Morrisons warns of price rises ahead as half-year profits fall 43%

Morrisons has warned it expects “industry-wide” price rises ahead while reporting half-year results showing a 43% slump in profits.

The UK’s fourth-largest supermarket chain by market share said the hikes were to be “driven by sustained recent commodity price increases and freight inflation, and the current shortage of HGV drivers”.

However, it expected to help “mitigate” the increase in costs, signalling that the continuing price war in the sector will limit higher prices at tills as the major chains battle the challenge posed by discounters such as Aldi and Lidl.

The company, currently at the centre of a takeover battle, said profits over the first half of its financial year to 1 August were damaged by further COVID-19 costs totalling £41m.

It reported £80m of lost earnings from its cafes, fuel and food-to-go as pandemic measures bit and demand remained constrained.

The firm’s bottom line statutory profit before tax figure came in at £82m, compared with £145m in the same six-month period last year, as a result.

Total sales rose by almost 4% to £9.1bn during the period aided by a surge in online sales during the pandemic and its wholesale business.

Morrisons said that online like-for-like sales growth was up 48% but overall like-for like sales growth, excluding fuel, declined slightly by 0.3% as competition in the sector continued to bite.

The company told investors that profit guidance for the full 2021-22 year had been maintained but there would be no interim dividend given the takeover situation.

Morrisons had revealed on Wednesday that it was in talks with the two US private equity suitors and the Takeover Panel, which governs takeover deals, regarding an auction procedure.

However, it may not be needed as the Morrisons board revealed it was to recommend a £7bn bid from Clayton, Dubilier & Rice (CD&R) after rejecting an earlier offer of £5.5bn.

CD&R’s latest offer is worth 285 pence per Morrisons share.

A rival consortium led by Softbank-owned Fortress Investment Group could still trump that bid.

Fortress had earlier offered £6.7bn.

John Moore, senior investment manager at Brewin Dolphin, said: “The Morrisons board recommending the 285p per share offer from CD&R should bring a conclusion to the bidding war for the supermarket, which has highlighted the appetite from private equity and trade investors for comparatively cheap UK companies over the last 12 months.”

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