Britain's third biggest supermarket chain Sainsbury's (SBRY) is upping its game in financial services by taking full control of Sainsbury's Bank from joint venture partner Lloyds Banking (LLOY). The news accompanied full-year figures confirming the grocery giant's highest market share for a decade, as it continues to outperform major retail rivals.


As foreshadowed in a statement yesterday (7 May), the £7.5 billion cap has confirmed it is acquire the remaining 50% of Sainsbury's Bank from Lloyds Banking for £248 million. 'We expect the Bank to become an important source of profit diversification and growth, building on the strengths of our core business', said chief executive officer Justin King, who argues the deal is in line with Sainsbury's long-term growth strategy to develop complementary channels and services.


Launched in 1997, Sainsbury's Bank has delivered five years of profits growth, having made £59 million profit before tax in 2012/13. King argues that full ownership will allow future products to be even more tailored to Sainsbury's customers and grow the number of the grocer's customers who hold a financial product with the bank.


Sainsbury's expects the bank, which boasts roughly 1.5 million active accounts, to generate profit growth, excluding transition and double running costs, in the high teens over the next five years. The deal, not expected to complete until January due to regulatory requirements, is expected to be highly cash generative in later years and 'dividend payments from the Bank to Sainsbury's are anticipated from year five onwards.'


Despite the news, shares in Sainsbury's eased off by 4.4p (1.1%) to 392.1p as annual numbers to 16 March showed a 1.4% fall in 'statutory' profit before tax to £788 million, reflecting lower year-on-year property profits and a rise in other one-off items.


SBRY - Comparison Line Chart (Rebased to first)


Underlying taxable profits were up 6.2% to a better-than-expected £756 million. The supermarket reported robust like-for-like sales growth of 1.8% excluding petrol. Investors were also treated to a 3.7% hike in the full-year dividend to 16.7p, a payout covered 1.8 times by earnings per share and supported by operating cash flow of £1.27 billion.


King, who has scotched speculation he is about to stand down after nine years at the helm, highlighted an increase in Sainsbury's market share to 16.8%, the highest for a decade, driven by 33 consecutive quarters of like-for-like sales growth.


'Our key points of difference, such as the best quality own-brand, Nectar, Brand Match, coupon-at-till and industry leading service, are recognised by our customers,' said King, keen to highlight momentum across the business as the grocer looks to overtake Wal-Mart (WMT) owned-Asda as Britain's second biggest supermarket by market share behind Tesco (TSCO).


Own-brand sales through ranges such as by Sainsbury's and Taste the Difference are outperforming the market. General merchandise sales recently reached the £1 billion annual sales milestone. Annual online grocery sales are almost £1 billion. Convenience store sales have surpassed £1.5 billion as Sainsbury's benefits from the consumer's desire to shop more locally.

Issue Date: 08 May 2013