Sir Philip Hampton, the chairman of J Sainsbury, yesterday hinted that he may increase the pay of Justin King, its chief executive, as the supermarket group revealed a fourfold rise in pre-tax profits.

The company, which was subject to a failed £10 billion bid attempt from the private equity firm CVC last month, announced ambitious three-year growth targets. It also announced that its freehold and long leasehold properties were worth £8.6 billion – 65 per cent above net book value – in an attempt to pacify shareholders disappointed by the collapse of the bid.

The shares stayed at 558p as strong trading news was offset by disappointment that the group did not unveil plans to refinance its property assets and return cash to shareholders.

Sainsbury’s also ruled out splitting into separate property and operating companies, an option suggested by Robert Tchenguiz, the property entrepreneur with a 5 per cent stake.

Mr King said: “We have concluded that this kind of structure is not appropriate at this time.” he said that it would “compromise development potential and significantly reduce competitiveness, of the operating business”.

The group made clear that such a request had been made only by Mr Tchenguiz, indicating that Delta Two, the Qatari-backed fund that recently became its largest single investor, did not back such a plan.

Mr King said that Sainsbury’s needed to invest in the business for growth, rather than return cash to shareholders at this stage, and pointed out that Sainsbury’s rivals all had a higher proportion of freehold properties in their portfolio.

Sir Philip said that the board was “very mindful” of the high rewards that Mr King, who has led Sainsbury’s turnaround, might have expected under private equity ownership. He said that the issue was something that “the remuneration committee has been considering in recent weeks and months and we will lay out something in the annual report”.

Sir Philip suggested that this was unlikely to be a completely new long-term incentive scheme, given Sainsbury’s introduction of two new schemes in recent years, but said: “We do have a range of options which should enable us to incentivise people in the business.”

These could include offering a straight pay rise to Mr King, who is already in line for a £5 million bonus next year if performance targets are met.

Mr King said that he believed that there were “many advantages” to Sainsbury’s remaining a public company. “I hope it is clear that I am motivated and excited by the job,” he said.

The chief executive will share in a £56 million bonus payout to staff, the biggest paid by the company, after it reported better than expected pretax profits of £477 million. Underlying profits, before pension and interest charge benefits rose by 42.3 per cent to £380 million.

The performance was driven by a 6.9 per cent rise in sales to £18.52 billion and a 0.3 point rise in operating margin, resulting from cost efficiencies and strong underlying sales growth, of 5.9 per cent over the year.

The group is ahead of its present three-year plan to raise sales by £2.5 billion and save £440 million of costs by 2008.

Mr King yesterday unveiled plans to spend £2.5 billion over the next three years on opening and extending stores and expanding an online grocery service to 200 locations, from 114.

The group wants to increase sales by £3.5 billion over the next three years, including the £700 million it has already committed itself to under its existing recovery plan. A third of growth is to be from nonfood goods.

Shopping list

Sainsbury’s new three-year plan
–– Raise sales by £3.5 billion (including £700 million already promised by 2008)
–– £2.33 billion of new sales from groceries
–– £1.17 billion of new sales from nonfood indicating a 20 per cent annual rise in sales of goods such as clothing and entertainment items
–– “Profit conversion in high single digits”, suggesting a 1 to 1.5 percentage point rise in operating margin over the next three years, from the 2.54 per cent announced yesterday
–– Invest £2.5 billion of capital
–– Increase store space by 10 per cent through new stores and extensions, split equally between groceries and nonfood
–– Extend or refurbish over 50 per cent of stores
–– Expand internet home delivery services to 200 stores, from 114 stores now
–– Save half the rise in operating costs (expected to be about 3 per cent a year) annually through new efficiencies
–– Develop pipeline of new sites to deliver space growth of 5 per cent a year from 2009-10

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