1.1 Topic Chosen
I was asked to choose a topic for my Research and Analysis Project. I have gone through different Topics. All the topics were appealing and interesting. After a careful study, I decided to choose Topic Number 8, the business and Financial Performance of an Organisation.
I will analysed and evaluate the financial Performance of this organisation with the abilities and knowledge gained while studying ACCA. I will evaluate how the Organisation was performing in last three years. I will carry out this topic with shareholders Point of View.
The purpose of this research is to provide the information to existing and perspective shareholders that are interested in Sainsbury’s and can be affected by the performance of this organisation.
An organisation can be understand more easily and deeply if it is compared it with another organisation of same business. So I have to decide to make a financial and business comparison of Sainsbury’s with another organisation. For this purpose, I have selected Marks & Spencer
1.2 Reason For choosing this Topic
I have chosen this topic after a careful and thorough study. The Most important reason was the clarity and transparency of this topic. Business and Financial Analysis is one of the best techniques to measure the performance of an organisation.
Financial analysis is assessing the profitability and viability of an organisation. Especially in the recession’s period, it is one of the most powerful techniques. Shareholders can be provided the information only by evaluating the financial performance and business aspects of organisation. It will help the shareholder to know about the figures in Financial Statement, what they mean, how they arise and how it can affect their wealth. It will provide a bigger and clear picture of the organisation in respect of its performance and survival.
I will be using financial ratio analysis on the performance of the organisation. Ratio analysis helps us to know how the Organisation is performing in this year as compared to last year and how it is competing with the another organisations. This topic will also help me in enhancing my skills and abilities that I have gained from my work place and by studying ACCA. It will improve my writing, communication, research and analysing skills. It will help me to analysis the data more constructively. It will make me able to communicate the information more effectively. I believe that after completing this project, I will be more confident and solid in my studies and workplace.
However, Ratio analysis has some limitations as well. They can provide clue to the performance or financial situation. But on their own, they cannot show whether the performance is good or bad. It is difficult to generalise about whether a particular ratio is good or bad.
1.3 Reason for Choosing this Organisation.
Sainsbury plc consists of Sainsbury’s – a chain of 502 supermarkets and 290 Convenience stores – and Sainsbury’s Bank. It has employed around 150,000 people.
Sainsbury’s supermarket is the UK’s longest standing major food retailing chain, having opened its first store in 1869.
Sainsbury’s was founded in 1869 by John James and Mary Ann Sainsbury. It started selling its own - products in 1882. In 1950, first Self-service store was opened in Croydon. Sainsbury’s was the first to use 100% recycle carrier bags in stores.
As mentioned before, the topic of this research work is very clear and objective. I will use different techniques and methodology to evaluate the financial and business performance of Sainsbury’s.
1.4 Aim and Objectives of the Report
The aim of my research report is not to prepare a detailed financial and business analysis for the current year but also to predict the possible future prospect of the organisation. This will be carried out in Current and perspective Shareholders point of View. Because all shareholders and investors want to assess the performance of organisation in past and want to know how the company will perform in future. They want to know whether investing in an organisation will provide the required return. They want to know how the management can handle the organisation and assess the risks. Shareholders are interested in survival. In Business, survival means how the organisation is coping with other rival organisation by offering competitive prices and good quality products.
My analysis will calculate the performance of an organisation on past events and will try to predict the future performance of Sainsbury’s. I will compare SAINSBURY’S plc with Marks & Spencer over the last three year. This will help me to show whether Sainsbury’s was performing well as compared to its rival organisation. In my Analysis, I will address the following key Ratio to evaluate the financial performance of Sainsbury’s. These will highlights the key significant changes in comparison with its competitor over last 3 years.
