The takeover of Safeway by Morrisons cannot come soon enough, it seems, with the continuing delays having a significant impact on the company's already fragile trading performance.
Safeway managed to post like-for-like sales growth of just 0.1 per cent in the first half of the year, the company announced today. In contrast, Morrisons' first half like-for-like growth was 9 per cent.
Total sales for the six months to 11 October were ahead 1.2 per cent at £5.2 billion, helped by the like-for-like increase of 0.1 per cent, growth from net new space of 0.7 per cent and 0.4 per cent from the different timing of Easter this year. Morrisons' sales were £2.48 billion for the half, but growth was an impressive 13.7 per cent.
But Safeway tried to put a brave face on the performance. "Given the prolonged uncertainties created by the corporate situation, and with only limited assistance from maturing new stores, extensions or refits, this is a pleasing outcome, which is fully in line with our stated objective of an overall stable business performance," the trading statement read.
But the company also recognised that the delay had had a major impact on its relationship with suppliers, increasingly uncertain about the future ownership of the business, which meant that levels of support from the chain's suppliers were lower year-on-year.
The company has also had to put all its plans on hold for the last year - Morrisons takeover bid for the company was announced on 9 January 2003 - with the store refit programme stalled and promotional investment reduced in a bid to control costs.
The company said it expected first half pre-tax profits to be around £173 million, down 7.5 per cent from the previous year. This figure excludes an exceptional charge of around £13 million, which includes professional advisory fees (£3 million), together with staff retention and loyalty bonus costs incurred as a consequence of the Morrisons offer and subsequent events (£9 million) and redundancy costs (£2 million), offset by property profits of £1 million.
However, Morrisons will not be burdening itself with a complete lame duck by acquiring Safeway. The company is still cash-generative, with some £179 million in cash generated in the first half and stock levels, working capital and cash flow all improving significantly.
The chain has also continued to expand its store portfolio, albeit in a limited manner, with two new outlets opening in the half. One more new store and six extensions should be completed in the second half. A further 62 stores are currently seeking planning permission for extensions, while 17 new store projects have already been greenlighted. Whether these projects will ever come to fruition remains to be seen, however.
Safeway also confirmed the rumours that it had, after consultation with Morrisons, called for offers for the 53 stores which it will be obliged to sell as part of the takeover.
"Our purpose in doing this is: first, to expedite any sale process so that divestment can take place as early as possible after completion of a merger, thereby removing uncertainty for our people in these stores; and secondly, to provide ourselves, our shareholders and Morrisons with an accurate assessment of the value of these stores," the company said in the statement.
But it has also sought clarification from the Competition Commission concerning this ruling, which limits Safeway's major rivals to bids for just these 53 stores and no others which might eventually be surplus to requirements following the Morrisons' acquisition - an indication that Safeway believes its new owners are unlikely to keep all its stores?