Safeway holds its own in uncertain times

In what is likely to be one of its last set of results before it becomes part of Morrisons, British supermarket group Safeway​ has highlighted a modest but welcome improvement in sales for the first half, but said that profits had been affected by increased pension costs.

Sales for the six months to 11 October were up 1.2 per cent to £5.2 billion, a like-for-like increase of 0.1 per cent. With few new stores to add impetus to sales (because of the uncertainty over the future of the company as the various bids were analysed over the last 10 months), this is a good performance, and in line with the company's modest aim of maintaining revenues at a stable level in the run up to the eventual takeover by Morrisons.

In contrast, rival Sainsbury yesterday reported first half sales growth of 1 per cent (albeit to £9.8 billion), while Morrisons recently reported a 13 per cent gain.

The company added, however, that changes to UK accounting procedures (affecting in particular multi-buy and staff discounts and electronic mobile phone top-ups) meant that restated sales for the first half were £4.9 billion (2.5 per cent down on restated figures of £4.97 billion).

Operating profit decreased by 5 per cent in the first half to £210 million as a result of the £8 million charge relating to pension costs. EBITDA, on the other had, was up slightly to £326 million, while pre-tax, pre-exceptional profits reached £173 million, down from £187 million a year earlier.

Not a bad performance, then, considering the uncertainty over the Morrisons takeover and the fact that the company's results were languishing in the doldrums long before the takeover bid was even announced.

But with Morrisons trading model apparently far more cash generative, both companies will be keen to conclude negotiations as quickly as possible and start the lengthy business of refitting stores and putting new commercial practices into place in a bid to reduce costs and improve profits.