CONTENTS 1. COMPANY BACKGROUND 2. STOCK MARKET RESEARCH 3. RATIO ANALYSIS 4. WRITTEN ANALYSIS OF FINANCIAL STATEMENTS 5.

ADVISE ON INVESTING IN THE COMPANY 6. APPENDIX 7. REFERENCES

PART 1 COMPANY BACKGROUND INTRODUCTION This report is of Morrison (WM) Supermarkets PLC listed on FTSE 100 of London Stock Exchange. Morrisons has evolved from a very strong heritage of food retailing and distribution. As its vision says, Differentand better than ever, is shown in their business. The company is engaged in the business of food retailing and provides fresh and quality food to customers at reasonable prices. BACKGROUND Morrisons was originally founded by William Morrisons in 1899 with a view to provide quality food at great prices to customers. Morrisons became a big name in the food retail industry after the takeover of Safeway in 2004. As of January 2011 Morrions market share is 12% which makes it the 4th largest supermarket chain in the UK. With the tremendous growth in technology in the past couple of decades, Morrisons has spent a lot of money in innovation to capture new opportunities in the market and create more value of goods. Morrisons specialises in selling packed meals which is targeted to working class people. These people would prefer to have fresh food at low prices and Morrisons has done a lot of research into preparing fresh food on daily basis and have complete customer satisfaction. Morrions has a close relationship with farmers and has employed highly skilled butchers, bakers and fishmongers. What gives them an edge over their competitors is that they have their own advanced manufacturing and packing facilities for the fresh food they produce and customers get attracted towards the fact that the food is freshly made.

QUALITY

INSIGHT

VALUE

FLEXIBILITY

These are the four reasons why Morrisons has a strong customer base. It provides one of the best quality products in UK market as it has its own production facilities. They purchase the market raw materials directly from farms which makes a check in the quality of the product. All products are made in such a way that a customer gets full value of his money. There is a lot of flexibility in the way they function. They can meet the growing demand at any point of ity time. As all of Morrisons products are produced in in-store and on the same day, it is expected to keep a regular supply of all the products as and when needed. MARKET SHARE AND THE COMPETITION HE Morrisons being the 4th largest Supermarket chain in the United Kingdom faces a good competition from other three Companies. It faces main competition from Tesco, the market leader, Sainsbury, which has the second largest market share and 3rd is ASDA ( (Wal-Mart). Morrisons doesnt specialise in the convenience store segment of the industry, which it looks to build in the future and good a good competition to Tesco in particular which has its stores in many places which makes it easy for people to access those stores to fulfil their everyday people needs. As seen in the pie chart in the appendix, market share of Morrisons is quite low arket compared to its competitors and the main reason for this is the fact that Morrisons has not been able to reach to about 30% of UKs household which is one of its objectives for future t growth.

STRATERGIES AND FUTURE OUTLOOK Morrisons has over the recent years tried to expand to all the major parts of the country, but still there are about 30% of the households which are not in direct reach of these supermarkets. Morrisons has an interesting strategy in selling goods to customers. Its aim is not about selling its good, but it also provides other necessary facilities to its customers. All the Morrisons stores are huge ranging from 8000 to 40,000 square feet. All the stores have parking facilities, in store bakery and other necessary departments. It gives a customer a complete shopping experience and satisfaction. Morrisons is trying to expand its operations over the country and has set up a special acquisition department which are always looking for sites which fit into its criteria. Another concept of Morrisons which makes it unique is its Market Place. According to economic reports, UK population is expected to grow tremendously in the next 10 years giving positive growth forecast for the food retail industry. What makes Morrisons unique from its competitors is that it techniques of selling goods to consumers. It has a Market Place in all its stores which sells all fresh products at discounted rates. It is also the only retailer having inhouse manufacturing and processing facilities. The big development that took place was when Morrisons took over Safeway, its closest competitor. This deal was done for around 3billion and this made Morrisons presence stronger in the market. It had sold a number of stores to its competitors which gave it more liquidity.

