£179m of suppliers’ cash props up Morrisons profits

Morrisons would have made no profit in the first half of 2015 if it was not for suppliers’ cash contributions propping it up. 

According to its half-year results out today, suppliers stumped up more than £179m for the retailer’s marketing costs and volume-based rebates in the first six months to 2 August 2015 – and £194m in the same period last year. 

This compared with Morrisons’ underlying profit before tax of £117m in the first half of 2015 – about £62m less than the cash injection from suppliers.

See also: Morrisons pledges to pay more for milk for cheddar cheese

Underlying profit before tax plummeted 35% (£64m) in the first six months of the year compared with the same period last year, while total turnover fell 5.1% to £8.1bn.

However, the figure paid by suppliers to the retailer was even higher because the £179m did not include automatic deductions from suppliers’ accounts for promotional costs.

The leveraging of so-called “commercial income” from suppliers is common practice among supermarkets, but retailers are now required to give more detail about it in their financial reporting.

The practice has come under scrutiny and criticism over the last 18 months as supermarket price wars have ramped up pressure on suppliers.

Store closures give uncertainty to farmers

Intense competition in the grocery market was further evident today as Morrisons also announced it planned to close 11 supermarkets – just a day after it said it was selling 140 convenience stores.

The retailer said the sales would result in a total loss of £50m in the second half of this year and with the 10 supermarkets and 23 convenience stores it has already closed this year, floor space will fall by 94,000sq ft.

Ruth Mason, chief food chain advisor at the NFU, said:

“We are sorry to hear that Morrisons have needed take a major decision around the structure of its businesses this week.

“This leaves a degree of uncertainty within the supply chain from this retailer, who has been a strong supporter of British agriculture.

“Morrisons have made significant commitments, specifically to the diary sector over the past weeks and we wish to see both these commitments and the Morrisons business prosper.

“We will continue to discuss how these and any further changes may affect their farming supply base.”

Major restructure 

Morrisons store closures are part of a major restructure of the supermarket by new chief executive David Potts, who has culled 720 jobs at head office and shrunk the leadership team from 110 to 65 people.

Andrew Loftus, IT agriculture manager, was made redundant in May after the role was axed. 

Commenting about the outlook ahead, Mr Potts said:

“It will be a long journey. We approach the challenge with energy, confidence and many strengths, particularly our strong balance sheet and cashflow, which enables investment in improving the customer shopping trip.”

The supermarket said it expect underlying profit before tax to be higher in the second half of 2015-16 than the first.