MFI profits hit by botched IT system

Furniture group MFI has taken a massive hit on its profits as a result of the chaos caused by the botched rollout of a new computerised supply chain system last year but claims the problems have now been "stabilised".

Technical problems during 2004 with the installation of the system, based on various technologies including SAP's R/3 software, led to inventory shortages and incomplete orders being sent out to customers.

MFI revealed the cost of making technical changes to the system and extra customer deliveries and compensation reached £17.1m, with an additional "exceptional" £20m charge on the book value of the IT system.

That threw MFI's UK retail chain £46m into the red compared to a £41.7m profit last year. Only a strong performance from Howden Joinery kept the overall MFI group in the black, although profits fell sharply from £117.9m to just £25m.

MFI CEO John Hancock said the technical problems proved to be worse than initially thought with "critical" issues around the quality of the data and inaccurate inventory forecasting.

MFI's finance director and COO were both sacked as a result and Hancock took personal responsibility for resolving the issues.

He said the MFI board is now increasingly confident that the supply chain systems are now stabilising after coping with the peak autumn and Christmas winter sale period.

"We have improved data quality, increased data processing capacity and rewritten critical software components - this has resulted in more stability although there is still more work to do in these areas during 2005."

He warned that further work needs to be done with the peak period continuing through the first half of 2005.

Hancock said in a statement: "2004 was a poor year in UK retail with performance severely impacted by the issues around the new supply chain systems. We are making progress in addressing these issues and 2005 will be a year of stabilisation and recovery in UK retail with further growth in Howden Joinery."