Preliminary Results 2000/2001

Sainsbury(J) PLC 30 May 2001 J Sainsbury plc J Sainsbury plc, the food retailer, today announces preliminary results for the full year to 31 March 2001. Results * Group sales** up 5.9% to £18.4 billion (2000 - £17.4 billion). * Underlying Group profit* before tax £549 million (2000 - £580 million). * Second half underlying Group profit* before tax and e-commerce up 16.0%. * Shaw's full-year profits up 45.6%. * Total dividend unchanged at 14.32 pence per share. * Stronger fourth quarter sales continue into the new year. Major short-term objectives met * Stabilised underlying Group profit* before tax and e-commerce at £602 million (2000 - £607 million). * Stopped year-on-year decline in profitability in Sainsbury's Supermarkets - second half profits up 21.0%. * Sustained improvement in customer numbers, up 6.0% in the second half. Action taken to refocus and strengthen the Group * Sale of Homebase for total consideration net of costs of £975 million. * Sale of Egyptian business substantially completed in past week. * Acquisition of 19 Grand Union Stores, building Shaw's in the US to 185 stores UK Supermarkets - 3 year transformation programme on track Delivering quality products * Two major new innovative food ranges - launched 'Taste the Difference' in November 2000 and 'Blue Parrot Cafe' in March 2001 * Major new quality clothing collection, designed by Jeff Banks and sold under the Jeff & Co. brand, launched in March 2001 * Introducing 2,750 new or improved own label products Improving the shopping experience * Significant progress in reinvigorating store portfolio - adding 778,000 sq ft of new space with 27 new stores including 14 supermarkets, and 34 extensions to existing stores; 16 stores refurbished in the year. * Created 6000 new jobs. * Accelerated programme for reinvigoration into 120-130 stores in 2001/02. Modernising the infrastructure * Replatforming our systems underway with IT outsourced to Accenture and blueprint for transition to new systems now in place * Major programme to modernise our distribution network centred on the development of a network of new highly automated depots around the country * On track to deliver £600 million of annualised savings by April 2004 - £90 million delivered during year. * On track to deliver margins to match industry leaders. (* before amortisation of goodwill and exceptional items) (** including VAT in Sainsbury's Supermarkets and sales tax in Shaw's.) Sir Peter Davis, Group Chief Executive, said: 'Our second half results show that the changes we have made this year in our UK supermarkets business are beginning to take effect. In the short-term our food offer is demonstrably better and our stores levels of customer service and product availability are improving. There is a lot of work still to be done but in the longer-term I am confident that we will have even better ranges, availability and stores to meet our customers needs. 'Shaw's in the US has had a successful year and our acquisition of the Grand Union stores strengthens our presence in the region. 'The sale of Homebase and of the Egyptian business have helped us to regain a stronger sense of purpose and direction for the Group in the future, and gives us a stronger balance sheet and greater financial flexibility to fund our strategic investment programme. 'As we only announced our 3-year recovery plan in October we have only just begun. There is a great deal of work yet to do, with new depots to be built and brought on stream, all our computer systems to be renewed and most of our stores still to be refurbished. Much of this will involve extra costs from double running but I am very encouraged by the progress to date and the determination of the team to deliver one of the UK's most extensive corporate recovery programmes. Meanwhile the early store refurbishments, the improvements in product quality, and in store service are bringing customers back. It is encouraging to see the turnaround in customer numbers and the increase in like-for-like sales since Christmas, which continue into the current financial year. This shows the strategy is beginning to work.' GROUP FINANCIAL SUMMARY The results reflect the very significant amount of change across the Group during the year. We launched a radical business transformation programme in Sainsbury's Supermarkets in the UK, sold Homebase and, last week, Egypt. We also achieved the two key short-term financial objectives we set ourselves in May last year - to stabilise underlying Group profit* before tax and e-commerce costs - to stop the decline in profitability in Sainsbury's Supermarkets. The second half improvement in Sainsbury's Supermarkets performance enabled the Group to deliver a 16.0% increase in underlying profitability* before tax and e-commerce in the second half. Group turnover increased by 5.9% to £18.4 billion (2000 - £17.4 billion). Underlying Group profit* before tax and e-commerce costs was £602 million, in line with last year (2000 - £607 million) and achieving our objective of stabilising underlying Group profits for the year. After e-commerce costs of £53 million (2000 - £27 million), underlying Group profit before tax was £549 