Takeover uncertainty slows Safeway growth

Supermarket Safeway confirmed today that sales had been hit by the takeover battle for the group and said like-for-like sales grew just 1% during the last year.

In its annual results statement, Safeway said the five-way bidding war currently being investigated by competition watchdogs had created an uncertain environment for customers, staff and suppliers.

Safeway was forced to pay out £22.5m (€31m) in the second half as a direct result of the bidding war, denting its bottom line profits for the year.

Staff retention and loyalty bonuses paid to employees to persuade them to remain with the group amid the uncertainty cost Safeway £5.5m (€7.8m).

A further £17m (€24m) was paid out in fees to bankers and other professional advisers working on the takeover.

But despite the impact of the proposed merger, Safeway said its trading performance in the year to March 29 had been resilient.

Pre-tax profits were £335.2m (€473m) for the year, in line with market expectations but down from £354.8m (€500m) in 2002.

Chief executive Carlos Criado-Perez said: “The profit outcome for the year and the overall stability of our current trading have been achieved, in challenging circumstances, through a total focus on the needs of our 10 million customers and through the skill and commitment of our 85,000 people.

“I remain confident that we are ready to meet the challenges which lie ahead.”

At the bottom line, pre-tax profits dipped to £270.3m (€381m) due to Safeway’s acquisition of Fitzwilton’s 50% share of the Safeway joint venture in Northern Ireland.

This resulted in a £45.1m (€64m) one-off charge on top of the cost of the merger proposals.

Despite the distraction of a Competition Commission inquiry into the plans, Mr Criado-Perez said sales were holding up well and Safeway was generally in good shape.

Sales grew by 1.3% in the year to £9.5bn (€13.4bn) but slowed in the second half as Safeway slowed the pace of store reformatting and reshaped its spending on promotional activity.

The group has cut back on capital expenditure as it awaits the decision from the Commission, which is due on August 12.

Around £230m (€324m) of capital expenditure is planned for this year, down 26% on 2002.