Morrisons’ profits slide despite revenue growth as Covid-19 costs continue to weigh on the supermarket ahead of its private equity takeover
- The supermarket group saw profits fall by 37.1% in the six months to August
- Direct Covid-19 costs totalled £41m in addition to £80m related costs
- Revenue growth of 3.7% was driven by strong increase in online sales
- Morrisons is set for a private equity takeover after £7bn August bid
Morrisons saw profits collapse by 37.1 per cent in the six months to August 2021 as the cost of managing the coronavirus pandemic continue to weigh on the supermarket group.
The group reported a profit before tax and exceptional items of £105million in the six months to 1 August, compared to £167m at the same time last year.
Covid-19 directly cost the supermarket chain £41million, Morrisons said, while the lingering effects of the pandemic cost it £80million of profits from its cafes, fuel and ‘food-to-go’ businesses.
Morrisons saw profits slide as the cost of Covid continues to weigh on the supermarket chain
However, Morrisons’ total revenue for the first half of the year was up 3.7 per cent to £9.1billion despite like-for-like sales, excluding fuel and VAT sales tax, falling 0.3 per cent.
Morrisons, which trails Tesco, Sainsbury’s and Asda in annual revenue, was helped by online sales jumping by almost half over the six months.
While the group maintained its profit guidance for the full year, it warned investors to expect ‘some industry-wide retail price inflation’ during the second half of 2021, driven by ‘sustained recent commodity price increases and freight inflation, and the current shortage of HGV drivers’.
‘We will seek to mitigate these and other potential cost increases, such as any incurred to maintain good on-shelf availability,’ it added.
The lackluster profits were posted in what could be Morrisons final results statement as a publicly listed company, as the group finds itself at the centre of a bidding war between US private equity firms Clayton, Dubilier & Rice, and Fortress.
In late June Morrisons accepted a £7billion takeover bid from CD&R, equating to 285p per share.
The offer represented a premium to the Morrisons share price a day prior to the offer at 279p, which has since risen to 292p. Fortress could still swoop in with an improved bid ahead of an auctions process expected next month.
Chair of Morrisons Andrew Higginson said ‘Across the business the whole Morrisons team has shown commendable resilience facing into a variety of continuing challenges during the first half, including the ongoing pandemic, disruption at some of our partner suppliers, and the impact on our supply chain of HGV driver shortages.
‘As we approach our busiest time of year, I’m confident the team will continue to rise to all challenges and keep up all the good work to improve the shopping trip for customers.’
Susannah Streeter, senior investment and market analyst Hargreaves Lansdown, warned there could be ‘hiccups on the way to a higher profit trajectory’ for Morrisons, ‘given the looming supply chain issues for the industry’.
‘Morrisons says it has a plan up its sleeve to mitigate potential cost increases, and stock shortages, but it’s hard to forecast just how tough the next few months may be,’ she added.
‘However with uncertainty looming Morrisons won’t want to look past its sell by date, so there is likely to be intense focus now on getting a deal signed, sealed and delivered.’