Somerfield, the supermarket chain at the centre of a £1 billion bid battle, said today that takeover talks had reached an "advanced stage" as it reported a 63 per cent jump in pre-tax profits but lower like-for-like sales over the past nine weeks.

Somerfield, led by chief executive Steve Back, is being stalked by a consortium composed of Baugur, the Icelandic investment group that already owns a large slice of the British retail market, and three other parties. They are Barclays Capital, the investment banking arm of the Barclays banking group, Apax Partners, the private equity firm, and Robert Tchenguiz, the property tycoon.

A rival bidder, London & Regional, a property group owned by the Livingstone brothers, is also interested in buying Britain's fifth-largest supermarket group.

Mr Back said this morning: "With regard to a potential offer for the group, a comprehensive due diligence process has been undertaken with substantial progress having been made by interested parties. Discussions have now reached an advanced stage."

But he added: "There can, however, be no certainty at this time that an offer for the group will be forthcoming."

The bid battle was thrown in confusion last week after Jon Asgeir Johanneson, the chief executive of Baugur, and members of his family were charged with fraud in their native Iceland. The charges, which have been denied by Mr Johanneson and dismissed as "politically motivated", are reported to have led to some concerns among other members of the consortium.

Despite its maintaining that it has no intention of voluntarily quitting the group, it has been reported that Baugur may be forced to withdraw, perhaps as early as today.

News of the advanced talks came as Somerfield reported that pre-tax profits for its financial year to the end of April had soared by 63 per cent, to £66.4 million from £40.7 million the previous year. Operating profits rose by the same amount, to £53.1 million.

Mr Back said: "These are a good set of results that demonstrate the benefits of the continuation of our portfolio transformation strategy. We have made significant progress in delivering a quality, fresh, convenience-based offering for our customers. With the acquisition of the Safeway stores and the Texaco and Fuelforce convenience forecourt stores, we have successfully extended the Somerfield brand across the UK."

Mr Back added: "Kwik Save has been refocused on its heartland and we are repositioning its offer."

But Somerfield injected a note of caution about conditions in the retail sector amid continuing signs that economic growth is stalling and customer confidence is fading. The group reported that like-for-like sales at group level for the first nine months of its financial year - essentially May and June - were down by 2.7 per cent.

This translates into a fall in like-for-like sales at Somerfield of 0.7 per cent, and a drop at Kwik Save of 6.4 per cent.

During the year sales at Somerfield fell by 0.1 per cent, and at Kwik Save by 1 per cent. Group like-for-like sales were down on the year by 0.4 per cent.

Mr Back said: "Current trading conditions remain challenging with subdued consumer demand and continued intense competition. We are sharpening our value proposition in line with recent market movements and are continuing our store improvement programme. The like-for-like sales trend has improved in recent weeks and we will grow our market share further."

Shares in Somerfield opened unchanged at 191p, valuing the group at £955 million.

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