million (2000 - £580 million). Operating Profit** (£m) 2H 2001 % change FY 2001 % change Continuing Operations Sainsbury's Supermarkets 254 21.0 510 -5.2 Shaw's 60 50.0 115 45.6 Sainsbury's Bank 4 100.0 13 333.3 JS Developments 12 - 25 56.3 330 25.0 663 4.2 Discontinued Operations Homebase 17 -34.6 57 -9.5 Egypt (25) -127.3 (35) -218.2 (8) 22 Total Operations 322 15.6 685 -0.4 Operating profits** from continuing operations were £663 million, an increase of £27 million or 4.2% over the previous year. Following a difficult first half, second half profits recovered strongly at £330 million, representing a year-on-year increase of 25.0%. Shaw's reported excellent profit growth with profits at £115 million, an increase of 45.6%. Sainsbury's Bank and JS Developments reported continuing strong profit performances. Operating profits** from discontinued businesses fell by £30 million, to £22 million, with Homebase and Egypt both reporting weaker second half results. (* before amortisation of goodwill and exceptional items) (** before profit-sharing, amortisation of goodwill, exceptional items, and e-commerce costs) Net interest payable was £76million (2000 - £72 million). Exceptional operating costs. The major change programme now underway in Sainsbury's Supermarkets is far reaching and covers all areas of the business. This has resulted in exceptional operating costs of £68 million in the year, broadly in line with the estimated £75 million previously announced. We anticipate further one-off exceptional costs associated with this programme of between £35 million and £50 million per annum over the next 3 years. Non-operating exceptionals. The total charges for the year were £20 million (2000 - £52 million profit). This reflects the Group's aim to refocus its management and financial resources on delivering profit recovery in the UK Supermarkets business, growing the international business, and maximising value from our UK property portfolio. The non-operating exceptionals, mostly previously announced, comprise : - profits of £27 million related to property transactions - profits of £64 million on the disposal of Homebase realised during the year - exceptional charges of £111 million resulting from the impairment write-down of our Egyptian business. Tax. The Group tax charge was £168 million (2000 - £162 million) and the underlying effective tax rate before exceptional items was 31.8% (2000 - 32.0%). Basic earnings per share was 13.8 pence (2000 - 18.3 pence). Underlying earnings* per share was 19.2 pence (2000 - 20.5 pence) Final dividend. The Board is pleased to propose an unchanged final dividend of 10.30 pence per share. Together with the Interim Dividend of 4.02 pence per share this brings the total dividend for the year to 14.32 pence per share (2000 - 14.32 pence per share). The final dividend will be paid on 27 July 2001 to those shareholders on the Register at the close of business on 8 June 2001. Group capital expenditure increased to £956 million (2000 - £803 million), mainly reflecting the acceleration of our development programmes across the Group and Shaw's purchase of 19 additional stores. In the current financial year we anticipate Group capital expenditure of £1.1 billion. Net debt at the year-end was £859 million (2000 - £1,264 million) the reduction mainly reflecting the cash generated from the disposal of Homebase. With gearing at 17% (2000 - 27%) the Group's balance sheet provides the strength to fund our major strategic investment programmes. Employees. At the year-end Group headcount was 169,900. Sainsbury's Supermarkets year-end headcount was 141,900 (2000 - 138,500). SAINSBURY'S SUPERMARKETS Our targets for the year were achieved. We have improved our product ranges and our service levels and it is evident that our customers appreciate these changes as we have reversed the decline in customer numbers and profitability. We saw strong like-for-like sales growth during the fourth quarter, of 4.8% excluding petrol. We have been driving for efficiencies, improving processes, and working together more effectively right across the business. Looking ahead, we are confident that we are on track to deliver our longer-term goal of achieving operating margins comparable with the industry leaders by the end of our 3-year programme. Financial summary Sales grew by 4.7% to £13,894 million (2000 - £13,267 million). Like-for-like sales growth was 2.3% (2000 - -0.2%) and 1.7% excluding petrol. Operating profit** for the full year was £510 million (2000 - £538 million). After a weak first half, in which operating profit fell 22.0% to £256 million (2000 - £328 million) we saw a strong recovery during the second half, with operating profit up 21.0% to £254 million (2000 - £210 million). The second half turnaround was due to a stronger trading performance, albeit against a weak comparator period last year. In the second half, the sales performance improved, particularly in the fourth Quarter, and we started to see benefits of the cost savings. This resulted in an improvement in the operating margin from 3.5% in the first half to 3.8% in the second half. Market environment The retail food market was strong, particularly in the fourth