Operating results
Our forecourts business grew strongly in the year. As fuel prices moved above £1 per litre, consumers became highly price conscious and shopped around for value. We made sure that our pricing was always highly competitive, and indeed led the market back down below the key £1 price point when oil prices again began to fall. Average unleaded pump prices were 103.5p in the year, compared with 94.9p the previous year. Litreage grew by 11%, in a declining market.
| Summary income statement | 2009 £m |
2008 £m |
Change % |
|---|---|---|---|
| Turnover | 14,528 | 12,969 | 12 |
| Gross profit | 913 | 818 | 12 |
| Other operating income | 37 | 30 | 23 |
| Administrative expenses | (281) | (268) | (5) |
| Property transactions | 2 | 32 | (94) |
| Operating profit | 671 | 612 | 10 |
| Finance income and cost | (16) | – | (100) |
| Taxation | (195) | (58) | (236) |
| Profit for the period | 460 | 554 | (17) |
Gross profit grew in line with the level of turnover growth. The gross profit margin of 6.3% was level with the previous year, although lower than it would have been due to the dilutive effect of high fuel sales, which have a very low margin. The impact of this, we estimate, was a 20bps reduction in margin. Offsetting this was the release of a provision first taken in 2005/06 relating to the rationalisation of our distribution infrastructure. The original provision was £75m, and after taking all final costs associated with this restructuring we were left with a balance to release of £8m, which is included in gross profit. The details of this can be found in note 21 of the accounts. Adjusting for these two effects, our gross profit increased by 0.1% despite the headwind effect of high energy costs in our stores and supply chain. We successfully mitigated these costs through continued delivery of our Optimisation Plan.
The Group’s two biggest costs, after cost of goods sold, are store wages and distribution costs. After a number of years of strong improvement in store labour productivity, the year under review saw us investing in customer service to support our sales growth. Despite this, labour costs as a proportion of sales improved by 0.5%. The cost to deliver each case through our distribution network continued to fall, despite higher fuel costs, with a further reduction of 2.5% year-on-year. We gained good benefits from new systems that improved the efficiency of our delivery schedules.
Our administrative expenses were up by 5%, below the rate of the turnover increase, reflecting tight control of our overheads. Marketing costs, which account for over one-third of administrative expenses, increased in line with turnover, as we continued to seek, with success, to articulate the Morrisons story to a wider audience.