The Different Ratios are
v Revenue Growth
Analysis the growth/decline in the revenue of Sainsbury’s over 3 years and comparing it to competitor.
v Profitability and Return Ratios
Profitability ratios measure how the organisations use its assets and control its expanses to generate an acceptable rate of return for its shareholders. It shows the ability of management to earn a target profit to satisfy the needs of shareholders.
v Risks Ratio
The key objective of management is to invest the shareholders’ money securely and in low risks areas while generating required return at the same time. This ratio will enable us to analyse how the management manages the risks and what actions are taken to avoid the risks in future.
v Working Capital Ratio
It will allow us to find the signs of Overtrading/under trading. This ratio will show for how long the assets were invested and how long does it takes a supplier/debtor to payback.
v Investor Ratios
There are different ratios to assess the financial performance of Sainsbury’s as an investment
v Efficiency Ratios
It is actually measuring the performance of management. It shows how efficiently Sainsbury’s uses its assets to generate profits
All of these ratios will be used for Financial Performance. It will show how the Sainsbury’s continues its growths amid of the financial and economic crisis all over the world. It will also reveal the impact on the business of Sainsbury’s by the actions taken by its Competitors and how the management copes with it.
It will also include a SWOT analysis of Sainsbury’s. It is used to evaluate the strengths, Weaknesses, Opportunities and threats to Sainsbury’s. It will evaluate the different factors, internal and external, that will affect the Sainsbury’s performance.
The analysis will mainly deal with the impact of different factors which affects the business of organisations.
2. INFORMATIN GATHERING
Information gathering was a big part of my research. The whole analysis depends on it. I was very conscious about it as there were hundreds of websites and articles available. But I was focusing only on that information which was reliable and valuable.
I gathered different types of information about Sainsbury’s. I downloaded and printed the Annual Accounts and financial statement of Sainsbury’s and studies them again and again to go in more depth. I download the SAINSBURY’S board performance reports and Director’s remuneration reports. I also used the SAINSBURY’S Sustainability Reviews for the analysis purpose. I use online libraries where different books were available.
In analysis, mostly information is gathered from two types of sources. There are Primary sources and Secondary sources. Primary sources mean I have to directly involve with the source and gets information, like interviewing, meeting, surveys etc. It was not possible as it requires huge amount of time to gather information and then arrange these information for the Project. So I was only using Secondary Source for information. These were the different materials, magazines, websites etc.
2.1 Source of Information
The sources of Information I have used are
Three Year Financial statement of SAINSBURY’S plc and M & S Plc
Annual reports give the most valuable information about a company performance. It is one of the main sources of reliable and valuable financial and non-financial information as they are subject to an audit before released.
I download them from the Company website. I have created a special Excel sheet with formulas to calculate the ratios required.
SAINSBURY’S website was of great help in this analysis. It was properly designed with all the information. It was daily updated with the press release.
I spent many weeks on browsing, gathering information, printing reports etc. It was huge website, so it was quite difficult to find the required information. I sign up with the website to keep myself updated.
Financial websites like Yahoo! Finance and Reuters were also used to gather key information like industry statistics and company overviews.
I browsed different financial websites to find and note down all the information I could find about the companies. The sites also helped me significantly in writing the economic overview and industry brief sections.
Newspapers and Magazines
Business Magazine like Financial Times and ACCA student accountant Magazine provides extremely useful information about the general economy as well as different market sectors.
I regularly visit the libraries to read newspapers like financial times and different Financial magazines
Libraries & Books
Libraries provide very useful and readily available information. It has several books about different article.
I regularly visited my local library which is quite big library. I also visited British library each week. Many libraries were 24 hours available, so it was very comfortable to accommodate the time.
3. ANALYSIS & PRESENTATION
J Sainsbury plc is engaged in grocery and related retailing. The businesses are organized into three divisions:
1) - Retailing (supermarkets, convenience and online
2) - Financial services (Sainsbury’s Bank joint venture), and
3) - Property investments (British Land joint venture and Land Securities joint venture).
As of March 31, 2009, the company comprises of 502 supermarkets and 290 convenience stores. It jointly owns Sainsbury’s Bank with Lloyds Banking Group and has two property joint ventures with Land Securities Group PLC and The British Land Company PLC.
