New management and trading statement examined in depth
In the 15 weeks to May 15:

  • Like-for-like sales up 5.4 per cent, up 2.3 per cent excluding fuel.

  • Converted Safeway stores trading up 12.3 per cent above last year

  • Like-for-like sales for core Morrison's stores up 1.9 per cent but down 2.3 per cent excluding fuel.

  • Unconverted Safeway stores total sales growth of 4.4 per cent, 3 per cent excluding fuel

Morrisons' AGM today was overshadowed by two specific issues - the lack of non-executive directors on the board and the decline in Morrisons' performance over the past twelve months.

Shareholders have openly criticised the management, in particular the tight control the retailer's chief architect, Sir Ken Morrison, appears to have.

Pundits speculated that there would be a shareholder revolt and while none of the motions were overturned at the meeting, 10 per cent of voters opposed Morrison's re-election as a director. Nearly thirty per cent voted against the approval of the board of directors remuneration report for the year ended January 30.

Morrisons' management team clearly anticipated shareholder unrest and attempted to head it off with a pre-AGM trading statement. In seeking to address the rash of profit warnings it has been forced to issue, Morrisons admitted that it was unable to confidently forecast its financial performance for this financial year with the assurance that it wouldn't have to restate predictions later.

Chief executive Bob Stott said that the retailer's financial team had suffered from a lack of resources after Safeway's finance executives were let go.

Stott said: 'The financial team in terms of resource was not up to the task. We did not have the right number in resource terms. We didn't react to replace the Safeway team quickly enough.'

KPMG has been brought in to fill the breach and Morrisons could be in a position to issue a forecast by the second half of October.

While the problem of finance resourcing is resolved, the retailer has also pledged to speed up its store conversion programme from three to four a week. This will be accelerated further to eight a week from August.

So far, Morrisons has converted 112 stores, but the management is painfully aware that the remaining Safeway-branded portfolio is a financial millstone around its neck and is anxious to integrate it into its IT and logistical systems. It hopes to convert another 120-odd stores by November.

The retailer has said it will probably switch a number of stores over to its systems before they are re-branded, so that the cost savings of not having to run two parallel infrastructures can be made as soon as possible.

The main gripe shareholders have is the apparent lack of independent directorships on the board. In what can only be seen as a message to shareholders that he is prepared to distribute control more widely, Sir Ken Morrison has stepped down from the operational board, with chief executive Bob Stott taking up its chairmanship.

Additionally, deputy chairman David Jones was able to name the incoming group finance director as Richard Pennycook, who holds the same position at the RAC after holding a number of positions in leisure and retail companies, including Laura Ashley and Allders.

Jones is also on the look-out for four non-executive directors, admitting that he already has a shortlist and that the appointments would be declared in a matter of weeks rather than months.

He is looking for candidates that show a spread of skills and experience, but who are known in the industry. Jones is keen to appoint women as well as men to the board.

Analysts were dismayed that Morrisons had declined to give any indication of what this financial year was likely to hold, but on the whole they were sanguine and prepared to keep a long-term view.

Seymour Pierce head of equities Richard Ratner thought that the retailer would double its pre-tax profit once it completed the conversion programme.

Numis analyst Steve Davies echoed Ratner's misgivings about the lack of forecasting information. He said: 'The current information vacuum is not going to help the share price in the short-term, although given the muted reaction to the last profit warning, then it is hard to see what is going to make the price drop again. On the positive side, Morrisons has substantial freehold assets, potential for management change and the chance to grow profits significantly in 2006/2007.'

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