Morrison outlines plan to cut costs as profit falls dramatically

By Ahmed ElAmin

- Last updated on GMT

Related tags Cent Sainsbury's Tesco Asda

A fall in profitability by £313m (€452m) has pushed management at
Wm Morrison to come up with a three-year recovery plan, placing
further pricing pressure on suppliers.

The profit fall is due to Morrison's £3bn takeover of rival Safeway, a move which has turned out to be a hard dish for the company to swallow.

The profitability fall could mean further pricing pressure on the company's food suppliers, who have seen their margins decline as retailing power increases in the market. The UK's competition regulator is currently investigating that buying power to see if it is unfair.

The company yesterday announced plans to boost margins, reduce staff and save £60m on costs.

Morrison is is in a vicious battle for market share with the top three retailers in the UK.

Morrision holds a 12.5 per cent share of the UK's retail market according to the latest figures released yesterday by TNS.

Tesco holds a 29.1 per cent share, Asda a 16.8 per cent share and Sainsbury's a 16 per cent share.

Morrison yesterday reported the loss for the 12 months to 29 January, a result of £374m in one-off costs and write-offs. Profit for the year totalled £61.5m compared with £332m a year ago.

Profit before tax, Safeway conversion and integration costs and goodwill written off, down from £332.2m to £61.5m.

The company's net debt currently stands at £1.15bn.

In other retailing news the Czech competition office this week cleared Tesco's purchase of 27 small supermarkets from German retailer Edeka. Tesco is the fifth largest retailer in the Czech Republic, with annual sales of about £532m. The company has 28 hypermarkets, six department sores and one supermarket in the country.Edeka announced it was withdrawing from the Czech Republic in November to concentrate on its domestic market.

Meanwhile Metro, another German retailer, revealed this week that its overseas business continued to grow in importance for the company. The retailer's overseas markets now make up 53.4 per cent of the company's sales in 2005. Eastern European and Asia operations contributed to the gains while the company's domestic market declined.

Metro is the world's third-largest retailer. Sales at the company's continuing operations rose by 4.2 per cent to €55.7bn.

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