PART 2 STOCK MARKET RESEARCH As of 23rd June 2011, the stock price of Morrison Supermarkets PLC stands at 289.50 falling by 0.89% from its previous close. This is considered to be the normal fluctuation in the stock market. By looking at graph of the share prices, we can come to the conclusion that the company price rose up tremendously when there was an economic boom, which saw its share price to touch 300 for the first time. In 2008, the economic slowdown saw the share prices falling down, but it was just a temporary phase which the company was going through and even after the recession it was above the level of the pre-economic boom price. If we take into account the past 10 years, there has been only one significant change in the share price, i.e. around 2003-2004, whereby Morrisons had finalised a takeover of its competitor, Safeway, which had a positive impact on the share price and even the company has a tremendous progress after that. In the past 15 days, there has been a downfall in the share price of the company and this is not due to activities of the company, rather the slow economic conditions need to be blamed for the same. Sometimes there is a negative impact of news on the share prices whereby they normally tend to have a negative impact. Morrisons was in news around the 22nd May, for buying out Iceland Foods, a competitor, through auction. This saw a downfall of around 3% in its share prices. In March 2011, company had announced the buyback of shares worth 1 billion which wasnt appreciated by the investors and can be seen in the share prices. We can compare the share price of Morrisons to the FTSE 100. We can see that FTSE 100 had started rising in 2004 where even Morrisons had a good return to it investors. However in 2008-2009, FTSE 100 had fallen tremendously whereas Morrisons on the other hand showed consistency at that point, which was a major factor for building confidence in the investors mind.

PART 3 RATIO ANALYSIS Financial ratios are very important to be considered while analysing any company. I would be analysing the different classes of ratios. Firstly, we will analyse the liquidity ratio of Morrisons. The working capital of the company has been around the same mark in the last four years, which is a good sign of consistency. Current Ratio of the company is 0.55 in 2011, which is considered to be very good for such type of industry. Current ratio signifies how efficiently the company can meet its short-term obligations. If we compare the firms liquidity ratios to the industry average, they are performing very well compared to it. Solvency Ratios are very important before investing in any company. It specifies the capital structure of the company which can be analysed if different ways. Debt Ratio of the company is 23.26%, which is far away from the industry average of 42.73%. This is because the company have got rid of their borrowings in the past couple of years. The Efficiency ratios help us to analyse how efficient the management are in their working. The inventory days are 27 days which means the company sells its stock at a good pace, main reason being its specialisation in fresh food sector. It receivables compared to its turnover shows that this industry is a slow growth industry. The Profitability ratios signify that the company is in a type of industry where companies have a great profit margin. It has a return-on-equity more than the industry which is a positive sign for any investor. Earnings per share of 23.93 are above an average compared to the other companies in this industry.

PART 4 - WRITTEN ANALYSIS OF FINANCIAL STATEMENTS Financial Statements are a very important part of a company as it displays its true image. Firstly, we would be talking about the Income Statement of the company. The company has revenue of over 16 billion in the last fiscal year which is about 13% increase in two years. This is a very good result keeping in mind that the past two years had the economy slowdown and still Morrisons managed to increase its revenue by a respectable level. It has also kept a control over its cost of goods sold which is an average of 93% of revenue which means that the business is based on low profit margins. The company has tried to keep its expenses on minimum thus giving an increase in 64% of net income in the current year compared to 2009. Secondly, we talk about the balance sheet of the company which gives us a summary of the assets and liabilities of the company. The current assets have increased by 25% since 2008 though they are consistently kept at 12% of the total assets which signifies that the company has a smooth flowing of operation even after the economic slowdown. The increase by 25% suggests that the company has grown its scale of operations. Similarly, current liabilities are also kept at the same rate of the liabilities throughout the 4 year period. There is no significant change in the properties of the company and looking at the retained earnings, which stand at 27% of the total finance available to the company, we can predict that the company would soon be investing in buying more stores which would give it a very good scope to expand. Next we would be analysing the Cash flow statements of the company which help us know the liquidity of the company and how should we go about investing in it. There has been a significant growth in the operating activities of the company in 2009 and since then there has been a steady growth in those activities which means that the company has been doing well in its everyday activities. There have been a lot of cash flows from investing activities which

would be because of sale of certain small stores to keep its liquidity intact. The company has paid back a lot of its borrowings in 2011 which has saved it from paying finance cost in the future years. There has been a regular payment of dividend by the company which would give guarantee to the investors that the company is making enough profit for its shareholders. About 94% of the cash comes from operating activities which is mostly used to buy fixed assets. This gives the company a perfect direction to grow as fixed assets always gives more strength to the company. On an average, 16% of cash is used to pay out a dividend which is actually a huge amount, but considering the tax aspect of the business, this can prove to be an advantage. In 2009- 2010, company had a good amount of debt which it had cleared in 2011. CONCLUSION Overall the financial statements have proven to be on the positive side and have shown the effect of recession which had hit the world economy very badly. But despite of tough times, Morrisons has actually given good returns to it investors. The Trend analysis of the financial statements has shown that there is always an increase in the volume and scale of operations of the company.

