September 13, 2018 / 6:22 AM / a year ago

Morrisons expects to grow regardless of Brexit deal

LONDON (Reuters) - Supermarket group Morrisons (MRW.L) posted its best quarterly sales performance in nine years on Thursday and said it would grow whether or not Britain secures a European Union exit deal.

FILE PHOTO: Shoppers walk past a branch of the food retailer Morrisons in west London, Britain, January 7, 2017. REUTERS/Toby Melville/File Photo

Many business chiefs fear the world’s fifth largest economy could end up with a “no-deal” Brexit that they say would clog up trade, but Britain’s fourth largest supermarket group believes it is better placed than most to cope.

In its second quarter, group underlying sales at Morrisons rose by 6.3 percent, an eleventh straight quarter of growth, boosted by Britain’s record-breaking summer heatwave, the soccer World Cup and the Royal Wedding.

The grocer is unique among its major competitors in making half of all the own brand and fresh food it sells. It says two thirds of what it sells is British and it is British farming’s biggest single supermarket customer.

Morrisons is, however, taking precautions for Brexit and has been approved as an Authorised Economic Operator which will help it avoid border delays in the event of a hard exit from the EU.

“It means that we are considered by the (European) authorities to be a company who has policies and procedures that are thorough and wholly trusted and therefore any hold ups at customs are to some extent simplified,” Chief Executive David Potts, a former Tesco (TSCO.L) executive, told reporters.

“It also avoids some fairly complex tariff refunds.”

In addition, Morrisons is stepping up capital expenditure on productivity, manufacturing and distribution to allow it to be less reliant on labour.

“Morrisons’ long-term outlook remains bright,” said Thomas Brereton, analyst at GlobalData. “It (is) in a better position than competitors to navigate Brexit.”


Potts joined Morrisons, which has nearly 500 UK stores, in 2015 to lead a recovery after it was damaged by the rise of discounters Aldi and Lidl and previous management mistakes.

He has overseen a steady improvement in trading through more competitive prices, improved product ranges and availability as well as better customer service in refurbished stores, driving Morrisons shares 21 percent higher so far this year

The turnaround continued in the six months to Aug. 5, with Morrisons reporting an underlying pretax profit of 193 million pounds ($251 million), just ahead of an average analyst forecast of 192 million pounds and a 9 percent rise year-on-year.

Morrisons said it was raising its interim dividend by 11.4 percent and also paying shareholders a special dividend.

Potts has also overhauled Morrisons’ online strategy through a renegotiated agreement with distributor Ocado (OCDO.L) and struck wholesale supply deals with Amazon (AMZN.O) and the McColl’s (MCLSM.L) convenience business.

It also recently agreed wholesale deals to supply MPK Garages forecourt stores and Big C in Thailand and this week launched online subscription recipe box service Eat Fresh.

Britain’s retail landscape is changing fast and in April Sainsbury’s, the No. 2 grocer, agreed a 7.3 billion pounds takeover of Walmart’s (WMT.N) Asda, the third largest.

The combination could overtake market leader Tesco (TSCO.L) as Britain’s biggest supermarket group and although Morrisons would become No. 3 it would be about a third of the size of Sainsbury’s-Asda and Tesco.

Editing by Sarah Young/Keith Weir/Alexander Smith

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