Sainsbury has opened 13 new supermarkets during the fiscal year which ended March 31, 2009 (fiscal 2009), including two replacement stores, and it has completed 21 supermarket extensions and 13 refurbishments. On March 4, 2009, it announced the acquisition of 24 stores from the Co-operative Group comprising 22 Somerfield branded stores and two Co-operative branded stores. On the February 18, 2009 the Company acquired TownCentre Retail (Bisector) Limited.
ECONOMIC GROWTH AND RETAIL INDUSTRY:
Before the analysis and further drilling down the topic it’s important to know the overall economic environment and retail sector performance particularly in UK, which will aid in understanding exactly where the company stands in the sea of competitors and how well they have performed against the wind.
Since 1982, UK has only once registered negative GDP growth over an entire year, with a 1.4% fall in 1991. The period between 1989 and 1993 demonstrated a visible dip, but in all other years the measure has been fairly stable, fluctuating between 2% and 4% for the most part. That was up until last year, when thecredit crunchhit and the measure for 2008 fell to 0.7% - the performance during the first half of the year just about keeping it in positive territory. However, this year the International(IMF) is predicting a 4.4% drop, which would represent the biggest post-Second World War fall in the UK by over 3%.While the pace of decline in GDP slowed from the 2.4% seen in the first three months of 2009, the economy has suffered a cumulative contraction of 5.7% in the last five quarters.
Ref 1 GDP growth: a false dawn for UK economy?
- Online retail will emerge as an important mode of selling.
- Each Supermarket in UK has its own consumer class.
- Top four Supermarkets hold major market share (almost 75%) in UK.
- Increasing buying power of retailer remains the major driver for the industry.
Ref 2 UK Supermarket Analysis (2007-2010)
UK economic recovery is underway, albeit "fragile and in its early stages", according to Bank of England Monetary Policy Committee (MPC) member Andrew Sentence.
Ref 3 UK economic recovery underway, says BoE's Sentence
Singlemost importanttechniqueoffinancial analysisin whichquantitiesare converted into ratios for meaningful comparisons, with past ratios and ratios of otherfirmsin the same or differentindustries. Ratioanalysisdetermines trendsand exposesstrengthsor weaknesses of a firm.
Ref 1: Definition
From recovery to growth Sainsbury’s have performed exceptionally well in troubled economic conditions, under the leadership of Justin King, with nearly half of the market capital as compared to M&S. Since 2007 the sales have grown to nearly 5.7%: £20,383m as compared to £19,287. M&S group revenue have risen only 0.4% to £9,062.10m since 2007.
SAINSBURY’S M & S
Profit Before Tax
Profit After Tax
Profit Before Tax
Profit After Tax
It has been a turbulent two decades, since the grocer had its crown as the UK’s largest retailer stolen. It has been the subject of endless bid speculations even by M&S and yet it has risen each time from the ashes.
It was in the late 1980s when J Sainsbury last reported sales figures as strong as last week's. Margaret Thatcher was Prime Minister, the Berlin Wall was still standing and Andy Murray was a toddler.
UK’s third largest retailer, with a 16.3% of the sector, posted a better result in 2009 than expected by the analysts with a spook hike of 11.3% in annual profits as compared to the last years. The growth is less than half of last year’s 28% surge, profit hike seen at rival Tesco(4.3 % rise), 7% rise in Morrison’s while a slide decrease of 29.4% in M&S.
The growth in number of customers, i.e. 18.5m a week, ringing bells on the doors of rival market leader Tesco, which is 2nd fastest annual growth behind Morrison’s at the expense of Tesco, under the TNS world panel market share data.
The underlying profit before tax rose by 11.3% whereas due to underlying net finance cost the net profit before tax have decreased by 2.8%, as compared to 40% decrease in M&S profit before tax.
After the biggest contribution by the LFL sales growth of 4.5%, new spaces have added another 1.6% to the slice against the decrease in Easter (0.8%) and Disposal on closures (0.6%) to make a healthy retailing sales momentum of 4.7%.