quarter, but remains highly competitive. Inflation over the year was -0.3% excluding petrol. Late last year the Competition Commission Report indicated high levels of consumer satisfaction in the industry. We have co-operated with the Director General of Fair Trading in developing a regulated code of practice dealing with supplier relationships, and have also developed our own voluntary code with our suppliers. We have led the way in developing partnerships with farmers, producers and processors to tackle problems, share information and develop opportunities. During the Foot and Mouth outbreak we have maintained our strong support for British agriculture by purchasing and promoting British products through our stores. Sainsbury's sells over £6 billion worth of British food annually and by far the greater part of the meat we sell is British. We have run additional tailor-made promotions to help market British food supplies that cannot currently be exported, are ensuring that all agricultural suppliers are paid more quickly, and are investigating how we can help rebuild the UK agricultural industry and rural communities. Business transformation Last year we achieved our objective of halting the decline in customer numbers. Our mission is to be 'First for Food', offering outstanding quality, delivering great service, at a competitive cost. Quality food is a priority for our customers and we grew our sales through a renewed focus on this, with innovations to meet clearly defined customer needs: - we launched the 'Taste the Difference' range in November and it is now our best selling brand, with sales of the current 410 lines running at around £5 million per week. A further 60 products will be launched by mid-summer. - we launched the 'Blue Parrot Cafe' in March, a range of healthier foods for children, who find them fun, innovative and tasty. So far 150 products are on the shelves, with a further 75 due to be launched shortly, and sales are running well ahead of forecasts. The next stage of our programme is enhancing our complementary non-food offer. - We recently launched the 'Jeff & Co.' range of clothes and accessories. Designed exclusively for Sainsbury's by fashion designer Jeff Banks, this is a new range of high quality women and men's clothing at affordable prices; it is already in 19 of our larger stores and being well received by our customers. Service. During the year we made great strides in improving customer service. We have made a significant investment to reduce queue lengths and a major new programme for Delivering Great Service is now being rolled out across the Supermarket's business. We strive to excel in the way we serve customers and Delivering Great Service is about being proactive and continually exceeding our customers' expectations. Competitive cost. We are confident that the £600 million per annum of cost efficiencies previously announced will be delivered by the end of our 3-year programme. Progress so far is encouraging. We are on track, with cost savings of £90 million delivered, including buying efficiencies, better purchasing, and productivity improvements in store and central departments. We anticipate further cost efficiencies of £150 million in 2001/02 financial year. These cost efficiencies will partly be reinvested in enhancing the customer offer and building sales, and partly in improving our operating margins over the next three years. These efficiencies will be partially offset by an increase in revenue investment associated with the acceleration of our refurbishment programme. Business centre. In September we will consolidate our central functions from 11 buildings to form our new business centre, located in a new building in Holborn. This is designed to encourage and support the new ways of working which we are adopting right across the company to drive forward our transformation. Modernising our IT systems. In November we out-sourced all our IT services to Accenture, along with 800 Sainsbury employees. Transforming the supermarkets business requires a step change in our IT capability which Accenture can deliver quickly and effectively. Sainsbury's legacy systems will be replaced by 'best-in-class' IT solutions, and these will give us the opportunity to gain competitive advantage. The programme to renew our systems is running to plan. Rebuilding the supply chain. We embarked on a major programme to modernise our supply chain, based on developing a network of new highly automated depots round the country. This programme is on track and the first fulfillment factory, at Haydock, is fully operational. We have acquired sites for other new facilities and rationalised parts of the existing network. We aim to reduce annual distribution costs by over £80 million, in line with our major competitors. Reinvigorating our stores. We announced a programme to reinvigorate our whole estate by the end of 2003/04, to bring all our stores up to the standards of the best. During the year, 34 stores were extended, adding 413,000 sq ft of selling space, and a further 16 stores were refurbished. Our results and customer research show that our efforts have been well appreciated by our customers. To date, the results from