PART 5: WOULD YOU ADVISE A BUY OR SELL FOR FIRMS SHARES? Every investor has his own criteria of investing into a company. Before investing the basic rules for investing should be considered. Firstly, I would talk about the Debt-Equity ratio. As in Part 3, we discussed about the ratios of the company, Gearing Ratio is considered to be the most important while taking investment decisions. This is because this ratio gives us the capital structure of the company and thus we can decide on the efficiency of the company. One should not invest because of word of mouth. There should be a proper research done into the company before investing. Keeping a track on the dividend rate of the company could be advantageous as dividend gives an indication to the investor about the concept of maximisation of returns for shareholders. As far as Morrisons is concerned, they have a debt equity ratio of 0.30 which is considered to be good considering their type of business. They have paid dividend of 9.60p per share in 2011. These two show a positive sign for an investor. Before investing into the share of a company, one also needs to see their own risk appetite and their expected return. Morrisons is a company which is into retail of consumer items, thus it wont make huge profits as the business has low profit margins. This can be seen in the financial statements which show that the net profit is around 3.50% for the 4 years. Morrisons has a low risk profile which is going to give medium to average returns in a short term. Whereas, the growth prospects of the company are looking very good and in the long run an investor could make a good amount of money. In the annual report of the company, they have mentioned about the growing strategies, which would increase its scale of operations and would enhance the share price of the company. The Earnings per Share (EPS) is also very impressive of the company. This is valued more than the profits as it gives the earning for every share. EPS is considered to be a common mans ratio.

APPENDIX PART 1 MARKET SHARE

Asda Coop Farmfood Iceland Lidl Morrison Sainsbury Tesco Waitrose Others

 Morrisons becomes a Public Company with 174 times oversubscribed. 1967 Starts with its concept of in store Fresh in-store Food. 1980 Entered the London Market for the 1st Time. 1998 It had a record of 35 years of growth in profit and sale, thus entering FTSE 100 2001 Takeover of rival SAFEWAY

2004

Completes conversion of Safeway to Morrisons, creating 11000 jobs. 2005 Awarded reailer of the year

2008

2010

Awarded King of Fresh Produce

Enters the e commerce industry for the 1st e-commerce eim with FreshDirect and Kiddicare 2011

PART 2 SHARE PRICE ANALYSIS

FTSE 100 SHARE PRICE GRAPH

FTSE 100

MORRISONS SHARE PRICE GRAPH

MORRISONS

PART 3 FINANCIAL RATIOS

Industry RATIOS LIQUIDITY NA 1.09 0.79 NA 42.73% 1.38 NA NA NA 20.19 1.63 NA NA NA NA NA 4.58% 5% 8.99% NA NA Working Capital Current Ratio Quick Ratio Quality of Income Debt Ratio Debt-to-equity ratio Times interest earned Cash flow adequacy MANAGEMENT EFFICIENCY Accounts receivable turnover Inventory turnover Asset Turnover Accounts payable turnover Accounts receivable days Inventory days Accounts payable days PROFITABILITY Gross Profit Margin Return-on-sales (ROS) Return-on-assets (ROA) Return-on-equity (ROE) Earnings per Share Quality of Income INVESTMENT Price/Earnings Ratio (PE) Dividend Yield Dividend Rate in pence Market Value per share Close (Date) 52- Week High 52-week low

2011

2010

2009

2008

(948.00) 0.55 0.24 1.36 23.26% 0.30 21.83 34.2 61.49 25.83 3.04 5.94 6 24 46 6.97% 5.30% 7.19% 12.14% 23.93 1.36

(1,060.00) 0.51 0.21 1.39 25.11% 0.34 16.24 28.7 76.67 26.71 3.11 4.71 5 25 47 6.89% 5.57% 6.13% 10.85% 22.80 1.39

