Interim Results
Sainsbury(J) PLC
14 November 2007
Interim Results for the 28 weeks to 6 October 2007
Strong First Half Performance
Financial Summary 2007/08
• Total retail sales (inc VAT) up 4.7 per cent to £9,998 million
(2006/07: £9,549 million)
• Like-for-like sales growth excluding fuel (inc VAT) of 4.0 per cent
• Underlying profit before tax (1) up 27.0 per cent at £240 million
(2006/07: £189 million)
• Profit before tax of £232 million (2006/07: £194 million)
• Underlying basic earnings per share (2) up 32.9 per cent to 9.7 pence
(2006/07: 7.3 pence)
• Basic earnings per share of 9.4 pence (2006/07: 7.5 pence), up 25.3 per
cent
• Interim dividend of 3.0 pence (2006/07: 2.4 pence) up 25.0 per cent
Making Sainsbury's Great Again
• Grown sales by £2.3 billion: Ahead of plan to reach £2.5 billion sales
growth by March 2008
• Eleven quarters of consecutive like-for-like sales and market share growth
• Heritage provides strong brand position: Launch of 'Different Values'
campaign
• On track to deliver cost savings of £155 million in 2007/08 and
£440 million since March 2005
• Growth in customer numbers: Now 16.5 million customer transactions each
week
• Voted Supermarket of the Year for second consecutive year in Retail
Industry Awards
• Highly rated in National Consumer Council audit of retailers'
environmental performance
• Active property strategy: Just under £0.5 billion of property development
since March 2007
• JV with Land Securities plc: To unlock development value from £113 million
of freehold assets (3)
Philip Hampton, Chairman, said: 'We have delivered another strong performance
during the first half of the year and have increased our interim dividend by
25.0 per cent. Our recovery is well advanced and ahead of plan. Since March
2005, we have grown sales by £2.3 billion and we are ahead of our target to
reach £2.5 billion by March 2008. Our underlying profit before tax for the first
half was up 27.0 per cent to £240 million.
'These results demonstrate our continued ability to grow the business. Sales
growth has remained ahead of the market (4) with a good first half performance
towards the new targets outlined in May 2007. During this period we held
protracted discussions with Delta Two. It has announced it will not be
proceeding with an offer for Sainsbury's, and we continue to focus
wholeheartedly on delivering our targets. Sainsbury's has great potential under
the leadership of its strong management team and the company remains committed
to completing its recovery plan and continuing to deliver improved performance.'
Justin King, Chief Executive, said: 'Everyone at Sainsbury's has been focused on
serving customers better despite the potential distraction of corporate activity
and these results are a credit to the hard work and commitment of our 150,000
colleagues. We now have 16.5 million customers each week and in the first half
we grew like-for-like sales excluding fuel by 4.0 per cent despite tough
comparatives from the previous year and challenging weather conditions during
the summer. This takes our recovery plan into its third and final year and
builds on the excellent results delivered last year. Our two-year like-for-like
growth is around ten per cent and strong operational gearing provides a firm
base for future growth.
'With a heritage of more than 130 years of innovation in environmental, social
and ethical issues, Sainsbury's is well placed as customers increasingly look
for businesses to operate to high standards and principles. We are the only
major grocer to put product quality on a truly equal footing with price as
demonstrated through our 'Different Values' campaign. Offering a choice of great
products at fair prices has driven our recovery and is, of course, a fundamental
principle of our history.
'While there are tighter constraints on current consumer spending, we have a
strong Christmas offer and the company is significantly stronger than it was
when we launched our Making Sainsbury's Great Again plan in 2004. We have had a
strong first half and we are confident that the new three-year plans outlined in
May 2007 provide Sainsbury's with substantial opportunity for further
development of our business.'
Notes:
1. Underlying profit before tax: Profit before tax from continuing
operations before any gain or loss on the sale of properties, impairment of
goodwill, financing fair value movements and one-off items that are material and
infrequent in nature. For the 28 weeks to 6 October 2007, these one-off items
were the costs relating to approach from Delta Two.
2. Underlying basic earnings per share: Profit after tax from
continuing operations attributable to ordinary shareholders before any gain or
loss on the sale of properties, impairment of goodwill, financing fair value
movements and one-off items that are material and infrequent in nature, divided
by the weighted average number of ordinary shares in issue during the period,
excluding those held by the ESOP trusts, which are treated as cancelled.
3. Refer to separate announcement on 14 November 2007.
4. Based on TNS data released on 7 October 2007.
5. Underlying operating profit: Underlying profit before tax from
continuing operations before finance income, finance costs and share of post-tax
profit or loss from joint ventures.
6. Certain statements made in this announcement are forward
looking statements. Such statements are based on current expectations and are
subject to a number of risks and uncertainties that could cause actual events or
results to differ materially from any expected future events or results referred
to in these forward looking statements. Unless otherwise required by applicable
law, regulation or accounting standard, we do not undertake any obligation to
update or revise any forward looking statements, whether as a result of new
information, future developments or otherwise.
7. We will be holding a presentation for analysts and investors at
09:45 (GMT) on 14 November 2007.
To view the slides of the Results Presentation and the Webcast:
We recommend that you register for this event in advance. To do so, please visit
www.j-sainsbury.co.uk and follow the on-screen instructions. To participate in
the live event, please go to the website from 09:30 (GMT) on the day of the
announcement, and further instructions will be on the website. The archive of
this event will be available from 16:00 (GMT) on the day in the form of a
delayed webcast.
To listen to the Results Presentation:
To participate, dial +44 (0) 870 608 1510 at least ten minutes prior to the
start of the presentation. You will be asked to give the passcode, 145 565, your
name and company details. You will then be placed on hold and will hear music
until the presentation starts.
An archive of this event will be available from 13:00 GMT on the day by calling
+44 (0) 20 7136 9233, pin number 3796 7117 until midnight GMT on Friday 16
November 2007.
To view the transcript of the presentation: Go to www.j-sainsbury.co.uk from 16
November 2007.
Enquiries:
Investor Relations Media
Elliot Jordan Pip Wood
+44 (0) 20 7695 4931 +44 (0) 20 7695 6127
Operating review: From recovery to growth
Sainsbury's is now in the third year of its Making Sainsbury's Great Again
('MSGA') recovery plan and continues to make strong progress against its
targets. Despite challenging trading conditions and tough comparatives from the
previous year, the company's performance during the first half of 2007/08 has
shown that Sainsbury's recovery continues to be sustained and is ahead of plan.
The company has also made a good start to the 'recovery to growth' targets
announced in May 2007. These build on the original MSGA foundations to expand
and drive further growth. Sainsbury's is targeting £3.5 billion of additional
sales by 2010 and fundamental to this is the significant addition to the
company's store estate. The company plans to deliver space growth of 10 per cent
by 2010 from both new stores and extensions and actively managing its property
estate is central to delivering Sainsbury's growth and maximising shareholder
value.
Sainsbury's heritage and its ongoing passion for food continues to differentiate
the company's offer from that of its major competitors. The emphasis on 'great
products at fair prices' is at the centre of current consumer thinking as
customers actively look for healthy, safe, fresh and tasty food from companies
they trust. Two thirds of the targeted £3.5 billion of sales growth is planned
from grocery sales as new space provides the opportunity to further enhance its
food offer and continue to invest in both quality and price.
Sainsbury's non-food ranges centre around complementing its food offer as the
development of quality and innovatively designed clothing and homeware products
is accelerated. Fifty per cent of the new space will be dedicated to non-food
ranges as the company develops larger stores and is now confident in its ability
to trade stores over 70,000 sq ft.
Additional channels also help Sainsbury's reach more customers and ambitious
plans are in place to expand the company's online home delivery service and its
network of convenience stores. At the same time Sainsbury's continues to
increase efficiency through improved operations and cost reduction.
