Asda makes a triumphant return to profit

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The Independent Online
ASDA, the supermarkets group that came close to collapse 12 months ago, reported a swing back to profits yesterday, beating every forecast in the City.

The shares surged 7 1/2 p to 61p, giving Archie Norman, the pounds 425,000-a-year chief executive, a theoretical profit of just over pounds 1m on his 4.4 million share options.

The Asda supermarkets, which for years have trailed the industry average, lifted like-for-like sales by 1 per cent, outperforming some highly regarded competitors, including Tesco.

Patrick Gillam, chairman, tried to damp down investor euphoria, stressing it was early days: 'We're only six months into what we have always described as a three-year plan.'

Mr Norman said the group had started to reverse the long-term decline in its reputation for value for money and had made improvements to fresh food. Its two experiments - a new format Asda in Wolstanton and the four Dales discount operations - had produced encouraging initial results.

The results mark a significant milestone in the attempt to rehabilitate Asda, which along with Isosceles-owned Gateway was considered the joke of the groceries sector. Last year it came within a whisker of breaching loan covenants on its pounds 1bn of debt and was forced to go to its shareholders with a pounds 357m rights issue. The shares fell as low as 22 1/2 p. Sentiment started to improve when it recruited Mr Norman, then finance director of Kingfisher.

Asda made pre-tax profits of pounds 54.8m in the 28 weeks to 14 November, following a loss last time of pounds 68.8m.

Before exceptional items profits increased from pounds 10.1m to pounds 46.1m.

Group operating profits rose from pounds 74m to pounds 79.9m. The supermarkets' contribution increased from pounds 84m to pounds 91.9m. The interest bill was slashed from pounds 63.7m to pounds 34.4m thanks to the sale of the MFI stake and the benefit of the rights issue.

There were some disappointments. The Allied Maples carpet stores lost pounds 11.9m, a slight improvement on the pounds 13.2m deficit last time. Lofthouse, the meat processing subsidiary, plunged from a profit of pounds 1m to a pounds 2.5m loss.

Asda also set aside pounds 17.5m to extricate itself from hedging instruments that were no longer necessary. The arrangements - interest rate swaps - were entered into to protect the company from rises in interest rates. Mr Norman said: 'It's an inevitable function of our success in reducing the debt.'

The provision was more than offset by a pounds 26.2m profit on the disposal of properties, leaving a net exceptional profit of pounds 8.7m.

An interim dividend of 0.5p (1.25p) is payable on 2 April.

David Shriver, analyst with County NatWest, said the results were much better than expected. 'The message is, so far, so good.'

Waitrose, the supermarkets arm of the worker co-operative John Lewis Partnership, is losing almost pounds 1m of sales a week, because of Sunday opening by its competitors. Stuart Hampson, JLP deputy chairman, warned that the lost profits would reduce the staff bonus.

(Photograph omitted)