J Sainsbury – Financial Performance Of Last 5 YearsEssay Preview: J Sainsbury – Financial Performance Of Last 5 YearsReport this essayEXECUTIVE SUMMARYJ 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.
INTRODUCTIONCompany OverviewSainsbury plc is a United Kingdom-based company principally engaged in grocery and related retail-ing, and financial services. The Companys businesses are organized into two operating divisions: Re-tailing (supermarkets and convenience stores) and Financial Services (Sainsburys 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 Sainsburys Card Services Ltd.
Company Business & StrategyOn 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. Jacksons 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 Sainsburys Bank. Sainsburys 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
Key factsNumber of employeesJ Sainsbury employs around 148,000 people.Store EstateTable 1 — Retailing store and space summaryGroup performanceThe 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 — Financial performance for last 3 yearsLet 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 ÐЈ3bn 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,
This brings me to three major points:
* During the last 3 years there was almost no liquidity in the firm, from the mid-year to the third quarter. This made the firm weak because of a shortage of liquidity in the private sector. The price of a company fell sharply from the beginning of the firm’s first few months, and it was only in July 2007 that this got put down completely. This lack of liquidity also limited its ability to deliver high-quality products and services, resulting in the falling cost of certain products and services. We became increasingly dependent on a combination of private sector lending and a government-run credit facility (CDH) for credit. Also, our company was growing rapidly in 2011, growing from 30% to 40% a year, as in 2008, by the end of 2013. Moreover, under their new management, we was able to sell highly stable, low priced products and services.
* In terms of overall profitability over the past 3 years, the company generated profit, which was at least €3bn per year, the amount we could sell in four different quarters in one year. Even after the recession started, they were even in recession for a few years, which was very costly as we could not pay for our pensions after 2011. Their stock price dropped to €1c last year after this time, as we had not invested in a large stock until the end of 2010. Also, as the company had very few investors across the country, investors were reluctant to sign an investor license. The fact that our stock price had not been able to grow, especially in the UK, made it difficult to get an investor license. The combination of these factors raised their net worth. They had three years to recover their losses, but were just able to recover all of them by this time, which was also what they had planned in April 2007. In particular, the stock price had been rising steadily since the first two months under their new management. This was partly because for four years, the company had been profitable in two ways, both from the beginning of their acquisition. Under new management they could maintain profitability for five consecutive years. The result is that they have only been able to maintain profitability in the last five years.
The other third point is that:
* The level of income per employee in 2015 was higher than in 2014. Overall, the firm raised its operating income by €8.4bn on a year-over-year basis.
Our total income did not increase much, so the profit margin did not show quite as much impact. However, it showed a return on capital which is comparable to the income of several companies that were able to improve profitability and grow their profits. The company managed to reduce spending of some other shareholders, but it failed to raise the dividend they want from shareholders. I would like to add that while it is true that we managed to increase profits in several areas, many of these came from capital. They did not make more money in the first three quarters, because our profits had grown somewhat. The new management also managed to raise revenue more quickly, and were able to invest more wisely despite lower overall profit, which has been a problem in the past.
* In terms of the third quarter’s operating profit (and the third quarter’s capitalisation), our overall profit was a whopping €11.55bn at the closing.
So, we saw a long time coming as we thought about our plan to start moving in 2014. The year before the financial crisis happened, we were already in a financial crisis, which was not an easy task to execute because the UK has many problems