Profits fall at Morrisons as chain absorbs £290m worth of COVID costs

Bradford-headquartered supermarket chain Morrisons has seen Group like-for-like (LFL) sales excluding-fuel and VAT rise 8.6% (2019/20: down 0.8%), with its total revenue up 0.4% to £17.6bn (2019/20: £17.5bn).

Issuing its preliminary results for the 52 weeks ended 31 January 2021, the business has also recorded profits before tax and exceptionals down 50.7% to £201m (2019/20: £408m). This includes £290m worth of direct COVID-19 costs.

Morrisons says this figure would have been up 5.6% to £431m before the payment of £230m of waived Government business rates relief.

Its profit before tax was down 62.1% to £165m (2019/20: £435m) after net exceptional costs of £36m including online capacity transformation, impairment and restructuring.

The supermarket adds it is confident it can continue its momentum this year, and expects both profit growth as well as a “significant” reduction in net debt.

It notes that during January 2021 it again experienced higher colleague absence, therefore incurring £10m more direct COVID-19 costs than forecast.

In addition, its cafés were again required to close and LFL fuel sales fell to -43% (compared to -23% for the first 22 weeks of half two), both of which also had a negative effect on profit.

Morrisons’ outlook report adds: “However, retail LFL and operational gearing continued to be very strong thereby offsetting all of these impacts.

“Since year end colleague absence is gradually returning to lower levels and fuel sales have started to improve.

For 2021/22, with the anniversary of the first lockdown imminent and still some uncertainty as to how COVID-19 restrictions will evolve in future, there are many variables within our scenario sales and profit planning, especially so early in the new financial year.

We expect 2021/22 profit before tax and exceptionals including rates paid to be higher than the £431m profit achieved for 2020/21 excluding the £230m waived rates relief.

“This target assumes a gradual return to more normal trading conditions, no significant increases in expected direct COVID-19 costs such as elevated colleague absence, and no further restrictions such as another period of prolonged café closures.

“We enter 2021/22 with strong trading and operational gearing momentum, and further productivity and cost efficiency opportunities supported by our very robust underlying cash flow and balance sheet, all of which allows us flexibility around the choices we make for all stakeholders and gives us confidence in our profit guidance.

“We expect some of the working capital impacts to start to reverse during quarter one 2021/22, and others to reverse as trading conditions normalise thereafter.”

Andrew Higginson, Morrisons chairman, said: “This has been a year where Morrisons resilience has been severely tested and I could not be more proud of the way the whole business has met that test.

“As we look forward to brighter times ahead, Morrisons is developing into a stronger, better business with deeper and closer relationships with our customers and the communities we serve.”

David Potts

David Potts, chief executive, added: “Morrisons key workers have played a vital role for all our stakeholders during the pandemic, especially the most vulnerable in British society, and their achievements over the last year have been remarkable.

“I am delighted that we are recognising their enormous contribution by becoming the first supermarket to pay a minimum of £10 an hour to all store colleagues.

“We are also today showing our continuing gratitude and appreciation for the incredible work of other key workers in the nation, by extending our 10% discount for NHS staff for the whole of 2021.

“We must now look forward with hope towards better times for all, and we’re confident we can take our strong momentum into the new year, targeting profit growth and significantly lower net debt during 2021/22.”

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