Morrisons warns of price pressures amid driver shortage: profits slide
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The chain, which is the focus of a bidding auction involving two US private equity firms, said it expects industry-wide retail price inflation in the coming months as a result of the driver shortage, global commodity price increases and higher haulage costs.
It will seek to reduce the impact of the cost pressures and supply issues to keep its shelves stocked.
The comments came as the group posted a 43 per cent slide in statutory pre-tax profits to £82 million for the six months to August 1, down from £145m a year ago.
Underlying pre-tax profits fell 37 per cent to £105m, with the group taking a hit from £41m in pandemic-related costs, as well as lost profit across its cafes, petrol forecourts and food-to-go.
Morrisons said: "We expect some industry-wide retail price inflation during the second half, 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."
John Moore, senior investment manager at Brewin Dolphin, noted: “The new potential owners will be pleased to see that Morrisons is in relatively robust shape, as it continues to recover from the effects of Covid-19.
“Revenues have increased, as has free cash flow, helping to edge down debt. While profits are markedly lower, this can largely be put down to exceptional items and Covid-19 costs.
“There are other concerns in the shape of supply chain challenges, but the more integrated approach of Morrisons should see it better placed than many facing these uncertainties.”
The half-year results showed that like-for-like sales, excluding fuel and VAT, dipped 0.3 per cent, having fallen 3.7 per cent in the second quarter against a 2.7 per cent rise in the first three months.
The group stuck by its profit guidance for the full year, of underlying pre-tax profits including business rates paid to be higher than the £431m it made the previous year, excluding the £230m of rates relief that was waived.
Morrisons has received offers for the company from buyout firms Clayton, Dubilier & Rice (CD&R) and Fortress, though it confirmed in the statement that it is recommending CD&R's offer of 285p per share, valuing the group at £7 billion.
Shareholders will vote on the deal in or around the week of October 18.
But with no final offers yet tabled by either party, Morrisons said on Wednesday that it is in discussions with the Takeover Panel to launch an auction in the hope of bringing to an end the three-month bidding war.
Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, said: “Although there is still a chance an auction scenario could play out, it looks like the higher bid from Clayton, Dubliier & Rice might now be on a smooth conveyor belt to approval with the company recommending its offer of 285p per share.
“There is of course still a chance Fortress will wade in with a higher offer and these latest results will offer plenty of food for thought over whether an even higher bid is justified.”