Chairman’s statement Sir Ken Morrison CBE
In my last statement as Chairman of Morrisons it gives me particular pleasure to be reporting record earnings and to see that more customers than ever before are experiencing the freshness, quality and value that Morrisons has to offer.
Sir Ken Morrison, Chairman
The past year saw further steady progress for Morrisons, with a solid sales performance and strong profit and cash generation.
Profit before tax was £612m compared with £369m last year. This included £32m of property gains, compared with £38m last year. Underlying earnings per share (EPS) increased by 73% to 14.4p, whilst basic EPS increased by 123% due to an abnormally low tax charge. The Board is recommending a final dividend of 4.125p per share, to bring the total for the year to 4.8p - an increase of 20%.
Cash generation was strong - net debt fell from £772m to £543m despite opening eight new stores, beginning a phase of additional investment in our Optimisation Plan and contributing an additional £100m to our pension schemes. From its peak in 2004 of £1.6bn, net debt has reduced by over £1.0bn through a combination of profit recovery actions, tight capital controls and divestment of property that did not fit our operating model. Following the negotiation of new term debt facilities of £1.1bn in September 2007, the Group had available headroom of £1.3bn at the year end, with zero net finance cost in the year and gearing of 12.4%.
As previously reported, David Hutchinson retired from the Board in June 2007 on the grounds of ill health, after 21 years' service. I am very sorry to report that David passed away in February 2008, after a retirement that was cruelly short. My thoughts, and those of everyone in the Company, are with his widow Diane, and his family.
On behalf of the Directors, I would like to thank all our staff for another year of exceptionally hard work, and I was delighted for them that their efforts were rewarded as the year progressed with some healthy sales momentum. Our profit improvement in the year will provide a profit share pool for staff of £30m, a long standing benefit on top of the very popular staff discount that was launched in the year.
Our staff and customers responded strongly to our charitable activities in the year, and we were pleased to raise over £1.1m for Asthma UK, our chosen Charity of the Year, as well as £0.3m in one day for Children in Need. In the coming year, our colleagues have chosen to support 'Protecting Generations for Generations', an innovative partnership between Help the Aged and Childline.
The year under review saw the rise of inflationary cost pressures in a number of basic commodities such as dairy products and wheat. We fought hard to avoid passing these higher costs onto consumers, and we will continue to strive to operate at low cost in order to ensure maximum value for our customers.
The Competition Commission inquiry into the Grocery sector will announce its final conclusions in April 2008, some two years after it began. It has stated, as we all knew, that supermarket retailing in the UK is highly competitive. We see nothing in the provisional findings that would cause us to change the way we do business - whether providing value and choice to customers, dealing fairly with suppliers or seeking out new sites. We are encouraged that a competition test, as proposed, would afford opportunities for us in areas of the country where we are under-represented. The Office of Fair Trading (OFT) inquiry into dairy pricing activities in the early part of the millennium resulted in fines being levied on a number of companies, including Safeway for a period prior to it coming into our ownership. The OFT has alleged that Morrisons, too, was involved, a claim that we deny strongly.
This is my last statement to shareholders as Chairman. I have been with the business now for some 55 years and must say that the experience has been both demanding and fulfilling, but nonetheless it has always been enjoyable. I am prepared for a situation where I will have more time to look around and I intend to develop new interests in a number of fields. I will keep in touch with the progress of the Company and no doubt maintain contact with a number of what will be my former colleagues.
It seems a long time since I was demobilised from the army in 1952 and started to learn about how to run a retail grocery business. I believe that over the years I have learned one or two things, and would set out what I consider to be the important aspects for my successor. I think it is important to assume a leading position and to never forget the business principles that we might be a large company and fairly sophisticated but we do carry out a simple task - we buy things and sell them. Our task is to ensure that we always please the customer with the quality of what we offer for sale and that at all times, we ensure outstanding value for money. This can only be achieved by strict control of all costs and remaining in touch with all aspects of what is a fascinating industry. The ownership of freehold property and the willingness to invest and re-invest in fixed assets has always kept the Company in good heart. This can, of course, be achieved whilst also maintaining a prudent balance sheet.
Any success I have achieved in my career has always been due to the presence and help of numerous team members who possessed great ability, dedication and skill. I would like to take this opportunity to thank everyone I have been fortunate enough to work with over the years and at the same time wish the Company every success in the future.
I think the present economic climate provides a wonderful opportunity for the Company to continue to prosper as long as it remains true to its founding principles. It has been great fun, and I am delighted that I enjoyed the confidence of shareholders, staff and customers alike. I have never forgotten that retailers are always on duty as we are in a dynamic business, seven days a week, 52 weeks a year.
I am sure the new management team headed by our recently appointed Non-Executive Chairman, Sir Ian Gibson CBE, will spare no effort in further extending your Company's run of success. Thank you sincerely.