recently extended and refurbished stores are encouraging. The majority of our refurbished stores during the year achieved sales uplifts between 5-15%. During the year we trialled a number of different levels and styles of refurbishment. As a result we have refined the model and this is being rolled out from the beginning of the new financial year. On average, the 34 stores extended achieved sales uplifts of 23% during 2000/01, on space extended by 40%. This exceeds our expectations at this stage, and we expect ultimate sales uplifts of 35% or more. We have developed an innovative approach to customer segmentation and are developing new formats to serve the needs of the different local markets. Together with our recent sales results, these give us the confidence to accelerate the reinvigorate programme to cover 120-130 stores during 2001/02, of which 35 will be extensions. We have opened 14 new supermarkets and 13 new Locals during the year, adding 352,000 sq ft of new space and providing 6000 new jobs. In 2001/02 year we will open 11 new supermarkets and 14 new Locals, providing a further 6500 new jobs. e-commerce. e-commerce costs were £44 million (2000 - £20 million). After a late start in the market, we have made rapid progress and our Sainsbury's-to-You service has increased its national coverage to over 50% at the year-end. We have now developed a hybrid picking model, based on two dedicated picking centres and in-store picking in 33 stores. We believe this fulfillment model is more suited to the current phase of the growth of the online market, and the store-picking operation has been rolled out successfully. Our service is well received by busy working families and those who are housebound. SAINSBURY'S BANK Our financial service products have proved to be of good value and have won many awards during the year. Turnover increased by 13.2% to £154 million (2000 - £136 million). Operating profit grew to £13 million (2000 - £3 million) including a one-off credit of £3 million relating to VAT. Customer lending income increased by 32% and commission income rose by 17%. Our key competitive advantage is our in-store offer - our products are visible and available to Sainsbury's Supermarket's customers - our promotional strategy fits well in store - our low cost base enables us to offer competitive rates We anticipate continued strong growth through increased integration of our banking services into stores. In-store manning is being tested and we are increasing the links between Sainsbury's Bank products and the Reward Card. PROPERTY & JS DEVELOPMENTS We have restructured our Property Division to maximise the value of our £4.5 billion UK supermarket estate. In June we completed the sale and leaseback of 10 properties for £226 million, realising profits of £51 million. We are developing our portfolio beyond the immediate needs of supermarket shoppers, by evolving mixed use schemes, in joint-ventures with developers. These include our plans to build housing, hotel and recreational facilities in a major re-development of our Nine Elms store in London. Other plans include participating in redevelopment of our holdings in the Stamford Street area. JS Developments had another successful year, with profits up to £25 million from £16 million last year. Eight major projects were completed - a town centre redevelopment in Cardiff, three multi-unit retail parks, and four single-unit developments. INTERNATIONAL - SHAW'S (US) Financial summary Sales grew by 5.1% to $4,055 million (2000 - $3,857 million) and included the full year impact of the acquisition of Star Market in 1999. Like-for-like sales growth was 1.6% (2000 - 3.1%), reflecting the impact of the store re-modeling programme. Operating profit for the year increased by 32.6% to $171 million (2000 - $129 million). In addition to the strong trading performance, cost synergies of $21 million resulting from the integration of Star Market contributed to the profit growth. Shaw's net margin increased significantly to 4.2% (2000 - 3.3%). Business summary Shaw's is the 12th largest food retailer in the US. We are a strong regional player, with 185 stores in six states and the second largest share of the New England market. Shaw's market position as a 'food & drug combo' with an emphasis on fresh foods, customer service, and strong promotions, successfully differentiates our offer from the discount operators. The Reward loyalty programme was launched in October and we now have 3 million card-holders. Through the year we enhanced continually our customer offer - widening the choice of fresh produce, increasing the number of pharmacies, and extending our health and beauty range. The integration of Star Market in 1999 has now delivered a total of $35 million of distribution and buying cost synergies. Our customers also saw the benefits of the acquisition - Star Market's Wild Harvest and La Carte offers were introduced into selected Shaw's stores. We have completed a substantial stores investment programme - we opened 3 new stores and we completed 3 expansions, 10 re-models and upgrades. We made a significant investment in the supply chain, rationalising our distribution system around fast and