Jeremy Warner's Outlook: Sir Ken's Safeway excuses start to wear thin

Wolfowitz ahoy; Corus resurgent
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The Independent Online

Eight years into government, and Labour is still shamelessly blaming the Tories for anything that goes wrong. My goodness, what a mess the previous inhabitants of Downing Street must have left behind. The clean-up is nothing if not a 20-year job. There are echoes of this approach to spin in Sir Ken Morrison's seemingly endless stream of profit warnings, which more than a year after the merger with Safeway, he persists in putting down to some new skeleton that has suddenly come rattling, unexpected, out of his marriage partner's cupboard. The excuse is wearing equally thin.

Eight years into government, and Labour is still shamelessly blaming the Tories for anything that goes wrong. My goodness, what a mess the previous inhabitants of Downing Street must have left behind. The clean-up is nothing if not a 20-year job. There are echoes of this approach to spin in Sir Ken Morrison's seemingly endless stream of profit warnings, which more than a year after the merger with Safeway, he persists in putting down to some new skeleton that has suddenly come rattling, unexpected, out of his marriage partner's cupboard. The excuse is wearing equally thin.

Was there no due diligence? Why, yes there was, the company admits, though it is unable to say just how due and diligent it had really been. And did Wm Morrison Supermarkets not know that Safeway accounted for supplier discounts in, shall we say, a less conservative way than Morrison's, booking them when they were agreed rather than when they were delivered? Well, er, yes, they knew that too. So how come there's now another £40m to write off against profits in respect of these discounts, after the £180m of charges for the same thing disclosed last July?

There's no adequate explanation for this other than the obvious - that a year after the event, Wm Morrison still hasn't managed to get to grips with what's going on in the Safeway business. The truth is that the Safeway acquisition has been badly botched and mishandled, as many said it might be before it was made. Sir Ken bought a pig in a poke; of that there's now no doubt. But rather than helping it out of the mire he seems so far only to have dug it further in. There's still reason to believe the Morrison team might eventually succeed, but it's becoming harder all the time. On top of everything else, Morrison complains of an "increasingly competitive marketplace". Did Sir Ken really think his rivals were going to sit back and cheer him on?

Martin Ackroyd, the finance director, would surely have gone by now were it not for the fact that he's virtually family. You also have to wonder about the two non-executives appointed at the time of the takeover as a sop to City corporate governance demands but only acceptable to Sir Ken because they are both Yorkshiremen. Where have they been all this time? More than a year after the takeover, and Morrison still doesn't seem to understand the business it has bought. Thank goodness for its value as a property play, for without that Sir Ken really would be in trouble.

Wolfowitz ahoy

The way things are going, Donald Rumsfeld might soon find himself appointed Secretary General of the OECD, the World Trade Organisation, or perhaps president of the Kyoto protocol. Slowly but surely, the Neo Cons of the US Administration are being put out to pasture, and in what looks suspiciously like two fingers up at the international community, they seem to be turning up in international organisations like the United Nations and the World Bank.

The appointment of John Bolton, an ultra-conservative who as under secretary for arms control and international security was notorious for his scepticism about international diplomacy, to represent the US at the United Nations, was regarded as insulting enough. Now Paul Wolfowitz, the intellectual architect of the Iraq war and the chief cheerleader for the idea that the Muslim world needs to be "liberated", has been nominated as president of the World Bank. The appointment is widely regarded in the development community as little more than a bad joke.

Yet though Mr Wolfowitz might seem unqualified and ill-fitted for the post, there is another way of looking at it; if he can engage the President on development issues, then he might actually achieve something in an organisation where progress has been thin on the ground. As a Clinton nominee, the present incumbent, James Wolfensohn, was regarded with contempt by the Bush administration and was therefore quite incapable of exercising any influence. Mr Wolfowitz may have messed up in Iraq and alienated the Europeans in the process, but he still has the President's ear, and with the administration now in more conciliatory mood, he has as good a chance as any of getting movement on the development agenda.

America never does anything that isn't filtered through the prism of American interest, and perhaps the more interesting story is less the irony of putting these arch conservatives into liberal thinking, international organisations, as the clear-out of policy advisers responsible for the mess in Iraq. Another of Donald Rumsfeld's senior aides at the Pentagon, Douglas Feith, described by General Tommy Franks as "the dumbest f***ing guy on the planet", was ousted a couple of months back. To put these hawks into international organisations might be regarded as suitable punishment for their misdemeanours, something akin to being sent to Siberia.

Yet there is no reason to believe Mr Wolfowitz is being sent in on a mission to destroy the World Bank. Neo Con that he is, he'll have gone completely native within six months. The organisation has that effect on people. Resistance is pointless. Ronald Reagan began his term with a similarly sceptical attitude to the World Bank as the present administration. Development aid is not just wasteful; it is positively harmful. But he mellowed once he'd got his own man in the chair.

The biggest challenge Mr Wolfowitz faces is that of finding a new purpose for the bank in an age when lack of access to development capital cannot any longer be regarded as a root cause of poverty. The world is awash with the stuff and it doesn't need the World Bank to provide it. With his self-help philosophy, Mr Wolfowitz ought to be rather good at seeking out this alternative role. Jobs for the boys? It was ever thus, but it is possible to imagine much worse candidates than Mr Wolfowitz. Anyone for an Irish rock star?

Corus resurgent

The Anglo-Dutch steel maker, Corus, used to lose so much money that the old joke had it they were shovelling five pound notes and not coking coal into the blast furnaces of South Wales. Now it's Phillipe Varin, the suave Frenchman brought in to rescue British and Dutch pride two years ago, who's doing the laughing.

M. Varin instituted something called the restoring success programme which cut a further huge swathe through the company's UK steel-making operations. So far this has improved the bottom line by £215m a year and put a couple more noughts on the end of the chief executive's bonus. But though M. Varin has no doubt done a sterling job, it is mainly the Chinese he has to thank for his good fortune.

Steel prices have soared thanks to the phenomenal rate at which the Chinese economic miracle is stoking up demand and sucking up surplus steel-making capacity. The cost of iron ore has gone through the roof as well but so far prices have managed to keep one step ahead, hence the red-hot flow of profits.

How long this can last is anyone's guess. Much depends on how quickly and effectively the Chinese build their own steel-making plants to meet domestic demand. The Corus line is that the trading environment will remain favourable for the next few months but the outlook becomes more uncertain the further the year progresses.

For now, however, the party is in full swing. Steel makers are all throwing off cash like crazy - enough for Corus to promise its first proper dividend - and the talk is of consolidation. For a relatively fragmented industry squeezed between a handful of dominant raw material suppliers and an equally small number of big customers, that makes sense. But the industry needs to move fast while it still has the currency to pay for acquisitions. M. Varin fancies himself as a buyer and not a seller, even though Corus still ranks only eighth in the pecking order of world steel companies. At £2.5bn, it is not quite the steal it was two years ago when the shares bottomed at 3.75p. Yet Corus would still represent little more than a bauble for the world's biggest steel maker, Lakshmi Mittal, to hang from the mantelpiece of his £70m Kensington Palace mansion.

jeremy.warner@independent.co.uk

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