Sainsbury's chief resigns

Sainsbury's boss Sir Peter Davis has been ousted after a fierce shareholder revolt over his £2.4million bonus.

The group today also issued a shock profits warning as it continues to lose customers and market share to Tesco and Asda. It warned that profits this year will fall " significantly below" City expectations.

The chairman's abrupt departure comes a year ahead of schedule - but it was not clear today whether Sir Peter will still collect his huge bonus for last year or if he will get a pay-off.

Sainsbury's said it had not been possible to reach agreement with Sir Peter, who departs immediately, over the final amount of the payment and both sides have called in their lawyers.

His salary is £850,000. He had agreed to reduce this to £500,000 at the end of next month but it was still seen as too high for the head of a poorly-performing company. His exit will be welcomed by big City shareholders, who have watched with increasing frustration as the group, once by far Britain's most successful grocer, continued to lose sales.

Sir Peter was brought in as chief executive four years ago amid high hopes he would revive the firm's fortunes. But after an initial sales recovery, the group has continued to lose market share.

Hopes of a fresh revival were raised earlier this year when the group poached Justin King, the highly-regarded head of foods at Marks & Spencer, to replace Sir Peter as chief executive. Mr King, who has also worked at Asda, is determined to cut prices and focus on customer service.

But Sir Peter stayed on as chairman, a move which did not go down well in the City, where it was feared that he would hold back the new chief executive.

In a statement to the Stock Exchange today, Sainsbury's said it "would like to express its gratitude to Sir Peter Davis for all his hard work".

His replacement is Philip Hampton, former finance director of Lloyds TSB and BT, who will start on 19 July on £395,000 a year.

Lord Levene, senior independent director at Sainsbury's, said the board had talked to leading shareholders, who include the Sainsbury family, and believed the moves had "substantial support". City analysts had expected profits of £500million but it is clear this will be far lower. Tesco is expected to make about £2billion profit this year.