WM Morrison making 'difficult decisions' to adjust to changing market - UPDATE

13th Mar 2014 15:05

- Turnaround aimed at carving a 'clear position in the market'- Company investing to cut prices and re-adjust promotions- Morrisons 'needs to adjust' to changing market, says CEOWM Morrison's shares were trading at levels not seen since 2006 after its profit guidance for this year missed consensus forecasts by a mile, with the company saying that it will invest to cut prices amid rising competition from fast-growing discount grocers.The company, which is the fourth-largest grocer in the UK, reported in-line results for the year ended February 2nd, but said that underlying profits would drop to £325-375m this year, less than half of last year's profit and some 30-40% below analysts' current predictions. WM Morrison unveiled a £1bn investment programme over the next three years as it responds to "major structural and permanent change" in the UK grocery industry, according to Chief Executive Dalton Phillips.Speaker to reporters, Phillips said that the board was "prepared to make the difficult decisions" in an effort to "carve out a clear position in the market".These decisions include: lowering more prices on a permanent basis; offering fewer, more 'impactful' promotions; reinvigorating its Own Brand; improving store layouts; and launching a Morrisons loyalty card this year.The Morrisons chain, like its 'Big Four' rivals Tesco, Sainsbury's and Wal-mart-owned Asda, has been suffering from the growing threat of lower-priced 'discounters' such as Aldi and Lidl as shoppers have become more price-aware since the recession. Phillips said he was prepared to cut margins to create a "compelling proposition" in order to compete with the "rise of the discounters". However, he stressed that Morrisons will not emulate the discounters but intends to "catch up on loyalty" and return to its more traditional "value-led" offer."Customers have reappraised how they shop [...] and we need to adjust," he said in a press conference.The company is hoping that its new online shopping joint venture with Ocado, launched in January, will help to kick-start this turnaround, along with its expanding 'M' local convenience store portfolio - two areas which Phillips admitted that Morrison has been slow to develop.Meanwhile, Morrison is also targeting £2bn in free cash flow generation in the three years to 2016/17, helped in part by £1bn of disposals from its large property estate. Nevertheless, Chief Financial Officer Trevor Strain said the freehold ownership of its properties would not fall below 80% to ensure a "high degree of insulation" from changes in the market.Morrison reported a profit before tax of £785m for last year, down 13% year-on-year but broadly in line with analysts' estimates. Group turnover was down 2% at £17.7bn, with like-for-like sales excluding fuel and VAT falling 2.8%.The firm raised its full-year dividend by 10% to 13p. It committed to at least a 5% increase in the payout this year and promised investors a "progressive and sustainable dividend thereafter".The stock, which sunk sharply after the open on Thursday, was down 12% at 205.1p by 15:18 after having fallen as low as 202.5p earlier on.BC