slow-moving product lines. In March we completed the purchase of 19 stores from Grand Union for a total consideration of $42 million plus stock valuation of $8 million. This acquisition added estimated annual revenues of $150 million. It consolidated Shaw's position in the New England market and has increased our presence in Vermont and Connecticut. We have stimulated the two-way flow of knowledge and ideas between Shaw's and Sainsbury's, with fresh produce merchandising being a good example of this. Shaw's is strongly positioned to deliver further growth. We will extend our successful offer into the stores acquired from Grand Union. Six new store openings, 3 expansions and 49 existing store upgrades are planned for 2001/02. Continuing integration of Star Market and the Grand Union stores will realise further savings. DISCONTINUED BUSINESSES We have disposed of Homebase and sold our interests in Egypt. This enables us to focus our resources on food retailing and related activities in the UK and US. Homebase In December we announced the sale of Homebase, which has generated a total consideration of £975 million. In December, we sold 28 development sites to Kingfisher plc for £219 million in cash. In March, the existing DIY business was sold to Schroder Ventures for a net total consideration of £497 million, comprising £422 million in cash, and a £75 million vendor loan note. 44 properties independently valued at £259 million were retained by the Group. In March we sold 22 of these properties to British Land for £156 million, in line with the original valuation. The Group re-invested £23 million to retain an 17.8% equity stake. Profit realised in 2000/01 on the disposal was £64 million. We expect to sell the remaining 22 properties, which have significant development potential, over the next two years. At current valuations these will generate cash proceeds of £103 million and realise a profit on disposal of £20 million. During the second half the performance of Homebase deteriorated markedly, mainly due to poor weather and higher development costs for the large store format, and uncertainty during the sale process. For the second-half period to 3 March 2001, when the sale was completed, operating profits before e-commerce were £17 million, compared to £26 million for the prior year full second half. Full year profits before e-commerce fell by 9.5% to £57 million. Homebase e-commerce costs were £9 million (2000 - £7 million). Egypt Following a strategic review we concluded that we should withdraw from Egypt and avoid substantial further investment of management and financial resources. The results to 31 March 2001 include an impairment write-down of £111 million, including £54 million of goodwill previously capitalised. The net assets have been written down to reflect their net realisable value. Subsequent to the year-end we reached an agreement to sell our 80.1% shareholding to the owner of the remaining shares. This agreement was substantially completed on 24 May 2001. Operating losses in the second half increased to £25 million (2000 - £11 million), bringing the full year operating loss to £35 million (2000 - £11 million). SOCIAL RESPONSIBILITY Although it has been a very active year addressing the fundamentals of UK business, we have not lost sight of our corporate responsibilities. Altogether this year we have invested £14.2 million directly in support of UK communities. As a company we donated £6.4 million to programmes such as 'Fruit for Schools', 'Equipment for Schools', 'Choir of the Year', and 'Pictures for Schools'. In addition we have given £7.8 million worth of goods in kind such as used computers, uniforms and unsold fresh food to Crisis Fair Share. We also have helped raise more than £9 million for charities through our customers, and colleagues efforts for charities such as Comic Relief and charity collections in store. GROUP OUTLOOK 'While it is early days in our three year recovery programme I am pleased with the progress we have achieved so far. The stronger sales we experienced in the fourth quarter have continued into the current year. This, in tandem with the implementation of our planned transformation programme, gives us confidence in achieving our recovery.' A trading statement for the First Quarter of 2001/02 will be delivered on the day of the Group's Annual General Meeting on 25 July 2001. Group profit and loss account for the year ended 31 March 2001 2001 2000 Before Before except- Except- except- Except- ional ional ional ional items items Total items items Total Note £m £m £m £m £m £m Turnover including VAT and sales tax* 2 18,441 - 18,441 17,414 - 17,414 VAT and sales tax (1,197) - (1,197) (1,143) - (1,143) Continuing operations 15,954 - 15,954 15,030 - 15,030 Discontinued operations 1,290 - 1,290 1,241 - 1,241 Turnover excluding VAT and sales tax 17,244 - 17,244 16,271 - 16,271 Cost of sales (16,037) (45)(16,082)(15,118) (83)(15,201) Gross profit 1,207 (45) 1,162 1,153 (83) 1,070 Administrative expenses (571) (34) (605) (492) (29) (521) Profit sharing (8) - (8) (10) - (10) Amortisation of goodwill (16) - (16) (11) - (11) Group administrative expenses (595) (34) (629) (513) (29) (542) Continuing operations 