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'I'm sticking with company' says Coupe

Sainsbury’s raises investment after Asda deal failure

Sainsbury's Local

Mike Coupe says Sainsbury’s is increasing investment (pic: Terry Murden)

Sainsbury’s chief executive Mike Coupe shrugged off the setback over the collapse of the Asda merger by saying he is clear about the supermarket group’s strategy.

Reporting a better than expected  7.8% rise in annual underlying pre-tax profit, Mr Coupe announced further investment in the group, particularly in technology.

Mr Coupe said:  “I am confident in our strategy and also clear on what we need to do to continue to evolve the business in a highly competitive market where shopping habits continue to change.” 

Sainsbury’s shares rose 3% in early trade following a 29% drop in the last six months. The failure of the Asda put had put pressure on the shares and raised questions over Mr Coupe’s future, but speaking after the results were published he would not quit and had not been asked by his board to leave Britain’s second-biggest supermarket group.

“I’m sticking to the company, I’m very proud of the organisation I run,” he said.

In its annual statement the company noted the growing threat from budget supermarket chains and changes in shopping habits, including the growth of food delivery firms.

The company said: “Consumers are shopping for groceries more frequently across different channels and store formats, with online and convenience channels showing strong growth.

“There is limited new space being added to the market from traditional grocers but discount and bargain retailers continue to open significant numbers of new stores and gain market share. Consumers are also eating more meals outside the home and the growth of food delivery services such as Deliveroo, Just Eat and Uber Eats is also impacting grocery spending.”

The figures for the year to 9 March come a week after the Competition and Markets Authority opposed the tie-up with Asda which would have created the biggest supermarket group in Britain.

Sainsbury’s said underlying profits rose 7.8% to £635m while statutory profit after tax fell to £219m from £309m following a number of issues relating to pensions and costs associated with the failed Asda transaction, put a £46m, and the integration of Argos.

Mr Coupe said: “We will increase and accelerate investment in the core business, investing to improve over 400 supermarkets this year. £4.7 billion of our revenue now comes from our online businesses and we are increasing investment in technology to make shopping across Sainsbury’s, Argos and Sainsbury’s Bank as quick and convenient as possible.

“We will also continue to strengthen our balance sheet and are making a new commitment to reduce net debt by at least £600 million over the next three years.”

Underlying profit at Edinburgh-based Sainsbury’s Bank came in at £31 million, in line with guidance.

The company is proposing a final dividend of 7.9p per share, bringing the full year dividend to 11pence per share, an increase of 7.8%.

Market reaction

Tom Stevens, investment director at Fidelity Personal Investing’s share dealing service, said: “Mike Coupe is in desperate need of some good news. Today’s full year results provided the beleaguered Sainsbury’s boss with some, but maybe not enough. A bottom-of-the-table Easter sales performance showed why the Asda deal was a necessity. Today’s earnings announcement shows the mountain Sainsbury’s has to climb as a stand-alone operator in a fiercely competitive market. 

“Like for like sales in the second half were down by 1%, excluding fuel, and flat with it. Underlying revenues continue to go backwards and Sainsbury’s is falling behind the pack as rivals pick up the pace. The good news is that Sainsbury’s managed to squeeze a 7.8% rise in underlying profits out of this unpromising sales performance thanks to £220m of cost savings. 

“Mr Coupe’s position is in doubt after his mis-reading of the regulator’s approach to the Asda deal so it’s no surprise that he is seeking to please shareholders with a near 8% rise in the full-year dividend. The 11p pay-out represents around 5% of Sainsbury’s depressed share price. That will provide support for the shares until September’s promised reveal of the post-Asda Plan B.”

John Moore, senior investment manager at Brewin Dolphin, said: “If it hadn’t been for the collapse of the Asda merger, we might have been talking about a strong set of financial figures from Sainsbury’s today. As it is, much of the focus will be on what could have been and where the business goes from here; particularly with reference to its UK supermarket estate.

“Nevertheless, these are a robust set of financials from Sainsbury’s in the face of a highly competitive UK retail sector. The business may have lost market share, but it is still performing at a good level, aided by the integration and enhanced offering of Argos – the Asda transaction would have offered the potential to push this to another level. While there is a commitment to increase and accelerate investment in the business from management, investors will be waiting for more concrete plans in the months ahead to see what Sainsbury’s next step will be.”

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