Supermarket Sweep

How Transition from PLC to PE Ownership is giving Morrisons a Fresh Start

When UK supermarket giant Morrisons switched from PLC to PE ownership, the spotlight was cast on the treasury team as the new structure took shape. Luke Harris, seconded from Deloitte as Interim Head of Treasury, Morrisons, talks to TMI about people, processes, and technology.

When big changes are underway, it pays to be a good communicator. This has certainly been the guiding value for the interim treasurer of UK top-five retail supermarket Morrisons. The path to successful change has been steep.

But Harris, seconded between July 2023 and December 2023 from his Assistant Director, Treasury Advisory role within Deloitte’s Performance Improvement Team under Financial Advisory, has called upon a broad skill set that places people on an equal footing with processes, governance, and technology. And by building strong foundations upon these pillars, he believes the progress of Morrisons’ permanent treasurer, who has since taken up position, will be sustained for years to come.

Morrisons, its 497 stores, more than 100,000 employees and 9.1% share of the UK market, de-listed and transitioned to PE ownership back in October 2021. The £7bn deal saw transfer of the 125-year-old Bradford-headquartered grocery giant from the public sphere into US-based private equity firm Clayton, Dubilier & Rice (CD&R).

At the time of the deal, Terry Leahy, a former chief executive of the UK’s largest supermarket chain Tesco, and a senior adviser to CD&R, said the plan was “not just to preserve the company’s many strengths, but to build on these, with innovation, capital and new technology”.

It’s a mode of thinking that has seen Morrisons’ treasury function and team elevated to a key advisory role for the business, offering guidance on financial matters ranging from the operational to the strategic, all the while discharging its ‘business-as-usual’ responsibilities in a highly competitive and volatile market.

Experience necessary

Although a Deloitte Treasury Advisory and Consultancy specialist, Harris has first-hand experience of corporate treasury and finance within the Eversholt Rail Group, a firm that leases rolling stock to the UK railway industry. It’s know-how that has proven invaluable from the outset.

With just a matter of days to grasp the essentials before hand-over by the departing incumbent Head of Treasury, and the FD (to whom Harris reported), the phrase ‘baptism of fire’ springs to mind.

But armed with ready skills and knowledge, a strong supporting cast both within Morrisons’ new owners, and its existing employee base, as well as the full resources of his Deloitte colleagues, “having myriad varying topics thrown at me from all angles in the first couple of weeks” did not faze him.

Those ‘angles’ were indeed diverse, covering, among many areas, cattle financing (Morrisons is committed to vertical integration of some core supply chains), physical cash collection services, FX, energy markets (primarily power, gas and diesel), and SCF. Having to understand and respond to each with the professionalism of an old hand is, of course, all part of the treasury team’s remit.

Although overseeing all the usual day-to-day treasury activities, to assist the effort here, the front-office team currently employs three experienced treasury accountants, alongside a recent graduate appointee. A further member has joined as a result of the acquisition by Morrisons in 2022 of McColl’s Retail Group (a UK-wide neighbourhood retailer with a network of 900 stores). This set-up is complemented by a treasury back-office team and, unusually, a separate cash team that concentrates on FP&A and the needs of longer-term liquidity and forecasting.

Challenge of change

While cash flow management has become a priority for most treasurers today, the main challenges and opportunities for the Morrisons team currently stem in part from its shift from PLC to PE ownership, and as a highly leveraged operation. This serves to intensify the spotlight on treasury, which, states Harris, is continuously required to seek out operational efficiencies at every turn. From people and processes, to structure and technology, he says “every opportunity to automate, simplify, and enhance the treasury activities within the business” is on the cards.

The PE environment, notes Harris, “creates an increased pressure on searching for innovating solutions and banking products, and finding appropriate avenues to diversify cash investments – for us it has also meant finding enhanced ways of supporting SCF arrangements”.

This need forces creativity. The supply chain area, for example, not only encourages stronger lines of communication with suppliers, enabling a deeper understanding of needs around terms, for example, but also of working with and educating banks to support the SCF programme.

