Morrisons has reported a drop in profits as it warned of rising costs in its supply chain because of coronavirus pandemic disruption and a shortage of HGV drivers, as the UK chain prepares for an auction to decide between two private equity bidders
The supermarket’s profit before tax and some one-off items fell by more than one-third to £105m in the six months to 1 August compared with the same period in 2020, it said in a statement to the stock market.
Profits were held back by £41m of direct Covid-19 costs plus £80m less earned from cafes, fuel and food-to-go, it said.
The supermarket acknowledged it was facing “sustained supply chain cost increases” outside of its control. It warned that prices will rise across the retail industry in the coming months, driven by commodity and transport cost increases plus the shortage of lorry drivers.
However, the group said it still expected to exploit rising sales in the second half of its financial year. It signalled that it was on track to make profits of more than £431m for the full year – the level it would have achieved in 2020 had it not given back £230m in unneeded government aid. Morrisons said it was not budgeting for many extra Covid-19 costs, and that it expected profits in its online and wholesale operations to rise.
Revenues across the group rose by 3.7% to £9bn during the half year, helped by a 48% like-for-like increase in online sales, providing a boost as it prepares to be taken private.
Morrisons is the subject of two separate bids by US private equity investors who believe the UK’s fourth-largest supermarket could be more valuable as a private company.
The grocer said on Wednesday it was in talks with the two suitors – Clayton, Dubilier & Rice and Fortress – as well as the UK’s Takeover Panel, which regulates acquisition activity – to begin an auction procedure to settle who takes over the chain.
Last month, the Morrisons board recommended that shareholders back an offer by CD&R that would value the supermarket chain at £7bn (or £9.7bn including debt).
However, it is thought that the rival private equity firm Fortress, owned by the Japanese investment bank SoftBank and which has had its offers of £6.5bn and £6.7bn trumped by CD&R, could still come out with an improved bid.
Commenting on Morrisons’ first-half performance, the chairman, 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.”