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"Morrisons is getting back on the front foot," trumpeted Dalton Philips, chief executive, as he invited investors to look beyond a 51% plunge in half-year pre-tax profits to £181m. Feel those £300m worth of consumer-friendly price costs, came the message; look how fast we're cutting overheads; study the gains in working capital; and, most of all, take confidence from the 5% increase in the dividend.
If this three-year turnaround plan can indeed be achieved without sacrificing the dividend, Morrisons will have achieved one of retailing's great escape acts. Is the ambition really credible?
On paper, one can understand how the numbers are meant to work. Philips starts from the premise – surely correct – that Aldi and Lidl can no longer be ignored as minor irritants. So take some pain upfront and knock £300m off prices to get closer to the discounters.
To pay for these cuts over time, Morrisons intends to squeeze the pips inside its operations. Capital expenditure will be cut from £1bn to £550m and then to £400m. About 2,600 redundancies are planned. Fewer products will be bought, more efficiently. And so on.
At the bottom of the spreadsheet comes the calculation that £1bn of cost savings will be achieved and £2bn of cash generated over three years and £2bn of cash will be generated in the same period. If that really is so, then, yes, an annual dividend costing £317m ought to be affordable. The payment probably won't quite be covered earnings this year, but Morrisons' point is that cash generation is what really matters.
Presented like that, the plan is logical and coherent. The risk – a huge risk – is that real life intervenes in the form of a wounded Tesco that decides it, too, has no choice but to join the price-cutting game. In that case, Morrisons would be on the front foot just as a 90mph bouncer arrives, which is not what cricketing manuals advise.
Morrisons optimists might argue that Philips has achieved a head start. Really? Sales were down 7.4% on a like-for-like basis in the first half. Even the new "items per basket" measure showed a 3.2% like-for-like fall, which was not as bad as the previous period but hardly evidence that shoppers are responding.
For true believers, there's a juicy 7.5% dividend yield on offer. Realists know that, nine times out of 10, those dividends don't survive.
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