Somerfield says it has a solid strategy

Profits before tax and financial charges for the 12 months to 26 April came in at �25.8m, a 24% increase on the previous year.

Like-for-like sales, which strip out the effect of newly-opened stores, were up just 1% at �5bn.

Somerfield stressed that a recent revamp of its organisational structure would help it improve its sales performance in the months ahead.

The sale of surplus properties had bolstered its finances, it added.

But executive chairman John von Spreckelsen admitted that the company, hit by tough competition from its larger rivals, had not rebounded as convincingly as originally hoped.

Takeover battle

"While we are pleased to report further progress in rebuilding profitability, we recognise that the pace of recovery was not fast enough," he said.

Somerfield, which also runs the low-cost KwikSave chain, is one of the UK's smaller supermarket groups, trailing Tesco, Sainsbury, Asda and Safeway.

Smaller operators have been struggling in recent months amid an intense battle for market share by the sector leaders.

The tougher market conditions have triggered a wave of consolidation, with fourth-ranked supermarket group Safeway putting itself up for sale earlier this year.

Somerfield, which last month turned down a bid from retail entrepreneurs John Lovering and Bob Mackenzie, is also seen as a likely takeover target.

In the City, Somerfield shares were up 4.2% at 127.5p in early trade.