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Morrisons back from the brink

The supermarket chain has made a strong recovery from a near-death experience. How did CEO David Potts do it? Alice Gråhns reports.

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David Potts: he's right to stick to the knitting

The supermarket chain has made a strong recovery from a near-death experience. How did CEO David Potts do it? Alice Grhns reports.

We're always hearing that chief executives "need silly money because there is an international market for their services",says James Moore on Independent.co.uk. If that's really true, then David Potts, the boss at retailer Morrisons, "should get poached". Many other company bosses who earn far more "won't get close to what he has achieved".

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Morrisons, Britain's fourth-biggest supermarket, appeared to be in "terminal decline" not too long ago. Now it has just unveiled a 40% rise in first-half profits, and sales at stores open at least a year "showed a nice improvement".

This takes its run of growth to seven consecutive quarters, "an impressive feat given the UK's brutal and unforgiving food market", says Ben Marlow in The Daily Telegraph. So how did Potts, who arrived in 2015, rectify "a series of strategic missteps under misfiring former boss Dalton Philips"? He "kept his head down, and embarked on some old-fashioned, simple retailing". Prices havebeen slashed and thousands of workers hired to bolster customer service.

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Reviving the Safeway brand looks an "inspired" decision, as it will allow own-label products to be distributed in more than a thousand convenience stores and newsagents. Potts has also struck deals with Amazon, McColl's and Ocado. The group's stick-to-your-knitting strategy contrasts starkly with rivals' "frantic" takeover sprees in response to the "onslaught" by Aldi and Lidl.

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The "fix, build and grow" strategy isn't just paying off in the retailer's bottom line, says Martin Waller in The Times. On other measures, too cash generation, the reduction of debt and the disposal of unwanted properties "Morrisons is ahead".

The twin deals with Ocado and Amazon mean Morrisons exists on the internet as both branded retailer and wholesale supplier, says Lex in the Financial Times. With only 6% of the UK's online grocery market, "Morrisons can afford to experiment". Competitors with larger web footprints are quaking in their boots after Amazon's purchase of Whole Foods Morrisons' tie-up with the US retailer provides "a shield".

Some reckon Amazon could buy Morrisons, but that seems unlikely. As a result, the current valuation of 20 times forward earnings induced by takeover speculation seems lofty. Morrisons would need to "leave its recovery phase far behind to warrant its steep share price."

A cliff-hanger in Toshiba's soap opera

"If insanity is doing the same thing over and over again yet expecting different results, there is something mad in Toshiba's long-running sale of its memory-chip business," says Jacky Wong in The Wall Street Journal. After naming private-equity firm Bain Capital as the preferred bidder for its chip unit in June, Toshiba got embroiled in several legal disputes.

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Three months later, it is back with its original suitor. Yet "an actual transaction is hardly closer than it was three months ago". Western Digital, the other half of Toshiba's memory-chip joint venture, still claims it can block any sale by Toshiba that it doesn't like. It has made a competing offer in partnership with private-equity firm KKR.

The reason for this "long-running soap opera", says Quentin Webb on Breakingviews, is that "the business is a hot property", but too big for a single buyer to digest on its own. Lots of vested interests are therefore "jockeying for supporting roles". Toshiba has promised to sign a deal by month-end, and after months of drama, reports suggest the mooted price has moved up around a tenth to 2.2trn ($20bn).

Ignore the drama and just keep an eye on the money, says Tim Culpan in Bloomberg Gadfly specifically what Toshiba gets. "At around 2.1trn, the company will have failed (again), but if it can extract a much higher price, then Toshiba's board might finally be seen to be doing its job."

City talk

"James Murdoch will be none too pleased," says Alex Brummer in the Daily Mail. 21st Century Fox is bidding £11.5bn for the 61% of Sky that it does not already own. But Culture and Media Secretary Karen Bradley has overruled regulator Ofcom and is preparing to refer the deal to the Competition & Markets Authority (CMA), citing "media standards".

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The CMA is already looking at the deal from another angle the potential impact on competition. There is now a chance that chief executive Murdoch may decide "the hassle of dealing with Britain's political pygmies has become too much and pulls the offer".

Judge Simon Wolfson's mood by his willingness to run share buybacks, says Nils Pratley in The Guardian. The Next chief executive turned them off in March "because there was too much uncertainty in the air". But now he's willing to return to them.

A 1% tickle to his profit forecast for the year has provoked a 13% rise in the share price. "Another reason for investors' enthusiasm may be the fact Wolfson gives them useful information." An analysis showed that its stores would generate £1bn of cash over a decade even if like-for-like sales declined by 6% per year. "Such analyses should be compulsory for mature retailers." Investors deserve to see the maths.

Support services and construction group Interserve says on its website that it wants to "redefine the future for people and places", notes Alistair Osborne in The Times.

It has just done so for investors by halving the share price in a day. New chief executive Debbie White, who arrived a fortnight ago, has issued the group's fourth profit warning since May 2016. Meanwhile, Interserve has redefined the future for White, too: the value of the shares she was recently awarded has also halved, "a point she'll no doubt make to the pay committee".

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