Morrisons doubles profits but warns of price rises

Morrisons said its recovery was on track yesterday as it posted a near-doubling in half-year profits.

But it warned that consumers face a rise in food prices due to steep increases in the cost of meat, milk and flour following a poor growing season for farmers and soaring wheat prices.

The chief executive Marc Bolland said the company was "delivering significantly improved profits through margin gains and managements of costs". Morrisons has invested £450m in overhauling its estate and has also re-launched its premium range The Best and its low-cost range as Value, both with new packaging.

The supermarket posted a 2.7 per cent hike in like-for-like sales in the six months to 29 July yesterday and said pre-tax profits jumped to £266.3m, from £134.2m in the same period last year. That was despite a slowdown in trading during the summer following poor weather. Since July like-for-like sales have risen 3 per cent.

Morrisons struggled after acquiring the Safeway chain at the end of 2003 and its profits fell to £54m in the year to February 2006 as it integrated the chain.

The group said the first half of the year had seen trading conditions swing from good growth across the industry to a marked slowdown as the five interest rate rises since last August took effect, combined with the heavy flooding and the exceptionally poor summer.

The supermarkets entered into a price war in the first half in response to the tighter conditions in an attempt to draw customers back into stores.

The chairman, Sir Ken Morrison, who will retire next year after 51 years at the helm, said that food prices would have to rise but the company would remain competitive.

"If we don't manage to achieve some price increases the agricultural market would be decimated," Sir Ken said. "We need to get consumers to spend a little bit more of their disposable income on food."

Morrisons added that talks over a property joint venture had been put on hold due to current turmoil in the debt markets. The finance director Richard Pennycook said the company "was ready to invite propositions from third parties but held back from this further step due to the current environment".

Philip Dorgan, an analyst at Panmure Gordon, said this was a good set of numbers but "life gets more difficult from here with renewed sales momentum depending on the success of new marketing initiatives and price investment being higher than everybody else".