Morrisons pays special dividend as annual profits halved

Supermarket chain Morrisons saw annual profits halved as it was impacted by extra Covid-19 costs, but also declared a special dividend alongside a final payout.

Profit before tax and exceptionals fell 50.7% to £201m, including £290m in direct Covid-19 costs to cover thousands of extra staff, employee sick pay and in-store safety measures to deal with the pandemic.

In a season where supermarkets have made weathered the Covid storm better than most in their role as an essential supplier without posting massive profits as costs rise, Chief executive David Potts he wore the halving of profits as a "badge of honour".

“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 and it would have been a result,” he said.

Of the £290m in extra costs, wages for new staff came to £99m, with employee bonuses adding £68m. Morrisons also donated £12m to food banks and other charitable causes. Its free cash position has deteriorated significantly, with outflows of £450m, compared to inflows of £218m a year earlier.

Group like-for-like sales excluding fuel and value added-tax rose 8.6%, with final quarter like-for-like sales up 9%, the company said on Thursday. Petrol sales were hit as fewer people drove during lockdown periods and other restrictions, with like-for-like sales falling 43% in January.

A special dividend of 4p a share deferred from the second half of the 2019/20 fiscal year was declared along with a final dividend of 5.11p.

"We expect 2021/22 profit before tax and exceptionals including rates paid to be higher than the £431m profit achieved in 2020/21 excluding the £230m waived (business) rates relief," the company said, adding that it expected strong free cash flow and a significant reduction in net debt.

"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."

Morrisons, which was last week relegated from the FTSE index of top 100 companies, said it was expanding its ‘Morrisons on Amazon’ service, which is now available in about 50 towns and cities, and accounted for more than 10% of sales in the majority of stores where the service is offered.

Hargreaves Landsown analyst Susannah Streeter said there were signs Morrisons is laying the groundwork to take advantage of opportunities ahead, as it eyed the easing of restrictions.

"Although online sales are still significantly behind its rivals, there is significant room for rapid growth. It has edged a tiny step forward in market share to take a 10.3% slice of the sector in the 12 weeks to February 21," she said, adding that the Amazon tie-up "also has huge potential".

"If it can become the minor royal in the Amazon empire, there could be significant rewards ahead. The conversion of 300 more McColls convenience stores to the Morrison Daily format could help boost future revenues, given this sector has held up particularly well over the past year."

"But competition is fierce in the grocery sector and if Morrisons focuses on a’ pile it high, sell it cheap approach’ as it tries to keep its shoppers loyal post lockdown, the strategy could nibble into margins.’’