Business Analysis: Sir Ken steps back as investor revolt hits Morrison chairman

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The Independent Online

Sir Ken Morrison has bowed to shareholder pressure and loosened his grip on Wm Morrison, but his concessions failed to persuade one in five investors to vote for his re-election as chairman at yesterday's annual meeting.

Bob Stott, the chief executive, will assume day-to-day control of a supermarket group in turmoil. In a mixed trading update yesterday that showed trading at its core Morrisons' estate is continuing to worsen, the group threw up its hands and relinquished all responsibility for its current profit forecasts.

Mr Stott admitted the group was "not up to the task" of handling its own finances after failing to fill all the gaps left by the departure of ex-Safeway staff. There was a mass walkout by staff at Hayes, Safeway's old headquarters, after Sir Ken made it clear from day one there was only one right way of doing things: Morrisons' way.

The chain, which has issued four profits warnings since July, has been forced to call in KPMG, its auditors and Safeway's former accountants, to help it complete "further detailed work" on its financial forecasts. It does not expect to get a grip on its finances until its interims in October. By then, Richard Pennycook will have joined as its finance director, the group announced yesterday. Mr Pennycook, 41, who was the finance director at RAC before its recent sale to Aviva, will be the first outsider to join the executive team in decades. He does not officially start until 1 October, leaving a four-month gap between his arrival and the departure of Martin Ackroyd, his predecessor who leaves this month.

The costs of running two distribution and IT systems have spiralled out of control after Morrisons' decision to accelerate the mammoth task of converting 260 ex-Safeway stores. So have staff costs, a problem compounded by the fact that the company has yet to drive sufficient extra sales from the converted stores to pay for extra bodies on the shop floor. The additional costs will not begin to come down until all 230 ex-Safeway stores slated for conversion have been rebranded, something the group hopes to complete by November.

Although Sir Ken announced his resignation from the group's operating board, handing the chairmanship to Mr Stott, it was clear yesterday that little doubt remains about who was pulling the ultimate purse strings. "He's stepping back a little and allowing me to operate as chairman of that board but as chairman of the company, of course he's still in charge," Mr Stott said. Analysts at CSFB wrote in a note to investors: "This will be seen very much as continuity rather than the sweeping change that some wanted."

The company shelved all talk of Sir Ken's successor until this time next year. "As long as I enjoy what I'm doing I'll carry on," said the 73-year-old chairman. Meanwhile, Mr Stott has pushed back his retirement from next year to spring 2007.

Sir Ken was unfazed by 10 per cent of the group's institutional investors voting against his re-election; 9 per cent opted to abstain. There was even greater disgruntlement about the company's remuneration report: 30 per cent of investors voted against it, while 10 per cent abstained.

David Jones, the deputy chairman and the sole independent director, dodged the issue of whether Sir Ken would take a non-executive role. "He's probably going to be full time," Mr Jones said. He also denied he was looking to recruit a replacement for Mr Stott.

The Next chairman, who has been instrumental in forcing through change at Morrisons, said it would be "weeks not months" before he named the four new non-executive directors the company has pledged to take on to comply with corporate governance guidelines. But this did not stop some shareholders from using yesterday's annual meeting to berate the board.

John Saunders, of the Local Authority Pension Fund Forum, which has £45bn under management, said: "Morrisons should show a greater degree of urgency over [the appointment of non-executive directors]." A shareholder representing two institutions called on the board to provide "further assurances that all areas of succession planning are being addressed".

Despite this, Morrisons was treated to an overwhelming show of support from the faithful army of private shareholders who had massed in the dingy surroundings of a hotel on the edge of Bradford. "Morrisons is my favourite company. It's my Manchester United," said Alan, a retired chemical engineer.

Sir Ken said he was "extremely touched by the number of messages of goodwill he had personally received". He quipped: "In the words of Mastermind, 'We've started so we'll finish'." He reiterated his intention to stay on to oversee the Safeway integration.

Gavin MacPherson, a private shareholder, said: "We're all terribly fond of Sir Ken. It was great to see him regaining his confidence as the meeting went on because he has been under a lot of pressure.He added: "I don't want to see him stay on like Margaret Thatcher until his time runs out."

Morrisons' enjoyed a slight reprieve on the trading front in the form of the first rise in underlying sales from the existing Safeway stores since Morrisons spent £3bn acquiring the chain 15 months ago. Against weak comparatives, underlying sales at the 118 stores waiting to be converted climbed 3 per cent, excluding petrol, in the first 15 weeks of its financial year. At its core estate, sales decline worsened to a 2.3 per cent fall. Like-for-like group sales rose 2.3 per cent, excluding petrol - a performance bettered only by Tesco out of the four big supermarket groups. Or so Mr Stott claimed.

Sales in the 108 converted Safeways have risen 12.5 per cent, with a 21.3 per cent rise in customer numbers. Average sales per square foot climbed to £18, putting the company on track to meet its target of £19.72 per square foot within three years of completing the deal. "We're a good, solid business; we're becoming match fit again," Sir Ken said.