Somerfield says bid talks at advanced stage

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Somerfield, the UK’s fifth largest supermarket, said on Wednesday that takeover talks had reached an advanced stage but that there still was no certainty of an offer as full year pre-tax profits rose 63 per cent.

The jump in profits to £53.1m ($93.4m) for the 53 weeks to April 30 was achieved despite challenging trading conditions, said Steve Back, chief executive. Like-for-like sales for the group fell 0.4 per cent, although profit margins remained broadly stable. In the first nine weeks of the new financial year, like-for-like sales had fallen a further 2.7 per cent.

However, the group also recorded an exceptional charge of £27m which consisted of losses from the exit from Kwik Save in Scotland, renegotiated lease provisions for closed stores, redundancies and the cost of depot rationalisation. Philip Dorgan, analyst at Panmure Gordon, said that the underlying profit of £26m should be noted by investors because Somerfield records exceptional charges every year.

Total sales for the year, including an extra week compared to the previous year, rose £161m to £5.2bn. The results included ex-Safeway stores acquired from Wm Morrison, which generated sales of £202.2m.

The group made an exceptional profit of £43.7m from property disposals.

“These are a good set of results that demonstrate the benefits of the continuation of our portfolio transformation strategy,” said Mr Back. “The like-for-like sales trend has improved in recent weeks and we will grow our market share further.”

The group said that it expected the tough trading conditions to continue, although it was still forecasting sustainable growth as the company shifted its sales balance from the Kwik Save brand to the more profitable Somerfield fascia.

The group is also searching for growth through convenience stores and garage forecourts. Since the start of the new financial year, the group has acquired over 130 new sites in Texaco and Fuelforce petrol stations.

Talks about a possible takeover with a consortium consisting of Baugur, Barclays Capital, Apax Partners and Robert Tchenguiz, the property entrepreneur, have hit problems following fraud charges against Jon Asgeir Johannesson, chief executive of Baugur. The company said it intended to press ahead with the bid despite the reservations of its consortium partners.

The second bidder is London Regional, the property group, which has teamed up with Nomura, the Japanese bank. No formal bids are expected until next month.

Despite the advanced stage of talks, Mr Dorgan said a takeover was “by no means a ‘no brainer’ for a VC [venture capitalist]” as the group has negative free cash flow, poor underlying assets and faces intense competition.

In early trading in London, Somerfield shares were up 1p to 192p.

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