Global Economics

Sainsbury's Results Cheer British Retail


The supermarket group met or beat all targets on completion of its three-year turnaround plan, and that's good news for consumer spending

J Sainsbury shrugged off some of the gloom surrounding consumer spending yesterday as annual sales rose and the group predicted a period of growth after completing its three-year turnaround programme.

The third largest supermarket in the UK boosted sales by 5.8 per cent to £19.2bn in the year to 22 March, from £18.2bn in 2007. Pre-tax profits were up slightly from £477m to £479m this year, while the group also raised its dividend by 23 per cent to 12p.

Sainsbury's chairman, Philip Hampton, said it had been a significant year after the completion of the plan as the group "moved from a period of recovery to growth". It plans to expand throughout the UK and has poured £15m to launch an online business to sell non-food items, such as clothing and homeware, early next year.

Justin King, the group's chief executive, said the group had equalled all and beaten many of the targets set under the "Making Sainsbury Great Again" recovery plan launched three years ago. The Sainsbury staff will share out £47m in bonuses after meeting those targets, which included hitting £2.5bn worth of sales, £440m in cost savings, and investments of more than £400m. Since the strategy was brought in, the group has doubled underlying pre-tax profits from £238m announced in March 2005, to £488m yesterday.

In response to a question about whether Sainsbury's was indeed "great" again, Mr King replied: "Greatness is a journey, not a destination. We are much better than we were three years ago."

Freddie George, an analyst at Seymour Pierce, said: "We believe the company has a great opportunity to expand in non-food and develop its multi-channel activities and potential for cost savings and efficiency gains, particularly in logistics."

Other analysts were less effusive. Many bemoaned that there "wasn't much news" in the statement, while Philip Dorgan, at Panmure Gordon, remained unimpressed. "Profits are still lower than those achieved in 1991, operating cash flow growth has been weak and we believe that the industry environment is about to get a lot tougher," he said. The market agreed—the shares closed down 3.8 per cent at 374.5p.

This comes just days after the British Retail Consortium painted a dismal picture for consumer spending for the second month in a row in the light of the deteriorating markets.

Yet Mr King was reasonably optimistic over the prospects for the economy and called on the market not to "talk ourselves into a bad place," adding: "We're miles off anything that would technically be called a recession." He did admit that confidence had fallen and household budgets were more stretched than last year.

Sainsbury was targeted by a private equity consortium last year before defending itself from an indicative approach from Delta Two, the investment vehicle of the royal family of Qatar, in a deal worth more than £10bn. Mr George believes the Qataris will launch another bid, as they are now free under Takeover Panel rules to return to the table.

Tesco expands in South Korea with £1bn deal

Tesco has continued its expansion abroad with its biggest deal, paying almost £1bn for a string of stores in South Korea.

The retailer has made a strong push into China, Turkey and the US in the past year, but yesterday it said it had beefed up the stores in its second largest market by a quarter.

Tesco, which employs 13,000 in South Korea, paid £958m for 36 locally owned Homever discount stores. A spokesman said: "It's the biggest deal of its kind that Tesco has done."

Jonathan Pritchard, an analyst at Oriel Securities, said: "The deal will add about 50 per cent to the space that Tesco has in South Korea and strengthen the Homeplus brand around the key Seoul and Gyeonggi areas."

Most of the stores were previously owned by the French retailer Carrefour, with 20 in the Greater Seoul and Gyeonagi metropolitan area. South Korea, which has a population of 50 million people, has a grocery market worth over $100bn per year.

Tesco first moved into South Korea when it launched a joint venture with the industrial giant Samsung nine years ago. Sir Terry Leahy, chief executive of Tesco, said: "This acquisition of high-quality assets is an important strategic move, which will allow us to accelerate our growth in this key market... It also demonstrates our continued commitment to invest into South Korea."

Samsung Tesco, whose sales hit £2.7bn last year, runs 66Homebrand hypermarkets and 72 Homebrand Express stores in the country.

Provided by The Independent—from London, for Independent minds

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