Profits shock at Sainsbury

SUPERMARKETS chain J Sainsbury shocked the City today with yet another profits alert, warning that figures for the current financial year will be 'significantly' below market expectations.

The warning came as the group confirmed it is to part company with its chairman Sir Peter Davis after a row with major shareholders about the size of his proposed pay package.

Big investors had been demanding a complete restructuring of the company‘s management pay scheme after it emerged that Davis was given 864,000 shares last year, despite a fall in profits. The shares were part of a £2.4m pay package which many investors felt did not reflect the company‘s performance.

Several even warned that they would vote down Sainsbury‘s pay proposals at the annual shareholder meeting next month.

Although Davis's exit is not a total surprise, the extent of today‘s profit warning is.

Just as investors thought trading couldn't get worse, the group has admitted that not only is it not closing the gap with rivals Tesco and Asda but current trading is also failing to meet targets.

Sainsbury put the profit shortfall down to the price war with its rivals but said attempts to improve product availability, and the fact that it had over-stocked on some non-food items, were also to blame.

The City had pencilled in profits of £505m, after a profits warning earlier this year.

Sainsbury shares fell 18p to 266 3/4p.

Many institutional investors wanted Davis, who stepped up to the role of chairman last November, to go and leave the way ahead clear for new chief executive Justin King who joined from Marks and Spencer‘s food division in March.

Davis had spent three years pouring £3bn into modernising stores, systems and logistics but there was no increase in sales.

King has been privately critical of some of the Davis pricing policies and is now expected to get a free rein to reorganise the group. This is likely to result in a big cut in store investment, following the recent massive spending.

Davis will be replaced by Philip Hampton, a City heavyweight who was previously group finance director of Lloyds TSB, BT and also BG. He will be paid £395,000 a year.

Lord Levene, a senior independent director of Sainsbury and chairman of the nomination committee, said investors had been keen on Hampton‘s appointment.

'Consultations with a number of major shareholders have shown that there is substantial support for this appointment,' he added.