Online operations have seen a growth of 20% in online grocery shopping thanks to the IT enhancement in areas such as supply chain and replenishment, the retailer said in its results. The more simplified in store and web processes have played an important key role in its growth.
The company had its best ever online Christmas sale this year, contributing a hefty 27% growth over the three month period to 3rd January 2009. Under the tough economic conditions, its continued investment in price, promotions with universal appeal, and wide customer based??? gave it a platform to continue its progress.
Sainsbury’s Bank contributed a £4m share in underlying post tax profit as compared to £3m loss in 2007/08 because of strong cost management, lower bad debt charges, and continued growth in investment.
Property investment saw a big swing in its growth due to the better portfolio of its British Land and Land securities, adding £9m and £3m respectively as compared to £16m profit from its joint ventures. The company is expecting a small growth in its Banking sector due to turmoil in financial sector and a expecting similar level of growth from its JVs. It has earned £57m profit on sale of its properties as compared to the £7m in 2007/08, including the eight supermarkets that were sold at an average yield of 5.2%. M &S profit on property disposals was only £6.4 (2008:£27.0m)
Reduced finance cost of £5.8 as compared to £5.9 earlier on and a reduced tax rate of 29.1% as compared to 2007/08’s 30.9% has helped the swing and is expected to continue during the year. However, M&S funding cost was marginally up by 6.1% and the net finance cost was up by £82.3m compared to last year.
B- PROFITABILITY ANALYSIS:
It’s a useful measure of revenue and cost, which helps to determine the investment decision. The length of time required to repay the initial investment can be a critical factor.
SAINSBURY’S M & S
Sainsbury’s 500 superstores and 300 convenience stores have been performing strong over the past few years with its consistent approach towards its operation and growth expansion. From its 15.1% increase in operating profit, the underlying operating profit margin has increased by 26bps. Well controlled direct expenses have helped to maintain a steady average of 5.98% over the past three years, as compared to 38.25% of M&S, even though the operating margin was expected to rise by 12-30bps with the help of stronger sales and smaller proportionate contribution from lower-margin petrol sales. The rising grocery prices have boosted sales at Britain grocers for nearly over a year but food price inflation slowed to 1.6% in September, the slowest annual increase since may 2006.
The net profit margin and interest cover are quite consistent with an average of 1.75% & 4.61% as compared to healthy 7.46% & 8.18%, respectively of M&S and could help the investors build their confidence.
However, Sainsbury's underlying retail profit margin -- up 26 basis points to 3.26 percent -- lagged rivals, due largely to its higher rent bill. Tesco's UK trading margin is 6.2 percent. The point is salient. Tesco's margins are 6.1pc whereas Sainsbury's margins are 3.3pc. Given the vast volumes of eggs, frozen peas, T-shirts and bread that supermarkets sell, margins are hugely important to a company's profitability.
“Mr. King argues that comparing Sainsbury's and Tesco's margins is an "apples and pears comparison".
Profits from Tesco's international business alone were £709m last year, compared to £540m for all of Sainsbury's. This year, Tesco is on track to open around 6m square foot of new space overseas. Most startlingly, Tesco's share of the UK grocery market is 30.8pc. Sainsbury's is 16.3pc.
UK's largest supermarket also has retailing services business – comprising its bank and telecoms arms – that turned in profits of around £400m last year. Profits in this division will grow to £1bn over time.
"Investors get so much more than a UK grocer when they buy Tesco," said one observer.
C- FINANCIAL STRENGTH
Financial strength is a measure of business risk; the stronger a company is from a financial prospect the less risky it is. It can be measured by Quick Ratio, Current Ratio, Long term Debt/Equity, and Total Debt Equity ratios.
