It’s Ken Again
He is 74 but Ken Morrison is in no mood to slow down and take it easy.
During the span of a career in the City a businessman usually plays the role of hero and villain. Sir Ken Morrison was typecast as the former until he acquired Safeway a year ago.
In 2001 when it entered the FTSE 100, Wm Morrison had an unrivalled track record with 35-years of sales and profit growth to its name.
This year the picture could not be more different as Morrisons stumbles to a first-half loss after the acquisition of Safeway set in train a chain of events, including five profit warnings, that all but wiped out the profitability of the enlarged business.
However in brash red braces and stripy tie yesterday the Yorkshireman was not cowed. He batted away uncomfortable questions such as where did all the money go and when will he retire with the skill of an English batsman.
Sir Ken, celebrating his 74th birthday, is confident about the future and is not going anywhere. “It is my present intention to stay around for another two or three years,” said Sir Ken. The market had reacted with relief to the supermarket’s interims results, welcoming for once the absence of a profit warning. Shares rose just over 2 per cent to settle at 170.5p.
“The results, while poor in the context of the group’s historically high standards, brought a sense of relief to our minds and the belief that the recent cycle of major downgrades has been halted,” said Shore Capital analyst Darren Shirley, in a note.
In the 25 weeks to 24 July Morrisons made a pre-tax loss of £73.7m versus last year’s profit of £121.6m. Sales climbed 4.7 per cent to £5.9bn. Operating profit pre-exceptionals came in at £50.7m compared to £168.9m last year. Seymour Pierce analyst Rhys Williams reacted similarly: “Morrisons share price has risen on the relief that profits haven’t collapsed and that the conversion process is nearing an end.”
Morrisons said pre-tax profit this year is now likely to be at the lower end of its £50m to £150m guidance.
Sir Ken skilfully avoided articulating in any meaningful way where all the profit he used to make had gone but was helped out in diagrammatic form by his new finance director Richard Pennycook with an “operating profit bridge” (see diagram).
The patriarch was more interested in the end result of “the most ambitious store conversion ever undertaken in this country”. He proudly replayed his firm’s Sainsbury’s-esque television campaign, voiced by actor Sean Bean, that emphasises quality as well as value.
A new word had also crept into the Bradford firm’s hardline lexicon. “Optimisation”. This, the next phase in the post-conversion era for Morrisons will be marshalled by Pennycook. It will in broadbrush terms — and that was all that was on offer — involve making the cost base match a 360- store, £12bn turnover business.
There are likely to be substantial job losses. The retailer is already negotiating with the unions over the closure of three former Safeway depots in Bristol, Aylesford and Warrington and the potential for several thousand redundancies. To his credit, in a roundabout way Sir Ken has addressed some of the City’s concerns.
Thanks to deputy chairman and former Next man David Jones, it now has a clutch of independent directors — he’s not looking for anymore. The retailer has even appointed a new head of investor relations.
No details of the KPMG investigation into the business’s profitability were forthcoming. They will have to hang on tight for another six months as Pennycook is not due to deliver the “optimisation vision” until the full year results presentation in March.
The need for “optimisation” is apparent as conversions aside – currently continuing at a pace of four a week – sales growth at the core Morrison estate is slowing, with like-for-like sales down 5 per cent over the last 12 weeks.
The retailer blamed the one off impact of competitor openings of divested stores but admitted that some its best store managers had been diverted to lick former Safeway stores into shape, meaning their own branches were neglected.
By the end of this year the refurbishment process will be complete and it will have 360 supermarkets to do its damnedest with. The stores will be singing off the same hymn sheet, as the Safeway system is switched off in November. “We have always been a sales driven business, there can be no greater concern,” said Sir Ken. “We are entering a slightly less demanding phase with the refurbishment process nearly finished giving us room to concentrate on sales.”
