Asda set to shock City with 400m pounds write-off

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ASDA will shock the City tomorrow with write-offs totalling pounds 400m, a much higher figure than previously supposed.

Final results from the struggling superstore group are likely to reveal a halving in pre-tax profits from pounds 168m to around pounds 85m. But most eyes will be on write-downs and property revaluations that will see the group plunge to a bottom-line loss of more than pounds 300m.

Analysts had been expecting Archie Norman, Asda's new chief executive, to disclose exceptional charges of around pounds 200m. The final total is expected to be twice that. The final dividend is likely to be cut from 2.95p to 0.85p, giving 2.1p for the year compared with 4.8p last time.

Mr Norman is believed to have taken the opportunity for a big clear-out with his first set of finals.

The provisions will include:

pounds 200m from a property revaluation of the 60 stores purchased for pounds 700m from Gateway in 1989 - the group now accepts it paid too much;

pounds 79m declared at the interim stage to cover redundancy and restructuring costs;

pounds 121m to cover further restructuring within the group, including Allied Maples, its carpet and furniture chain.

Asda had previously resisted calls to reappraise its property portfolio. But Mr Norman is keen to put the group on a stronger footing and to win back City support.

Mr Norman, who before joining Asda was part of the Kingfisher management team that transformed Woolworth, is likely to stress that:

The company is grasping the nettle and finally getting to grips with its balance sheet;

Debts of pounds 700m when he arrived six months ago are down to pounds 670m and falling;

Asda will raise pounds 73m cash from the sale of its 25 per cent stake in MFI when the furniture retailer comes to the stock market shortly;

Trading conditions have improved slightly since the beginning of the year, although the end of the recession is not in sight;

A new senior management team is in place;

The group's first discount store, Dales, aimed to hit back at Gateway's successful Food Giant chain, is going reasonably well and more are planned

Shortly after Mr Norman took over, 350 jobs were shed from the group's head office in Leeds. Since then, 500 superstore managers have been sacked, and 300 jobs have gone from Allied Maples.

Asda has also scaled back its programme of new superstores. Mr Norman is believed to consider that the cost of a new site, currently pounds 30m, is better spent on refurbishing existing stores.

The size of the write-downs will further depress an already blighted high street. Gateway, Asda's close rival, is rumoured to be having a torrid time while the property revaluations could even hit stronger operators like Sainsbury and Tesco.

The superstore chains have been accused by some analysts of valuing some superstores too highly. The write-downs will also raise questions about the worth of some property groups.

(Photograph omitted)

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