Total group revenues were down 1.1% to £8.73 billion due to a significant fall in fuel demand during and after lockdown, which is now rebuilding.
Excluding fuel sales, revenues were up 8.8% to £7.55 billion with the second quarter from May to July seeing a strong contribution from the retail business.
However, profits before taxes and exceptional items fell 25% to £148 million after the firm took £155 million of Covid-related costs, which were only partly offset by lower business rates.
Also the sudden drop in fuel demand meant a shortfall in working capital which led to free cash outflow of £228 million during the half compared with cash inflows of £244 million the previous year.
This in turn led the company to increase its borrowing with the result that net debt rose to £2.8 billion compared with £2.46 billion at the beginning of the financial year in February.
On a positive note, Morrisons’ has upped its online and home delivery capacity fivefold, including strengthening its relations with Amazon.com, and is well positioned for the structural shift to online grocery ordering which the pandemic has accelerated.
Also, its wholesale supply business has almost reached its annualised target of £1 billion in revenues and it is on track to supply the rest of the McColl’s (MCLS) store estate during the second half.
SPECIAL DIVIDEND DELAYED
Offsetting this, due to the impact of Covid the firm has dropped its target of increasing profits by £75 million to £125 million and deferred a decision on a special dividend, although it announced a small rise to this year’s interim payment.
Shore Capital, house broker to Morrisons, is maintaining its pre-tax profit forecast of £445 million for the full year with 'continued hope for a substantial income distribution’ early next year.
Analysts Clive Black and Darren Shirley remain upbeat: ‘Morrisons is stronger, more relevant and well-positioned for long-term growth through agility, innovation and balanced progress, which we believe shareholders will benefit from through capital appreciation and the expected eventual distribution of free cash flow’.