Sainsbury Finals

[idpickering]

"Delivering our differentiated strategy of creating a leading multi-channel Food, General Merchandise, Clothing and Financial Services retailer

· Food performance resilient; ongoing investment in quality, price and innovation

· Total transactions have increased by nearly three per cent to 26 million per week

· Investing in channels of future growth: Groceries Online grew by over eight per cent and Convenience grew by over six per cent

· Outperformance of the market in Sainsbury's and Argos's General Merchandise and Clothing

· Will deliver £160 million EBITDA synergy target from Argos acquisition six months early; accelerating plan to open 250 Argos Digital stores in Sainsbury's supermarkets

· Successfully implemented new savings and ATM banking platform at Sainsbury's Bank and launched mortgages. The Bank is well set to deliver strong profit growth

· On track to deliver three-year £500 million cost saving programme by the end of 2017/18, with further £500 million cost savings target over three years from 2018/19

· Strong balance sheet with net debt reduced by £349 million to £1,477 million"

And later;

Dividend

"Our final dividend is 6.6 pence per share, bringing our full year dividend to 10.2 pence per share, reflecting our affordable dividend policy of 2.0x cover. In the last five years, we have returned £1.4 billion in cash dividends to shareholders, equivalent to 69.5 pence per share."

And;

"Dividends

The Board has recommended a final dividend of 6.6 pence per share (2015/16: 8.1 pence). This will be paid on 7 July 2017 to shareholders on the Register of Members at the close of business on 12 May 2017, subject to approval by shareholders at the AGM. In line with the Group's policy to keep the dividend covered two times by underlying earnings, this will result in a decrease to the full-year dividend of 15.7 per cent to 10.2 pence per share (2015/16: 12.1 pence).

The proposed dividend will be, subject to approval, recommended by the Board on 2 May 2017 and, as such, has not been included as a liability as at 11 March 2017.

Sainsbury's plans to maintain a full-year dividend covered two times by our full-year underlying earnings."

http://www.investegate.co.uk/sainsbury- ... 00109748D/

[funduffer]

Boo hoo - another cut!

It is a sensible dividend policy, but is bound to lead to volatile dividend payments, as profits will inevitably rise and fall from year to year.

SBRY seems to have broken the mould of HYP shares that deliver smooth dividend returns.

FD

[Arborbridge]

It is a sensible dividend policy, but is bound to lead to volatile dividend payments, as profits will inevitably rise and fall from year to year.

I'd prefer a sensible policy if the alternative is flying closer to the sun: i.e. slicing cover or borrowing. Wouldn't most of us?

[moorfield]

this will result in a decrease to the full-year dividend of 15.7 per cent to 10.2 pence per share (2015/16: 12.1 pence).

Don't panic just yet. Although I don't hold SBRY I would look first at the effect on the projected income of your whole portfolio before reacting. I think mine would be able to absorb that cut and remain on its long term target.

[Dod1010]

I agree that most portfolios will be able to absorb this cut but 15% is a big cut. Funny how holders see it all very differently from others and when it is unheralded and just quietly announced it is accepted philosophically. If say SSE cut its dividend by 15% there would be blood all over the carpet.

Not what I want and it simply reinforces my view that I can do without the retail sector thank you. It is just too volatile and unreliable.

Dod

[Wizard]

Shares down just under 2% at this point, so market not phased / must have broadly expected these results.

Terry.

[Minesadouble]

Lots of weasel wording! Reading between the lines. Please excuse my playful cynicism

"Delivering our differentiated strategy of creating a leading multi-channel Food, General Merchandise, Clothing and Financial Services retailer. WE'RE RUNNING OUR BUSINESS

· Food performance resilient; ongoing investment in quality, price and innovation FOOD BUSINESS HASNT GONE DOWN MUCH AND WE ARE STILL SPENDING MONEY TRYING TO FIX IT.

· Total transactions have increased by nearly three per cent to 26 million per week WE HAVE MORE PEOPLE COMING INTO OUR SHOPS, WE ARE NOT GOING TO TELL YOU THAT THEY ARE SPENDING LESS AND THIS INCLUDES PEOPLE THAT JUST BUY PETROL OR A COFFEE IN THE CAFE.

· Investing in channels of future growth: Groceries Online grew by over eight per cent and Convenience grew by over six per cent. WE ARE LOSING SHARE IN THESE KEY CHANNELS BUT AT LEAST THE BUSINESS IS INCREASING.

