For some time Morrisons has been considering the implications of the Government’s decision not to collect business rates this year, and it had planned to make its decision once the full cost and duration of COVID-19 had become more clear.
However, the company has now brought forward this decision and is committing to pay business rates for the coronavirus period in full. The total amount to be paid will be £274m, of which £230m relates to 2020/21.
Due to the impact of the second lockdown and other tier restrictions, the chain expects direct COVID-19 costs to be around £270m, c.£40m more than its estimate at the 2020/21 interim results, and significantly higher than the £230m in-year business rates relief.
In addition to the direct COVID-19 costs, profit has been significantly impacted throughout the year by the extra costs of doing business during the pandemic, for example the widespread temporary closure of many of its cafes and market street counters. These costs have been exacerbated recently by the impacts of the second lockdown and tier system.
However, Morrisons has continued to manage its business well and achieved strong operating leverage. As a result, before the £230m business rates payment and recognising the busy Christmas and New Year trading period is still ahead, it is expecting 2020/21 underlying profit before tax and exceptionals to be in line with expectations.
The business has weathered the significant financial challenges of COVID-19 very well, which is testimony to its financial and operational strength. Today’s announcements will clearly impact our net debt position.
In addition, net debt is currently again being temporarily adversely affected by: the impact on working capital due to the lower national fuel demand during the second lockdown; investment in higher levels of stock availability both during COVID-19 and in its preparations for Brexit; and the extension of the scheme to pay our smaller suppliers immediately during the crisis.
While many of these factors are temporary and will reverse when trading conditions return to normal, we expect 2020/21 year-end net debt to be around £1.7bn pre-IFRS 16.
David Potts, Chief Executive, (pictured) said, 'We are grateful for the Government’s swift action at the start of the pandemic which enabled the whole sector to face squarely into the challenges and disruption caused by COVID-19.
'Throughout this difficult period Morrisons has done its best work to look after our colleagues, our customers and key workers, to feed the nation, to protect both the vulnerable and our smaller suppliers and to play a full and leading role in meeting the enormous challenges that the COVID-19 pandemic brought.
'I’m exceptionally proud of the way that the whole business has responded.”