The current ratio for Sainsbury’s has dropped nearly 30% to 0.54 since 2007 as compared to 13.2% increase in M&S ratio and Industries (0.96). Due to stock the quick ratio has dropped by 41.17% as compared to the18.91% increase in M&S’s & industries (0.78). It does show its aggressive strategy for the operations and working capital management, which could prove to be risky for the company over the long run. The retailer has also disclosed to a rise of $445m to accelerate growth drive and deliver extra trading space of 2.5m sq ft. by March 2011. If we further drill down the breakdown of current assets and current liabilities of both the companies, we could have a broader view about the Financial Directors strategy, to facilitate the company’s objectives.
Its gearing control shows a better managed picture of its finances and gives a better debt/equity of 0.47 as compared to the doubled (M&S: 0.92) average over the last three years, which shows that most of its funding was by short term debt finance.
The company has better capital structure as compared to M&S at the moment, showing half of M&S’s total debt/ equity ratio and it demonstrates that the cost of capital is less in the form of interest but attractive signal for the investors to squeeze the more of its return and better control over the long run. The choice of capital is driven by the objectives and time duration for the projects. Sainsbury’s growth plan could prove more efficient by equity finance as compared to debt finance over the long run.
The working capital management is a vital tool for any company to maintain its profitability and liquidity equilibrium. After a scoop of 11.3% profit, Sainsbury’s has shown a decreased cash level to £-77m as compared to £-2m in 2007. M&S has dropped itself into deficit after two positive cash for a continuous two years until 2008 to £-235.41. Sainsbury’s has arranged its cash from debt equity which can provide financial flexibility, speed up growth, maintain its balance sheet strength and invest in long term opportunities, bearing in mind that it is more riskier but under better management the cost could be of the same value, if the shareholder value is not ignored.
D - MANAGEMENT EFFECTIVENESS.
It’s an evaluation technique to judge the effective utilization of resources given to management. It can be measured normally from, Return on equity, Return on Assets, & Return on Investment Ratios.
Lower ratio signals alarm for investors to reconsider their choice.
Sainsbury’s policy of equity finance and short term debt finance has thrown it off the picture by M&S’s figures of Return on Equity: 39.01 as compared to its 7.06 (average over three years). Looking at the bigger picture, it’s in a more stabilized and on well performing acceleration gear as showing more close figures to industrial : 4.05, sectors: 7.43, and S&P500: 8.73. The high debt/equity ratio of M&S (from Figure 5 above) shows a clear idea of its good return on equity ratio, whereas Sainsbury’s management is more concerned to keep their investors happy and in good health. The return on Assets % is showing pretty consisting move over the past with an average of 3.04. The major contribution is by current assets turnover (34.50% growth) where as fixed assets showed only 0.26% decreases as compared to 40.6% decrease in total assets turnover. M&S showed a sluggish performance in effective utilization of fixed Assets: -18.4% and current Assets: -35.7%, over the past three years.
Comparing both companies with their industrial average: 1.66, sector average: 3.29, S&P500: 3.65 Sainsbury’s, 3.04 is more close to the sector average as compared to M&S, 10.84. It is showing that the policy of the company has much improved over the years and the company is well aware of their targets and has better plans as compared to M&S.
Return on Investment is one of the core tasks to be managed by the Financial Director of the company. It’s a measure of efficiency; showing that the better the return the better the management was in utilizing the resources. As from Figure 7 Sainsbury’s return on investment has decreased by 10.32% to 3.97% as compared to M&S, 10.01% a 46.72% decrease (industry; 2.87%, Sector; 4.55%, S&P500; 5.0). Again the company is performing well in the sector and better than the industry. It could be due to the major finance source as equity and better operations management, as compared to M&S which is not heavily relying on growth or finance further capital, which could result in lowering the working capital of the company.
Over the three years average and performance, M&S is more riskier and has no pet behavior of its returns, as compared to consistent results by Sainsbury’s, which is a key indicator for the investors and could enhance the confidence and built a long term relationship. This has already set a platform for Justin King to announce its expansion plans.
E - DIVIDEND INFORMATION
Typically mature, profitable companies pay dividends. However, companies that do not pay dividend can’t be considered without profits. The company should keep the profit to invest in other opportunities available elsewhere, if they are more important for the company’s growth. For these reasons only a few of the growth companies pay out dividends.
