Shares in British supermarket chain Somerfield have soared following news of improved profits and the resumption of dividend payments after a three-year gap.

The firm posted operating profits of �7.9m for the six months to 9 November, up from �5.6m for the same period in 2001.

It added that sales at its Somerfield and Kwik Save stores had continued to grow over the Christmas period.

Somerfield shares were up 13 pence, or 20%, at 78p when trading closed on Wednesday.

Signs of recovery

The Bristol-based retailer has struggled in recent years, but is now spending millions of pounds on a makeover of both its brands as it tries to win back customers.

And Somerfield is now returning money to investors, with a dividend of 0.4 pence per share.

It said like-for-like sales across the group in the six months to 9 November were up 0.8% and turnover was marginally ahead at �2.68bn.

Pre-tax profits jumped to �12m from �2.5m, but this was mostly down to a one-off gain of �9m following a sale-and-leaseback deal on its Wellingborough distribution depot.

Somerfield added that said like-for-like sales grew 2.1% in the 10 weeks since 9 November.

"The current like-for-likes are good and people are very relieved. I suspect they may do better than what we are going for," said Richard Ratner, an analyst with Seymour Pierce.

Mr Ratner added he would probably increase his year profit forecast to �25m following the update.

Fierce competition

Chairman John van Spreckelsen, who stepped in after chief executive Alan Smith resigned following a profit warning last October, said: "It has been a modest improvement on all roads."

But he warned "it is not going to get easier in terms of competition -- it will remain very competitive."

British retailers had an unexpected good 2002, boosted by warm weather and a drop in overseas travel in the aftermath of the 11 September attacks.

But as the economy slows down, analysts do not expect these good times to last.

Separately, Mr Von Spreckelsen refused to elaborate on the takeover battle over UK supermarket chain Safeway on the back of news Britain's largest supermarket group Tesco is considering making an offer.

"We are watching this with great interest," he said.