Somerfield drops final dividend

Supermarket chain Somerfield revealed the extent of its woes yesterday when a 70% drop in profits forced it to abandon its final dividend payment to beleaguered shareholders.

The group, which installed new management three months ago in an attempt to stem its decline since the £1.4bn takeover of Kwik Save in 1998, warned that the situation would get worse in the coming six months before improving.

Such is the extent of its problems - sales in Kwik Save fell 14% over the year and Somerfield's fell 2% - that analysts were reluctant to predict when a dividend might be paid again.

Despite this, the new chief executive, Alan Smith, former head of Punch Taverns, insisted that Somerfield should remain listed on the stock market and not be forced to engage in talks with venture capitalists about taking the company private. He and new chairman John von Spreckelsen, who is credited with turning round Budgens, enjoyed running public companies, he said.

While careful not to make any forecast about when dividend payments might be restored, Mr Smith said that even a 1% increase in sales might give enough leeway for a resumption. One analyst said: "This is a business that could be focusing on its business and not having to look over its shoulder at the stock market and shareholders. At this price, though, they are likely to be reluctant to sell."

The company paid an interim dividend of 1.5p per share, compared with 13.2p total for the previous year. Its shares, which only 18 months ago were at 470p, ended yesterday at 57.5p, down 5%.

The supermarket group's official broker, Deutsche Bank, estimated that cash could be tight for the next 18 months.

Reporting a fall in profits for the year to end-April to £71m, compared with £218m the previous year, Mr Smith insisted that he was optimistic. "These results are about the past," he said.

Instead of rebranding Kwik Save stores with the Somerfield name as initiated by the previous chief executive, David Simons, the group is now running the two brands separately.

Up to 200 of the 450 Kwik Save discount stores will have up to £70,000 each spent on a facelift this year.

Mr Smith indicated that details of a new look and strategy for the 650 Somerfield stores might be discussed in six months' time.

The group has shut down its 24-7 home shopping chain.