Somerfield profits surge by 43% despite slow Gateway

Somerfield, the debt-laden supermarket group seeking a pounds 500m stock market flotation this month, has seen a strong rise in operating profits though sales are still being held back by a poor performance from the old Gateway stores.

Profits in the year to April rose 43 per cent to pounds 100.5m, boosted by higher sales of own-label products, a stronger fresh food offer and better control of the supply chain. It is also understood that some of the profits rise came from bulk discounts from suppliers.

However, the company stresses that its method of accounting for such payments is not that employed by Wickes, the DIY group, where bulk discounts caused a profits over-statement. David Simons, Somerfield's chief executive and a former finance director, says such payments are monitored closely.

Somerfield's sales last year were flat at pounds 3.16bn. The 343 stores trading under the Somerfield name have performed well but the 238 Gateway stores are experiencing weak demand.

In the eight weeks since the year-end the company says trading has been above expectations. It is thought that like-for-like sales are running around 5 per cent above the same period last year. Though this is way behind Asda, where sales are 12 per cent higher, it is ahead of Sainsbury's which announced a 3.3 per cent uplift last week.

The margin has been increased from 2.2 to 3.2 per cent helped by a better fresh food offer, lower levels of waste and better management of the supply chain.

The company has extended its Premier Points loyalty scheme to 284 stores and hopes to offer it in all the converted stores by September. So far around 3 million customers have taken up the card. The sales uplift is 5-6 per cent. Net operating cash flow is strong, up 18 per cent to pounds 160.8m.

Though some sections of the City have been negative about the longer- terms prospects of the company, Mr Simons said the feedback from potential investors had been good."We've had a good response, though obviously people are keeping their powder dry until the pricing."

He said there was still room for improvement in the margin and supplier arrangements.