Safeway 'back on track for growth'

SAFEWAY, the supermarket group which held aborted merger talks with Asda last year, yesterday dismissed suggestions that it had rekindled discussions with its rival as it reported strong current trading figures which lifted the shares 12.5p to 376p.

Colin Smith, Safeway's chief executive said he was confident the business had an independent future and that it was building a solid platform for growth. "We are not in discussions and we are not about to announce a merger. We think it is in the best interests of shareholders to continue growing sales and building the business."

The comments came in spite of some industry sources suggesting that the two sides have held discussions since the talks last broke down in September. Some industry experts say that Archie Norman, Asda's chairman is far more keen on a Safeway merger than Allan Leighton, the group's chief executive.

Sources close to Safeway said: "We do not want to continue commenting on market speculation. We are not in talks. We are concentrating on growing the business."

Safeway's comments came as it reported a 13 per cent fall in pre-tax profits to pounds 375m for the year to 29 March. However the company said it was addressing problems in product quality, availability, customer service and pricing which have held the group back.

Although Safeway's like-for-like sales were ahead by just 2.2 per cent in the year, sales in the six weeks since the year end are 6 per cent ahead of same period last year, helped by investment in prices and additional elements to the ABC loyalty card.

Analysts were sceptical about the figures, saying the sales growth had been bought at the expense of lower margins. "Current trading is better than we expected but will it last?" said one analyst. "We have seen these sort of false dawns with Safeway before."

Colin Smith admitted that "six weeks' figures do not make a summer" but said the group's growth strategy was back on track.

Analysts questioned whether this was over-optimistic. "We would need to see more good figures than these to be sure if Safeway has really turned the corner," one said.

Profits in the first half of the current year are expected to be significantly lower than the first half of last year as the group continues to invest in marketing programmes and its loyalty scheme.

Analysts were disappointed by the performance of the Northern Ireland stores. The stores, run as a 50/50 joint venture with FitzWilton, recorded a total loss of pounds 9m. The company admitted that the costs of establishing stores there had been higher than expected.

Safeway's group sales in the year rose by 6 per cent to pounds 7.5bn. The full year dividend was maintained at 14.1p.