Treasury at the centre

At a general level, Harris says the move to PE has helped develop a culture of transparency and communicativeness across the business. From a treasury perspective, this has not just been about avoiding becoming siloed but also about encouraging active movement towards becoming a strategic adviser to the rest of the business.

“The initiative to drive new operational efficiencies, and work closer with internal and external stakeholders, makes us better treasurers,” comments Harris. Of course, for retailers such as Morrisons, optimisation relates not just to finding new sources of liquidity and funding but also to managing the huge volumes of physical cash still handled at checkouts, and the merchant acquirer services facilitating millions of daily card and online payments.

These are being addressed, but making significant changes in a large organisation is rarely an overnight job. Indeed, ensuring optimal processing from end-to-end means the effort undertaken by the treasury team with other functions, especially ensuring each function understands how the other works, is a “work in progress”.

But positive change is very much in evidence as the various functions across the business gain a deeper understanding of how market changes can best be confronted.

With a depth of personal experience across a range of MNCs and global treasury functions under his belt, and the knowledge and experience of Deloitte colleagues also on tap, Harris is able to summon a view of best practice and translate this into the Morrisons’ realm to navigate through several challenges and complex matters.

In a supermarket, lines of responsibility are usually structured around different product categories. In Morrisons, this may be reflected by such teams covering groupings including ‘eggs and fish’, or ‘beer, wine and spirits’, and ‘own-brand goods’. Divisions of this nature necessarily create their own specialist teams for activities including procurement and manufacturing, but they also impact areas such as forecasting and finance.

“All of these divisions have to be advised by treasury, but the diverse nature of the goods they are buying demands that this is done at an individual level,” notes Harris. “The requirements of the procurement of salmon, for example, are very different from those of the procurement of wine from various locations, or for the procurement of furniture.”

It means robust and dynamic policies are essential, alongside market-led strategies for each. These must be capable of supporting areas such as delegation of authority and segregation of duties, necessitating the reshaping of existing policy and controls to reflect Morrisons’ PE configuration, and the goals of its new owners.

Team talk

The understanding and governance of revised policy has seen the treasury team working closely with these different divisions. In the past, Harris notes that treasury had been somewhat siloed. As soon as he arrived, he knew this had to change. His approach has been simple yet effective. “When you get up from behind your desk and start talking to people, you begin building a solid understanding of what they do and what they need from treasury, and vice versa,” he explains.

It helps that the treasury team being built from existing and new personnel has been able to take over the day-to-day running of operations to a large extent. However, the team has also had to find time to invest in managing the strategic elements of Morrisons’ transition while seeking out areas for improvement, and instilling a sense of ‘best-in-class treasury’ into the team. Harris’ aim, of course, had from the outset been to have the groundwork completed, and everyone up to speed, by the time the new treasurer arrived.

In the meantime, regular meetings with finance leaders, and attendance at committee meetings for treasury, and energy planning, for example, give Harris direct contact with the FDs and the CFO. This has given him the confidence that senior management both understand, and are open to and supportive of his proposals for treasury’s deeper integration within the business.

Review and revise

A major part of Deloitte’s Treasury Advisory remit is reviewing and refining operating models, tackling structure, people, processes and technology. Harris’ secondment to Morrisons has seen him venture into all of these areas. “Part of the organisation’s future ambition is to automate as many aspects as possible,” he explains.

Previously, a great amount of manual processing was in evidence. In terms of processes, every activity has to be considered, with a review of all interdependencies across the business to ensure optimisation through the support of appropriate standard operating procedures.

Resource-wise, Harris has been acutely aware that the treasury team has been under pressure in its day-to-day activities. It meant that stepping back and taking a strategic view of the function’s connection with the rest of the business has, at times, been more challenging than expected. However, the recruitment drive is well underway.

It ensures that the ongoing policy and strategy optimisation discussions, and the push for full transparency between the different divisions, is moving Morrisons towards “goal congruence throughout the business”. And when each function and division understand the shared goals, it becomes easier to identify and implement changes for the better.

