Chaotic takeover hits Morrisons profits

By Leah Vyse

- Last updated on GMT

Related tags: Morrisons, Tesco, Sainsbury's

Morrisons, Britain's fourth largest retailer, today posted a £73.7
million pre-tax loss for the first half of the year after failing
to take control of its massive Safeway acquisition.

Shareholders were today told that profits would be closer to £50m, the bottom end of earlier profit predictions of between £50m -150m.

The West Yorkshire-based retailer's problems began in March last year when it acquired Safeway for £3.35 billion and virtually doubled the size of the company.

Since the takeover, Morrisons has issued five profit warnings and it is now five months since accountants KPMG were called in after the group admitted it had lost track of its accounts following the Safeway acquisition.

Senior research analyst at Verdict Research, Gavin Rothwell, told FoodandDrinkEurope.com​: "The central problem for Morrisons was its acquisition of Safeway, it was a much bigger task than they anticipated. They didn't really get the handle on the way Safeway was run."

"This was the biggest deal in the sector which makes it a unique case. With an acquisition of this scale there would inevitably be dual running costs for a period."

"However, Morrison's key downfall was the failure to get a handle on what the Safeway customer wants. Safeway's customers are known to be more affluent than the typical Morrisons customer, something that the company failed to address in its stores."

It seems that instead of creating a hybrid organisation that caters for both Morrisons and Safeway's clientele, the company simply flooded both stores with Morrisons products, thus alienating many of Safeway's customers, forcing them to shop elsewhere.

Today Morrisons confirmed David Jones will step down as chairman of the remuneration and audit commission but he will remain as deputy chairman. Newly appointed non-executive director, Paul Manduca will take over the role with immediate effect.

Recently appointed from the RAC, finance director Richard Pennycook has recruited an investor relations director, also from the RAC, to develop better relations with the city. The company is also advertising four of the firms most senior finance roles which indicates it is time for change.

Morrisons market share has fallen to 11.4 per cent from 13.4 per cent last year, profits for the whole of 2004 were recorded at £320m.

Earlier in the year the company signaled £119m exceptional charges accrued from mainly store conversions and redundancies - the conversion process is set to be complete by the end of the year.

There is a continuing negative like-for-like sales trend in core Morrisons stores, such sales fell by 5.2 per cent, excluding fuel, in the third quarter.

"The latest TNS Grocery market share figures have just been published for the 12 weeks ending October 9 2005 and the conversion of Safeway outlets to the Morrisons fascia is nearing an end,"​ said Edward Garner, communications director at TNS Superpanel.

"The combined Morrisons / Safeway share has been stable for the last three reports and has actually shown a small increase to 11.4 per cent from 11.3 per cent in our report last month."

In May Morrisons reported its first loss in its corporate history, along with the Safeway take-over the increased competition from Tesco and Sainsbury are considered highly contributory to the financial downturn.

According to the London food retailers' index, shares for Morrisons underperformed by almost 14 per cent this year.

Related topics: Market Trends

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