of complying with the
pandemic guidelines and curbing the spread of the virus;
 The advent of technological advancements and breakthroughs, and their resulting
collaborations, alliances, and partnerships;
 An overhaul of the pre-COVID customer in-store (on-site) experiences of self-
entertainment and customer-product interactions, and their replacements with more
social welfare practices to further combat the pandemic; &
2

 The mass migration to online platforms from the usual person to person in-store
interaction.
OPPORTUNITIES & THREATS TO MORRISONS IN
THE NEAR FUTURE
As a result of the recent trends in the UK retail industry, the relevant opportunities and
threats that operators must consider in preparing for the future are highlighted below:
Opportunities
 Low-Costs from online interactions: There are more benefits to Morrisons
Supermarkets as a result of the pandemic guidelines in the sense that the costs
associated with managing on-site engagements would be greatly reduced to periods
of absolute necessity.
 The Benefits of Strategic Alliances, Collaborations, and Partnerships with respect to
technological advances, as a way to promote organisational success and long-term
sustainability.
 Opportunities for market share growth for the business through strategic marketing
and effective communication in the new digital market environment.
Threats
The possible threats and/or challenges that Morrisons is likely to encounter invludes:
 Change in customers' expectations, preferences, behaviours, choices, and shopping
habits as a result of the changing times.
 The need to establish trust levels required by the customers in the areas of assuring
delivery of top quality products and services through online channels (for more
hands-on customers), trusting the payment system to be error free and strictly
confidential, and trust in the speed of delivery of purchased services/products.
 The high employee turnover rates and the retail industry.
CONCLUSION
The concluded report above has provided insight on the performance of Morrisons
Supermarkets PLC in the (Financial) areas of the business' profitability, liquidity, activity-
2

based performance evaluation and its financial leverage, and also on non-financial
performance areas of interest. Results from these analysis show indications of a consistent
ability of the business to generate revenues even amidst crisis, and also prospects for more
growth for the business in respect of total revenue and profit margins among other things.
The management is therefore advised to develop more cost reduction strategies and
mechanisms to protect the company’s revenues from excessive cost margins that eat deep
into their profits.
Morrisons Supermarkets PLC is a growth company and still has more room to expand as a
business, under the right circumstances. Morrisons also holds promise for existing and
prospective investors, and needs to do more to ensure that the faith of these investors is
rewarded accordingly and not wasted, by ensuring growth in the capital value of Morrisons.
Word Count: 4,000 Words.
2

References
BBC News (2020, January 5). Champagne puts fizz in Morrisons’ Christmas sales. BBC News.
https://www.bbc.com/news/business-55542633
BBC News (2015, March 12). Morrisons reports worst profit results in eight years. BBC News.
https://www.bbc.com/news/business-31846566
Felsted, A. (2015, March 12). Property writedown pushes Morrison to £792m loss. Financial
Times. https://www.ft.com/content/ea2b1508-c887-11e4-8617-00144feab7de
Hayes, A. (2021, May 7). Acid-test ratio. Investopedia.
https://www.investopedia.com/terms/a/acidtest.asp
Morrisons Corporate (2021). Company history. Morrisons Corporate.
https://www.morrisons-corporate.com/about-us/company-history/
Morrisons Corporate (2021). Strategic report, 2019. Morrisons Annual Financial Report.
https://www.morrisons-corporate.com/investor-centre/financial-reports/
Wikipedia (2021). Morrisons. Wikipedia. https://en.wikipedia.org/wiki/Morrisons
2