A key part of this aim, from a treasury perspective, is education. Applied to FX hedging, for example, the business functions must understand the nature of FX, why they need to provide treasury with accurate forecasting data, and also appreciate that frequent and transparent communication of currency-related activities is essential if treasury is to provide optimal advice.

It is apparent that many of the changes to date are people-related as much as they are about technology. There has been a clear focus on internal relationship building, but external partners have also been important agents of change.

The team members are in frequent conversations with relationship banks, to gauge a full understanding of the innovative products available within the marketplace. Recent conversations have included products relating to cash sweeping and pooling, virtual accounts, and several other solutions designed to increase operational efficiency, particularly with respect to liquidity. 

Sparking ideas

“As part of my press for operational efficiency, I’m trying to provide guidance pertaining to the mindset of the team,” states Harris. “Instead of thinking of their jobs as a series of repetitive and unchanging tasks, I want them to consider how to streamline, simplify, bundle, eliminate or automate processes. By doing so, they will have more time to focus on the strategic elements of the role.”

The only issue, he admits, is the current lack of time to execute these ideas. “It’s why we’re building the team up to full capacity, and why I’ll be around a while after handover to the new treasurer in my capacity as Deloitte consultant, helping give the ideas traction.”

It has not all been about bringing in new people to drive change. The input of existing Morrisons personnel has been essential, notes Harris. Indeed, he has included them in meetings with banks, rating agencies and insurers, for example, providing all with an educational opportunity to kick-start a creative process derived from their own experiences of these processes. With subsequent brainstorming sessions aimed at unlocking these ideas, it taps into diverse and valuable thinking that had not previously been explored.

While bringing more ideas to the table is fully endorsed by Morrisons’ senior management, Harris has joined at a time of huge change and has had to learn how the business works before delivering his own proposals.

One of the approaches he uses is the kaizen philosophy. This is a ‘lean’ methodology employed by many industrial, and now technology, firms that aims to continuously improve all functions and involve all employees. Kaizen takes an incremental – as opposed to ‘Big Bang’ – approach to development. Not least of Harris’ reasons for kaizen’s adoption is because it enables progressive empowerment of the reconstructed team – especially the newcomers – that will be running treasury long after he has moved on.

With the encouragement of a mindset that is open to questioning and revitalising processes that ‘have always been done this way’, Harris feels that the scene is being set for the long-term viability of a dynamic treasury that enjoys deeper integration within the business.

Many proposals for change that he has put forward are already being rolled out, including rewriting treasury policy. It’s fair to say that the current level of activity on his watch is intense. And with one senior treasury position reopened after the original candidate withdrew, his contract was extended to the end of 2023 to ensure continuity for the incoming head of treasury.

Treasury respect

Morrisons is beginning the next chapter in its long history. New owner CD&R has already brought in much of its own expertise to reshaping this UK retail giant in the face of stiff competition. It’s acquisition and integration of McColl’s will enable it to open a number of smaller Morrisons Daily stores, for example. 

Having called upon the services of Harris to provide focused know-how in the treasury realm, the next phase of the Morrisons’ story will be one where this function is known and respected across the business as a trusted adviser.

For Harris himself, his brief time at Morrisons has been a steep learning curve, complementing and drawing upon previous treasury experience. Managing change, forging a new team, devising policy, chairing meetings, consulting with senior management and owners, and building bridges with the rest of the business have all been part of a challenge that he has met with conviction.

“Being thrown in at the deep end forces and motivates you to learn and get on with finding the right answers,” he muses. “It’s not about knowing everything from day one, but knowing who to ask and then using and sharing that new understanding to help the business progress.”

With his efforts to date serving to build stronger performance and relationships for Deloitte, Morrisons and CD&R, Harris does not rule out the possibility of a return one day to the role of treasurer. With his permanent replacement now in position, Morrisons has had the benefit of a more than capable interim treasurer steering it towards a future under PE ownership.