Safeway deal leaves supermarket in the red for first time ever

Published on Thursday 23 March 2006 13:58

MORRISONS, Britain's fourth-biggest supermarket chain, today posted its first ever annual loss.

The group lost 313 million in the year to January 29, as an additional 374.4m of integration costs from its 3 billion takeover of Safeway in 2004 took their toll and hiked the overall conversion cost to 623.4m.

In early January, the Bradford-based firm axed 1600 jobs through the closure of two distribution centres in Kent and Bristol, adding to around 900 previous redundancies.

And today's announcement of a three-year "optimisation plan" to boost margins and cut costs raised the prospect of further workforce cuts, although the company said the revival plan would save six million staff hours in store "from natural staff turnover this year".

Morrisons - which has six stores in Edinburgh and two in Livingston - set itself a goal of eliminating 30m of central costs, and a further 30m on its distribution network by 2009.

But analysts believe any cost savings will immediately need to be reinvested in price cuts to prevent rivals Tesco, Asda and Sainsbury's from distancing themselves further.

Chairman Sir Ken Morrison said: "The results we are presenting today are the outcome of an extremely challenging year for Morrisons. However, through this period of great change, we have built strong foundations for the company's future as a national retailer."

The extent of that was even more dire because before the takeover cost was factored in, profit at the pre-tax level slumped to just 61.5m, from 332.2m.

That was at the lower end of the 50m-150m guidance that Morrisons gave in a profits warning last June.

Morrisons, which was founded in 1899 and has grown from a single egg and butter stall to a group serving nine million customers a week and employing 123,000 people, said "much has been learned in the past 12 months", as it turned itself from a north of England-focused group into a national chain.

Turnover was flat and in line with expectations at 12.11bn, but the company vowed to strengthen margins and compete with rivals on price so it could boost sales.

Sir Ken insisted strong foundations were now in place, and that the additional 5.5m customers gained following the Safeway acquisition gave it the size and scale to compete further on price.

"The optimisation plan . . . lays out the steps we need to take over the next three years to enable the company to apply and adapt where necessary the original Morrisons model to the new, larger business.

"I am confident that the plan will quickly deliver significant improvements in performance."

The 378-store chain said that its share of the UK grocery market had "stabilised" at around 11.8 per cent and was feeding about one in nine of the UK population.

Analyst Tim Attenborough of Exane Securities said: "Last year was a lost year for Morrisons. This report was never going to be about last year's numbers. It's about what they can do going forward and the shape of the margin recovery."