Morrisons’ property portfolio sale backed by shareholders

The news lifted the gloom caused by a 22 per cent fall in pre-tax profits to £344m in the six months to August 4, below analysts’ forecasts.

The Bradford-based company said over 90 per cent of its estate is freehold, a considerably greater proportion than its main rivals.

Chief executive Dalton Philips said the group has begun a review to decide how much of the property to offload to realise value for shareholders,

Finance director Trevor Strain said it was too early to say what percentage of the estate could be offloaded, but said the business will still be overwhelmingly freehold.

Asked what he plans to do with the proceeds, Mr Philips said: “We will invest in the core estate to ensure the estate is in a very strong position. We know how important the dividend is to shareholders. Yes, we could return money to shareholders. It’s a significant opportunity to generate significant amounts of cash flow.”

The group also announced plans to reduce its plans for large store openings, which will slash capital expenditure and free up cash for its fast growing convenience store business and the launch of its online offering next January.

“The future is no longer in building more supermarkets. The space race is well and truly over,” said Mr Philips.

Capital expenditure will rise to £1.2bn in 2013/14, but will fall to £850m in 2014/15 and to £650m in 2015/16.

Analysts welcomed the news.

Jonathan Pritchard, at Oriel Securities, said: “In many respects this is what the market has been hoping for from the UK food retailers from some time, but capex and the space race has always got in the way in the past.

“Morrisons’ decision to reduce capex and return surplus capital to shareholders will be received very well by the market”

Morrisons’ shares closed up 5.3p to 302.5p, a rise of 1.8 per cent.

The group’s profits have been hit by its late entry into the fast growing areas of convenience stores, which are showing growth of 20 per cent a year, and online shopping, which is showing 16 per cent growth a year.

It is hoping to overcome this by opening 300 ‘M local’ convenience stores within the next three years and earlier this year it signed a 25-year deal with online grocer Ocado to start delivering groceries next January. “At the moment customers are buying fewer products when online than in store. We are confident we can change that,” said Mr Philips.

“Customers can have their steak cut to a certain thickness or their fish filleted in a particular manner, just as they can in store.”

Morrisons said underlying pre-tax profits fell 10 per cent to £401m in the six months to August 4.

Turnover was flat at £8.9bn and like-for-like sales fell 1.6 per cent, an improvement on the £1.8 per cent fall in the first quarter and implying a second quarter decline of 1.4 per cent.

Morrisons raised the interim dividend by 10 per cent to 3.84p a share.

Mr Philips said consumer confidence is still very negative and he highlighted the North/South divide.

“There are parts of the UK, particularly London, that are clearly seeing growth at higher levels than the rest of the country,” he said.

His comments echo Asda’s influential income tracker report on Wednesday that claimed the squeeze on household finances is set to last another five years and families in the regions will be the hardest hit.

Mr Philips said that TV presenters Ant and Dec, who are the brand’s advertising spokespeople, are currently filming Morrisons’ Christmas TV advertising campaign.

Morrisons is to take over sponsorship of ITV’s festive fundraiser Text Santa from last year’s sponsor Asda.

The show will be presented by Ant and Dec.

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