J Sainsbury - Financial Performance Of Last 5 Years

1. EXECUTIVE SUMMARY

J Sainsbury plc is a UK based company, into grocery, related retailing an financial services business. The study is primarily to do financial assessment of this company and its performance relative to its peers and industry. Seeing the last 5 years report, it is evident that company was in a bad share 3 years ago, and now its in the stage of recovery.

Starting 2004, there has been a major change in the board, as well as management. Since then company has taken several large and aggressive approach. This can be summarised as renovating/ ex-panding retail space, re-engineering of supply chain, and improvement in IT system. Also there has been focus on brand repositioning through quality improvement, cost reduction through increasing volume, etc. This has resulted into good numbers for its sales and profit margin. The first thing the new CEO Justin King did was to reduce price by 5% in most of the items, so that they re-gain custom-ers confidence.

If we see from a year’s perspective, company is highly squeezed in terms of cash flow, very less net profit margin compared to industry. They have a high pressure on improving their margins. Comparing them with their peers Tesco, Wm Morrison, and others, we found that Tesco is obviously market leader, so have a very high profit margin. If compare with the closest competitor Wm Morri-son, even though they relatively smaller in size of business, but they have much better profit margin and revenue per sq ft, with less number of stores.

In terms of investors point of view also they have tried to compensate it with higher dividend of 9.75p compared to last years’ 8p. They have also ensured to keep the dividend cover to 1.5. Ana-lysts and investors are not very upbeat about this stock, seeing the bad performance in last 3 years and would be very conscious in investing.

Seeing the last year’s growth pattern and the achievement of some of the set targets (sales, cost cutting, quality growth) one should be confidant that if the same continues of another 2 years, it should outperform and will give tough competition to its peers.

2. INTRODUCTION

2.1 Company Overview

Sainsbury plc is a United Kingdom-based company principally engaged in grocery and related retail-ing, and financial services. The Company's businesses are organized into two operating divisions: Re-tailing (supermarkets and convenience stores) and Financial Services (Sainsbury's Bank). J Sainsbury plc consists of Sainsbury’s, a chain of 490 supermarkets and 298 convenience stores, and Sainsbury’s Bank. A typical Sainsbury’s store offers around 30,000 products and many stores also offer comple-mentary non-food products and services. During the fiscal year ended March 24, 2007 (fiscal 2007), 114 stores provided an Internet-based home delivery shopping service. Sainsbury’s Bank is jointly owned by J Sainsbury plc and HBOS plc. The Company’s subsidiaries (100% owned) include Bells Stores Ltd, Jacksons Stores Ltd, JS Insurance Ltd, JS Information Systems Ltd, Sainsbury’s Super-markets Ltd, Swan Infrastructure Holdings Ltd, JB Beaumont Ltd, SOL Shaw Ltd and Sainsbury's Card Services Ltd.

2.2 Company Business & Strategy

On February 8, 2007, the Company sold a 5% shareholding in Sainsbury’s Bank plc (the Bank) to the Bank of Scotland (a wholly owned subsidiary of HBOS plc). Consequently, the Bank be-came a 50:50 joint venture between the Company and HBOS plc. In September 2006, the Company relaunched its Taste the Difference range, which comprises nearly 1,400 products. In October 2006, the Company introduced the Sainsbury’s Dairy Development Group, working with around 400 dairy farmers to supply all 420 million litres of conventional milk bought by its customers each year.

The Company stocks a variety of food ranges to suit all budgets. Around 50% of customers buy from both ends of Sainsbury’s food range: Basics and the Taste the Difference range. It provides a choice of own brand Sainsbury’s So Organic products along with organic branded products.

Bells Stores operates convenience stores. The stores are typically around 2,000 square feet, are located predominantly in neighbourhood locations. Jackson's Stores is an independent, regional con-venience store chain operating in the United Kingdom. The Company also includes JB Beaumont, which operates six convenience stores located in the East Midlands in the United Kingdom.

The Company offers financial services through Sainsbury's Bank. Sainsbury's Bank offers a range of products, which include savings and loan products, credit cards and a number of insurance products. It offers personal loans, savings accounts, and general and life insurance

2.3 Key facts

Number of employees

J Sainsbury employs around 148,000 people.

Store Estate

Table 1 вЂ" Retailing store and space summary

Group performance

The following figures show the group performance for the last three years. This data shows a positive trajectory and on the path of recovery. The same is also indicated in the chairman’s speech, which will be analysed later in this study.

Table 2 вЂ" Financial performance for last 3 years

Let me elaborate more on the past records, so that we get a clearer picture of its performance. If we see the last 5 years financial data, it is noted that they didn’t performed well in 2003 and 2004, the effect of which is shown clearly in the figures of 2005. Weather it EBITA, sales, profit margin or working capital management. Peter Davies, the former CEO, spent Ð'Ј3bn trying to update the supply chain, while Sainsbury’s new management team has struggled to deliver solid sales growth despite an esti-mated 5% cut in prices across the board since summer 2004. The cuts were made to bring prices more into line with the competitors. Since company was not able to promise and deliver the high volume, their suppliers were not supportive enough for price reduction. Resultant company was in red in 2005, see table 2 for profit before and after tax. The problem in 2004, which they were facing, was availabil-ity,