Morrisons warns of price hikes as profits head lower

Shoppers outside the front of a Morrisons store in Hatch End, London. WM Morrison is the UK fourth largest chain of supermarkets
Morrisons has been the subject of a tense takeover battle. Photo: Getty

Supermarket chain Morrisons (MRW.L) warned of price rises in its half-year results, as a HGV driver exacerbates supply chains across the country.

The supermarket said: "We expect some industry-wide retail price inflation during the second half, driven by sustained recent commodity price increases and freight inflation, and the current shortage of HGV drivers."

The news came as profits headed lower at the chain, which has been the target of a private equity takeover battle in recent months.

Profit before tax and exceptional items was £105m ($144.5m) in the six months to 1 August, down from £167m in the same period last year.

There was no interim dividend declared, given the takeover offers.

"There could be hiccups on the way to a higher profit trajectory, given the looming supply chain issues for the industry," said Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown.

"Morrisons says it has a plan up its sleeve to mitigate potential cost increases, and stock shortages, but it’s hard to forecast just how tough the next few months may be.

"However with uncertainty looming Morrisons won’t want to look past its sell by date, so there is likely to be intense focus now on getting a deal signed, sealed and delivered.’’

The board this morning recommended Clayton, Dubilier & Rice (CD&R)'s takeover offer of 285p per share.

Shareholders will be asked to approve this offer at a Court Meeting and General Meeting to be held in or around 18 October, the supermarket said.

If there is no counter-offer, this would wrap up a three-month battle between CD&R and Fortress. It would also end ongoing uncertainty for the company, its employees and suppliers, after neither of the firms declared a final offer.

The Takeover Panel is expected to make an announcement soon, with a date for later this month expected to be set for any bidders to make their offers final.

It comes after Morrisons accepted a £7bn ($9.6bn) offer, or £9.7bn including debt, from US-based CD&R, which counts former Tesco boss Terry Leahy as an advisor. This represented a 60% premium to its share price before takeover interest started in June.

Read more: Morrisons takeover bid raised to £6.7bn by Fortress

This was after it previously recommended investors accept an earlier £6.7bn offer from Fortress, which controls Majestic Wine and is owned by Japanese investment firm SoftBank (SFTBY).

Morrisons, which has now been catapulted onto the FTSE 100 (^FTSE) after a 60% rise this year. Its stock was largely unchanged by the six-month report today.

Watch: Morrisons warns of price rises ahead as half-year profits fall 43%