The progression of Microsoft through its life cycle demonstrates the relationship between dividend and growth, where Bill Gate paid no dividend while its brain child was growing, but reinvested all of its earnings to fuel further growth.
As per the data above, Sainsbury’s has pleased its investors by accelerating their payout ratio (average of 64.28) nearly by 36.09% since 2007, as compared to 14.94% of M&S. Its investing and finance policy enabled to enjoy a steady momentum of 23% over three years for its dividend per share, which was mainly due to the capital structuring and relying on equity finance. The Board proposed a final dividend of 9.6 pence per share (2008: 9.0 pence), & has announced its interim dividend (2009/10) to increase by 11% to 4p per share, to boost the investor’s confidence in the company.
Dividend yield has grown with a great positive progress of 133.3% since 2007 over the last three years, even though its not as healthy as M&S’s 6.7% in 2009. However, the company has performed well against the industry’s (0.03), sector’s (0.14) & s&p500’s (1.51). While the growth rate per share for dividend has dropped down more than half of 2008’s, the last five years average for industry (5.43) & sectors (8.51) it looks more attractive yet.
Dividend Yield (%)
Dividend per Share Growth (%)
The dividend is covered 1.67 times (2008: 1.63 times) by underlying earnings in line with Sainsbury’s policy of providing cover of between 1.50 and 1.75 times which is 6.37% higher than M&S’s dividend cover in 2009:1.57. Over all, the company looks on track to achieve its goals and corporate objectives which was adopted by Tesco a decade back.
F - PER SHARE DATA ANALAYSIS
These are the indicators for the investors to measure and judge the financial health of a company. It is really important to bear in mind, that these are mostly based on general rules. It is considered as a prudence practice to look at the historical data and to use it for future decision making.
Before the analysis of dividend it is important to view its performance on LSE against its competitors, M&S and, market leader, Tesco.
Sainsbury’s serene progress through the downturn continued, which helped to push the revenue up to £20.3bn even though net profit slid due to loss on property portfolio. ‘Taste the Difference’has helped to increase its revenue with low cost and persistent approach towards its margins. Over the years its earning per shares (EPS) has showed a steady growth, even though it dropped a little in 2009. Its (0.63) showed a better performance against M&S: 0.01, on three years average.
Its like-for-like sales growth of 4.5% helped to achieve good figures for its sales per share; 10.73 (2007:9.97), as it has gone up by 7.63% as compared to 14.97% increase in M&S; 5.76. It shows that the operations and cost were well controlled by the Sainsbury’s management.
The book value showed a bit sluggish behavior as compared to improved performance by M&S. Due to the growth and expansion plans and heavy investment it has faced a bit of cash flow problems over the last year, which has slid to 0.16 by 18.8% (2008: 0.19). Its price to cash flow of 7.27 shows a better performance against the industry’s 2.13, sector’s 3.2. Moreover, its cash performance over its shares shows a better picture as compared to its rival M&S even though it has dropped to 0.39 (2008: .41), a 66.67% decreased since 2007. It is due to the further increase in outflow of 11.12% in its investing activities, and a 77.72% in its financing activities, as compared to last year. Overall the company demonstrates a better steered and well controlled balance of funding and management of finance which enabled it to plan ahead and grasp the growth opportunities available in the market that competitors are scared to take.
Business analysisis a discipline of identifying business needs and determining solutions to business problems. Solutions often include a systems development component, but may also consist of process improvement or organizational change or strategic planning and policy development. The person who carries out this task is called abusiness analystor BA.
Business Analysis Techniques
Investigation into theoperationsof abusinessto expose thecausesbehindtheresultsachieved and the effects of those results on the business.
Some of these techniques include:
c- DE BONO 6HAT
d- FIVE WHY’S
g- Porters Five forces model
Ref 5: Business Analysis
Due to the words constraints and objectives scope, i will limit my vigilant view through SWOT analysis.
