Flat Somerfield not ready for listing

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The Independent Online

Somerfield, the debt-laden supermarket group that is gradually abandoning its down at heel Gateway format, is unlikely to seek a stock market listing in the short term, the company said yesterday.

Reporting flat profits and difficult trading, chief executive David Simons said: "Some time between now and 1998, I would expect to see some change of ownership. The preference and most likely outcome is a float but we would need a track record of profit and the right market conditions."

Somerfield is struggling to re-assert itself after chronic under-investment since the Isosceles buy-out of the Gateway chain in 1989. Following a restructuring in 1993, Somerfield is now a separate company with pounds 464m of debt. Isosceles has debt of pounds 744m which, in the absence of any dividend from Somerfield, is increasing. Mr Simons says Somerfield would only pay a dividend to Isosceles when it did not otherwise need the money. That would be "a long time coming", he said. Proceeds from a float would go to reduce Isosceles's debt.

Since the re-structure and the appointment of Mr Simons as chief executive two years ago, the fortunes of Somerfield have been gradually improving. The Gateway name will disappear from the UK high street within two years as the company either closes under-performing stores or re-brands them as Somerfield once re-furbished. Of the group's 618 outlets, 253 trade as Somerfield, with more than 300 as Gateway and 26 as Food Giant, a discount chain.

In the year to April, 146 branches were converted to Somerfield at a cost of pounds 47m. A further 100 are planned for this year. Somerfield branches, offer larger sections for fresh food, diary products and meat and typically yield a sales increase of 14 per cent after conversion.

Profit margins remain wafer thin. In the year to April, Somerfield made pre-tax profits of pounds 33m on sales of pounds 3.1bn, barely any improvement on the previous year.

The discount chain Food Giant accounts for 10 per cent of group sales but contributes modest profits. Like for like sales at Food Giant fell by 5 per cent in the year due to pressure from other discounters.

According to Verdict Research, Somerfield has a UK market share of 4.2 per cent placing it fifth behind Sainsbury, Tesco, Argyll and Asda.