(958.00) 0.53 0.21 1.97 27.12% 0.37 14.6 30.97 59.54 29.41 3.21 6.13 6 28 51 6.28% 4.51% 4.89% 8.89% 17.39 1.97

(943.00) 0.49 0.15 1.05 24.30% 0.32 11.74 23.61 65.17 29.34 2.96 5.60 6 27 50 6.31% 4.72% 7.26% 12.65% 20.79 1.05

10.58 4.26 NA NA NA NA NA

12.61

11.67

14.03

14.07

2.77% 2.68% 2.05% 1.41% 8.37 7.12 5 4.125 301.8 266.1 244 292.5 01/06/2011 01/06/2010 01/06/2009 01/06/2008 308.30 257.70 305.00 236.50 292.75 220.00 328.00 246.75

PART 4 FINANCIAL STATEMENTS CONDENSED BALANCE SHEET 2010 2011 1,138.00 7,557.00 454.00 9,149.00 2,086.00 1,643.00 2,463.00 2,957.00 9,149.00 1,092.00 7,439.00 229.00 8,760.00 2,152.00 1,659.00 2,008.00 2,941.00 8,760.00

Fiscal Year ended

2009 1,066.00 6,838.00 323.00 8,227.00 2,024.00 1,682.00 1,613.00 2,907.00 8,226.00

2008 910.00 6,444.00 282.00 7,636.00 1,853.00 1,405.00 1,474.00 2,904.00 7,636.00

Current Assets Property, plant and equipment, net Other Assets TOTAL ASSETS Current Liabilities Long-term Liabilities Retained Earnings Treasury stock and stockholders' equity TOTAL L & SE

TREND ANALYSIS OF BALANCE SHEET Fiscal Year Ended 2011 2010 2009 2008 Current Assets 125.05% 120.00% 117.14% 100.00% Property, plant and equipment, net 117.27% 115.44% 106.11% 100.00% Other Assets 160.99% 81.21% 114.54% 100.00% TOTAL ASSETS 119.81% 114.72% 107.74% 100.00% Current Liabilities Long-Term Liabilities Retained Earnings Treasury Stock and other stockholders' Equity TOTAL L & SE 112.57% 116.94% 167.10% 116.14% 118.08% 136.23% 109.23% 119.72% 109.43% 100.00% 100.00% 100.00%

101.83% 136.23% 100.10% 100.00% 119.81% 114.72% 107.73% 100.00%

COMMON SIZE STATEMENT - BALANCE SHEET Fiscal Year Ended 2011 2010 2009 Current Assets Property, plant and equipment, net Other Assets TOTAL ASSETS Current Liabilities Long-Term Liabilities Retained Earnings Treasury Stock and other stockholders' Equity TOTAL LIABILITIES & SHAREHOLDERS EQUITY

2008

12% 12% 13% 12% 83% 85% 83% 84% 5% 3% 4% 4% 100% 100% 100% 100% 23% 18% 27% 32% 25% 19% 23% 34% 25% 20% 20% 35% 24% 18% 19% 38%

100% 100% 100% 100%

INCOME STATEMENT Fiscal Year Ended (in Million Pounds) 2011 2010 Revenue 16,479.00 15,410.00 Cost of Goods Sold (15,331.00) (14,348.00) Gross Profit 1,148.00 1,062.00 Operating Expenses (244.00) (155.00) Income from operations 904.00 907.00 Other revenue and expenses (30.00) (49.00) Income from continuing operations before tax 874.00 858.00 Provisions for income tax (242.00) (260.00) Income from continuing operations 632.00 598.00 Nonrecurring items 26.00 (61.00) NET INCOME 658.00 537.00 Earnings per Share Basic Diluted

2009 14,528.00 (13,615.00) 913.00 (242.00) 671.00 (16.00) 655.00 (195.00) 460.00 (58.00) 402.00

2008 12,969.00 (12,151.00) 818.00 (206.00) 612.00 612.00 (58.00) 554.00 554.00

23.93 23.43

22.80 22.37

17.39 17.16

20.79 20.67

TREND ANALYSIS INCOME STATEMENT Fiscal Year Ended Revenue Cost of Goods Sold Gross Profit Operating Expenses Income from operations Other revenue and expenses Income from continuing operations before tax Provisions for income tax Income from continuing operations Nonrecurring items NET INCOME 2011 113% 113% 126% 101% 135% 188% 133% 124% 137% -45% 164% 2010 106% 105% 116% 64% 135% 306% 131% 133% 130% 105% 134% 2009 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2008 89% 89% 90% 85% 91% 0% 93% 30% 120% 0% 138%