STRENGHT,WEEKNESS, OPPORTUNITIES,THREATS(SWOT) ANALYSIS:
It’s an appraisal technique for the business to know where it stands overall. I will try to summarize the performance of Sainsbury’s past and try to visual its future according to its corporate objectives and its sector, internally (For strength and weaknesses) as well as externally (For threats and Opportunities).
During the overall reading and research of the company by available source, I found the following key finding about the company, and believe that they are working well on their five years of focus to achieve its Corporate objectives towards “Recovery to Growth from 2007 to 2010” will be successful,
Because it has:
1. Strengths to Utilize From:
v A long 140 years history of serving its customers, a geographical spread of 502 supermarkets, and 290 convenient stores, dispersed to acquire 16% of total market share with 11 stores in Northern Ireland.
v A well diversified business divisions of Retailing, Financial services, and Property investment
v Customer focused approach to provide improve products and innovation to services to retain loyalty and well known brand, built on heritage of providing healthy, safe, fresh and tasty food.
v Over 18m customer’s transactions a week, with a range of 30,000 good products at fair price to offer, offering an internet based home deliver to 88% of UK shoppers, with its niche approach.
v A healthy growth rate of 4.5% in its LFL sales and 5.7% overall sales and a 11% growth in profit. To provide a dividend of 13.2p and a cover of 1.67 for the investors
v Investing and operating activities and management are improved and efficient, to earn healthy profit before tax of £543m, underlying basic earnings 22.1p (2006:14.7), operating cash flow:£1,206 (2006:£830)
v In October 2008 the Institute of Grocery Distribution presented us with its ‘Award for Consumer Understanding’ for delivering innovative and appropriate solutions for customers.
2. Weaknesses Required To Overcome:
v New channel of business (Non-food online) a problem child could use the resources of the company and may cause trouble for the rising star (Online-Food home delivers service) to continue growth due to funds being segregated, or may be reduced.
v Loss from the joint ventures (even after completing £750m of complete property transactions), increase in finance cost, higher depreciation expense and decrease in finance income, shows a need for improvement in financing and property legs of the business.
3. Opportunities required to exploit to:
v Increase its products and business portfolio with 20% increase in clothing-TU, £4m post-tax profit in banking could help to capture more share of the sector.
v Increase customers & Market share by additional 150 stores with a growth rate of 5% till 2010/11.
v Online-Food home delivery has shown a good progress of 25% annualizing at over £500m, which can be cash cow in the future.
v Promote its RSPCA freedom food chicken (130%) up & its 1 per cent fat’ milk, (launched in April 2008), as 2.5m UK households already consuming that, to accelerate till as well as the products encashment.
v Increased trading intensity per Sqf to £20.01 (£19.30:2006/7), can help the company to pack its shelves with new products and make it more spacey to reach maximum hands and fill more baskets.
4. Threats which Required
v Concentrating only on five key areas of the business, i.e. : great product at fair prices, accelerating the growth of complementary non-food ranges, reaching more customers through additional channels, growing supermarket space and active property management. It could be not sufficient enough to meet interest of all stakeholders involved and could involve strategic risk as well.
v A well diversified team of 150,000 colleagues are hard to monitor for a one focused objective, and could lead to performance risk and goals may not be up to desired levels.
v Economic downturn has challenged the household’s disposal income, and unemployment resulting in an increase demand for value from customers, which could affect the cost and sales of the group.
v Increasing awareness of environmental factors has forced the company to reduce packaging and waste and energy usage across the stores, which could affect the performance and could increase the cost in development and innovation.
v Funding the corporate objectives are key to success, which can be hindered by the interest and foreign currency risks, as well as the wrong investing or financing policies, which are controlled by a professionals in treasury department and are reviewed by internal auditors.
v The internal risk of fraud and unethical activities by the employees to attain self satisfactions, could increase the cost of monitoring and control and would require more staff for internal auditors and more equipment cost to control the activities.
v Due to the food industry, its always risky to have health and safety compliances and strict measure to keep legal threats and incidents away from the company.
v Customers experience and high quality required more IT involved, which can cause a infrastructure and process engineering risk to the company and enhance the cost of training and development.
v Other type of risks involved are, pension risk , due to involvement in pension arrangement (benefits schemes) and second could be, Product safety.
