Sainsbury's celebrates tasty results - but warns on VAT rise

Sainsbury's has been making hay while the sun shines. But it's likely to find life tougher this year.

Last Updated: 06 Nov 2012

Whatever the political situation, people still need to eat – much to Justin King’s relief. The Sainsbury’s boss today revealed better-than-expected full-year results at the supermarket chain: profits were up 17% to £610m, which means lucky staff get to share a record bonus pot of £80m. That means King can press ahead with his expansion plans – after opening 38 full-size and 51 convenience stores in the past 12 months, he’s got another 100 planned for this year. But with food prices flat and a possible VAT hike on the horizon, he’ll find it tough to repeat that kind of performance in the current year...

It’s been a good period of growth for Sainsbury’s: an extra million people are passing through its tills compared to a year ago, which boosted like-for-like sales by 4.3% and improved overall revenues by 5% to £21.4bn. King says Sainsbury’s expansion (along with extended ranges) is helping it claw back market share from rival Tesco – particularly in the North and East of the country, where it has been historically under-represented (clearly it’s not just Southerners who like to taste the difference).

Although the pension fund remains a bit of a headache – the deficit currently stands at a whopping £1.2bn – Sainsbury’s has come up with a new plan to address the problem: it’s thrashed out a deal with trustees to hike annual payments to £49m (up from £38m) over the next decade. And its balance sheet has been boosted by a big rise in the value of its property portfolio – up £2.8bn to £9.3bn. (Private equity types will be salivating…)

But it’s not all good news for Britain’s third largest supermarket. With food prices pretty flat at the moment, it won’t get any sales growth that way. And if there’s a hike in VAT under the new Government, as many people expect, shoppers will have less money to spend - and could even swap Sainsbury’s for cheaper rivals. The move might put £11.5bn a year into the public coffers, but it could also put the brakes on Sainsbury’s growth.

Still, King was careful not to complain too much today. His only request was that the Government gives retailers plenty of warning, and makes the change outside of their busiest trading period (i.e. unlike the previous VAT cut, which kicked in straight after Christmas). Not too much to ask, we'd argue.

In today's bulletin:

VAT top of the agenda as Government prepares to tackle deficit
A billion for broadband as BT back in the black
Sainsbury's celebrates tasty results - but warns on VAT rise
Editor's blog: Sugar's TV freak show
Good news on NI - as unemployment soars again

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