Wm Morrison Supermarkets PLC (LON:MRW) shares dropped on Thursday as the food retailer posted a big fall in profit for the first half of its financial year due to extra coronavirus (COVID-19) pandemic costs, although it did nudge up its interim dividend.
The Bradford-based grocer said like-for-like (LFL) sales rose by 8.7% for the 26 weeks to August 2, 2020, excluding fuel, with second-quarter LFLs up 12.3% compared to 5.7% in the first quarter.
However, total revenue of £8.7bn was down 1.1%, significantly impacted by a near absence of fuel demand during the pandemic lockdown, which was said to now be rebuilding.
While partly offset by a £93mln benefit from lower business rates, the group said there were roughly £155mln of direct costs during the half resulting from COVID-19, including extra payroll and bonuses, protection measures, extra waste and distribution, with food bank and other donations also included, meaning a net cost of £62mln. For the second half this is expected to be around £60mln.
As a result, Morrison's statutory profit before tax tumbled 28% to £145mln.
There was free cash outflow of £228mln due primarily to the temporary impact on working capital of the lower demand for fuel.
Dividend hiked by 6%
But the interim dividend was still lifted 6% higher to 2.04p though the board again deferred their decision on paying a special dividend, saying this “reflects some sustained uncertainty around the potential future impact of COVID-19 on both our customers' behaviour and the broader British economy”.
A decision will be given at March’s preliminary results and in future, the company said, it will take a decision on a potential special dividend once a year at that same time.
With an expanded wholesale business, including a new same-day service on Amazon, Morrison's said it was “confident of continued strong momentum into the second half, improved free cash flow and net debt, and another year of growth in profit before tax and exceptionals”.
Shares in the company were the biggest fallers on the FTSE 100 on Thursday morning, shedding 4% to 186.4p.
Analyst Richard Hunter at Interactive Investor noted that the results showed how, contrary to popular belief, “the pandemic was not an automatic home run for the supermarkets”.
But he said improving signs of late should bode well for the second half and with coronavirus costs largely sunk but business rates relief still in place, this should leave a net neutral position, and he is expecting the cashflow position to strengthen in the short term.
“With this in mind, and therefore propelled by an improvement to the net debt and cash flow positions, Morrisons has estimated that the year as a whole will still prove to be one of profit growth,” Hunter added.
Meanwhile, analysts at Morrison's 'house 'broker Shore Capital said: “The Group has not wasted this crisis, however, going onto materially enhance its brand reputation through its actions, revolutionise its online capabilities, including the strengthening of its relations with Amazon, building its capability and sharpening its value proposition.”
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