Sainsbury's profits up 17%

Supermarket Sainsbury's today posted a better than expected 17% hike in annual profits as 127,000 staff shared a record bonus pot of more than £80 million.

The UK's third biggest grocer posted underlying pre-tax profits of £610 million for the year to March 20, ahead of the £600 million expected by the City.

Chief executive Justin King said staff had been rewarded for a "good performance in difficult trading times" but warned of further challenges ahead with consumers "under pressure".

Mr King said Sainsbury's is now serving 19 million customers a week - one million more than a year earlier and nearly five million more than five years ago. Total revenues across the group were up 5% to £21.4 billion.

The performance comes amid fierce competition between supermarkets for sales in a tough economic climate - with rival Morrisons last week reporting that food inflation had been "virtually eliminated" as falling commodity prices bring down food costs.

But Sainsbury's is pushing for growth after spending £900 million over the year to add 1.1 million sq ft of selling space, as well as opening or extending more than 100 stores.

The group opened 38 new supermarkets last year and has identified convenience stores as a key area of growth, with up to 100 new stores in the format planned this year.

Sainsbury's is growing non-food sales at three times the rate of food and said there is "considerable" opportunity for further growth as the supermarket sector currently accounts for less than 15% of the £166 billion UK non-food market.

It has also thrashed out a deal with pensions trustees which will see annual payments into the scheme rise from £38 million to £49 million for the next 10 years.

The supermarket - which had a deficit of £1.23 billion as of March 2009 - has set up a property scheme to help fund its pension to avoid locking in larger cash payments based on last year's depressed values.