J Sainsbury has abandoned its profit target for its banking arm but insisted the rest of its recovery remained on track as it reported flat interim profits.
Philip Hampton, the chairman, reminded investors not to expect any profit recovery until the second half of next year, despite the rebound in like-for-like sales. Reporting half-year results, he called the profit margin, which at 1.9 per cent is among the worst in the industry, "completely unacceptable".
The supermarket chain, which is aiming to cut costs by £400m by the end of its 2007/08 financial year, reinvested the £100m it has saved this year on 8,000 price cuts to lure customers back to its stores. It is counting on an additional £150m of cost savings next year to drive its bottom line and offset ballooning energy bills.
One year into its three-year turnaround plan, Sainsbury's admitted it had abandoned its hopes of boosting its banking profits by £90m. Sainsbury's Bank, a joint venture with HBOS, lost £5m in the first half after its bad debt charge soared 68 per cent to £49m. The bank, which is turning away three in every four loan applicants, is expected to lose £10m over the full year, putting it £57m behind the original profit plan.
After three quarters of rising like-for-like sales, Justin King, the chief executive, said Sainsbury's was "ahead of the curve". He added: "The fact that we have sales growth that is beating the market is the most important thing we have achieved." In the first half, Sainsbury's underlying sales rose 2.1 per cent, after allowing for price deflation of 1.4 per cent. Data from TNS Superpanel, the market research firm, yesterday showed that Sainsbury's share of the grocery market had edged higher in the 12 weeks to 6 November, to 15.7 per cent from 15.5 per cent a year ago. Asda's share over the same period slipped to 16.6 per cent from 16.7 per cent during the previous year.
Sainsbury's profits before tax surged back into the black, rising to £87m after a £500m charge to write off the legacy of its former chief executive, Sir Peter Davis, left it nursing a £292m loss last year. Underlying pre-tax profits were flat at £118m on sales of £8.98bn against £8.48bn the previous year.
The group said it would claw back the cost of taking its IT services back in-house from Accenture over the next two years. It expects to transfer some 500 staff from Accenture to Sainsbury's by April but would not comment on the likely size of the one-off charge to do so.
Mr King said the group would have turned the corner once it had delivered five straight corners of rising like-for-like sales and grown its bottom line.Reuse content