603 (78) 525 652 (63) 589 Discontinued operations 9 (1) 8 (12) (49) (61) Operating profit 3 612 (79) 533 640 (112) 528 Share of operating loss in joint ventures (3) - (3) 1 - 1 Profit on sale of properties 4 - 70 70 - 52 52 Disposal of Homebase operations 5 - 21 21 - - - Impairment of Egyptian business 6 - (111) (111) - - - Disposal of operations - discontinued - (90) (90) - - - Profit on ordinary activities before interest 609 (99) 510 641 (60) 581 Net interest payable 7 (76) - (76) (72) - (72) Underlying profit on ordinary activities before tax 549 (99) 450 580 (60) 520 Amortisation of goodwill (16) - (16) (11) - (11) Profit on ordinary activities before tax 533 (99) 434 569 (60) 509 Taxation (181) 13 (168) (189) 27 (162) Profit on ordinary activities after tax 352 (86) 266 380 (33) 347 Equity minority interest (4) - (4) 2 - 2 Profit for the year 348 (86) 262 382 (33) 349 Dividends 8 (274) (274) Retained (deficit)/profit (12) 75 Basic earnings per share 9 13.8p 18.3p Underlying earnings per share** 9 19.2p 20.5p Diluted earnings per share 9 13.7p 18.2p Underlying diluted earnings per share** 9 19.0p 20.5p * Includes VAT at Sainsbury's Supermarkets and Homebase and sales tax at Shaw's Supermarkets. ** Before amortisation of goodwill and exceptional items. Group statement of total recognised gains and losses for the year ended 31 March 2001 2001 2000 £m £m Profit for the year 262 349 Currency translation differences on foreign currency net investments 10 3 Total recognised gains and losses relating to the year 272 352 There is no material difference between the above profit for the year and the historical cost equivalent. Reconciliation of movements in equity shareholders' funds for the year ended 31 March 2001 Group Company 2001 2000 2001 2000 £m £m £m £m Profit for the year 262 349 174 262 Dividends (274) (274) (274) (274) (12) 75 (100) (12) Currency translation differences 10 3 62 4 Goodwill on disposals charged to profit for the year 149 - - - New share capital subscribed for less expenses of capital issues 24 21 24 21 Amounts deducted in respect of shares issued to the QUEST (2) (1) (2) (1) Net movement in equity shareholders' funds 169 98 (16) 12 Opening equity shareholders' funds 4,742 4,644 4,435 4,423 Closing equity shareholders' funds 4,911 4,742 4,419 4,435 Balance sheets at 31 March 2001 and 1 April 2000 Group Company 2001 2000 2001 2000 £m £m £m £m Fixed assets Intangible assets 278 316 - - Tangible assets 6,215 6,563 535 394 Investments 164 98 5,370 6,131 6,657 6,977 5,905 6,525 Current assets Stocks 763 986 - - Debtors 546 320 380 120 Sainsbury's Bank 1,914 1,718 - - Investments 12 18 - - Cash at bank and in hand 475 533 222 237 3,710 3,575 602 357 Creditors: falling due within one year Sainsbury's Bank (1,796)(1,607) - - Other (2,529)(3,113) (762)(1,035) (4,325)(4,720) (762)(1,035) Net current liabilities (615)(1,145) (160) (678) Total assets less current liabilities 6,042 5,832 5,745 5,847 Creditors: falling due after more than one year (1,000) (993) (1,266)(1,412) Provisions for liabilities and charges (78) (48) (60) - Total net assets 4,964 4,791 4,419 4,435 Capital and reserves Called up share capital 483 481 483 481 Share premium account 1,401 1,379 1,401 1,379 Revaluation reserve 39 39 - - Profit and loss account 2,988 2,843 2,535 2,575 Equity shareholders' funds 4,911 4,742 4,419 4,435 Equity minority interest 53 49 - - Total capital employed 4,964 4,791 4,419 4,435 Group cash flow statement for the year ended 31 March 2001 2001 2000 Note £m £m Net cash inflow from operating activities 10 922 838 Returns on investments and servicing of finance Interest received 55 46 Interest paid (130) (109) Interest element of finance lease rental payments (20) (17) Net cash outflow from returns on investments and servicing of finance (95) (80) Taxation (168) (218) Capital expenditure and financial investment Payments to acquire tangible fixed assets (951) (755) Receipts from sale of tangible fixed assets 453 385 Purchase of own shares (18) (68) Payments for intangible fixed assets (9) (6) Net cash outflow from capital expenditure and financial investment (525) (444) Acquisitions and disposals Acquisition of and investment in subsidiary and joint ventures (45) (293) Investment in Sainsbury's Bank by minority shareholder 4 4 Proceeds from disposal of operations 11 636 - Proceeds from disposal/(investment in) other fixed asset investments 5 (1) Net cash inflow/(outflow) from acquisitions and disposals 600 (290) Equity dividends paid (274) (294) Net cash inflow/(outflow) before management of liquid resources and financing 460 (488) Financing Issue of ordinary share capital 24 16 (Decrease)/increase in short-term borrowings (497) 79 (Decrease)/increase in long-term borrowings (36) 173 Capital element of finance lease rental payments (3) (4) Net cash (outflow)/inflow from financing (512) 264 Decrease in cash in the period (52) (224) Reconciliation of net cash flow to movement in net debt Decrease in cash in the period (52) (224) Cash inflow/(outflow) from decrease/(increase) in debt and lease financing 536 (248) Debt in subsidiaries acquired - (76) New finance leases (28) (7) Currency translation difference (51) (5) Movement in net debt in the period 12 405 (560) Net debt at the beginning of the period 12 (1,264) (704) Net debt at the end of the period 12 (859) (1,264) Notes to the results 1. Accounting policies This financial statement has been prepared using the same accounting policies as set out in the financial statements for the year ended 1 April 2000. The financial year represents the 52 weeks ended 31 March 2001 (prior year the 52 weeks ended 1 April 2000). 