Sainsbury urges coalition not to add VAT to food

by Elizabeth Ribgy - 14/05/2010

"J Sainsbury's chief executive has urged the Con-Lib coalition to resist slapping value added tax on food in its scramble to repair the public finances as Britain's third-biggest grocer delivered solid annual sales and profits"

Justin King, one of the businessmen who vocally opposed Labour's proposed national insurance increase, said that VAT on food would be a "bad idea" as he delivered a 5.6 per cent rise in annual sales to £19.9bn.

He said: "The coalition have announced they will raise the tax band for lowest earners but if they put VAT on food they take all that benefit back. It is the poorest in our society that spend the most of their weekly money on food so that would be counter-intuitive."

Mr King, who saw pre-tax profits increase 57 per cent to £733m in the year to March 20, said he was pleased with Sainsbury's performance but acknowledged the outlook was tough.

"There is no reason that pressure for consumers is going to come off. Fuel inflation means that the average fill-up . . . is up year-on-year £5 to £6 every time you go to the pump. I don't think anybody disputes taxes will be going up and [public] spending will be going down, putting more pressure on."

The retailer, which achieved underlying sales growth of 4.3 per cent in the year, is seeing a sharp slowdown in sales - along with the rest of the industry - as food inflation drops out of the market.

Underlying sales rose 1.7 per cent in the fourth quarter - its smallest growth in almost five years.

Operating margins rose 10 basis points to 3.4 per cent - below Tesco's 6.2 per cent.

Darren Shapland, finance director, said the disparity was caused in part by Sainsbury's bigger leasehold portfolio, which meant it paid more in rent than its bigger rival. But he also acknowledged the retailer needed to whittle down its cost base in an effort to close the gap. One plan is to move the head office from from Holborn to King's Cross in 2014.

The retailer is piling on space to expand, and plans to lift its footprint by 15 per cent, or 1.1m sq ft, in the two years to March 2011.

Sainsbury also said it was withdrawing its corporate credit ratings issued by Standard & Poor's and Moody's. The retailer said it no longer needed to pay the rating agencies fees to grade its credit, given that it was not planning to tap the markets for unsecured debt. Instead, Sainsbury will raise finance against its property portfolio, valued at £9.8bn. It is the first big FTSE company to do this since Land Securities in 2004.

It also unveiled a new funding plan to reduce a £1.2bn pension deficit, with plans to transfer £750m of property to a new partnership to produce annual income of £35m for the scheme, while it is also increasing annual payments to the scheme from £38m to £49m for the next 10 years.

A final dividend of 10.2p is proposed, making a total of 14.2p for the year, an increase of 8 per cent.

More Details: http://www.ft.com/cms/s/0/ec1548aa-5eee-11df-af86-00144feab49a.html