Great products at fair prices
'Great products at fair prices' underpins Sainsbury's customer proposition and
the company's goal is to exceed customer expectations for healthy, safe, fresh
and tasty food. As more retailers start to focus on the quality of their
products, Sainsbury's challenge is to keep innovating and leading the way on
ingredient standards and sourcing. In September 2007 Sainsbury's was voted
Supermarket of the Year for the second year in succession at the Retail Industry
Awards. The judges acknowledged the company for being 'at the leading edge of
food' and Sainsbury's also received awards highlighting achievements made within
its fresh produce, seafood and beers, wines and spirits offering.
Quality is of paramount importance to customers but the company also ensures it
maintains a competitive offer and has continued its investment in price.
Sainsbury's launched its 'Different Values' campaign in August to underline the
additional quality of Sainsbury's own brand products. This highlights the
higher quality specifications of Sainsbury's products - a number of which are at
the same price - compared to similar items sold by major competitors.
The 'Taste the difference' range now comprises around 1,300 products which meet
strict quality standards and was the first Sainsbury's sub-brand to be free of
artificial colours, flavours and hydrogenated fats. During September and October
the company staged the UK's biggest ever taste test, with over 200 'Taste the
difference' products sampled in-store by over five million customers. In each
week of the Taste Festival, 'Taste the difference', which is a £1 billion
sub-brand, achieved its highest sales of any week outside of the key Christmas
and Easter trading weeks with many products experiencing sales uplifts of over
100 per cent.
'Basics', Sainsbury's range of 500 entry-level low price everyday essentials, is
an important part of the company's own label product range providing customers
with a universally appealing offer. 'Basics' and 'Sainsbury's SO organic'
compete to be the company's fastest growing sub brand as sales of organic food
continue to grow with organic fresh produce up over 20 per cent year on year. '
Sainsbury's SO organic' range is the company's second largest sub brand and all
organic primary chicken, beef, pork, milk, eggs, and lamb is sourced from the
UK.
Sainsbury's has continued to develop a number of initiatives to support British
farmers such as its Farm Connections scheme which has donated over 400 computers
and software worth over £280,000 to beef producers as well as IT training and
support. Since July, Sainsbury's has sold only British fresh lamb and in
October launched two new lamb lines to help drive British lamb sales and support
farmers affected by the partial foot and mouth export ban.
With 16.5 million customers each week the company has a real impact on UK
consumers. In October three separate audits placed Sainsbury's significantly
above major competitors for its effort and commitment in the sourcing and
quality of its products. In the National Consumer Council's 'Green Grocers'
report Sainsbury's received the highest mark awarded for environmental
performance. As the only major supermarket attaining this score, it was praised
for overcoming the complexity of achieving results on a large scale and was
strongly rated for its progress in fish sustainability, Forest Stewardship
Council ('FSC') certified toilet paper and its focus on re-usable bags.
The company was the only major supermarket to be given an 'A' by Greenpeace for
its environmentally responsible timber and paper sourcing having converted its
entire range of own-brand tissue, toilet paper and kitchen towel to FSC or
recycled paper. Sainsbury's was also acknowledged in a Local Government
Association report as having the highest level of recyclable food packaging
among major food retailers. All packaging for Sainsbury's ready meals is moving
to 100 per cent compostable material by March 2008 and when Sainsbury's converts
an entire range to more sustainable packaging, it can make a huge difference.
Customers are looking to companies to implement and communicate policies on
environmental, social and ethical issues and in April 2007 Sainsbury's announced
its 'Make the difference' programme. Consumers want companies to take their
responsibilities seriously, but they also want to know what they can do
themselves. The plan puts the company and customers in partnership as each month
a 'Make the difference' day is held to raise awareness and take action on a
specific issue. In October, to coincide with the end of British summer time,
Sainsbury's gave away around one million free energy saving light bulbs, the
amount approximately sold each year, to customers making an energy saving
pledge.
Five principles are at the core of Sainsbury's brand and underpin its
activities. These are to be 'the best for food and health', 'sourcing with
integrity', to have 'respect for our environment', 'making a positive difference
to our community' and to be 'a great place to work'.
The best for food and health: Providing clear and honest product information
helps customers choose the right food for them. Sainsbury's believes it has a
responsibility to lead debate and action on issues intrinsically linked to its
operation. In October it organised and hosted its second event to move forward
the debate about food and health. Following the first event in 2006 Sainsbury's
began a partnership with MEND, the UK's largest prevention and treatment
programme for overweight and obese children and their families. Over the next
three years, fully trained Sainsbury's and local Youth Sport Trust colleagues
will be running 450 MEND programmes.
Sourcing with integrity: Sainsbury's sells more Fairtrade bananas than all other
major UK supermarkets combined following the conversion of its entire banana
range to Fairtrade. Completed in August it was the biggest conversion of its
kind worldwide. Selling Fairtrade bananas at the same price as conventional
bananas makes an enormous difference to Fairtrade farmers and their communities.
In August Sainsbury's set up a 'Fair Development Fund' in conjunction with Comic
Relief to encourage more developing countries to benefit from the Fairtrade
system and has subsequently announced the conversion of own label tea to
Fairtrade over the next three years, making it the UK's biggest Fairtrade tea
retailer and tripling UK Fairtrade tea sales. The first tea to be converted will
be Sainsbury's Red Label, a 100-year-old brand still sourced from the original
supplier.
Respect for our environment: The 'Make the difference' days in April and May
2007 saw Sainsbury's highlighting the issue of disposable plastic carrier bags
by giving customers over nine million free 'Bags for Life'. This bag, made from
100 per cent recycled material is much more durable and can be exchanged for a
new bag once worn out, with Sainsbury's recycling the old one. Sainsbury's
disposable bag usage has subsequently decreased by nearly 10 per cent in real
terms and as a result November's 'Make the difference' event this weekend will
again focus on reducing bag usage when the company expects to double the number
of 'bags for life' issued to customers for free.
A great place to work: Sainsbury's Local Heroes scheme, now in its seventh
year, recognises and rewards the charitable activities of Sainsbury's colleagues
who fundraise or volunteer time on a regular basis by matching funds raised with
awards of between £200 and £500 for the colleague's chosen charities. To
celebrate their achievements, in September 14 Local Heroes were taken on the
trip of a lifetime to Africa to understand how Fairtrade supports communities in
developing countries. The trip included visiting Sainsbury's Fairtrade rose
supplier in Kenya, and its coffee supplier in Tanzania.
Making a positive difference to our community: 'Active Kids' is a great example
of working with the local community. Customers earn 'Active Kids' vouchers
against spend in-store and online which can be redeemed against activity and
cookery equipment. Sainsbury's has donated an additional £18 million of
equipment to UK schools, nurseries and Scout and Guide groups this year bringing
the total since the 2005 launch to £52 million. September's 'Make the
difference' day saw 1,000 Sainsbury's colleagues visit local schools to donate
cooking ingredients and equipment to promote healthy eating and cookery.
Accelerating the growth of complementary non-food
Food remains at the heart of Sainsbury's offer but the addition of sales space
through both new store development and extensions is playing an increasingly
important role in the growth of non-food ranges as this is accelerated in line
with the MSGA plan outlined in October 2004.
Sainsbury's is now confident it can trade in stores over 70,000 sq ft and as
part of the new 'recovery to growth' plans, the company plans to operate 60
stores over 55,000 sq ft with over 15,000 sq ft of non-food ranges. Half of the
company's new space by 2010 will be dedicated to non-food ranges demonstrating
the importance of developing these complementary ranges, and one third of the
£3.5 billion of additional sales is anticipated from the non-food offer.
The company is continuing to develop a specialist non-food team as well as
dedicated IT and supply chain infrastructures including offices in Hong Kong and
Poland to enable more efficient and effective direct sourcing of product. In
August the company announced a proposal to create a Non-Food Centre of
Excellence by relocating its General Merchandise business to Coventry to join
the TU Clothing operation. Growth continues to run at over twice the rate of
food growth supported by positive like-for-like performance and strong
incremental growth from both new space and extensions.
Core ranges such as newspapers, magazines and stationery performed strongly and
the company continues to grow market share in areas such as computer games and
books. A new range of kitchenware has been launched during the first half and
saw the biggest increase in market share within the company's non-food ranges.
Sainsbury's has also signed an exclusive deal with one of Australia's leading
cooks, Donna Hay, to launch her own line of branded gifts in Sainsbury's stores.
There are 15 products in the range including gift boxes and cookery books which
are available in 113 stores. This new range complements Sainsbury's own
successful core gifting range.
TU, Sainsbury's own brand clothing range, continues to be a star performer and
the company is now the eleventh largest UK clothing retailer by volume and is on
track to achieve sales in excess of £300 million this year. The range was
introduced into a further 13 stores during the first half and is now in 262
stores with a target to double the space dedicated to TU in the next three
years. A 'teen' range and men's formalwear has now also been introduced and in
November Sainsbury's will be moving its best-selling standard TU t-shirt to
Fairtrade certified cotton. Sainsbury's order of Fairtrade cotton will increase
from 40 tonnes to 420 tonnes this year and is expected to rise by a further 50
per cent by next year. Nearly two million t-shirts will have moved to Fairtrade
cotton by January 2008.
Additional channels reach more customers
Sainsbury's online home delivery service continues to grow apace. Sales
increased by over 40 per cent and customer orders are now 80,000 each week. The
service is available to 83 per cent of UK households and in the first half an
additional 23 stores started running the service taking the total number to 137
stores.
Going forward, the company believes there is significant growth potential in its
online operation and plans to increase capacity in areas of high demand. It is
targeting 200 stores to operate the service by March 2010 with sales expected to
more than double. In response to customer demand the service has increased the
number of Christmas delivery slots by 40 per cent.
Sainsbury's is the first online grocery retailer to operate an Electric Zero
Emission vehicle. By Autumn 2008 these vans will be transporting 20 per cent of
all online orders, the biggest UK conversion of its kind.
Sainsbury's Bank has made good progress in stabilising its operations over the
half and a tight focus on cost control and tighter risk management actions
implemented over the past two years have strengthened the balance sheet and
offset what has been a worsening environment for consumer credit. Sainsbury's
has invested in growing the bank and in June integrated the service into its
core supermarket offer. It re-launched the bank with a product offer more in
line with customer aspirations, including a market leading internet saving
product. Under the new joint venture arrangement with HBOS, Sainsbury's is
reporting a small loss of £2 million in the first half of the year.
Increased operational efficiency
The depot network has been successfully reorganised to continue to improve
service to stores. Following the refurbishment of Sainsbury's Waltham Point site
this year to remove some of the automated equipment, the company is now
proposing to undertake a similar refurbishment to its Hams Hall depot in early
2008. A new 530,000 sq ft depot opened in Northampton last month creating 750
new jobs. Billed as Europe's 'greenest' warehouse, it will initially provide
additional capacity for Christmas and handle around 1.5 million cases a week
when fully operational. The company has also recently acquired an additional
355,000 sq ft ambient warehouse facility in Tamworth, Staffordshire to provide
additional capacity in line with sales volume growth.
At the beginning of the year a more environmentally friendly way of delivering
goods to stores was trialled by transporting food on the Thames. The deliveries
were made from the Sainsbury's depot in Charlton to its store in Wandsworth. The
trial was carried out in conjunction with the Port of London Authority, with
whom Sainsbury's has shared its learnings.
Overall the company is on target to achieve its planned £155 million of cost
savings in 2007/08 and £440 million since March 2005. Supply chain, IT and store
operations planned savings remain ahead of target while the decision has been
made to reinvest in other central cost areas such as marketing, strengthening
the in-house property team and developing the non-food offer.
Going forward, the ongoing cost savings target is to offset half of operating
cost inflation by continued simplification of processes. In October, Sainsbury's
announced that it would be relocating its central office to Kings Cross in
London in early 2011. This move is driven primarily to remove unnecessary cost
in the business and the transfer will significantly reduce central office costs
from 2011/12. The building will boast impressive environmental credentials
supporting Sainsbury's aim to reduce energy use across its business.
Active property strategy and space growth opportunities
The company believes that ownership of its property assets enables it to retain
operational flexibility while exploiting potential development opportunities and
maximising value for shareholders. Since March 2007 just under £0.5 billion
worth of development activity has been either contracted or completed as part of
Sainsbury's active property management strategy.
Sainsbury's has acquired the freehold to five of its trading sites with a value
of £111 million. In addition the company has agreed to purchase a further four
freeholds for £139 million. These sites can be extended and developed by the
specialist in-house property team providing an improved customer offer and
increasing their long-term value.
Sainsbury's has also disposed of surplus and mature assets to realise cash to
fund its development investments. A number of transactions in the first half,
including the sale of a long lease for part of the Merton site (Colliers Wood),
have raised £66 million in proceeds. Since the end of the first half
Sainsbury's has completed the sale of one of its sites within its supply chain
network that is mature in their development potential. The sale and leaseback
on this depot will realise £39 million which can be used for investment in sites
that have further value accretion.
Today, the company has also announced the formation of a strategic Joint Venture
('JV') with Land Securities which brings together undeveloped properties and
development expertise. Initially the JV will own the freeholds to three stores
at a market value of £113 million. These sites have significant development
potential beyond standard extensions and will use Land Securities development
expertise. This JV will operate in a debt efficient manner to deliver cash back
into the business for further investment. Both partners intend to add
additional properties to the JV as well as actively pursuing new opportunities
together. The company will consider similar partnerships where there is
potential to develop and increase the value of its property portfolio.
Over the next three years, the company is targeting the completion of 75
extensions and 190 refurbishments with the large majority undertaken in its
freehold and long leasehold estate. Following its improved performance,
Sainsbury's last year began actively searching again for locations where it
could introduce its offer to new communities. New space growth opportunities
are being developed as part of the plans outlined in May 2007 to grow space by
ten per cent over the next three years taking the company's estate to over 19
million sq ft. Sainsbury's plans to open 30 new supermarkets and 100 convenience
stores with space split equally across food and non-food ranges. This will
enable the continued development of a great food offer as well as growing total
non-food space.
Organic space development and store acquisitions are currently ahead of plan for
the current financial year and as a result 2007/08 space growth expectations
will be in excess of 2.5 per cent. In October Sainsbury's acquired 15 stores
from Kwiksave. At an average size of 6,000 sq ft, ten stores will be opened as
small supermarkets and five will be branded as Sainsbury's Locals. The first
four stores opened at the start of November and all will be trading for
Christmas 2007.
Supermarkets: During the first half three supermarkets were opened in Bishops
Stortford, Gosforth and Matlock, and nine stores were extended. Two stores were
closed and a further 20 were refurbished. The second half of 2007/08 sees a step
up in the store development programme with plans to open 12 new supermarkets of
which ten relate to stores acquired from Kwiksave. In addition six stores will
be extended and 30 refurbished.
Sainsbury's environmental Greenwich store, which originally opened in 1999, was
the first store of its kind representing a watershed in supermarket architecture
and a major investment in the environment. This week the store re-opens after
refurbishment, taking its green credentials to the next level.
Convenience stores: Eleven convenience stores opened in the first half and we
will have opened 25 stores by the end of the financial year, including those
acquired from Kwiksave. Growing presence in the convenience channel has been an
important part of the MSGA plans and in October Sainsbury's announced the
appointment of Dido Harding. She will join in spring 2008.
Competition Commission
Sainsbury's is pleased that the provisional findings published by the
Competition Commission bring its investigation nearer to a conclusion. In
particular, it welcomes the Commission's findings that the UK groceries market
is delivering a good deal for customers but that action is needed to improve
competition still further. As expected, the provisional report looks in detail
at many factors and Sainsbury's will be co-operating fully with the Commission
to ensure the best possible outcome for customers.
OFT investigation into dairy market
On 20 September 2007 the Office of Fair Trading published a Statement of
Objections to Sainsbury's and other food retailers and producers around
provisional findings in the dairy market. The Group is reviewing the findings
and will respond accordingly.
Financial review
The financial results for the 28 weeks to 6 October 2007 ('half year') represent
continued strong performance in line with the Making Sainsbury's Great Again ('
MSGA') plan.
Income statement
Retailing sales (inc VAT) increased by 4.7 per cent to £9,998 million (2006/07:
£9,549 million). Underlying profit before tax was up 27.0 per cent at £240
million (2006/07: £189 million). Profit before tax was £232 million (2006/07:
£194 million) an increase of 19.6 per cent. Underlying basic earnings per share
increased to 9.7 pence (2006/07: 7.3 pence), up 32.9 per cent. Basic earnings
per share increased to 9.4 pence (2006/07: 7.5 pence), up 25.3 per cent. An
interim dividend of 3.0 pence per share has been approved by the Board (2006/07:
2.4 pence), up 25.0 per cent.
Summary income statement 2007 2006
for the 28 weeks to 6 October 2007 £m £m % change
Continuing operations
Sales (inc VAT)
Retailing - Supermarkets and Convenience 9,998 9,549 4.7
Financial services - Sainsbury's Bank (1) - 175 n/a
Total sales (inc VAT) 9,998 9,724 2.8
Sales (ex VAT)
Retailing - Supermarkets and Convenience 9,250 8,841 4.6
Financial services - Sainsbury's Bank (1) - 175 n/a
Total sales (ex VAT) 9,250 9,016 2.6
Underlying operating profit
Retailing - Supermarkets and Convenience 266 215 23.7
Financial services - Sainsbury's Bank (1) - - n/a
Total underlying operating profit 266 215 23.7
Underlying net finance costs (2) (24) (26) 7.7
Share of post-tax loss from joint ventures (1) (2) - n/a
Underlying profit before tax 240 189 27.0
Financing fair value movements (1) 4 (125.0)
Profit on sales of properties - 1 n/a
Costs relating to approach from Delta Two (7) - n/a
Profit before tax 232 194 19.6
Income tax expense (71) (68) (4.4)
Profit for the financial period 161 126 27.8
Underlying basic earnings per share 9.7p 7.3p 32.9
Basic earnings per share 9.4p 7.5p 25.3
Approved interim dividend per share 3.0p 2.4p 25.0
(1) Sainsbury's Bank has been fully consolidated until the Group
sold five per cent of its shareholding in February 2007; thereafter it has been
equity accounted as a joint venture.
(2) Net finance costs pre financing fair value movements.
Retailing - Supermarkets and Convenience
Retailing sales (inc VAT) increased by 4.7 per cent to £9,998 million (2006/07:
£9,549 million) driven by good like-for-like growth and new space.
Like-for-like sales (ex fuel) were up 4.0 per cent. The profile of the
like-for-like sales (ex fuel) performance (Quarter 1: 5.1 per cent, Quarter 2:
3.1 per cent) reflects the impact of poor summer weather in Quarter 2 as well as
tough comparatives with sales last year supported by the World Cup and
exceptionally warm weather. The two-year like-for-like sales (ex fuel)
performance of 10.2 per cent remained broadly level to the performance in the
second half of 2006/07. Online sales increased by over 40 per cent driven by
strong like-for-like volumes and an extension of the geographical area covered
by the service. Like-for-like sales (inc fuel) were up 3.3 per cent in the half.
Key retailing metrics 28 weeks to 28 weeks to 52 weeks to
6 October 2007 7 October 2006 24 March 2007
Like-for-like sales (inc fuel) % (Easter adjusted) 3.3 6.8 5.7
Easter adjustment (1) % nil 0.4 0.3
New space (ex extensions) % 1.4 1.1 1.3
Total sales growth (inc fuel) % 4.7 8.3 7.3
Like-for-like sales (ex fuel) % (Easter adjusted) 4.0 6.2 5.9
Easter adjustment (1) % nil 0.5 0.3
New space (ex extensions) % 1.7 1.3 1.5
Total sales growth (ex fuel) % 5.7 8.0 7.7
Retailing underlying operating profit (£m) 266 215 429
Year on year retail profit growth % 23.7 28.0 21.9
Retailing underlying operating margin (2) % 2.88 2.43 2.54
(1) Easter adjustment takes into account the timing of Easter.
(2) Retailing underlying operating profit divided by retailing
sales (ex VAT).
Sales from new space (excluding extensions and fuel) contributed 1.7% to sales
growth in the half. The Group expects this contribution to be around 1.5 % for
the full year.
In total, 199,000 square feet of new space was added in the half year, a space
uplift of 1.1 per cent. Three new supermarkets opened during the half year and
there were two closures. Nine extensions and 20 refurbishments in the
supermarket estate were completed. In the convenience estate, 11 new stores
opened, six closed and one extension, 12 refurbishments and one conversion were
completed. Given the positive momentum on organic space development and
acquisitions, the Group expects that total space growth for the full year will
be in excess of 2.5 per cent, ahead of the Group's original target of two per
cent.
Retailing store numbers and space summary
Supermarkets Convenience Total
Number Area Number Area Number Area
000 sq ft 000 sq ft 000 sq ft
As at 24 March 2007 490 16,680 298 684 788 17,364
New stores 3 93 11 34 14 127
Closures (2) (27) (6) (13) (8) (40)
Extensions/downsizes/refurbishments 110 2 112
As at 6 October 2007 491 16,856 303 707 794 17,563
Memorandum
Extensions 9 96 1 2 10 98
Refurbishments/conversions 20 14 13 - 33 14
Total projects 29 110 14 2 43 112
Retailing underlying operating profit increased by 23.7 per cent to £266 million
(2006/07: £215 million) reflecting the positive sales performance and a 45 basis
point improvement in retailing underlying operating margin (ex VAT) to 2.88 per
cent for the half year (2006/07: 2.43 per cent). Operational gearing has been
driven from higher sales volumes and cost savings. This helped to mitigate the
impact of continued investment in price and product quality and higher energy
prices as the Group purchased its energy requirements under a fixed price energy
contract, which ended in September 2006. Overall, the Group remains on track to
deliver £155 million costs savings in 2007/08, which will ensure £440 million
cost savings as targeted in the MSGA recovery plan.
Financial services - Sainsbury's Bank
The accounting for Sainsbury's Bank in the half year reflects the sale of five
per cent of the Group's shareholding in Sainsbury's Bank to HBOS plc on 8
February 2007. Following this date, the Group's equity share (i.e. 50 per cent)
of Sainsbury's Bank's post tax loss is reported through 'Share of post-tax loss
from joint ventures'. This amounted to a £2 million loss in the half, reflecting
investment in new products and lower profit on insurance sales. The Group
expects a similar result in the second half as Sainsbury's Bank continues to
invest in new products. In addition during the first half, the Group invested a
further £10 million in the ordinary share capital of Sainsbury's Bank.
Underlying net finance costs
Underlying net finance costs decreased by £2 million to £24 million (2006/07:
£26 million) which reflect a higher return on pension scheme assets and lower
average net debt which offset higher interest rates year on year. The Group
expects a similar cost in the second half to that of the first.
Underlying net finance costs 2007 2006
for the 28 weeks to 6 October 2007 £m £m
Interest income 17 7
Net return on pension scheme assets 29 23
Underlying finance income (1) 46 30
Interest costs (73) (61)
Capitalised interest 3 5
Underlying finance costs (1) (70) (56)
Underlying net finance costs (24) (26)
(1) Finance income/costs pre financing fair value movements.
Profit on sale of properties
A breakeven position was delivered on the sale of surplus properties during the
half year, compared to a profit of £1 million in 2006/07.
Financing fair value movements
Fair value movements for the Group resulted in a £1 million loss in the half
year (2006/07: £4 million profit).
Costs relating to approach from Delta Two
The Group has incurred £7 million of costs in relation to the approach from
Delta Two.
Taxation
The income tax charge was £71 million (2006/07: £68 million), with an underlying
rate of 30.4 per cent (2006/07: 35.4 per cent) and an effective rate of 30.4 per
cent (2006/07: 35.1 per cent). These rates are lower than in the prior
financial period, primarily due to the expected decrease in the UK deferred tax
liabilities following the reduction in Corporation tax rates from 1 April 2008
and higher profits which have diluted the impact of disallowable depreciation.
Underlying basic earnings per share
Underlying basic earnings per share increased by 32.9 per cent from 7.3 pence to
9.7 pence in 2007/08, reflecting the improvement in underlying profit after tax
attributable to equity holders.
Dividends
An interim dividend of 3.0 pence per share has been approved by the Board (2006/
07: 2.4 pence) and will be paid on 4 January 2008 to shareholders on the
Register of Members at the close of business on 23 November 2007.
Summary cash flow statement
Group net debt as at 6 October 2007 was £1,571 million (2006/07: £1,644 million,
£1,765 million excluding Sainsbury's Bank) increasing by £191 million from the
2006/07 year end position of £1,380 million, of which £150 million reflects the
reversal of the working capital timing differences identified at the March 2007
year end. After adjusting for these working capital differences, the Group
continues to expect to deliver a broadly cash flow neutral position for the full
year.
Summary cash flow statement 28 weeks to 28 weeks to 52 weeks to
6 October 7 October 24 March
2007 2006 2007
£m £m £m
Cash generated from operations (1) 445 276 830
Net interest (44) (29) (83)
Corporation tax received 16 9 9
Cash flow before appropriations 417 256 756
Purchase of non-current assets (518) (392) (788)
Disposal of non-current assets/operations 26 21 93
Investment in joint ventures (10) - -
Other financing movements 6 (4) 2
Dividends paid (126) (99) (140)
Decrease in cash and cash equivalents (205) (218) (77)
Decrease in debt 25 10 79
IAS 32 and IAS 39 adjustments and other non-cash movements (11) (21) 33
Movement in net debt (191) (229) 35
Opening net debt (1,380) (1,415) (1,415)
Closing net debt (1,571) (1,644) (1,380)
Of which:
Retailing (1,571) (1,765) (1,380)
Financial services - 121 -
Closing net debt (1,571) (1,644) (1,380)
(1) 2006/07 comparatives include £240 million of cash paid into
the defined benefit schemes.
Capital expenditure
Core retail capital expenditure amounted to £416 million (2006/07 £346 million)
in the half year, which included £155 million on new store development (2006/07:
£127 million) and £209 million on extensions and refurbishments (2006/07: £205
million). During the half year, freehold properties of existing trading stores
amounting to £111 million were acquired, in line with the Group's plans to buy
in freeholds of trading sites where it believes there are potential long-term
development opportunities. This expenditure has been partially offset by
proceeds of £66 million in relation to property transactions, resulting in net
capital expenditure for the half year of £461 million. For the full year, the
Group expects that net capital expenditure will be in the region of £750 million
to £800 million, an increase from the previous guidance of £675 million
reflecting the extra space growth and purchase of additional trading freeholds.
Capital expenditure 2007 2006
£m £m
New store development 155 127
Extensions and refurbishments 209 205
Other - including supply chain and IT 52 14
Core retail capital expenditure 416 346
Freehold properties 111 -
Proceeds from property transactions (66) (19)
Net retail capital expenditure 461 327
Sainsbury's Bank capital expenditure - 2
Net Group capital expenditure 461 329
Summary balance sheet
Shareholders' funds as at 6 October 2007 were £4,708 million (2006/07: £3,964
million). Gearing reduced year on year to 33 per cent (2006/07: 41 per cent)
which primarily reflects the improvement in the net retirement benefit
obligation.
Summary balance sheet 6 October 7 October 24 March
2007 2006 2007
£m £m £m
Non-current assets 8,209 7,462 7,661
Inventories 631 574 590
Trade and other receivables 212 484 197
Amounts due from Sainsbury's Bank customers and other banks - 3,181 -
Cash and cash equivalents 800 910 1,128
Debt (2,371) (2,554) (2,508)
Net debt (1,571) (1,644) (1,380)
Trade and other payables and provisions (2,773) (2,906) (2,719)
Amounts due to Sainsbury's Bank customers and other banks - (3,187) -
Net assets 4,708 3,964 4,349
Equity shareholders' funds 4,708 3,886 4,349
Minority interests - 78 -
Total equity 4,708 3,964 4,349
Pensions
The defined benefit schemes were subject to a triennial valuation carried out by
Watson Wyatt, the schemes' independent actuaries at March 2006, on the projected
unit basis. The results of this valuation were approved by the schemes' trustees
in June 2007. The retirement benefit obligations as at 6 October 2007 have been
calculated, where appropriate, in line with this valuation.
As at 6 October 2007, the retirement benefit obligations less the fair value of
plan assets was a surplus of £299 million (2006/07: deficit of £483 million).
The net surplus after deferred tax was £228 million (2006/07: deficit of £276
million). The movement into surplus reflects the impact of the £350 million of
one-off cash contributions made in prior years and favourable market conditions.
6 October 2007 7 October 2006 24 March
£m £m 2007
£m
Present value of funded obligations (4,202) (4,483) (4,395)
Fair value of plan assets 4,507 4,006 4,298
305 (477) (97)
Present value of unfunded obligations (6) (6) (6)
Retirement benefit asset/(obligations) 299 (483) (103)
Deferred income tax (liability)/asset (71) 207 48
Net retirement benefit asset/(obligations) 228 (276) (55)
Group income statement (unaudited)
for the 28 weeks to 6 October 2007
28 weeks to 28 weeks to 52 weeks to
6 October 7 October 24 March
2007 2006 (2) 2007
Note £m £m £m
Continuing operations
Revenue 3 9,250 9,016 17,151
Cost of sales 3 (8,737) (8,425) (15,979)
Gross profit 513 591 1,172
Administrative expenses 3 (254) (376) (669)
Other income - 1 17
Operating profit 259 216 520
Finance income 4 46 34 64
Finance costs 4 (71) (56) (107)
Share of post-tax loss from joint ventures (2) - -
Profit before taxation 232 194 477
Analysed as:
Underlying profit before tax (1) 240 189 380
Profit on sale of properties - 1 7
Financing fair value movements 4 (1) 4 8
One-off items 5 (7) - 82
232 194 477
Income tax expense 6 (71) (68) (153)
Profit for the financial period 161 126 324
Attributable to:
Equity holders of the parent 161 127 325
Minority interests - (1) (1)
161 126 324
Earnings per share 7 pence pence pence
Basic 9.4 7.5 19.2
Diluted 9.1 7.5 18.9
(1) Profit before tax from continuing operations before any gain or loss on
the sale of properties, impairment of goodwill, financing fair value movements
and one-off items that are material and infrequent in nature. For the 28 weeks
to 6 October 2007, these one-off items were the costs relating to approach from
Delta Two. For the 52 weeks to 24 March 2007, these one-off items were the
profit on part disposal of Sainsbury's Bank and past service gains on defined
benefit schemes.
(2) Sainsbury's Bank has been fully consolidated until the Group sold five
per cent of its shareholding in February 2007; thereafter it has been equity
accounted as a joint venture.
An interim dividend of 3.0 pence per share (October 2006: 2.4 pence per share)
has been approved by the Board of Directors for the 28 weeks to 6 October 2007,
resulting in a total interim dividend of £52 million (October 2006: £41
million).
Group statement of recognised income and expense (unaudited)
for the 28 weeks to 6 October 2007
28 weeks to 28 weeks to 52 weeks to
6 October 7 October 24 March
2007 2006 2007
Note £m £m £m
Actuarial gains/(losses) on defined benefit pension schemes 374 (90) 179
Available-for-sale financial assets
fair value movements - 12 24
Cash flow hedges
effective portion of fair value movements - (2) -
Share-based payment tax deductions recognised directly in equity 6 (1) - 17
Deferred tax on items recognised directly in equity 6 (105) 23 (59)
Net income/(loss) recognised directly in equity 268 (57) 161
Profit for the financial period 161 126 324
Total recognised income for the financial period 429 69 485
Attributable to:
Equity holders of the parent 429 70 486
Minority interests - (1) (1)
429 69 485
Group balance sheet (unaudited)
at 6 October 2007
6 October 7 October 24 March
2007 2006 2007
Note £m £m £m
Non-current assets
Property, plant and equipment 7,349 7,119 7,176
Intangible assets 173 184 175
Investments in joint ventures 8 106 10 98
Available-for-sale financial assets 137 125 137
Amounts due from Sainsbury's Bank customers - 1,374 -
Other receivables 50 - 50
Deferred income tax asset - 9 -
Retirement benefit asset 10 299 - -
8,114 8,821 7,636
Current assets
Inventories 631 574 590
Trade and other receivables 212 383 197
Amounts due from Sainsbury's Bank customers and other banks - 1,807 -
Available-for-sale financial assets - 101 -
Derivative financial instruments 1 - -
Cash and cash equivalents 14b 800 910 1,128
1,644 3,775 1,915
Non-current assets held for sale 95 15 25
1,739 3,790 1,940
Total assets 9,853 12,611 9,576
Current liabilities
Trade and other payables (2,150) (2,178) (2,267)
Amounts due to Sainsbury's Bank customers and other banks - (2,344) -
Short-term borrowings 11 (240) (347) (373)
Derivative financial instruments (4) (8) (2)
Taxes payable (200) (113) (65)
Provisions (12) (36) (14)
(2,606) (5,026) (2,721)
Net current liabilities (867) (1,236) (781)
Non-current liabilities
Other payables (77) (32) (33)
Amounts due to Sainsbury's Bank customers and other banks - (843) -
Long-term borrowings (2,076) (2,178) (2,090)
Derivative financial instruments (52) (21) (43)
Deferred income tax liability (269) - (168)
Provisions (65) (64) (69)
Retirement benefit obligations 10 - (483) (103)
(2,539) (3,621) (2,506)
Net assets 4,708 3,964 4,349
Equity
Called up share capital 12 498 490 495
Share premium account 12 885 789 857
Capital redemption reserve 680 670 670
Other reserves 412 (58) 143
Retained earnings 2,233 1,995 2,184
Equity shareholders' funds 4,708 3,886 4,349
Minority interests - 78 -
Total equity 13 4,708 3,964 4,349
Group cash flow statement (unaudited)
for the 28 weeks to 6 October 2007
28 weeks to 28 weeks to 52 weeks to
6 October 7 October 24 March
2007 2006 2007
Note £m £m £m
Cash flows from operating activities
Cash generated from operations 14a 445 276 830
Interest paid (58) (33) (95)
Corporation tax received 16 9 9
Net cash from operating activities 403 252 744
Cash flows from investing activities
Purchase of property, plant and equipment (510) (388) (778)
Purchase of intangible assets (4) (1) (7)
Proceeds from disposal of property, plant and equipment 26 21 106
Acquisition of subsidiaries, net of cash acquired (4) (3) (3)
Investment in joint ventures 8 (10) - -
Proceeds from part disposal of Sainsbury's Bank - - 21
Cash disposed on part disposal of Sainsbury's Bank - - (33)
Costs of disposal of operations - - (1)
Interest received 16 6 15
Net cash from investing activities (486) (365) (680)
Cash flows from financing activities
Proceeds from issuance of ordinary shares 31 8 81
Capital redemption 11 (10) (2) (2)
Repayment of short-term borrowings - (4) (53)
Repayment of long-term borrowings (15) (6) (22)
Debt restructuring costs - - (2)
Interest elements of obligations under finance lease payments (2) (2) (3)
Dividends paid 9 (126) (99) (140)
Net cash from financing activities (122) (105) (141)
Net decrease in cash and cash equivalents (205) (218) (77)
Opening cash and cash equivalents 765 842 842
Closing cash and cash equivalents 14b 560 624 765
Notes to the Interim Results (unaudited)
1 General information
The Interim Results are unaudited but have been reviewed by the auditors whose
report is set out on page 28. The financial information presented herein does
not amount to full statutory accounts within the meaning of Section 240 of the
Companies Act 1985 (as amended). The Annual Report and Financial Statements
2007 have been filed with the Registrar of Companies. The Independent Auditors'
report on the Annual Report and Financial Statements 2007 was unqualified and
did not contain a statement under Section 237(2) or 237(3) of the Companies Act
1985.
The financial period represents the 28 weeks to 6 October 2007 (prior financial
period 28 weeks to 7 October 2006; prior financial year 52 weeks to 24 March
2007). The financial information comprises the results of J Sainsbury plc and
its subsidiaries ('Group') and the Group's interests in associates and joint
ventures.
2 Basis of preparation
The Interim Results have been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Services Authority and with IAS 34 'Interim
Financial Reporting' as adopted by the European Union.
The financial information contained in the Interim Results has been prepared on
the basis of the Group's IFRS accounting policies as set out in the Annual
Report and Financial Statements 2007.
The financial information contained in the Interim Results is presented in
sterling, rounded to the nearest million (£m) unless otherwise stated.
The following new standards, interpretations and amendments to published
standards are effective for the Group for the financial year beginning 25 March
2007.
• Amendments to IAS 1 'Presentation of Financial Statements - Capital
Disclosures'
• IFRS 7 'Financial Instruments: Disclosure'
• IFRIC 8 'Scope of IFRS 2'
• IFRIC 9 'Re-assessment of embedded derivatives'
• IFRIC 10 'Interim Financial Reporting and Impairment'
• IFRIC 11 'IFRS 2 - Group and Treasury Share Transactions'
The above new standards, interpretations and amendments to published standards
have had no material impact on the results or the financial position of the
Group for the 28 weeks to 6 October 2007.
3 Segment reporting
The Group's businesses are organised into two operating divisions:
• Retailing (Supermarkets and Convenience); and
• Financial services (Sainsbury's Bank).
All material operations are carried out in the UK. The business of the Group is
not subject to highly seasonal fluctuations although there is an increase in
trading at Christmas.
Retailing Financial Group
£m services £m
£m
28 weeks to 6 October 2007
Segment revenue 9,250 - 9,250
Underlying operating profit (1) 266 - 266
Costs relating to approach from Delta Two (7) - (7)
Segment result 259 - 259
Finance income 46
Finance costs (71)
Share of post-tax loss from joint ventures - (2) (2)
Income tax expense (71)
Profit for the financial period 161
28 weeks to 7 October 2006
Segment revenue 8,841 175 9,016
Underlying operating profit (1) 215 - 215
Profit on sale of properties 1 - 1
Segment result 216 - 216
Finance income 34
Finance costs (56)
Income tax expense (68)
Profit for the financial period 126
52 weeks to 24 March 2007
Segment revenue 16,860 291 17,151
Underlying operating profit (1) 429 2 431
Profit on sale of properties 7 - 7
Profit on part disposal of Sainsbury's Bank - 10 10
Past service gains on defined benefit schemes 72 - 72
Segment result 508 12 520
Finance income 64
Finance costs (107)
Income tax expense (153)
Profit for the financial period 324
(1) Underlying profit before tax from continuing operations before finance
income, finance costs and share of post-tax profit or loss from joint ventures
For the 28 weeks to 7 October 2006, the impact of Sainsbury's Bank on the Group
results was as follows:
Retailing Financial Group
£m services £m
£m
Revenue 8,841 175 9,016
Cost of sales (8,356) (69) (8,425)
Gross profit 485 106 591
Administrative expenses (270) (106) (376)
Other income 1 - 1
Operating profit 216 - 216
4 Finance income and finance costs
28 weeks to 28 weeks to 52 weeks to
6 October 7 October 24 March
2007 2006 2007
£m £m £m
Interest on bank deposits 17 7 15
Net return on pension schemes 29 23 41
Financing fair value gains (1) - 4 8
Finance income 46 34 64
Financing fair value losses (1) (1) - -
Borrowing costs
Bank loans and overdrafts - (2) (2)
Other loans (71) (57) (111)
Obligations under finance leases (2) (2) (3)
Provisions - amortisation of discount - - (1)
(74) (61) (117)
Interest capitalised - qualifying assets 3 5 10
Finance costs (71) (56) (107)
(1) Fair value gains or losses relate to fair value adjustments on
derivatives relating to financing activities and hedged items in fair value
hedges.
5 One-off items
28 weeks to 28 weeks to 52 weeks to
6 October 7 October 24 March
2007 2006 2007
£m £m £m
Costs relating to approach from Delta Two (7) - -
Profit on part disposal of Sainsbury's Bank - - 10
Past service gains on defined benefit schemes - - 72
(7) - 82
The Group has incurred £7 million of costs in relation to the approach from
Delta Two.
On 8 February 2007, J Sainsbury plc ('Company') sold a five per cent
shareholding in Sainsbury's Bank plc ('the Bank') to the Bank of Scotland (a
wholly owned subsidiary of HBOS plc) for a cash consideration of £21 million,
resulting in a profit on disposal for the Group of £10 million. Consequently
the Bank became a 50:50 joint venture between the Company and HBOS plc.
The results of the Bank have been fully consolidated into the Group results
until 8 February 2007, with a corresponding minority interest shown for the
minority share of these results. Following the sale on 8 February 2007, the
Bank is treated as a joint venture and equity accounted in the Group financial
statements.
6 Income tax expense
28 weeks to 28 weeks to 52 weeks to
6 October 7 October 24 March
2007 2006 2007
£m £m £m
Current tax expense/(credit) 76 (1) (23)
Deferred tax (credit)/expense (5) 69 176
Total income tax expense in income statement 71 68 153
Income tax expense on underlying profit (1) 73 67 132
Tax on items below:
Sale of properties - - (3)
Financing fair value movements - 1 2
Costs relating to approach from Delta Two (2) - -
Past service gains on defined benefit schemes - - 22
71 68 153
Share-based payment tax deductions recognised directly in equity 1 - (17)
Deferred tax on items recognised directly in equity
Actuarial gains and losses on defined benefit pension schemes 107 (26) 52
Available-for-sale financial assets - fair value movements (2) 4 7
Cash flow hedge reserve - fair value movements - (1) -
105 (23) 59
106 (23) 42
(1) Tax charge attributable to underlying profit before tax.
The income tax charge was £71 million (October 2006: £68 million), with an
underlying rate of 30.4 per cent (October 2006: 35.4 per cent) and an effective
rate of 30.4 per cent (October 2006: 35.1 per cent). These rates are lower than
in the prior financial period, primarily due to the expected decrease in the UK
deferred tax liabilities following the reduction in Corporation tax rates from 1
April 2008 and higher profits which have diluted the impact of disallowable
depreciation.
7 Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to
ordinary shareholders by the weighted average number of ordinary shares in issue
during the period, excluding those held by the Employee Share Ownership Plan
trusts (note 13), which are treated as cancelled.
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all potential dilutive ordinary
shares. These represent share options granted to employees where the exercise
price is less than the average market price of the Company's ordinary shares
during the period.
Underlying earnings per share is provided by excluding the effect of any gain or
loss on the sale of properties, impairment of goodwill, financing fair value
movements and one-off items that are material and infrequent in nature. This
alternative measure of earnings per share is presented to reflect the Group's
underlying trading performance.
All operations are continuing for the periods presented.
28 weeks to 28 weeks to 52 weeks to
6 October 7 October 24 March
2007 2006 2007
million million million
Weighted average number of shares in issue 1,716.8 1,687.4 1,691.3
Weighted average number of dilutive share options 45.4 12.9 28.5
Total number of shares for calculating diluted earnings per share 1,762.2 1,700.3 1,719.8
£m £m £m
Profit for the financial period attributable to equity holders of the 161 127 325
parent
(Less)/add: profit on sale of properties, net of tax - (1) (10)
financing fair value movements, net of tax 1 (3) (6)
costs relating to approach from Delta Two, net of tax 5 - -
profit on part disposal of Sainsbury's Bank - - (10)
past service gains on defined benefit schemes, net of tax - - (50)
Underlying profit after tax 167 123 249
pence pence pence
per share per share per share
Basic earnings 9.4 7.5 19.2
Diluted earnings 9.1 7.5 18.9
Underlying basic earnings 9.7 7.3 14.7
Underlying diluted earnings 9.5 7.2 14.5
8 Investments in joint ventures
In the financial period a further £10 million was invested in the ordinary share
capital of Sainsbury's Bank plc, a joint venture with the Bank of Scotland (a
wholly owned subsidiary of HBOS plc).
9 Dividend
28 weeks to 28 weeks to 52 weeks to
6 October 7 October 24 March
2007 2006 2007
Amounts recognised as distributions to equity holders in the period:
Dividend per share (pence) 7.35 5.85 8.25
Total dividend paid (£m) 126 99 140
An interim dividend of 3.0 pence per share (October 2006: 2.4 pence per share)
has been approved by the Board of Directors for the financial year ended 22
March 2008, resulting in a total interim dividend of £52 million (October 2006:
£41 million). The interim dividend was approved by the Board on 13 November
2007 and as such has not been included as a liability at 6 October 2007.
10 Retirement benefits
Retirement benefits relate to two funded defined benefit schemes, the J
Sainsbury Pension and Death Benefit Scheme and the J Sainsbury Executive Pension
Scheme and an unfunded pension liability relating to senior employees. The
defined benefit schemes were closed to new employees on 31 January 2002. The
assets of these schemes are held separately from the Group's assets.
The defined benefit schemes were subject to a triennial valuation carried out by
Watson Wyatt, the schemes' independent actuaries, at March 2006 on the projected
unit basis.
The unfunded pension liability is unwound when each employee reaches retirement
and takes their pension from the Group payroll or is crystallised in the event
of an employee leaving or retiring and choosing to take the provision as a
one-off cash payment.
The amounts recognised in the balance sheet, based on valuations performed by
Watson Wyatt, are as follows:
6 October 7 October 24 March
2007 2006 2007
£m £m £m
Present value of funded obligations (4,202) (4,483) (4,395)
Fair value of plan assets 4,507 4,006 4,298
305 (477) (97)
Present value of unfunded obligations (6) (6) (6)
Retirement benefit asset/(obligations) 299 (483) (103)
Deferred income tax (liability)/asset (71) 207 48
Net retirement benefit asset/(obligations) 228 (276) (55)
The retirement benefit asset or obligations and the associated deferred income
tax balance are shown within different line items on the face of the balance
sheet.
11 Short-term borrowings
Preference B shares liability is included within short-term borrowings. A
reconciliation of B shares liability is shown below:
28 weeks to 28 weeks to 52 weeks to
6 October 7 October 24 March
2007 2006 2007
shares shares shares
million million million
Beginning of period 27 34 34
B shares redemption (27) (5) (7)
End of period - 29 27
£m £m £m
Beginning of period 10 12 12
B shares redemption (10) (2) (2)
End of period - 10 10
12 Called up share capital and share premium account
Ordinary Ordinary Share premium
shares shares
million £m £m
At 25 March 2007 1,734 495 857
Allotted in respect of share option schemes 8 3 28
At 6 October 2007 1,742 498 885
At 26 March 2006 1,711 489 782
Allotted in respect of share option schemes 2 1 7
At 7 October 2006 1,713 490 789
At 26 March 2006 1,711 489 782
Allotted in respect of share option schemes 23 6 75
At 24 March 2007 1,734 495 857
13 Reconciliation of movements in equity
The movements in the Group's equity for the 28 weeks to 6 October 2007 and the
comparative period of 28 weeks to 7 October 2006 are set out below.
Called up Share Capital Retained Equity Minority Total
share premium redemption earnings shareholders' interests equity
capital account and other funds
reserves
£m £m £m £m £m £m £m
At 25 March 2007 495 857 813 2,184 4,349 - 4,349
Profit for the period - - - 161 161 - 161
Dividends paid - - - (126) (126) - (126)
Share-based payment - - - 25 25 - 25
Actuarial gains on defined benefit - - 267 - 267 - 267
pension schemes, net of tax
Available-for-sale financial assets
deferred tax movement - - 2 - 2 - 2
B shares redemption - - 10 (10) - - -
Shares vested - - - 4 4 - 4
Allotted in respect of share option 3 28 - (5) 26 - 26
schemes
At 6 October 2007 498 885 1,092 2,233 4,708 - 4,708
At 26 March 2006 489 782 667 1,948 3,886 79 3,965
Profit for the period - - - 127 127 (1) 126
Dividends paid - - - (99) (99) - (99)
Share-based payment - - - 22 22 - 22
Actuarial losses on defined benefit - - (64) - (64) - (64)
pension schemes, net of tax
Available-for-sale financial assets
fair value movements, net of tax - - 8 - 8 - 8
Cash flow hedges
effective portion of fair value - - (1) - (1) - (1)
movements, net of tax
B shares redemption - - 2 (2) - - -
Shares vested - - - 1 1 - 1
Allotted in respect of share option 1 7 - (2) 6 - 6
schemes
At 7 October 2006 490 789 612 1,995 3,886 78 3,964
Own shares held by Employee Share Ownership Plan ('ESOP') trusts
Own shares are held on behalf of employees by ESOP trusts under the Group's
Performance Share Plan and Executive Share Option Plan. The ESOP trusts waive
the rights to the dividends receivable in respect of the shares held under these
schemes. At 6 October 2007, £79 million (October 2006: £83 million) of own
shares is deducted from Group retained earnings.
14 Notes to the cash flow statement
(a) Reconciliation of operating profit to cash generated from
operations
28 weeks to 28 weeks to 52 weeks to
6 October 7 October 24 March
2007 2006 2007
£m £m £m
Operating profit 259 216 520
Adjustments for
Depreciation expense 247 254 479
Amortisation expense 10 11 21
Profit on sale of properties - (1) (7)
Profit on part disposal of Sainsbury's Bank - - (10)
Foreign exchange differences - - 6
Share-based payments expense 26 22 38
Operating cash flows before changes in working capital 542 502 1,047
Changes in working capital
(Increase)/decrease in inventories (41) 2 (12)
Increase in current available-for-sale financial assets - (49) (45)
Increase in trade and other receivables (18) (109) (50)
Decrease in amounts due from Sainsbury's Bank customers and other - 180 188
banks
(Decrease)/increase in trade and other payables (33) 177 314
Decrease in amounts due to Sainsbury's Bank customers and other - (121) (198)
banks
Decrease in provisions and other liabilities (1) (5) (306) (414)
Cash generated from operations 445 276 830
(1) Includes £nil (October 2006: £240 million, March 2007: £240 million)
of cash paid into the defined benefit pension schemes.
(b) Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise
the following:
6 October 7 October 24 March
2007 2006 2007
£m £m £m
Cash and cash equivalents 800 910 1,128
Bank overdrafts (240) (286) (363)
560 624 765
15 Analysis of net debt
25 March Cash flow Other non-cash 6 October
2007 movements 2007
£m £m £m £m
Current assets
Cash and cash equivalents 1,128 (328) - 800
Derivative financial instruments - - 1 1
1,128 (328) 1 801
Current liabilities
Bank overdrafts (363) 123 - (240)
Borrowings (10) 10 - -
Derivative financial instruments (2) - (2) (4)
(375) 133 (2) (244)
Non-current liabilities
Borrowings (2,039) 15 (1) (2,025)
Finance leases (51) - - (51)
Derivative financial instruments (43) - (9) (52)
(2,133) 15 (10) (2,128)
(2,508) 148 (12) (2,372)
Total net debt (1,380) (180) (11) (1,571)
Net debt incorporates the Group's borrowings (including accrued interest), bank
overdrafts, fair value of derivatives and obligations under finance leases, less
cash and cash equivalents.
Reconciliation of net cash flow to movement in net debt
28 weeks to 28 weeks to 52 weeks to
6 October 7 October 24 March
2007 2006 2007
£m £m £m
Decrease in cash and cash equivalents (205) (218) (77)
Decrease in debt 25 43 79
Loan disposed of with part disposal of Sainsbury's Bank - - 45
Other non-cash movements (11) (54) (12)
(Increase)/decrease in net debt in the period (191) (229) 35
Opening net debt at the beginning of the period (1,380) (1,415) (1,415)
Closing net debt at the end of the period (1,571) (1,644) (1,380)
16 Capital expenditure and commitments
In the financial period, there were additions to property, plant and equipment
of £519 million (October 2006: £344 million) and additions to intangible assets
of £8 million (October 2006: £4 million).
In the financial period there were disposals of property, plant and equipment of
£70 million (October 2006: £77 million).
Capital commitments contracted, but not provided for by the Group, amounted to
£247 million (October 2006: £259 million).
17 Related party transactions
The Group's significant related parties are its joint ventures as disclosed in
the Annual Report and Financial Statements 2007. There were no material changes
to the related party transactions during the financial period.
18 Contingent liability
On 20 September 2007 the Office of Fair Trading ('OFT') published a Statement of
Objections to producers and food retailers including Sainsbury's around
provisional findings in the dairy market. The Group is reviewing the findings
and will respond accordingly. As permitted by paragraph 92 of IAS 37 '
Provisions, Contingent Liabilities and Contingent Assets' the disclosure
requirements of IAS 37 have not been presented.
Principal risks and uncertainties
The principal risks and uncertainties which could impact the Group for the
remainder of the financial year are those detailed on page 27 of the Group's
Annual Report and Financial Statements 2007, a copy of which is available on the
Group's website www.j-sainsburys.co.uk.
Statement of Directors' responsibilities
The Directors confirm that this condensed set of financial statements has been
prepared in accordance with IAS 34 as adopted by the European Union, and that
the interim management report herein includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8.
The Directors of J Sainsbury plc are listed in the J Sainsbury plc Annual Report
and Financial Statements 2007. There have been the following appointments to
the Board of Directors in the financial period:
Mike Coupe 1 August 2007
Mary Harris 1 August 2007
By order of the Board
Justin King
Chief Executive
13 November 2007
Darren Shapland
Chief Financial Officer
13 November 2007
Independent review report to J Sainsbury plc
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report ('Interim Report') for the 28
weeks to 6 October 2007, which comprises the Group income statement, Group
statement of recognised income and expense, Group balance sheet, Group cash flow
statement and related notes. We have read the other information contained in the
Interim Report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set of financial
statements.
Directors' responsibilities
The Interim Report is the responsibility of, and has been approved by, the
Directors. The Directors are responsible for preparing the Interim Report in
accordance with the Disclosure and Transparency Rules of the United Kingdom's
Financial Services Authority.
As disclosed in note 2, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in the Interim Report has been
prepared in accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the Interim Report based on our review. This
report, including the conclusion, has been prepared for and only for the Company
for the purpose of the Disclosure and Transparency Rules of the Financial
Services Authority and for no other purpose. We do not, in producing this
report, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the Interim Report for the 28
weeks to 6 October 2007 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the European Union and
the Disclosure and Transparency Rules of the United Kingdom's Financial Services
Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
London
13 November 2007
Notes:
(a) The maintenance and integrity of the J
Sainsbury plc website is the responsibility of the Directors; the work carried
out by the auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes that may have
occurred to the Interim Report since they were initially presented on the
website.
(b) Legislation in the United Kingdom governing
the preparation and dissemination of financial information may differ from
legislation in other jurisdictions.
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