· Outperformance of the market in Sainsbury's and Argos's General Merchandise and Clothing WE HAVE A TINY CLOTHES BUSINESS BUT DID MANAGE TO INCREASE IT QUICKER THAN THE MARKET

· Will deliver £160 million EBITDA synergy target from Argos acquisition six months early; accelerating plan to open 250 Argos Digital stores in Sainsbury's supermarkets. WE SANDBAGGED THETARGET FOR THE ARGOS DEAL AND NOW LOOK REALLY GOOD

· Successfully implemented new savings and ATM banking platform at Sainsbury's Bank and launched mortgages. The Bank is well set to deliver strong profit growth . WE BUILT A PLATFROM AND WENT INTO THE MORTGAGE MARKET AND HOPE IT WORKS OUT.

· On track to deliver three-year £500 million cost saving programme by the end of 2017/18, with further £500 million cost savings target over three years from 2018/19. JUST STATRTED BUT THIS HASN'T GONE WRONG YET

· Strong balance sheet with net debt reduced by £349 million to £1,477 million" WE CREATED A HUGE CREDIT FACILITY TO BUY ARGOS AND HAD TO PAY SOME BACK

And later;

Dividend

"Our final dividend is 6.6 pence per share, bringing our full year dividend to 10.2 pence per share, reflecting our affordable dividend policy of 2.0x cover. In the last five years, we have returned £1.4 billion in cash dividends to shareholders, equivalent to 69.5 pence per share." WE'VE CUT THE DIVIDEND BUT LOOK AT HOW MUCH WE HAVE PAID OUT BEFORE WE CUT IT


http://www.investegate.co.uk/sainsbury- ... 00109748D/

[Arborbridge]

If say SSE cut its dividend by 15% there would be blood all over the carpet.

Why Dod? What makes one cut worse than another? Do you mean because you perceive SSE as being a more reliable payer, it would be more shocking?

Arguably, with SSE's lower cover, a dividend slow down or cut would be less shocking.

Arb.

[idpickering]

Shares down just under 2% at this point, so market not phased / must have broadly expected these results.

Terry.

Ditto with me Terry. I'm not phased by this at all, and although disappointing, I shall continue to hold SBRY shares as part of my HYP. They form 3.05% in capital value terms of my HYP. As to a future top up, I doubt it. I require more stability for any major mainstay.

Regards,

Ian.

[Dod1010]

Arb

Well for a start SSE is a utility, bought for its reliable dividend and increases at least in line with inflation. Why should food retailers be any different? That is why we run HYP's. This is not necessarily a one off cut from Sainsbury to 'rebase' the dividend. This is a policy and introduces a volatility that we do not need in our income and which I would not voluntarily sign up for. However this Board seems to like retailers and they need to get something far wrong for anyone to be upset, even then, as with Tesco, posters still appear to hang on.

I am pondering what to do with the proceeds from my holding in London and St Lawrence and have just bought some Admiral with part of the holding. I do not know if that is a good idea or not and will not for a few years but I certainly would not buy a supermarket.

Dod

[blobby]

My initial reaction is one of big disappointment. J Sainsbury seems to have strong leadership with clear objectives but a reduction in profit is bad news. I hope the cost reductions, store improvements, Argos integration etc., etc. will pay off soon but I’m not keen on the dividend reduction in the meantime.

As a positive there is a strong balance sheet. Net debt reduced by £349 million to £1,477 million (2015/16: £1,826 million). I’d say Sainsbury is still low risk in comparison with other options.

Yield now 3.7% annoyingly.

[NeilW]

It used to be the case that cutting a dividend would at least require the head of the company on a platter. Which is why companies kept their dividend in line.

It looks like that control function in the UK has started to dissipate as it has in the USA - with the shift to a belief that there is no difference between capital and income.

The lack of a market move on a dividend cut is regrettable. The lack of proposals to dismiss the board members responsible even more so.

[Arborbridge]

Well for a start SSE is a utility, bought for its reliable dividend and increases at least in line with inflation. Why should food retailers be any different?

Dod, I'm not clear about this reasoning. Surely that answer to the question you ask is: because they are not utilities. The logical conclusions is - don't diversify, but buy utilities.

But we do want diversity, so we don't put all our money in utilities. Utilities are not all wonderkinder, and are subject to political interference and threats - as we have seen recently.

BTW, my next top-up may well be SSE, so I'm not arguing about that!

The lack of a market move on a dividend cut is regrettable.

