Safeway spree set to dent Morrison profits

THE crisis at struggling supermarkets chain Wm Morrison deepened today, as it warned that profits could fall as low as £50m this year, while it grapples with the expensive integration of its £3bn-plus Safeway acquisition.

This is Morrisons' fifth profits warning since it doubled in size with the acquisition of Safeway almost 18 months ago.

Although it admitted a fortnight ago that it was unable to forecast reliable numbers, it has come under pressure from the Financial Services Authority to give the City more guidance.

Now the group says that while detailed forecasting work is under way, it believes profits for the year to the end of January 2006 will be between £50m and £150m, excluding tax, exceptionals and goodwill.

This is a dramatic reduction on the £320m operating profit made last year and significantly below analysts' already-reduced expectations of between £225m and £275m.

The group insisted that it did not regard today's statement as a profits warning - 'It's a clarification statement,' said a spokeswoman, although the market was in little doubt, and the shares dropped 4¾p to 182p.

The wide range of the forecast reflects the chaos at the Bradford-based retailer, which is struggling with separate Morrisons and Safeway IT and distribution systems. But, said analyst Steve Davies at Numis, 'At least it narrows things down a little.'

Morrisons said KPMG is working with the board 'to provide greater clarity' on the numbers. A further update will be given along with sales figures at the end of July.

The group's long-serving finance director Martin Ackroyd has already stepped aside and a replacement, Richard Pennycook from the RAC, has been appointed, although he will not start until October.

Morrisons held out the prospect of improved numbers once the current-year problems of the Safeway conversion are over, saying: 'The board reiterates that in 2006-7 there remains every indication that financial performance will improve significantly following completion of the conversion process and as the benefits of the actions taken to normalise the cost structure are reflected in improving margins.'

Numis is looking for £492.5m and said it saw no reason to change its forecast after today's statement.

Rumours of another warning from the food retailer swept through the City late yesterday, as it emerged that chairman Sir Ken Morrison's niece and her husband, Susan and Nigel Pritchard, had offloaded another chunk of shares, taking their stake below 3%. This follows their sale of 2.1m shares last year.

The Morrisons spokeswoman said the profits guidance was entirely unrelated to the share sale. 'Sir Ken does not talk trading with his family and never has done,' she said.