THE PROBLEMS at Booker, the struggling cash-and-carry group, reached new depths yesterday when the company issued the latest in a series of profits warnings, scrapped its final dividend and warned that it was in danger of breaching its banking covenants.
Booker shares lost almost half their value on the news, closing at a 16-year low of 64.5p.
The shock warning followed a strategic review by the new chief executive, Stuart Rose, who joined in September. He blamed weaker-than-expected sales at the core cash-and- carry business, lower margins and higher costs related to distribution changes.
In an obvious swipe at former management, Mr Rose said previous expectations of the group's prospects were "clearly overoptimistic".
Adrian Busby, the head of Booker's cash-and-carry chain, has left the company with immediate effect. He was on a two-year contract and will be in line for compensation of up to pounds 320,000. Mr Rose will take on direct responsibility for the division.
Mr Busby's departure means Booker now has just two executive directors, Mr Rose and John Kitson, the finance director. Analysts said that if management resources were not so thin, Mr Kitson's position would also be under threat.
Mr Rose denied that he had bitten off more than he could chew by taking on Booker. "It's certainly a bigger bite than I thought, but I think we can make a go of it," he said.
He admitted that Booker's management team was now "stretched" following the latest boardroom departure. The company is now searching for new directors, he said.
Analysts reacted with despair to the latest warning, which forced them to reduce their full-year profit forecasts from pounds 65m to pounds 22m. "It is pretty extraordinary to produce this warning ahead of the company's peak [Christmas] trading season," one analyst said. "The final figures could be even worse if Christmas falls below expectations."
Another analyst said: "This is a disaster. It just smacks of no management controls, no idea of what sales figures are doing, nor what costs are doing."
In response to the growing crisis in the company, which was spurned in merger talks by both Somerfield and Budgens in the summer, Mr Rose plans to dispose of the wholesale food business. He will also examine the role of the food service division, which supplies catering businesses. Overheads will be significantly reduced with the closure of the head office in London. This will affect up to 50 jobs, although there will be redundancies across the company. Investment in Booker's international operations will be stopped for the foreseeable future.
The collapse of Booker's share price means the company is now worth only around pounds 150m. But analysts said they regarded a bid as unlikely until it is clear that Booker has begun to resolve its problems.
Outlook, page 19
Booker's Tale of Woe
7 January 1998: Booker's first profits warning of the year.
17 March: Charles Bowen, chief executive, resigns after second profits warning.
17 August: Somerfield reveals it is in merger talks with Booker. It later pulls out amidst rumours of poor trading.
7 September: Budgens says it is in talks with Booker about a reverse takeover. These talks also break down as Booker shares continue to slide. Booker denies there are problems with its banking covenants.
28 September: Stuart Rose, the former Argos boss, is appointed chief executive, heralding the departure of long-standing chairman Jonathan Taylor.
10 November: Another profits warning is issued, and the head of the cash-and-carry chain leaves. The full-year dividend is scrapped. The company admits that it is in prospective breach of its banking covenants.
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies