Final Results

Sainsbury(J) PLC
17 May 2006



17 May 2006

            Preliminary Results for the 52 weeks ended 25 March 2006



                               Recovery on Track



Making Sainsbury's Great Again: Highlights

•  16 million customer transactions each week - an increase
   of 1.5 million over last year

•  Five quarters of consecutive like-for-like sales and
   market share growth

•  Significant improvement in the offer: price, range,
   quality, product availability and service

•  Refinancing provides stable and efficient long-term funding platform

•  Pension scheme deficit being addressed and steps taken to
   reduce long-term liability

•  IT functions successfully migrated back to Sainsbury's

•  Highest ever colleague bonus to be paid in June 2006:
   117,000 colleagues share £52 million



Financial Summary presented under IFRS

•  Underlying profit before tax from continuing operations
   (1) of £267 million (2004/05: £238 million)

•  One off charges for the year total £152 million (2004/05: £497 million)

•  Profit before tax from continuing operations of £104 million (2004/05: loss 
   of £238 million)

•  Underlying basic earnings per share (2) from continuing operations: 
   10.5 pence (2004/05: 8.3 pence)

•  Basic earnings per share from continuing operations of 3.8 pence (2004/05: 
   loss of 17.4 pence)

•  Proposed final dividend of 5.85 pence per share (2004/05:
   5.65 pence), making full year dividend of 8.00 pence (2004/05: 7.80 pence)

•  Strong cash flow with underlying net debt (3) reduced by
   £77 million after funding £110 million additional pension contribution and
   unwinding of last year's positive Easter effect



Sainsbury's Supermarkets

•  Total sales (inc VAT) up 5.7 per cent to £16,987 million

•  Sales growth of £722 million is a solid start towards £2.5 billion target 
   (ex petrol and Bank)

•  Like-for-like sales (inc VAT) excluding petrol up by 3.7 per cent (Easter 
   adjusted) (5)

•  Underlying operating profit (4) of £352 million up 14.3 per cent

•  Operational gearing starting to be delivered

•  Sainsbury's heritage and brand values provide position of
   strength on issues of increasing importance to customers such as health and 
   the environment



Sainsbury's Bank

•  Underlying operating loss (4) of £10 million (2004/05 restated: profit of 
   £17 million)

•  Continued growth in customer accounts - up 8 per cent to 2.5 million

•  New CEO appointed and clear recovery plans underway



Philip Hampton, chairman, said: 'This has been a strong year of recovery for
Sainsbury's with a continued focus on the implementation of the plans outlined
in October 2004.  During the year we have strengthened the Board. Darren
Shapland joined the executive team as chief financial officer in August 2005,
John McAdam was appointed senior independent director in July 2005 and earlier
this month we welcomed Anna Ford as a non-executive director. We are proposing a
final dividend of 5.85 pence per share which is an increase of 3.5 per cent.
This will take the full year dividend to 8.00 pence per share, an increase of
2.6 per cent compared to last year, covered 1.3 times by earnings. It is the
Board's intention to restore dividend cover to at least 1.5 times. The Board
does not wish to see the dividend eroded in real terms and the increase broadly
equals inflation in the year.



'In March 2006 we completed a major refinancing, improving our long-term funding
profile and providing a flexible financing platform for the future as well as
underpinning the Making Sainsbury's Great Again plan. The refinancing has
provided us with cost effective long-term finance by unlocking value from our
property portfolio. It reduces annual interest costs and enables us to
contribute £350 million into our pension schemes.'



Justin King, chief executive, said: 'We have made good progress during the year
and we are on track in our Making Sainsbury's Great Again plan. Total sales for
the year increased by 5.8 per cent to £17,317 million and like-for-like sales
were up 3.7 per cent.  Excluding petrol and the Bank, we delivered sales growth
of £722 million, representing a solid start towards our goal to grow sales by
£2.5 billion as part of the Making Sainsbury's Great Again plan.  At the end of
the financial year we delivered our fifth consecutive quarter of like-for-like
sales growth.  This demonstrates a real step forward in our recovery as
customers notice and experience the many improvements we have been making to our
offer.



'Our sales for the year were ahead of our plans.  As a result operational
gearing in Sainsbury's Supermarkets is starting to be delivered although this
performance has, in part, had to support the more difficult trading at the Bank.
The sales performance endorses our belief in the Sainsbury's brand and shows
that we are now delivering a better and more consistent offer.  Our growth has
beaten the market and as a result our market share has increased. As the year
ended we were serving over 16 million customers each week, 1.5 million more than
at the start of the year.  In a highly competitive industry this is the result
of better quality products, lower prices, improved product availability and
service and our commitment to continually improve the shopping experience for
our customers. However, it is early days in our recovery. We still have much to
do to drive further improvements but our focus remains on putting the customer
at the heart of all decision-making.'





Notes:



1.  Underlying profit before tax from continuing operations:
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.  In the current financial
year, these one off items were the Business Review costs, IT insourcing costs
and debt restructuring costs.  In the prior financial year, these one off items
were the Business Review and Transformation costs.

2.  Underlying basic earnings per share: Profit after tax from
continuing operations attributable to equity holders 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 year, excluding
those held by the ESOP Trusts, which are treated as cancelled.

3.  Underlying net debt: Net debt before IAS 32 and IAS 39 adjustments.

4.  Underlying operating profit/(loss): Underlying profit
before tax from continuing operations before finance income and finance costs.

5.  Easter adjustment: Like-for-like sales are impacted by the
timing of the Good Friday trading week (none in 2005/06 and two in 2004/05).

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 results
to differ materially from any expected future events or results referred to in
these forward looking statements.

7.  Sainsbury's will announce its first quarter trading statement on 21 June 
    2006.

8.  We will be holding a presentation for analysts and investors at 9:45 am 
   (BST) on 17 May 2006.



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 9.30 am (BST) 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 (BST) on the day in the form of a
delayed webcast.



To listen to the Results Presentation:

To participate, dial [phone] at least ten minutes prior to the
start of the presentation. You will be asked to give 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 12.30 BST on [phone]
1970, pin number 7549988 until midnight BST on Friday 19 May 2006.



To view the transcript of the presentation:

Go to www.j-sainsbury.co.uk from Friday 19 May 2006.







Enquiries:

Investor Relations                                   Media
Lynda Ashton                                         Pip Wood
[phone]                                 [phone]



Operating Review



Sainsbury's focus on food

Sainsbury's growth in food has out-paced the market over the past year
reflecting the company's differentiated stance of being the key scale player
concentrating on food. Great food at fair prices is the foundation of the offer
and the target to grow core grocery sales by £1.4 billion is dependent upon
achieving the right balance of price and quality. Considerable investment has
been made during the year. There was grocery deflation of 1.5 per cent, and
8,500 price reductions. 'Price-checked' products which are at the same or lower
price than those of competitors, offers and promotions, and other price
reductions are highlighted under the 'Ways to Save' logo which was launched in
August 2005 and has given greater prominence in store to Sainsbury's competitive
position. Remaining price competitive is central to Sainsbury's universal
appeal.



Customers acknowledge the investment in price but also value Sainsbury's
emphasis on better quality food and the focus on fresh and seasonal products.
It is important that quality and integrity standards are not only maintained but
also further improved. The company continues to be recognised for its innovation
with numerous awards for both excellence in retailing and product quality. At
the industry's leading retail Quality Food and Drink Awards in December 2005, 30
Sainsbury's products were short-listed, the largest number of any retailer, and
Sainsbury's had all four nominations in the fresh produce category.  Sainsbury's
won nine category awards and the company's Living Salad, a tray of four
different salad leaves which customers pick straight from the living plant, took
the overall coveted Gold Award, the third year running that Sainsbury's has won
the prestigious award.



Product quality has been an inherent part of the Sainsbury's brand for over 100
years.  In June 2006 the company is providing a traditional British picnic tea
for the special 'Children's Party at The Palace' being held at Buckingham Palace
on 25 June as part of the Queen's 80th birthday events. A total of 2,000
children and 1,000 adults have been invited from throughout the UK to celebrate
Her Majesty's birthday and British children's literature.



Over the past year Sainsbury's product quality and innovation team has been
considerably strengthened to further develop the company's lead in these areas.
New training and development initiatives have seen colleagues undertake food '
master classes', and a year long cookery course is underway for product
technologists and developers. In addition the company's team of food advisors,
who work closely with schools, GP surgeries and local communities on a wide
range of food and health issues, attend a workshop with Jamie Oliver four times
a year. Nutrition training is also provided for store colleagues.



Sainsbury's has set standards for both product ingredients and nutritional
content. Clear standards have been developed for all sub-brand ranges to make
sure that Sainsbury's products continue to maintain their lead over those
offered by competitors. A new IT system ensures that all standards are adhered
to and significant enhancement has been made to the team of inspectors located
in the company's depots. The inspectors check the quality of products being
delivered before they are accepted into the Sainsbury's supply chain.  This is
particularly relevant for fresh product areas, a key driver of customer
satisfaction.  Customers now give us their highest rating for healthy, fresh and
tasty food since the company embarked on the Making Sainsbury's Great Again
programme.



Sainsbury's is committed to providing customers with fresh and tasty food and
during the year many new products and ranges have been further improved and
introduced. In September 2005 around 300 organic products were re-launched under
the brand 'Sainsbury's SO organic' which has stringent organic standards.  Our
larger stores carry the full range of over 700 Sainsbury's and branded products
and sales are up 20 per cent with good performances in fresh food areas which
are particularly valued by Sainsbury's customers.



The ongoing development of around 500 'Basics' products has also been an
important part in addressing Sainsbury's universal appeal and is the company's
fastest growing sub-brand. The range covers everyday products from bananas to
chocolate but also more exotic lines such as mangoes. The range has generated
incremental sales and research shows that around 50 per cent of customers buy
from both ends of Sainsbury's food range - both 'Basics' and 'Taste the
Difference'.



New brand standards have been applied to 'Taste the Difference' products during
the year.  Ingredients used in the range of around 900 products now include only
UK sourced meat except where the product is authentically produced in another
country (e.g. Parma ham) and free-range eggs.  All hydrogenated vegetable oils
have been removed, a process that is being replicated across all Sainsbury's
products and which will be completed by January 2007.



In January 2006 the company re-launched the 'Be Good to Yourself' (BGtY) range
with an investment of around £10 million. The range was updated from a 'diet'
brand to a more holistic health brand providing customers with the choice of low
fat diet products as well as healthier options and 'plus' meals which include
products which are fortified with added ingredients such as prebiotics,
probiotics and Omega 3.  BGtY comprises nearly 500 products, of which 100 were
new and 30 were first to market such as white, wholemeal and brown bread which
have higher fibre and 15 per cent less salt. These replaced the company's
previous standard products and as such is a good example of Sainsbury's
investment in the opportunity to make healthier choices widely available to all
customers. The range is one of many developments which have driven customers to
rate Sainsbury's approach to healthy eating above that of all other competitors.




In February 2006, a new 'Kids' range was introduced. Sainsbury's became the
first retailer to provide Guideline Daily Amounts (GDAs) for children aged 5-10
years on packaging following extensive research from the Institute of Grocery
Distribution (IGD). This showed customers would actively welcome help in making
healthy food choices for children and reflected the reality that many parents
want their children to eat the same meals as they do. GDAs for children are now
being rolled out across other product ranges.



Every product category has now been reviewed.  This involves the re-ranging and
simplification of ranges to ensure the best choice of products is in place and
displayed appropriately in-store. This has helped drive Sainsbury's strong
like-for-like sales performance. The process will now begin again and be
undertaken on a rolling basis to ensure that customers needs are constantly
addressed.



Close to 3,000 products are new or have been improved by Sainsbury's in the last
year. Sainsbury's also sells over £6 billion of British food every year and
stocks over 3,500 locally produced products. A new scheme called 'Supply
Something New' is being launched at the end of May 2006 and has been designed to
give local suppliers access to a wider market through Sainsbury's stores.
Senior managers from Sainsbury's will meet new suppliers across the country in a
search for high quality, innovative, locally produced food for customers to
enjoy.



Complementary non-food

A target of £700 million of sales growth from non-food product ranges was
outlined in October 2004.  Complementary non-food ranges currently account for
around 10 per cent of Sainsbury's sales and saw an eight per cent growth in
sales during the 2005/06 financial year which was ahead of the market.
Sainsbury's concentrates on products customers now reasonably expect to find in
a supermarket. The focus during has been to make space already dedicated to
these products work harder. During the year, 41 pharmacies were opened bringing
the total to 169. Core ranges such as cards, wrapping paper, music and DVDs have
been revamped and big product launches have been well supported. During the year
Sainsbury's opened offices in Poland and Hong Kong to liaise more directly with
suppliers and it is expected that this will provide benefits across several
product categories although the initial focus is on non-food.



In around 20 locations new products, fixtures and layouts have been trialled and
demonstrated that we can achieve the required sales densities.  As planned, more
non-food space will be introduced as stores are extended and reformatted during
the 2006/07 financial year.  It is estimated that around 50 stores will be
re-laid.



TU, Sainsbury's own label clothing range which is on sale in 202 stores has been
an incredible success story. The range was originally launched in September 2004
and sales continue to significantly out-perform those of the company's previous
clothing offer.  Like-for-like sales are up over 40 per cent and the range
continues to be developed and further improved. As part of the refurbishment and
extension programme, the company plans to introduce clothing into around 40
additional stores during the current financial year and extend the TU offer in
around 60 stores already carrying the range.



Corporate responsibility

Sainsbury's has always been an integral part of the communities in which it
trades and the company approaches its responsibility to all stakeholders as a
fundamental part of how it does business. It is a way of life and inherent in
the brand, not a new addition. This gives Sainsbury's a position of strength on
issues that are of increasing importance to customers. Sainsbury's corporate
responsibility report is available online at the company's website
www.j-sainsbury.co.uk/cr. The third edition of this report will be published in
June.  Sainsbury's was also the first supermarket to publish its commitments to
the environment which it has now been doing for a decade.



In February Sainsbury's launched 'Active Kids' for the second year. This
provides schools with activity equipment and experiences in return for vouchers
earned in store. The scheme attracted 80 per cent of all UK primary and
secondary schools, and donated over £17 million of activity equipment.  On
average each school received around £700 of rewards, a substantial contribution
when considered against the annual primary school budget estimated at around
£200 available for such equipment. The 2006 scheme has over 30,000 schools and
nurseries now registered. Around 95 per cent of customers are aware of the
scheme and believe it is important in supporting the local community.



Sainsbury's has supported Comic Relief's Red Nose Day since 1999 and in June
2005 the company announced its support of the biennial Red Nose Day and Sport
Relief campaigns as part of a new six-year deal which starts with Sport Relief
this July and runs until 2011. Sainsbury's has worked alongside Comic Relief for
eight years but this is the first time it will also be the key title sponsor for
the Sport Relief Mile. Red Nose Day is thought to be the biggest fundraising
event in the UK calendar. The money raised helps poor and disadvantaged people
in the UK and some of the poorest countries in the world to help make long-term
changes to their lives.



In a market first, Sainsbury's started selling milk from British farms
converting to organic standards at the beginning of this month. The rising
demand for organic milk currently outstrips UK supply so the company is working
with farmers to cover the additional associated costs during conversion as well
as offering 12-month supply contracts once the milk is organic. Sainsbury's
commitment to sourcing products from the UK wherever possible drove the company
to find a solution in the UK rather than import organic milk and it is the only
supermarket to do this.



In a move to address the long-term supply of organic beef, Sainsbury's was the
first supermarket to sign a contract for its British organic beef supply and has
plans for another 50 contracts within the next four months. Sainsbury's ultimate
aim is to extend this commitment to the rest of its organic beef suppliers.



The company is a long-standing supporter of the Fairtrade mark and the UK's
leading Fairtrade supermarket.  The company achieved its best ever week with
sales of over £1 million during Fairtrade Fortnight in March 2006 and has
introduced many new products such as the UK's first Fairtrade baby food.  In
February Sainsbury's placed the UK's single largest Fairtrade cotton order for
200,000 T-shirts in support of its sponsorship of Sport Relief this July.



Sainsbury's has introduced industry-leading fish sustainability plans, supported
by the Marine Conservation Society (MCS), which included the removal of skate
and huss in February 2006. Since that time the company has become the first to
sell Marine Stewardship Council (MSC) approved cod which is one of the most
endangered fish species.



Sainsbury's led the industry on nutritional labelling in January 2005 by
introducing a multiple traffic light system called the 'Wheel of Health'.  This
was developed after extensive consumer research and following input from the
Foods Standards Agency (FSA).  It was reviewed after six months and received a
huge vote of approval from customers who found it easy to understand and helpful
in deciding what products to buy.  The traffic light colours of green, amber and
red were universally understood and the 'Wheel of Health' is now on over 1,300
products.



More recent research conducted in April 2006 has found that around 80 per cent
of customers have noticed the labelling and believe it influences what they buy.
Products with greens and ambers on the 'Wheel of Health' are generally showing
positive sales trends versus similar products with ambers and reds.  The company
believes the bolder step of colour-coding the salt, fat, saturates, total sugars
and calories in a serving of each product in grams goes much further in helping
customers know more about the food they eat than simply bringing information
already on the back of packaging onto the front. This approach was endorsed by
the FSA when it announced its recommendations for nutritional labelling in March
2006.



The company has invested extensively in energy efficiency projects for many
years and has recently been trialling state of the art recycling banks in six
London sites.  The banks recycle a wide range of products from CDs and clothes
as well as plastic and glass and Sainsbury's is now rolling them out to around
50 stores this year.  We have identified 347 sites where we believe there is
potential to run such a scheme.



In the last year, Sainsbury's customers have recycled around 100 million plastic
bags through its recycling collection points. Customers are also increasingly
buying 'permanent' bags such as Sainsbury's 'Bag for Life' which are currently
selling at a rate of 120,000 each week. The company estimates that these
permanent bags save about 50 million standard bags each year.



Sainsbury's is also addressing the way its food is packaged. Last Easter the
amount of packaging used on own-brand Easter eggs was reduced by 10 per cent and
the company is also trialling fully compostable GM-free wrap on organic apples
and potatoes, the first of its kind in the UK, in 140 stores.



Sainsbury's has delivered carbon emissions reductions from its sites in excess
of 20 per cent since 2000.  Almost all large Sainsbury's supermarkets have
intranet linked, automated building controls to not only improve efficiency but
also provide power load management, further reducing energy costs.



Sainsbury's also takes a collaborative approach in its trading relationships.
Joint business plans have been developed with the company's top 200 suppliers.
Sainsbury's is now doing more direct sourcing as it believes this is a more
personal approach and allows better management of quality standards and supplier
relationships. In May 2006 the company set out its commitment to best practice
in a new handbook for suppliers which was reviewed and awarded a crystal mark by
the Plain English Campaign. The handbook aims to simplify and streamline
Sainsbury's trading principles and reduces 14 different documents into one
handbook.



During the year, donations to charitable organisations and other community
projects totalled £5.6 million.  In addition our Active Kids scheme donated
£12.5 million (at cost) to schools and the company made significant
contributions to other community-related initiatives.  Sainsbury's colleagues,
customers and suppliers raised £3.25 million for charities such as Home-Start
and the Children's Society, through events supported by the company.



Availability

When Sainsbury's announced its Making Sainsbury's Great Again recovery plan in
October 2004 product availability was cited as the number one performance issue.
Customers now enjoy industry-matching levels of product availability and
Sainsbury's is committed to driving performance further.



Night shifts now operate in the majority of supermarkets and new processes in
operation across the store estate have helped reduce out-of-stocks by 75 per
cent.  Sainsbury's has also introduced new systems to provide more up-to-date
information on which to base replenishment decisions. The roll-out of a
hand-held stock and sales system (RSS), successfully completed at the end of
March 2006, provides real-time information for colleagues on the shop floor and
has improved the efficiency of the store replenishment process.



Following a full review, the supply chain network has seen considerable
reorganisation to ensure the most efficient distribution of product to stores.
The operation at Charlton was transferred to Exel Logistics, depots at
Northfleet and Rotherham have both been closed and Basingstoke and St Albans
have been reorganised into composite facilities. The operation at Buntingford,
which has provided additional capacity at Christmas for the past two years, has
now been kept open to keep pace with the company's sales growth. Significant
support was gained from colleagues and unions during the reorganisation. The
depots at Waltham Point and Hams Hall are processing an average of two million
cases a week, significantly up on 2004/05.



In January 2006 Roger Burnley was appointed as supply chain director. Lawrence
Christensen has now moved into a part-time consulting role. With many
improvements now evident in stores much of the current year will concentrate on
consolidation of the numerous changes already made. Work on availability will
continue, including a focus upstream with suppliers to drive further
enhancements and cost savings.



Customer service

Sainsbury's better trading performance is the result of the many changes the
company has made since announcing the Making Sainsbury's Great Again recovery
plan. Every day small changes and improvements have built into a gradual and
cumulative enhancement in the experience customers receive in store.  Research
shows significant improvement in customer satisfaction not only for fundamental
areas such as price, availability and products but also in measures such as
customer service, queue lengths and checkout service. Scan School is an example
of one of the many initiatives undertaken during the year to effect the step
changes now experienced in store. Two specially fitted double decker buses have
travelled around the country delivering training sessions so that 90,000
colleagues at around 500 stores can give customers a faster, more friendly and
efficient checkout service.



Try Something New Today

Given the progress made over the past year, encouraging people to visit their
local store and reappraise the Sainsbury's offer was a key stage in the
company's recovery and in Making Sainsbury's Great Again.  The catalyst for this
was the launch of the 'Try Something New Today' branding in September 2005.



This has been very well received by colleagues and customers and products
featured in the advertising campaign have experienced significant sales uplifts.
The campaign has been successful in suggesting simple ways to make small but
impactful changes to the food we eat. Several products and ideas have been
sampled by Sainsbury's colleagues so they can experience them first hand and
over 90 per cent of colleagues now recommend new ideas to customers. Seven
million customers are now collecting 'tip cards' and over 100 million have been
distributed since launch last September.



The strapline is now a regular feature on advertising and in-store displays,
till receipts and delivery lorries but it has also been adopted as a fundamental
approach to ways of working.  Significant change, particularly at the London
office was required and the building was renamed the 'store support centre' to
place stores at the centre of everyone's responsibilities.



Colleagues

The spirit and innovation in the Try Something New Today idea has galvanised and
given direction to the entire business. Every store colleague received customer
service training last Autumn in the biggest commitment the company's senior
management has made to align colleagues behind the single aim of Making
Sainsbury's Great Again. The operating board piloted a training course to change
the way the business was led and over 1,000 managers from stores and central
teams, attended a two-day training course by the end of 2005.  Each course was
led by a member of operating board or senior management team. The training is
now being delivered to an additional 9,000 managers. The company tracks how
engaged colleagues are with its goal and values on a rolling basis and marked
improvements have been achieved since September 2005.



In March 2006 Sainsbury's was also voted London's Healthiest Large Employer by
the BBC as part of its Big Challenge Healthworks initiative. Sainsbury's was
commended for the health initiatives run for its colleagues throughout the UK.
One of the schemes which caught the judges attention was the activities of
Sainsbury's food advisors based at stores across the country.



The company will pay its highest ever colleague bonus to date in June 2006 when
£52 million will be shared between 117,000 colleagues. This reflects the huge
effort and commitment colleagues have made across the business in its progress
towards delivering the Making Sainsbury's Great Again plan.



In February 2006 Sainsbury's announced that it had made arrangements towards
addressing the company's pension scheme deficit. A one off contribution of £350
million is being made into the pension schemes in two installments. The first,
£110 million, was paid in March 2006, the second, £240 million, will be paid
during May 2006. In addition, deficit payments have been increased by £18
million to £38 million per annum, with the first of these payments to be made in
March 2007. These combined contributions are designed to eliminate Sainsbury's
reported gross deficit calculated under IAS 19 as at 8 October 2005 of £582
million. At the year end the gross deficit had increased to £658 million largely
as a result of the lower bond yields which are used in the calculation
prescribed under IAS 19.



In addition, the company announced that its defined benefit schemes would remain
in place for existing members but in order to provide a more balanced sharing of
risk and cost between members and the company, a number of changes such as
increased contributions and controls on future benefits are being introduced to
improve the funding of the schemes and increase the security of benefits.



Last year the company introduced an incentive plan specifically to support the
Making Sainsbury's Great Again recovery plan. It was a one time arrangement and
is now closed. This year Sainsbury's will be proposing a new long-term incentive
framework to shareholders at the AGM in July. This will form the basis for
arrangements to be put in place over the next 10 years, starting with the
current financial year. It will build on last year's plan and also apply to the
top 1,000 centrally based and supermarket store managers in order to retain and
motivate talent beyond the 2008/09 milestone set last year. The key proposed
measures are growth in ROCE and cash flow per share. In addition the company
will propose a new deferred bonus plan for top managers where the proposed
measure is based on TSR. In both plans there has been extensive investor
consultation.  The scheme is closely aligned with UK best practice and there
will be no rewards for failure.



Stores and formats



Supermarkets

By the end of the year, 37 of the 131 stores earmarked in October 2004 for
investment had been refurbished. In addition, ten stores were extended and 14
new stores were opened, including nine Safeway branded stores purchased from
Morrisons. Sainsbury's had 455 supermarkets at the end of the year. The Safeway
stores were refurbished and re-opened in time for Christmas trading. The 14
stores previously acquired from Morrisons are on average achieving annualised
sales uplifts of around 20 per cent. Stores acquired from Somerfield and Budgens
during the year have now also been refurbished and opened.



Following a period of relatively limited store development and new space
addition, Sainsbury's is now actively seeking new sites for supermarkets under
the leadership of Peter Baguley who joined Sainsbury's in August 2005 as the
company's property director. Early indications from both councils and developers
are encouraging with a number of opportunities starting to emerge. The company
believes that it provides a different offer from other scale supermarkets with
its focus on food and greater emphasis on quality.



Convenience stores

The company's convenience store division had another good year and is targeted
to achieve £400 million of the £2.5 billion of additional sales in the company's
recovery plan. Sainsbury's now has 297 convenience stores.  It opened 20 stores,
refurbished 94, comprising 34 Sainsbury's Locals and 60 'Sainsbury's @'. The
stores acquired from Bells and Jacksons served on average around 700,000
customers a week in 2005/06 in addition to the 16 million customer transactions
already reported. These will be added into the overall customer transaction
number when the conversion programme is completed.



Sales uplifts of over 20 per cent are now being delivered by refurbished and
converted stores and 95 per cent of customers say that the converted stores
provide an improved offer.  Customers particularly value the company's fresh
food offer and sales of these products have increased by around 100 per cent.
Future growth is expected to be delivered via both acquisition and organic
opportunities.



Jim McCarthy, who has been instrumental in the development of Sainsbury's
convenience business will leave Sainsbury's in September 2006 to take up a new
role this Autumn.



Sainsbury's Online

This service is now fully integrated with stores and significant enhancements
have been made leading to more than a 25 per cent increase in sales. The website
was re-launched at the end of September 2005 and has resulted in a marked
reduction in the time taken for first time orders.  Improvements in product
availability and customer service have substantially increased satisfaction and
retention and also helped drive new customer acquisition through
recommendations. At the start of 2006 new postcodes were added to the 97 stores
currently making deliveries and Sainsbury's has plans to extend the service to a
further 200,000 households.


IT systems

As previously announced the insourcing of IT systems was successfully completed
in April, six months after announcing the decision to terminate the contract
with Accenture. This involved the transfer of all assets, third party contracts
and approximately 470 colleagues into Sainsbury's. The company has taken a one
off charge of £63 million as a result of the termination. Future cost savings
are expected to result in payback of the exit costs in less than two years.



Operating costs

Some £400 million of cost reductions were identified in October 2004 and £110
million have been delivered in 2005/06. These have underpinned the investment in
price and the wider customer offer.  Plans are in place to deliver an additional
£175 million in the current year bringing the cumulative total to £285 million
and stretching the overall target to £440 million as a result of the additional
savings from the insourcing of IT. Cost reductions have been achieved primarily
across stock loss and central costs.  Buying efficiencies continue to be
reinvested back into the customer offer.



Sainsbury's Bank

The Bank has had a difficult year and made an underlying operating loss of £10
million due to additional charges for bad debt. This relates largely to loans
made two and three years ago when the Bank's loan book was being expanded.  In
addition, during the past year the consumer credit environment worsened.
Sainsbury's Bank has been particularly affected due to its product profile but
the position is now stabilising and processes have been put in place to tighten
credit policy and associated risk controls.



In March 2006 Tim Pile stepped down and earlier this month Rob Walker was
appointed as chief executive of the Bank. The Bank is an integral part of the
company's customer offer and Sainsbury's and its partner HBoS are committed to
the operation and on working together to return it to profitability. The Bank is
targeting breakeven in the 2006/07 financial year.



Competition Commission

Sainsbury's will co-operate fully with the Competition Commission in its inquiry
and is pleased that this is covering the whole industry.  Hamish Elvidge has
taken on responsibility for Sainsbury's response to the forthcoming Competition
Commission inquiry and will therefore no longer sit on the operating board.  A
dedicated team, led by Hamish, has been created to deal with the issues raised
to ensure this will not distract the company from its continued commitment to
serve customers in the best possible way.



Looking forward

The market remains challenging but Sainsbury's will continue to maintain its
competitive position on pricing while building on its quality food offer and
continuing to lead on issues that are of increasing importance to customers such
as health and the environment where the company's heritage and brand values
provide a position of strength.  The company has now had five quarters of
consecutive like-for-like sales and market share growth as more customers shop
with Sainsbury's each week.



The recovery is on track and operational gearing in Sainsbury's Supermarkets is
starting to be delivered. With good sales momentum and emerging cost savings it
is expected that the improving trend in operational gearing will continue. As
stated at the Interims in November 2005, there will be a significant increase in
energy costs in the second half of the year as the current contract comes to an
end.  This will impact the shape of the half on half profit growth. The priority
remains investment in the customer offer to maintain sales growth and the
performance to date gives confidence that Sainsbury's will continue to make
progress towards Making Sainsbury's Great Again.


Financial Review



Summary

The financial results for the 52 weeks ended 25 March 2006 reflect the first
full year of solid progress on the Making Sainsbury's Great Again plan.



•         Sales (inc VAT) from continuing operations up 5.8 per cent to £17,317
million (2004/05: £16,364 million) and up £722 million before petrol and
Sainsbury's Bank, a significant step towards the commitment to grow sales by
£2.5 billion announced in the Making Sainsbury's Great Again plan

•         Sales (ex VAT) from continuing operations up 5.7 per cent to £16,061
million (2004/05: £15,202 million)

•         Full year Easter adjusted like-for-like sales growth excluding petrol
up 3.7 per cent and 4.1 per cent including petrol

•         Retail underlying operating profit up to £352 million (2004/05: £308
million); the benefits of operational gearing have started to come through, with
the improvement in underlying retail operating profit margins reflected in the
14.3 per cent underlying operating profit growth in 2005/06

•         Sainsbury's Bank underlying operating loss of £10 million (2004/05
restated: profit of £17 million) due to increased provisioning for bad and
doubtful debts

•         Underlying profit before tax from continuing operations up 12.2 per
cent at £267 million (2004/05: £238 million)

•         One off operating costs of £152 million (2004/05: £497 million) were
incurred during the year, relating to Business Review, IT insourcing and debt
restructuring

•         Profit before tax from continuing operations was £104 million (2004/
05: £238 million loss)

•         Underlying basic earnings per share from continuing operations
increased by 26.5 per cent to 10.5 pence (2004/05: 8.3 pence) and basic earnings
per share from continuing operations increased to 3.8 pence (2004/05: 17.4 pence
loss)

•         Underlying net debt improved year on year by £77 million despite the
additional one off pension contribution made during the year of £110 million and
the unwinding of the Easter benefit noted within 2004/05

•         A final dividend of 5.85 pence per share is proposed; up 3.5 per cent
(2004/05: 5.65 pence)



The following key events had a significant impact on the business during the
year:



The Group's debt restructuring - On 24 March 2006 the Group repurchased all its
outstanding unsecured bonds totalling £1.7 billion with the proceeds from an
issue of £2.1 billion of secured debt (the debt restructuring).  The long-term
financing arrangement has been secured over 127 freehold and leasehold
supermarkets and is repayable over 12 and 25 year terms.  This transaction has
enabled the Group to borrow at lower interest rates and provides a flexible
financing platform for the future. Interest savings of £12 million are expected
in 2006/07, although no benefit has been realised within 2005/06. The one off
charge associated with the debt restructuring was £38 million.



Defined benefit pension changes - At the same time as the debt restructuring the
Group committed to make an additional one off contribution of £350 million into
the Group's defined benefit pension schemes.  £110 million was paid during the
year with the remaining £240 million to be paid in May 2006. This one off
contribution, together with increasing the annual contributions by £18 million
to £38 million per annum over the next eight years, is designed to fund the
reported gross deficit calculated under IAS 19 as at 8 October 2005.



IT insourcing - On 28 April 2006 the Group successfully completed the migration
of IT services previously provided by Accenture, as announced on 27 October
2005.  This involved the transfer of all assets, third party contracts and
approximately 470 colleagues back into the Group, resulting in a one off charge
during the year of £63 million, which future cost savings are expected to
payback in less than two years.



Business Review and Transformation costs - The final costs associated with the
Business Review announced on 19 October 2004 were £51 million, in line with
guidance provided at the last year end.  These were primarily employee and
pension related costs following further rationalisation of the supply chain.
The Business Review is now complete and no further costs will be incurred in
relation to this one off activity.


Summary Income Statement

                                                                          52 weeks to     52 weeks to
                                                                             25 March        26 March
                                                                                 2006            2005          %
Continuing Operations                                                              £m              £m     change
Sales (inc VAT)
Retailing - Supermarkets and Convenience                                       16,987          16,076        5.7
Financial Services - Sainsbury's Bank                                             330             288       14.6
Total sales (inc VAT)                                                          17,317          16,364        5.8
Sales (ex VAT)
Retailing - Supermarkets and Convenience                                       15,731          14,914        5.5
Financial services - Sainsbury's Bank                                             330             288       14.6
Total sales (ex VAT)                                                           16,061          15,202        5.7
Underlying operating profit from continuing operations
Retailing - Supermarkets and Convenience                                          352             308       14.3
Financial services - Sainsbury's Bank                                            (10)              17    (158.8)
Total underlying operating profit from continuing operations                      342             325        5.2
Underlying net finance costs (1)                                                 (75)            (88)       14.8
Share of post-tax profit of joint ventures                                          -               1    (100.0)
Underlying profit before tax from continuing operations                           267             238       12.2
Business Review and Transformation operating costs                               (51)           (497)       89.7
IT insourcing costs                                                              (63)               -        n/a
Profit on sale of properties                                                        1              21     (95.2)
Financing fair value movements                                                   (12)               -        n/a
Debt restructuring costs                                                         (38)               -        n/a
Profit/(loss) before tax                                                          104           (238)      143.7
Income tax (expense)/credit                                                      (46)              51    (190.2)
Profit/(loss) from continuing operations                                           58           (187)      131.0
Profit attributable to discontinued operations                                      -             375    (100.0)
Profit for the financial year                                                      58             188     (69.1)

Underlying basic earnings per share                                             10.5p            8.3p
Basic earnings/(losses) per share from continuing operations                     3.8p         (17.4)p
Basic earnings per share                                                         3.8p            4.1p
Equity dividend per share                                                        8.0p            7.8p
(1) Underlying net finance costs: Net finance costs pre financing fair value movements and debt restructuring
costs



Retailing

Sales (inc VAT) increased by 5.7 per cent to £16,987 million (2004/05: £16,076
million) and 6.1 per cent on an Easter adjusted basis, with significant
contributions from like-for-like growth, new space and petrol.  Easter adjusted
like-for-like sales excluding petrol were up 3.7 per cent, with strong
performances delivered within food, non-food and convenience.  The positive
sales growth was achieved with increased volumes, being offset by grocery price
deflation of 1.5 per cent, as a result of continued investment in the customer
offer.


KPIs                                                      28 weeks to   24 weeks to  52 Weeks to  52 Weeks to
                                                             8 October     25 March     25 March     26 March
                                                                  2005         2006         2006         2005
Like-for-like sales excluding petrol -  % (Easter                  2.1          5.3          3.7        (0.4)
adjusted)
Grocery Price Deflation (2) -  %                                 (1.4)        (1.6)        (1.5)        (1.0)
Retail operating margin - % (underlying retail operating          2.06         2.43         2.24         2.07
profit divided by retail sales excluding VAT)
(2) Deflation noted for 52 weeks to 26 March 2005 relates to total retail deflation excluding petrol











The impact of petrol on like-for-like growth remains positive with Easter
adjusted like-for-like sales including petrol up 4.1 per cent.



Sales (inc VAT) before petrol and Sainsbury's Bank increased by £722 million.
This is a key indicator of underlying supermarket performance and the sales
measure used within the J Sainsbury plc Share Plan 2005.  This performance is an
important first step towards the commitment to grow these sales by £2.5 billion
as part of the Making Sainsbury's Great Again plan.



New space provided a significant contribution to sales growth during the year,
with 367,000 square feet of floor space added, an increase of 2.2 per cent, of
which 0.6 per cent was from extensions.  During the year 14 new supermarkets,
including a further nine Safeway branded stores purchased from Morrison's, and
20 new convenience stores were opened, five of which related to the acquisition
of SL Shaw Ltd.  The Group made further investment through the completion of
nine extensions, 28 refurbishments and one downsize in the supermarket estate
and 94 refurbishments and conversions of convenience stores.


                                                      Supermarkets          Convenience                Total
                                                 Number       Area    Number       Area    Number       Area
                                                         000 sq ft            000 sq ft            000 sq ft
As at 26 March 2005 (1)                             446     15,592       281        778       727     16,370

New stores                                           14        295        20         60        34        355
Closures                                            (5)      (112)       (4)       (17)       (9)      (129)
Extensions (2)                                        -        141         -          -         -        141
As at 25 March 2006                                 455     15,916       297        821       752     16,737
(1)   Restated for the transfer of Centrals into the convenience division

(2)   Includes the impact of downsizes and other size adjustments



Underlying retailing operating profit increased to £352 million (2004/05: £308
million).  Higher sales volumes and cost efficiencies helped mitigate the impact
of investment in price and increased store labour costs, as improved pricing and
service remain core to maintaining focus on what is right for the customer.



Gross margin during the year continued to reflect the commitment to invest £400
million in the customer offer (in both price and quality), outlined in the
Making Sainsbury's Great Again plan. This helped drive the sales led recovery by
ensuring that Sainsbury's continues to offer great food at fair prices.



In 2005/06 the operating efficiencies which underpin the Making Sainsbury's
Great Again plan began to emerge.  Significant improvements were noted in the
overall level of stock loss, which given that it coincided with improved
availability within stores was even more significant.  Following the completion
of the store support centre reorganisation savings were also realised within the
Group's central costs.



In the second half of the year the Group started to see the early benefits of
process efficiency in store and supply chain coming through in lower costs.  The
Group is on track to deliver the target cost savings identified as part of the
recovery plan and plans are in place to deliver the expected level of savings in
the current year. However, the Group remains sensitive to increasing external
cost pressures on the retail industry, principally relating to increases in
rent, rates and general wage pressures.  Additionally, the Group's fixed energy
contract is due to expire in October 2006. This will add an estimated £55
million to energy costs in the second half of the current year and an additional
£20 million in the first half of 2007/08.



Improved levels of availability and service in our stores were also reflected in
our online home delivery operation, Sainsbury's Online. Online sales were up
over 25 per cent during the year, with customer orders up over 20 per cent. The
service is now being further extended.




Financial services - Sainsbury's Bank

Sainsbury's Bank increased total income by 15 per cent to £330 million (2004/5:
£288 million), continuing to expand its customer base through the sale of its
core products: personal loans, savings accounts, credit cards, and general and
life insurance. Customer accounts grew by eight per cent during the year and net
operating income was up by 14 per cent to £215 million, primarily driven by an
increase in fee and commission income as the Group looks to expand and increase
revenue streams.



During a more challenging year for the financial services industry, Sainsbury's
Bank delivered an underlying operating loss of £10 million (2004/5: £17 million
profit), in line with previous guidance. This was driven by provisions for bad
and doubtful debts, which increased in the year to £106 million (2004/05: £64
million).  The increase reflects the high volume of business written in 2003 and
2004, which linked to a more indebted economic environment and with weaker
levels of consumer confidence has required additional provisions to be made.
Steps have been taken during the year to tighten credit policy on unsecured
lending and significant progress has been made in credit management of
Sainsbury's Bank's lending portfolio.



Sainsbury's Bank will continue to grow customer numbers with further investment
in insurance, savings and commission based products, and with increased control
over historic bad and doubtful debts the bank is targeting break even in the
current financial year.



The prior year comparative has been restated to reflect a reclassification of
interest expense from operating profit into interest payable to ensure it is
consistent with the treatment for the year ending 25 March 2006.  The impact of
this reclassification is to increase Sainsbury's Bank's 2004/05 underlying
operating profit and the Group's interest payable costs by £4 million.



Underlying net finance costs

Underlying net finance costs decreased by £13 million to £75 million (2004/05:
£88 million), with a £27 million reduction in underlying finance costs being
offset by lower finance income of £14 million.

                                                                                      52 weeks to    52 weeks to
                                                                                         25 March       26 March
                                                                                             2006           2005
                                                                                               £m             £m
Interest receivable                                                                             7             33
Net return on pension scheme assets/liabilities                                                23             11
Finance income                                                                                 30             44



Interest payable                                                                            (115)          (137)

Capitalised interest                                                                           10              5
Underlying finance costs (1)                                                                (105)          (132)



Underlying net finance costs                                                                 (75)           (88)

(1) Finance costs pre financing fair value movements and debt restructuring costs



Finance income fell due to a reduction in interest receivable in the year as in
the prior year interest was earned from the cash proceeds realised from the
disposal of Shaw's Supermarkets in the first half.  This was partially offset by
an increase in the net return on pension scheme assets recognised in the year.
Underlying finance costs were down as a result of lower average net debt during
the second half of the year, improved working capital management and higher
capitalised interest, reflecting an increase in expenditure on long term new
developments.



The Group's cost of finance is estimated to reduce during 2006/07 as a result of
the debt restructuring, although no benefit has been realised within 2005/06 as
the refinancing was completed on 24 March 2006.




Debt restructuring costs

£38 million of costs resulted from the changes made to the Group's debt
structure and have been treated as one off costs.  The cash impact during the
year was £22 million with a further £2 million to be paid in the current
financial year.  The transaction costs relating to the issue of new secured debt
incurred as part of the refinancing are to be amortised over the life of the
loans.
                                                                                                              2006
                                                                                                                £m
Bond buy back costs                                                                                             24
Non-cash swap close out costs                                                                                   14
Total debt restructuring costs                                                                                  38



IT insourcing costs

£63 million of costs were charged as a result of the migration of IT services
previously provided by Accenture back to Sainsbury's, with all termination and
transition costs being treated as one off.  The 2005/06 cash impact of IT
migration was £3 million, with £41 million to be paid in the current financial
year.   The cost savings arising from insourcing should ensure that pay back of
the termination costs will be within two years.



Business Review and Transformation operating costs

£51 million of Business Review costs were incurred during the year, in line with
guidance at the last year end.  This represents the final tranche of costs
bringing the total operating charges associated with the Business Review and
Transformation over the two years to £548 million.  During the year the cash
outflow in relation to these costs was £65 million, with a further estimated
impact of £50 million in the current financial year.
                                                                                                              2006
                                                                                                                £m
Employee and pension related                                                                                    47
Other                                                                                                            4
Business Review operating costs                                                                                 51



Profit on sale of properties

Surplus assets were sold in the year generating total cash proceeds of £164
million (2004/05: £266 million) and an overall profit on sale of £1 million
(2004/05: £21 million).  This is a result of aligning the asset base to the
future needs of the business by disposing of trading and non-trading assets that
were deemed surplus to requirements.  The Group will continue to dispose of
surplus assets but expect proceeds to return to more modest levels of around £50
million.



Financing fair value movements

The Group does not use derivatives for speculative purposes.  However certain
swaps, while providing effective economic hedges, do not qualify for hedge
accounting under IAS 39 and changes in the fair value of non-qualifying
derivative instruments are recognised in the income statement. These are
non-cash and inherently volatile movements and are therefore excluded from the
definition of underlying profit.



Fair value movements for the year resulted in a  £12 million loss, of which £4
million relates to the Bank.



The Group took the option to defer the implementation of IAS 32 and IAS 39 to
the 2005/06 year end and these standards are not applied to the results of the
prior year.



Taxation

The income tax charge was £46 million (2004/05: credit of £51 million), with an
underlying rate of 35.5 per cent (2004/05: 37.4 per cent) and an effective rate
of 44.2 per cent (2004/05: 21.4 per cent). The underlying rate exceeded the
nominal rate of UK corporation tax principally due to depreciation charged on
assets that did not qualify for capital allowances.  Last year's tax credit
arose from the effect of one off costs which were predominantly tax deductible.
A £3 million refund of corporation tax was received during the year (2004/05:
£71 million paid).



