Heavy Covid-19 costs for Morrisons

Morrisons store. Photo: Paul Maguire/Dreamstime
Photo: Paul Maguire/Dreamstime
By Reidar Molthe

25 March 2021 10:22

Heavy Covid-19 costs for Morrisons

Annual results released by Morrisons last week confirm that while its sales have benefitted from surging demand in supermarkets over the last year, profits have taken a major hit from costs related to operating its business during the pandemic.

The CEO of Morrisons, Britain’s fourth largest supermarket group, says that the groups halving of annual profit 2020 compared to 2019 is satisfactory as the priority in 2020-21 was feeding the nation during the COVID-19 crisis.

“I personally wear a halving of profits as a badge of honour,” chief executive David Potts told reporters after Morrisons reported 2020-21 profit of 201 million pounds, down from 408 million pounds in 2019-20.

“The British people have had access to food because the supermarket workers, not just Morrisons, were asked by government to be key workers and required to stay open, unlike pretty much the rest of society. Frankly, we could have made no profit if we were closed down.”

Over the 52 weeks to end January, the group’s pre-tax profit before non-expected costs plummeted 50.7% to £201m after facing £290m of extra expenses, including covering for worker absence, staff bonuses, more seasonal waste, and higher distribution costs. Morrisons also opted to return £230m of business rates relief.

However, the group’s like-for-like sales climbed 8.6% across the period, well above the 0.8% growth in the previous year, after trade was boosted by the shift to at-home dining when restaurants, schools and offices were closed. But total revenue was up only 0.4% to £17.6bn due to the impact of weak fuel sales in its petrol stations.’

Online sales tripled – and is profitable

Online sales tripled during the year, and capacity was up fivefold. The company highlighted that its online and wholesale businesses, which benefit from a tie-up with Amazon, now is profitable and increasingly so as sales volumes grows.

The latter is an interesting point. Many analysts claim that it is “not possible" to make money from online grocery shopping. Well, Morrisons and probably many other players will disprove this in the future. This writer and many others are quite sure of that. But time will tell.

Morrisons has been one of the top performers during the pandemic also attracting praise for launching new home delivery initiatives for vulnerable customers, supporting local suppliers, and offering discounts to key workers.

Good citizen

However, this good citizenry has come at a cost. The company highlighting that its policy of paying small suppliers immediately and holding extra stock, combined with large drops in fuel sales during the lockdowns, resulted in a free cash outflow of £450m (£238m inflow previous year) and an increase in debt from £2.5bn to £3.2bn.

Morrisons expects profitability to recover this year as costs go down, although it faces tough sales comparatives with last year’s bumper figures. Free cash flow is also expected to improve, with a focus on reducing debt.

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

Sources: Morrisons, Reuters, NamNews.

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