Sainsbury buys out bank arm as market share peaks - UPDATE

8th May 2013 07:10

Supermarkets group Sainsbury lifted profits 6.2 per cent last year as it increased its market share to the highest level for a decade.The grocer has reached an agreement to take full ownership of its joint venture banking business, but did not address rumours about the potential impending departure of Chief Executive Justin King.Across the group, with total sales rising 4.6% to £25.6bn, underlying profits up 6.2% to £756m and earnings per share up 9.3% to 30.7p in the 52 weeks to March 16 2013, the grocer hiked its dividend 3.7% to 16.7p.An agreement was made with banking joint venture partner Lloyds Banking for the supermarket group to take full ownership of Sainsbury's Bank by acquiring Lloyds' 50% shareholding for £248m, comprising £193m cash and £55m of loan stock. The banking arm enjoyed a successful year, with Sainsbury's share of joint venture post-tax profit up 38% to £22m and an 8.0% increase in active customer accounts over the year. Strongly cash generative and growing fast, Sainsbury's believes taking full ownership of the bank will allow future products to be "even more tailored to Sainsbury's customers, leveraging Nectar data to drive sales uplifts in both financial services and the core supermarket business". Currently, around one in 20 supermarket customers holds a financial product with the bank and it believes there is a "significant opportunity to increase this" under full ownership. King said: "Our decision to take full ownership of Sainsbury's Bank will add further momentum to our strategy of developing complementary channels for the benefit of both customers and shareholders."Store numbers continued to climb, as Sainbury returned to a more "prudent and steady" rate of growth in its estate after a ceasefire was called in the supermarket "space race", with 14 new supermarkets and 87 convenience stores opened during the year and eight extensions to existing stores.The groceries online business grew at 20% year-on-year, with grocery orders regularly exceeding 190,000 per week - 25,000 more than the previous year.In non-food, sales of general merchandise and clothing grew at more than twice the rate of food over the year, topping £1.0bn in annual general merchandise sales for the first time.On the group's outlook, King said: "Whilst we see no near term change in the current economic situation, we remain confident that by continuing to invest in our long-standing strategy and by understanding and helping our customers, we are well positioned for future growth."For the new financial year Sainsbury said it anticipated like-for-like sales in a range of 1.0%-1.5%. Broker Shore Capital added that the group said it anticipated flat earnings margins for the current year, with cost savings of around £100m and around 2.5% cost inflation.Analyst Clive Black said the supermarket had made "a step in the right direction on capital expenditure" but would "benefit from a more judicious approach" like most of its competitors, "noting as we do that the retailer's net debt is growing after expansion capital expenditure and dividends". He said he expected King to "be around for a while longer yet" and retained a hold stance on Sainsbury's shares due to their "current slightly elevated valuations, dividend yield, free cash generation and strategic prospects".By 12.46 shares in Sainsbury were down 2.9% at 385p.OH