The Fitzwilton/Safeway joint venture has arranged a £200 million sterling debt finance package to fund the refurbishment of its existing stores in Northern Ireland and the opening of new stores in both the North and the Republic. Moreover, in a major change in the deal to sell 21 smaller Wellworth stores to Musgrave, Fitzwilton is now receiving an upfront payment of £63 million from Musgrave, rather than the leasing and purchase option arrangement that was previously negotiated. When the deal was closed in July, both sides agreed to the once-off payment by Musgrave rather than the 25-year lease and purchase option worth a combined £67 million that had been previously negotiated.
The first of Fitzwilton's former Wellworth stores in Coleraine has been refurbished and rebranded as a Safeway store at a cost of £6 million and the joint venture - Safeway Stores Ireland, owned equally by Fitzwilton and Safeway - will be spending a further £50 million over the next 15 months refurbishing or constructing and then rebranding a further 17 stores. "At the end of that, we will have 18 large stores with an average size of 26,000 sq. ft. which will include Safeway products and Safeway technology," said Fitzwilton's finance director, Mr Patrick Dowling. On expanding into the Republic, Mr Dowling said the joint venture was "reviewing sites all over the country" and added "we would aim for a lot of activity in the near-term, we have pretty ambitious plans". Mr Dowling would not be drawn on the locations of the new Safeway stores, but when the joint venture deal was announced last June, it was speculated that 20 stores would be established in the Republic over the next five years, centred on the major urban centres in Dublin, Cork, Limerick, Galway and Waterford.
There has been strong speculation that the Quarryvale centre in west Dublin - which currently does not have a major supermarket - may be one of the locations targeted by Safeway.
Most of these stores will include other services, such as petrol stations, dry cleaning services and creches. All of these services have been set up at the new Safeway store in Coleraine and this is likely to be the pattern for the other stores set up in the North and the Republic.
It is likely that Safeway will extend its loyalty card to the North and the Republic, following the decision by both Dunnes Stores and Tesco to introduce loyalty cards to their Irish operations.
The net effects of the Safeway joint venture and the revised Musgrave sale has been to transform Fitzwilton's balance sheet, with shareholders funds increasing by £95 million and net debt reduced by £104 million. The sale of the stores to Safeway and Musgrave will result in an exception gain of £40 million after redundancy costs.
But the Safeway joint venture and the sale of 21 smaller stores in Northern Ireland comes at a substantial employment cost, with 250 jobs going with the closure of the former Wellworth administration centre in Enniskillen and the central warehouse in Antrim. Mr Dowling said, however, "those 250 jobs will be replaced by a lot more than that in the stores in the coming year".
Half-year results from Fitzwilton show a 4.5 per cent fall in sales and lower profits at the former Wellworth stores. The fall in sales and profits at Wellworth did not, however, result in any fall in margins but the slightly higher gross margins were eroded by higher costs.
Overall, operating profits in the first half fell from £8.5 million to £6.7 million, while sales were up from £147.4 million to £159.4 million. A £2.3 million contribution from associates - Waterford Wedgwood - and an exceptional profit of £1.6 million meant that profits before interest charges were up from £10.3 million to £10.6 million.
Higher interest charges meant that pre-tax profits fell from £5.1 million to £4.3 million while earnings per share were down from 1.37p to 1.22p. A 5 per cent increase in the half-year dividend to 1.15p has been declared.
Apart from indicating the state of trading conditions in the supermarket business in Northern Ireland, the half-year results from Fitzwilton are pretty academic.
Even the full-year 1997 results will provide little indication of the worth of the company as the Safeway and Musgrave deals, while impacting on the balance sheet, will have negligible impact on the trading performance. It will be 1998 and the following year before the real impact of the Safeway and Musgrave deals, while impacting on the balance sheet,will have negligible impact on the tradingperformance.