2. Sales and underlying operating profit Sales and underlying operating profit (before profit sharing, amortisation of goodwill, exceptional items and e-commerce costs) were as follows: Results from operations Sales* Operating profit** 2001 2001 £m %change £m %change Continuing operations Sainsbury's Supermarkets 13,894 4.7 510 (5.2) Sainsbury's Bank 154 13.2 13 333.3 JS Developments 149 (9.7) 25 56.3 Shaw's Supermarkets 2,743 14.6 115 45.6 16,940 6.1 663 4.2 Discontinued operations Homebase 1,421 (0.5) 57 (9.5) Sainsbury's Egypt 80 233.3 (35) (218.2) 1,501 3.4 22 (57.7) Total 18,441 5.9 685 (0.4) * Includes VAT at Sainsbury's Supermarkets and Homebase and sales tax at Shaw's Supermarkets. ** Profit before profit sharing, amortisation of goodwill, exceptional items and e-commerce costs. The results above are before deducting e-commerce costs which were as follows: 2001 £m %change Sainsbury's Supermarkets 44 120.0 Homebase 9 28.6 Total 53 96.3 Sainsbury's Supermarkets includes £4 million of costs shown on the profit and loss account within joint ventures. 3. Operating profit 2001 2000 Dis- Dis- Continuing continued Continuing continued operations operations Total operations operations Total £m £m £m £m £m £m Turnover 15,954 1,290 17,244 15,030 1,241 16,271 Cost of sales (14,862) (1,175) (16,037) (13,953) (1,165)(15,118) Exceptional cost of sales (45) - (45) (38) (45) (83) Gross profit 1,047 115 1,162 1,039 31 1,070 Administrative expenses (465) (106) (571) (405) (87) (492) Exceptional administrative expenses (33) (1) (34) (25) (4) (29) Profit sharing (8) - (8) (9) (1) (10) Amortisation of goodwill (16) - (16) (11) - (11) Group administrative expenses (522) (107) (629) (450) (92) (542) Operating profit 525 8 533 589 (61) 528 The exceptional costs comprise the following: 2001 2000 £m £m Exceptional cost of sales Sainsbury's Supermarkets 37 27 Homebase - 45 Shaw's Supermarkets 8 11 45 83 Exceptional administrative expenses Sainsbury's Supermarkets 31 12 Homebase 1 4 Shaw's Supermarkets 2 13 34 29 Total exceptional costs 79 112 The costs in Sainsbury's Supermarkets relate to the business transformation programme which involves significant changes across the whole business and includes infrastructure projects such as reinvigorating the entire store portfolio, modernising the supply chain, replatforming all IT systems and introducing new ways of working. By the end of the year, four unprofitable stores had been closed with the closure of a further seven underway. At Shaw's Supermarkets, the reorganisation costs relate to the integration of 19 stores acquired from Grand Union. One unprofitable store was closed. 4. Profit on sale of properties 2001 2000 £m £m Sale and leaseback of UK supermarket freeholds 51 82 Disposal of Shaw's Supermarkets' shopping centres - (15) Disposal of Homebase properties (Note 5) 43 - Other (24) (15) 70 52 Property profits of £51 million were realised from the sale and leaseback of 10 Sainsbury's Supermarkets to an unrelated company for proceeds of £226 million. The leases are for 23 years at market rental increasing by 1 per cent per annum over the period of the lease. They have been treated as operating leases. 5. Disposal of operations On 21 December 2000, the Group agreed to sell the Homebase business for a total consideration of £975 million (net of costs), which comprised: Consideration (net of costs) £m Sale of Homebase Limited to Schroder Ventures Cash 422 Loan notes 75 Sale of development sites to B&Q 219 Freehold properties retained 259 Total 975 The sale to Schroder Ventures was completed on 3 March 2001 with a final consideration based on completion accounts which are in the process of being agreed. The consideration included £422 million of cash and £75 million of loan notes with a 10% coupon, repayable at the earlier of Schroder's disposal of Homebase or 2013. The sale of the development sites to B&Q plc took place on 21 December 2000 and is subject to a refund mechanism in the event that any of the sites are not completed in specified time limits. Agreement was reached on 31 March 2001 to sell £156 million of the freehold properties retained (see Note 4). The remaining properties, worth £103 million at independent valuation, have been retained for development and subsequent disposal. £23 million was reinvested in the Homebase business in exchange for a 17.8% share, comprising £1 million of equity and a further £22 million of 10% loan notes. Profit of £64 million was recognised in the year, £21 million for the disposal of the business and the development sites to B&Q (after charging goodwill previously written off of £149 million) and £43 million as profit on disposal of properties (see Note 4). A further £20 million is anticipated on the disposal of the remaining properties, based on independent valuation. 