Retail group Musgrave, which controls 25 per cent of the Irish grocery market through its franchised Supervalu and Centra stores, has reported strong growth for 1998, with underlying operating profits up from £29 million (#37 million) to £32.2 million (#40.89 million). Operating profits were £7 million lower as a result of the costs of setting up Musgrave's chilled foods distribution depots in Dublin and Cork.

The £7 million cost relating to the chilled foods distribution centres and a big increase in interest costs from £521,000 to £3.5 million meant that pre-tax profits fell back from £28.5 million to £23.7 million.

The absence of the once-off £7 million charge this year will almost certainly see a resumption of pre-tax profits growth at Musgrave. The increase in interest charges relates to the borrowings for the acquisition of 21 Wellworth stores from Fitzwilton in 1997. As these stores are sold to franchisees, this interest bill should steadily decline.

For the first time, Musgraves turnover went over the £1 billion mark, rising from £983 million in 1997 to £1.18 billion. Turnover at the larger Supervalu stores was up 13 per cent to £737 million, turnover at the smaller Centra stores was up 16.5 per cent to £262 million, while turnover in the Spanish retail operations was up more than 13 per cent to £84 million. Net debt at the end of 1998 was £40.3 million - a debt/ equity ratio of 40.5 per cent.

The chief executive, Mr Seamas Scally, repeated Musgrave's view that the Groceries Order, which bans below-cost selling and "hello money", must be renewed if a healthy balance between the retail multiples and independent retailers is to be maintained. "The Minister has been sitting on the order for a year and is reviewing it, but naturally we would be concerned if she did anything to overturn the order," said Mr Scally.

He said that the order, which was recently invoked against Superquinn in the "hello money" controversy, has played a vital role in providing Irish consumers with the lowest level of food price inflation in the EU. "In my view, the renewal of the order is absolutely vital to maintain a balance in the trade and to provide the counterbalance to the threat of the multinational domination we have seen in other markets."

Mr Scally also repeated his wish that the current 30,000 square feet cap on the size of out-of-town superstores be maintained. "Superstore development would have a devastating effect on the life of the average Irish town or village," said Mr Scally, citing the example of the UK.

"We don't want to see the sort of devastation there was in the UK where 42 per cent of towns now don't have a grocery store. Surely we must learn from the mistakes of the UK and ensure there is a good balance between independents and the chain stores. That's in the best interests of consumers." He added that it is essential the planning guidelines on superstore developments are enshrined in legislation.

The effect of superstores in the UK may present opportunities for Musgrave, said Mr Scally. "The independents have a very small market share in the UK and it's natural we would look there to see if there are opportunities to grow the independent sector, just as we are doing in Northern Ireland," he said.

"Not everybody wants to or is able to shop in an out-of-town superstore or to shop just once a week. There is a need for towns to have more convenient stores which you can shop in hassle-free. Nobody in the UK is offering an alternative to the superstores," he said. He accepted, however, that establishing a chain of independent stores in the UK and the required distribution network, would be an expensive exercise.

Last year, Musgrave hinted at a possible expansion into Poland but now seems to have gone cool on the prospect.