UK grocer Safeway, the subject of a takeover inquiry by competition authorities, today [Thursday] reported annual profits in line with guidance given last month.

Like-for-like sales in the fourth quarter to the end of March declined 0.1%, some way behind market leader Tesco which reported fourth quarter growth of 4.4% to the end of February and J Sainsbury which posted like-for-like growth of 1.3% for the quarter ended March.

The speculation concerning a possible takeover has not made for an easy trading environment. Tesco, Asda, Sainsbury’s, William Morrison and retail entrepreneur Philip Green have all expressed an interest in buying Safeway. The competition inquiry is due to be completed early August, leaving the company in limbo for some time yet.

On a brighter note, the first six weeks of the new business year saw stronger growth in same-store sales, to which finance director Simon Laffin pointed as proof that “management is still keeping its eye on the ball,” reported Reuters.

Chief executive officer Carlos Criado-Perez said that the uncertainly over Safeway’s future was having an adverse effect on the company’s relations with suppliers. Some have been unwilling to close forward rebates – a common practice in the retail sector whereby suppliers advance cash to retailers in return for anticipated sales.

Safeway said that lower-than-expected funding levels from suppliers had reduced gross margin by 0.9 percentage points in the second half, contributing to a reduction in operating profit for the year by 4%, reported Dow Jones Newswires.

Criado-Perez remained positive about supplier relations, saying: “We are planning promotions short-term. We are thinking quarter-to-quarter, month-to-month. We are in special circumstances and we are dealing with it.”

Meanwhile chairman David Webster said that the company had a pension deficit of £217m (US$351.1m) at the end of March, compared with a surplus of £54m at the end of March last year. In a bid to reduce the shortfall, company contributions have been hiked from 9% of payroll to 15%, while employee contributions had been lifted from 5% to 6% of salary.