COMMON SIZE INCOME STATEMENT Fiscal Year Ended 2011 2010 2009 2008 Revenue 100.00% 100.00% 100.00% 100.00% Cost of Goods Sold 93.03% 93.11% 93.72% 93.69% Gross Profit 6.97% 6.89% 6.28% 6.31% Operating Expenses -1.48% -1.01% -1.67% -1.59% Income from operations 5.49% 5.89% 4.62% 4.72% Other revenue and expenses -0.18% -0.32% -0.11% 0.00% Income from continuing operations before tax 5.30% 5.57% 4.51% 4.72% Provisions for income tax -1.47% -1.69% -1.34% -0.45% Income from continuing operations 3.84% 3.88% 3.17% 4.27% Nonrecurring items 0.16% -0.40% -0.40% 0.00% NET INCOME 3.99% 3.48% 2.77% 4.27% Cash Flow Fiscal Year ended(in m) 2011 2010 2009 2008 Net Cash from Operating Activities Net Cash from Investing Activities Net Cash from Financing Activities Effect of exchange rate on cash Net change in Cash Cash, beginning Cash, ending 898.00 (582.00) (333.00) 745.00 (901.00) 74.00 790.00 (627.00) 46.00 579.00 (258.00) (434.00) -

(17.00) (82.00) 209.00 (113.00) 245.00 327.00 118.00 231.00 228.00 245.00 327.00 118.00

CASH FLOW TREND ANALYSIS Fiscal Year ended 2011 2010 Net Cash from Operating Activities 155% 129% Net Cash from Investing Activities 226% 349% Net Cash from Financing Activities 77% -17% Net change in Cash -15% -73% Cash, beginning 106% 142% Cash, ending 193% 208%

2009 136% 243% -11% 185% 51% 277%

2008 100% 100% 100% 100% 100% 100%

SOURCES AND USES OF CASH STATEMENT Fiscal year ended (in m) 2011 2010 2009 898.00 745.00 790.00 Net Cash from Operating Activities Sale of property, plant, equipment 8.00 7.00 22.00 Sale of investments Other investing cash flow items 5.00 8.00 29.00 Issuance of Debt 25.00 200.00 250.00 Issuance of Capital Stock 16.00 34.00 3.00 Other financing cash flow items - 74.00 Effect of exchange rate changes Total Sources of Cash Purchase of property, plant and equipment Other investing cash flow items Repayment of debt Repurchase of capital stock Cash dividends paid Other financing cash flow items Effect of exchange rate changes Total uses of Cash 952.00 994.00 1,168.00

2008 579.00 94.00 50.00 17.00 -

740.00

494.00 916.00 101.00 154.00 1.00 220.00 159.00 969.00 1,076.00 -

678.00

402.00 266.00

2.00 146.00 131.00 2.00 959.00

108.00 77.00

853.00

Net Change in Cash

(17.00)

(82.00)

209.00 (113.00)

CASH FLOW COMMONN SIZE STATEMENT Fiscal year ended 2011 2010 2009 94% 75% 68% Net Cash from Operating Activities Sale of property, plant, equipment 1% 1% 2% Sale of investments 0% 0% 0% Other investing cash flow items 1% 1% 2% Issuance of Debt 3% 20% 21% Issuance of Capital Stock 2% 3% 0% Other financing cash flow items 0% 0% 6% Effect of exchange rate changes 0% 0% 0% Total Sources of Cash 100% 100% 100% Purchase of property, plant and equipment Other investing cash flow items Repayment of debt Repurchase of capital stock Cash dividends paid Other financing cash flow items Effect of exchange rate changes Total uses of Cash

2008 78% 13% 0% 7% 0% 2% 0% 0% 100%

51% 10% 16% 0% 23% 0% 0% 100%

85% 0% 0% 0% 15% 0% 0% 100%

71% 0% 0% 15% 14% 0% 0% 100%

47% 0% 31% 0% 13% 9% 0% 100%

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