ETHICAL AND CSR ASPECTS, To BEAR IN FOCUS!
v In February 2009, Sainsbury’s was the first major super market who stopped selling caged hens eggs.
v Committed to provide zero food wastage to landfill by the end of 2009, and reduce CO2 emissions, already saved 53,000 tones of CO2 by only 200 stores in 2008.
v It is Largest Corporate partner for Comic Relief Charity, donating over £40m in last 10 years.
v Donated £70m worth of sport equipment for Active Kids, since 2005.
v Over 2000 colleagues, participating in YOU CAN, company’s umbrella brand to support jobs and opportunities.
Ref 6: Over all view of Sainsbury’s
5 CONCLUSIONS & RECOMENDATIONS:
Sainsbury’s have learnt lesson from its past, and from over all analysis of financial and business aspects its look like company have progress well over the last years, and looking solid in fixing its fundamental parts of its operations placing business on a strong position to accelerate. Its heavy spending and media war, campaigns and advertisement have enabled the company to boost is sales by 4.5% excluding fuel.
Its universal customers appeal and continued investment in price & quality have proved key to its progress, and offers to buy deals at best price. Its variety of product range, offering flexibility to choose from, have enabled growth in customers to 18m a week helping till accelerate fast.
Price perception have improved with great products and fair price on shelves and continuous investment in price, promotion and marketing activities.
Investing in five core areas, (corporate objectives) have set a vision for the company, helping growth and provide great opportunities to progress in the future.
It is concentrating its online business leg to help to generate more revenue, which has increased in growth by 25% , which could increase it market share overall and create new competitors to expand its growth.
Its growth plans involve heavy investment, which could prove risky in such a unstable economic conditions and turmoil for the sector and industry, where other competitors are focusing on their existing operations.
Sainsbury’s performance has rung the bells on market leader Tesco, and other competitors with strong on board performance, but still Morrison is the market leader with an 8.5% growth in October 09.
1- GDP growth: a false dawn for UK economy? http://www.thisismoney.co.uk/news/article.html?in_article_id=492114&in_page_id=2
2- UK Supermarket Analysis (2007-2010) http://www.just-food.com/store/productprint.aspx?id=53975
3- UK economic recovery underway, says BoE's Sentence http://www.ftadviser.com/FTAdviser/Regulation/Regulators/Treasury/News/article/20091117/437ff4e8-d379-11de-8eea-00144f2af8e8/UK-economic-recovery-underway-but-relaxed-monetary-policy-to-continue-Andrew-Sentance.jsp
4- Shares, dividend and earnings performance over the years on LSE market. http://markets.ft.com/tearsheets/financialsSummary.asp?s=uk:SBRY
5- Business Analysis http://www.businessdictionary.com/definition/business-analysis.html
6- Over all view of Sainsbury’s http://www.j-sainsbury.co.uk/ar09/businessreview/principalrisks2.shtml
Key Progress and Achievement http://www.j-sainsbury.co.uk/ar09/businessreview/keyprogressandachievements.shtml
Key financial indicators: http://www.j- sainsbury.co.uk/ar09/businessreview/keyfinancialperformanceindicators.shtml
7- NOTE: Financial data was acquired from : This is money http://investing.thisismoney.co.uk/cgi-bin/digitalcorporate/thisismoney/security.cgi?ticker=SBRY&action=financials&sub_action=fundamentals&username=&ac=
Financial highlights and industry averages: http://www.reuters.com/finance/stocks/ratios?symbol=SBRY.L
FTC Foulks Lynch 2005 – Drafting Financial Statement Unit 11
FTC Foulks Lynch 2004 - Financial Reporting
ACCA – F9 Financial Management