6 Impairment of Egyptian business The net assets of Egyptian Distribution Group SAE (EDGE) have been written down to reflect the estimated net realisable value. This resulted in a write off of £111 million, including £54 million of goodwill previously capitalised. Subsequent to the year end, the Group's 80.1 per cent interest in the business was sold to Mr A Nasharty, the Chairman of EDGE and owner of the remaining shares, for an initial consideration of $20 million (£14 million), with the Group settling the external overdraft and financing debts which amounted to £97 million at 31 March 2001. The sale was substantially completed on 24 May 2001. The trading result for the period from 1 April 2001 to 24 May 2001 and the costs of disposal will be included in the results for the year to 30 March 2002. 7. Capitalised interest 2001 2000 £m £m Capitalised interest included in net interest payable 24 14 8. Dividends 2001 2000 2001 2000 pence pence £m £m per per share share Interim 4.02 4.02 77 77 Final proposed 10.30 10.30 197 197 14.32 14.32 274 274 9. 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 year, excluding those held by the Employee Share Ownership Trusts 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 dilutive potential ordinary shares. 2001 2000 million million Weighted average number of shares in issue 1,901.5 1,913.5 Weighted average number of dilutive share options 9.9 4.1 Total number of shares for calculating diluted earnings per share 1,911.4 1,917.6 The alternative measure of earnings per share is provided because it reflects the Group's underlying trading performance by excluding the effect of amortisation of goodwill and exceptional items. 2001 2000 Per Per share share Earnings amount Earnings amount £m pence £m pence Basic earnings per share 262 13.8 349 18.3 Amortisation of goodwill 16 0.8 11 0.6 Exceptional items net of tax: Operating costs 64 3.4 84 4.4 Profit on sale of properties, disposal of operations and impairment write down 22 1.2 (52) (2.8) Underlying earnings per share before amortisation of goodwill and exceptional items 364 19.2 392 20.5 Diluted earnings per share 262 13.7 349 18.2 Underlying diluted earnings per share before amortisation of goodwill and exceptional items 364 19.0 392 20.5 10. Reconciliation of operating profit to net cash inflow from operating activities 2001 2000 £m £m Operating profit 533 528 Depreciation 409 410 Amortisation of intangible assets 17 12 Loss/(profit) on sale of equipment, fixtures and vehicles 2 (4) Increase in stocks (36) (86) Increase in debtors (147) (47) Increase in creditors and provisions 151 39 (Increase)/decrease in Sainsbury's Bank current assets (196) 48 Increase/(decrease) in Sainsbury's Bank creditors 189 (62) 922 838 11. Sale of business As described in Note 5 the sale of the Homebase business completed on 3 March 2001 for a total consideration of £975 million, net of costs, including the retained freehold properties. Of the total consideration, £636 million was received in cash prior to the year-end. £m Net assets disposed of: Fixed assets 339 Goodwill 8 Stock 247 Debtors 60 Cash 37 Creditors and provisions (145) 546 Goodwill written back 149 Profit on disposal 21 716 Satisfied by Cash 636 Loan notes 75 Debtors (net of transaction costs) 5 716 On 31 March 2001 retained freehold properties with a net book value of £113 million were sold for consideration of £156 million. This consideration was a debtor at year end. The business sold during the year contributed £66 million to the Group's net operating cash flows, paid £3 million in respect of net returns on investments and servicing of finance, paid £3 million in respect of taxation, utilised £89 million for capital expenditure, invested £19 million in an associate and received £12 million from sales of fixed assets. 12. Analysis of net debt Other non- At 2 Disposal cash Exchange At 31 April Cash of sub- move- move- March 2000 flow sidiary ments ments 2001 £m £m £m £m £m £m Current asset investments 18 (6) - - - 12 Cash at bank and in hand 533 (31) (37) - 10 475 551 (37) (37) - 10 487 Due within one year Bank overdrafts (162) 22 - - - (140) Borrowings (689) 497 - - (38) (230) Finance leases (3) 3 - - (4) (4) (854) 522 - - (42) (374) Due after one year Borrowings (828) 36 - - (4) (796) Finance leases (133) - - (28) (15) (176) (961) 36 - (28) (19) (972) (1,264) 521 (37) (28) (51) (859) 13. Financial statements The financial information is derived from the full Group Financial Statements for the year to 31 March 2001 and does not constitute full accounts within the meaning of section 240 of the Companies Act 1985 (as amended). The Group Accounts on which the auditors have given an unqualified report which does not contain a statement under section 237(2) or (3) of the Companies Act 1985, will be delivered to the Registrar of Companies in due course, and posted to shareholders next month. Copies may be obtained through our website www.j-sainsbury.co.uk or by calling Freephone 0800 387504 For enquires Analysts Roger Matthews/ David Boyd 020 7695 6215 Media Jan Shawe / Pip Wood 020 7695 6127

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