It has pinned part of its success on the wider range of goods sold in its stores, breaking out of traditional groceries into clothing and even computers.

These results came a day after Safeway, the UK's fourth biggest supermarket chain, announced a 7% drop in underlying profits last year.

Asda's pre-tax profits in the year to 1 May rose to £422.9m ($684.6 million) from £404.9m. Total sales increased to £8.9bn from £8.2bn.

The supermarket group proposed a second interim dividend of 1.95p a share as shareholders will not receive a final dividend because of the Kingfisher merger.

Bold claims

Asda said it had outperformed the UK food retail industry with comparable store sales volume growth of 4.2% and sales of Asda's 'George' clothing were up 15.3%.

Chief Executive Allan Leighton said the group's 'Rollback' price promotion had helped tackle a slow start to last year.

He said: "Our sales growth is evidence that our promise to rollback prices and provide a more permanently low price platform is working."

The retailer, the UK's third largest supermarket chain behind Tesco and J. Sainsbury, stressed that the merger with Kingfisher to create a European-wide retailer with annual sales of some £17bn pounds ($27.52bn), was in the best interests of shareholders.

Asda said the deal would offer new opportunities in the UK and overseas by combining the two groups' financial muscle to take advantage of consolidation in Europe and elsewhere.

In the UK, Kingfisher owns the Comet, Woolworths, B&Q and Superdrug chains.

Asda merger

The merger, effectively a takeover by Kingfisher, will create the UK's largest retail group.

The deal is expected to see the George clothing range made available through Woolworths and herald the launch of continental and US-style hypermarkets with Asda Superstores and Big W - Woolworth's out-of-town superstores dedicated to general merchandise.

The two companies are aiming to complete printing of the formal offer documents for the merger on Thursday and Asda had brought forward its results announcement to achieve that target.

A shareholder vote on the merger is expected to be completed in June.

The entire supermarket industry is currently subject of an investigation by the Competition Commission into pricing. Mr Leighton said Asda was confident it would emerge from the enquiry without serious criticism.

"We are driving prices down so we are very confident on the outcome from the Competition Commission," he said.

Away from traditional retailing, Asda has also been building its plans for internet shopping.

Its home shopping business "Asda at Home" opened its first warehouse in Croydon in January.

A second warehouse in Watford is scheduled to open in September. "Asda at Home" will launch on the internet in June 1999 and is expected to break even by March 2000.