(Alliance News) - Wm Morrison Supermarkets PLC posted a profit fall in its first half, juggling price pressures and tough comparatives, with the grocer one step closer towards going into private hands as rival suitors look set to go to auction.
Shares in the company were 0.2% higher at 292.90 pence each in London on Thursday morning.
Morrisons in August accepted a GBP7.0 billion takeover offer from Clayton, Dubilier & Rice LLP, though on Wednesday, the Bradford-based supermarket chain said it has begun talks with the Takeover Panel over the prospect of arranging an auction to resolve a bidding battle, with Softbank Group Corp-owned Fortress also interested in acquiring the company.
Morrisons said its pretax profit in six months to August 1 fell 43% to GBP82 million from GBP145 million a year earlier. Pretax profit before exceptional items and adjusted for business rates relief a year earlier was higher, however, up 42% to GBP105 million and GBP74 million. Morrisons had GBP93 million in rates relief waived in the same period a year earlier.
Total revenue, including fuel sales, rose 3.7% annually to GBP9.05 billion from GBP8.73 billion. Total sales excluding fuel were largely unchanged year-on-year at GBP7.55 billion.
Like-for-like sales excluding fuel were 8.4% higher than they were two years earlier, but down 0.3% annually. In the second quarter alone, like-for-like sales dropped 3.7%, compared to a rise of 2.7% in the first three months of the financial year. The second quarter decline suggests the re-opening of the UK economy has led to reduced grocery sales as more consumers are able to dine and drink in restaurants and bars.
"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," Chair Andrew Higginson said.
A shortage of HGV, or heavy goods vehicle, drivers has led to a spate of economic concerns in the UK, from component shortages to fears of empty shelves in supermarkets.
Reports have suggested a shortage of workers has hit supply chains following an apparent exodus of drivers from EU countries, who returned to the continent during the coronavirus pandemic and remained there.
Morrison said direct Covid-19 costs, meanwhile, fell to GBP41 million from GBP155 million.
Morrisons added: "In addition, with the majority of our cafes closed until mid-May, and our fuel and food-to-go volume recovering gradually throughout the first half of 2021/22, we incurred considerable lost profit of GBP80 million in these key areas of our business compared to a pre-Covid-19 year such as 2019/20."
The company, which paid a 2.04 pence payout a year earlier, decided against a dividend due to it being under offer.
Looking ahead, it expects annual pretax profit before exceptional, items and business rates to be higher than the GBP431 million from the year prior. The company had waived GBP230 million in business rates relief in the last financial year.
"Assumptions for the second half include significantly lower lost profit, minimal further direct Covid-19 costs, and mitigation of potential sustained cost increases in the supply chain," the grocer added.
"The whole British food industry is currently facing into the continued challenges of Covid-19 and sustained supply chain cost increases, which are largely outside of our control. However, we are working to address those challenges and second-half 2021/22 profit before tax and exceptionals is expected to be considerably higher than the GBP105 million achieved in the first half."
It is expecting its fuel, cafe and food-to-go offerings to have improved fortunes and it forecasts lower direct virus costs. The company added that it expects "industry-wide retail price inflation during the second half" as supermarkets bid to cope with rising supply chain costs.
It added: "Also as previously guided, for 2022/23 we expect material benefits of both no direct Covid-19 costs and the full recovery of lost profit, and remain confident of a year of meaningful profit growth for that year."
By Eric Cunha; ericcunha@alliancenews.com
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