Sainsbury's posts 1H profits, says turnaround is on course

Sainsbury's posts 1H profits, says turnaround is on course

	Published : Wed, 16 Nov 2005 14:05 By : Paula Demarzio Print this Story

LONDON: Britain's third largest supermarket chain J Sainsbury Plc. posted pre-tax profits of 118 million pounds for the first half ended 8 October, just short of analysts' expectations of around 121 million pounds.

The company insisted it is on tracks and confident to deliver the promised turnaround, a factor substantiated by three consecutive quarters of like-for-like sales growth. For the corresponding half last year, the pre-tax profits were 117 million pounds.

Underlying sales, excluding petrol, rose by 2.1 per cent and total sales 5.6 per cent to more than 8.8 billion pounds. However, strong volume growth was partly offset by price deflation of 1.4 per cent in the grocery business. The company said it is now processing 15 million customer transactions a week and the availability of stock was at "industry matching levels". It has been lowering prices and working to improve product availability as part of its "making Sainsbury’s great again" plan.

However, the company's financial joint venture with HBOS posted a 5-million-pound operating loss during the period, with provisions for bad and doubtful debts increasing to 49 million pounds.

The firm gave up its profits target of 90 million pounds in three years for the banking division. But, it reaffirmed its belief in starting the banking division -- that super markets can own banks -- saying the model is "robust". It pointed out that income from financial services commissions had risen by 27 per cent and it now had 2.4 million customer accounts. For the same period last year, the bank had profits of 8 million pounds.

Chief executive Justin King, who has initiated a series of measures for the former market leader to turn around, said its accomplishments were far better than last year's. "All other things being equal, we know that our offer is massively better than it was a year ago. Last year we were talking about protecting Christmas, now we're confident with the stall that we've set out."

The company's shares opened 1.5 percent lower at 287-1/4 Tuesday, valuing the company at 5.49 billion pounds. Analysts are of the opinion that the stock is overvalued. It is trading at a forward price/earnings ratio of 29.4, compared with just 15.7 for Tesco.

The company has announced an interim dividend of 2.15 pence per share -- unchanged on the year-ago payout.