Wm Morrison said the direct costs to the supermarket chain of responding to the pandemic were £155m in the six months to August, resulting in a 25 per cent fall in underlying pre-tax profit to £148m.
The group said on Tuesday that the additional costs had been partly offset by £93m of business rates relief but it was still not issuing a formal profit forecast for the year.
The special dividends that investors have received in previous years also remain suspended, though analysts at Jefferies still expect 10p of special payouts later in the year.
Some of the additional costs should taper off in the second half of the year and the business rates relief will be worth more because it will apply to the whole of the time period.
There will also be less of a problem in the form of low fuel sales. These are low margin but provide large amounts of cash to the business — big falls in traffic during lockdown meant that including fuel, group first-half sales fell 1.1 per cent. The loss of fuel sales meant there was a £228m free cash outflow.
Traffic levels have partially recovered, but the increase in food sales during lockdown — group sales excluding fuel were up 8.7 per cent — is likely to be more moderate in the second half.
A new price war among UK supermarkets — Morrison’s is the fourth-largest chain — is also likely.
Morrisons has already announced price cuts for more than 400 items and said a basket of typical Christmas food would be significantly cheaper than last year.
Asked about the impact of new Covid-19 restrictions on socialising, David Potts, chief executive, replied that “the size of a bird at Christmas is lower down my list of priorities than continuing to feed the nation”.
Trading arrangements with the EU after Brexit could also pose challenges. “We would like government, the authorities, the leaders of countries to negotiate a deal that does not include tariffs either way, because in the end tariffs drive inflation,” Mr Potts said.
The British Retail Consortium has warned that failure to secure a trade deal between the UK and the EU could lead to average tariffs of 20 per cent on foods imported from Europe.
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Mr Potts said “no one wants to see food inflation in any year, especially not a recession year”.
He also highlighted the growth in online shopping and said it was a profitable business line for the group. Morrisons has doubled online volumes and capacity has increased fivefold, partly thanks to tie-ups with Deliveroo and Amazon and new services such as grocery delivery boxes.
Morrison shares were down 3 per cent in afternoon trading on Thursday, which analysts attributed to the cash outflow and the deferral of special dividends.
There was a regular interim dividend of 2.04p a share, up 5.7 per cent on last year.
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