Neil: but why hasn't the market reacted? Could it be that it appreciates that bad though it is, the dividend is secure now? After all, many people would argue that the new low safe yield is better than high one which blows out. The market might also realise that SBRY is progressing moderately well overall with its integration is Argos, so no further punishment is needed.

Arb.

[88V8]

Never held Sainsbury, but had Tesco... and Morrisons which I still hold fttb, I share Dod's lack of enthusiasm for retail. After I get out of Morrisons' who in capital terms are 12% away from being kicked out, I shall never go in there again.
But how logical is this.... after all, over the long run there are few true reliables.

Looking at the latest edition of UK Dividend Champions
http://dividendchampions.uk/
leaving aside Trusts, there are just eight companies that have managed 25 years without a cut, and of these only National Grid is currently at an investable yield.

Continuing down the list of adequate yielders the next is Next (24 years) - retailer - then VOD (22 years but hardly the same company) then Interserve (20 years) then.. hang on! Interserve?? Oh, the list is 2 months out of date. Oh well, bang goes another 'sturdy'.

Nothing is good for ever. What I'm looking for is a successful manufacturer of crystal balls.

V8

[Gengulphus]

If say SSE cut its dividend by 15% there would be blood all over the carpet.

Why Dod? What makes one cut worse than another? Do you mean because you perceive SSE as being a more reliable payer, it would be more shocking?

It's less shocking to shareholders because Sainsbury have been telling shareholders for some time now that their dividend policy is to have 2x cover. Any reasonably sensible shareholder will know that such a policy inevitably entails getting a rather volatile dividend amount, and will have got out quite some time ago if they cannot tolerate that. I.e. Sainsbury shareholders who would have been shocked by it are probably very largely ex-shareholders by now rather than shareholders - not all of them, obviously, as some just won't have been paying attention, but enough to make the overall shareholder reaction quite muted.

SSE's statements about the dividends they aim to pay say dividends rising at least in line with RPI inflation. Sensible shareholders will know that companies cannot always keep to such aims, of course, but they're very much expecting them to do so and so it's more shocking when they don't. It's also liable to be worse news about the company, because it implies that the company has been forced into the cut: Sainsbury's dividend being down by 15% only implies that its profits are down, SSE's being cut by 15% would imply not just that its profits were down, but also that its reserves were sufficiently depleted that it couldn't continue to try to ride out the period of low profits.

Incidentally, SSE's dividend being cut by 15% would also be quite surprising because companies that have reached the point of being forced to cut the dividend very seldom cut it by less than about 20-25%, and often by a lot more - essentially because they generally want to move to a position where the dividend is covered and they're making a decent attempt to start replenishing reserves.

Gengulphus

[pendas]

Looking on the bright side, I hold SBRY in a taxable account where I'm trying to get income under the new threshold as quickly as possible.

[monabri]

I read the bullet points and thought " so far so good"......

[Dod1010]

Gengulphus has made my point rather more eloquently than I probably would have but Sainsbury has said that their dividend policy is for cover to be at least two times and so if profits are volatile so will the dividend. I prefer what might be termed a 'smoothing' of the dividend and that is usually achievable.

I think that NeilW is being a bit hard on Sainsbury because they did lay out their strategy and are simply following through on it.

Someone else quite rightly said that no share is immune from cuts. Unilever is exiting its spreads business even although it was one of the areas right at the start of Uni before it became Unilever. They talk of a portfolio of brands in the same way that we talk of a portfolio of shares. They are constantly reassessing them and will exit and bring in new ones as they see their markets changing. I believe that we need to do the same with our shares and possibly sectors. That is why I exited my only holding in supermarkets (which just happened to be Sainsbury) in 2014 I think it was because I thought and still think that the whole retail sector is just too uncertain at the moment. Too many 'disrupters' about.

Dod

[Arborbridge]

But how logical is this.... after all, over the long run there are few true reliables.

V8, excellent post - have a virtual recc.

[Arborbridge]

Sainsbury has said that their dividend policy is for cover to be at least two times and so if profits are volatile so will the dividend.

I'm quite happy with that policy Dod and prefer it to the possible scenario of unrealistic payment of dividends (not that I'm applying that to SSE, but other companies have become overstretched in an attempt to maintain unrealistic dividends).

The main question concerns whether supermarkets can ever become the reliable payers we need in the current circumstances. After having to endure quite some time of deflationary pressure on food prices, now with some inflation in the mix, I would say there is hope on the horizon. I'm happy to wait and see and maintain the diversity while at the same time being overweight in the stocks you like, such as IMB or SSE which you commented on earlier (currently 1.5x median).

Arb.