Earnings per share

Underlying basic earnings per share from continuing operations increased from
8.3 pence to 10.5 pence, reflecting the improved underlying profit after tax
attributable to equity holders, after adjusting for the minority interests at
Sainsbury's Bank, and the impact of the share consolidation during the 2004/05
financial year.



Basic earnings per share from continuing operations increased to 3.8 pence (2004
/05: 17.4 pence loss) as the previous year was impacted by the higher level of
one off costs.



Dividend

A final dividend of 5.85 pence per share is proposed (2004/05: 5.65 pence) and
will be paid on 21 July 2006 to shareholders on the Register of Members at the
close of business on 26 May 2006. The total proposed dividend for the year is
8.00 pence (2004/05: 7.80 pence).



Underlying dividend cover increased in the year to 1.3 times (2004/05: 1.1
times). As outlined in 2004/05, it remains the medium term objective to restore
dividend cover (calculated as underlying post-tax earnings divided by dividends)
to at least 1.5 times.



Summary Cashflow Statement

                                                                                          52 weeks to  52 weeks to
                                                                                             25 March     26 March
                                                                                                 2006         2005
                                                                                                   £m           £m
Operating cash flows                                                                              780          946
Net interest                                                                                    (156)         (83)
Taxation                                                                                            3         (71)
Cash flow before appropriations                                                                   627          792
Purchase of fixed assets/operations                                                             (561)        (823)
Sale of fixed asset/operations                                                                    151        1,383
Bond buy back costs                                                                              (22)            -
Proceeds from issue of shares                                                                      22            5
Equity dividends                                                                                (131)        (254)
B share dividends paid                                                                              -        (113)
Repayment of short-term borrowings                                                              (299)        (130)
Increase/(repayment) of long-term borrowings                                                      364        (176)
Capital redemption                                                                                (9)        (549)
Net increase in cash and cash equivalents                                                         142          135
(Increase)/decrease in debt                                                                      (65)          306
Loans and finance leases disposed with subsidiaries                                                 -          230
Movement in underlying net debt                                                                    77          671
Closing IAS 32 and 39 adjustments                                                                (51)            -
Foreign exchange adjustments                                                                        -         (24)
Movement in net debt                                                                               26          647
Opening net debt                                                                              (1,441)      (2,088)
Closing net debt                                                                              (1,415)      (1,441)



On an underlying basis Group net debt has improved by £77 million with £41
million attributable to Retailing and £36 million to Financial Services.



The improvement in Retailing is despite the impact to net debt resulting from
the £110 million pension contribution made during the year and the unwinding of
the benefit noted in 2004/05 as a result of Easter falling at the year end.
This reflects closer management of working capital and underlying profit growth.



This performance highlights that the Group has achieved the objective of
positive cash flow in 2005/06, which is ahead of the expectations set out within
the Making Sainsbury's Great Again plan. The Group is working towards an cash
neutral position in 2006/07, before the additional one off pension contribution
of £240 million and the £93 million cash impact of 2005/06 one off items.




Summary Balance Sheet


                                                                                        25 March        26 March
                                                                                            2006            2005
                                                                                              £m              £m

   Non-current assets                                                                      8,902           8,630
   Inventories                                                                               576             559
   Trade and other receivables                                                             2,241           1,723

   Cash and cash equivalents                                                               1,028             706
   Debt                                                                                  (2,443)         (2,147)
   Net debt                                                                              (1,415)         (1,441)
   Trade and other creditors and provisions                                              (6,339)         (5,359)

   Net assets                                                                              3,965           4,112

   Equity shareholders' funds                                                              3,886           4,027
   Minority interest                                                                          79              85

   Capital employed                                                                        3,965           4,112



Shareholders' funds decreased by £141 million in the year to £3,886 million,
with gearing increasing to 36 per cent (2004/05: 35 per cent).  The assets,
liabilities and cash of Sainsbury's Bank are presented within the Group's asset,
liability and cash classifications, in a manner consistent with the prior year.



Group debt restructuring

On 24 March 2006 the Group repurchased all of its outstanding unsecured bonds
totalling £1.7 billion via a cash tender.  The Group simultaneously refinanced
this debt with the proceeds from an issue of £2.1 billion of new debt secured
against approximately half of the book value of the Group's supermarket
portfolio.



The new amortising debt is split between £1.2 billion of loans with final
repayment in July 2018 and £0.9 billion of loans with repayment in July 2031.



Pensions

At the time of the debt refinancing, the Group made a commitment to make a one
off contribution of £350 million into the Group's defined benefit pension
schemes.  £110 million of this was paid into the scheme on 24 March 2006, with a
further £240 million in May 2006.  In addition the Group has agreed to increase
annual contributions by £18 million to £38 million from March 2007. These
contributions along with the £350 million one off contribution are expected to
fund the reported deficit calculated under IAS 19 as at 8 October 2005 over the
next eight years.



As part of the commitment of the Group to increase contributions, active members
can choose to increase contributions by an average of three per cent of pay or
choose to receive lower benefits in retirement.



Under IAS 19 the difference between the fair value of the plan assets and the
present value of the defined benefit obligation is recognised on the balance
sheet.  The profit and loss charge is split between the operating service charge
and the financing credit.  Actuarial gains and losses are recognised through the
statement of recognised income and expense.


                                                                                               2006           2005
                                                                                                 £m             £m
Present value of funded obligations                                                         (4,361)        (3,503)
Fair value of plan assets                                                                     3,710          2,976
                                                                                              (651)          (527)
Present value of unfunded obligations                                                           (7)            (9)
Retirement benefit obligations                                                                (658)          (536)
Deferred taxation                                                                               227            161
Net pension scheme liabilities                                                                (431)          (375)



An actuarial valuation of the UK defined benefit pension schemes as at 29 March
2003 indicated a deficit of £161 million; the next actuarial valuation is
currently in progress.  At the 25 March 2006, the IAS 19 deficit (after deferred
tax) was £431 million (2004/05: £375 million).  The increase in the IAS 19
deficit is primarily a result of the bond yields falling, impacting the discount
rate by 60 basis points during the year, partially offset by the one off
contribution of £110 million and the rise in the value of investments during the
same period.



Capital expenditure

Capital expenditure reduced in the year to £525 million (2004/05: £901 million
which included the acquisition of stores from Morrison's), down on the £550
million previously forecast.



Retail capital expenditure excluding the acquisition and development of Safeway/
Morrison stores and the acquisition of subsidiaries was £479 million (2004/05:
£457 million), an increase of £22 million on the prior year.  This capital
expenditure included  £133 million (2004/05: £128 million) on new stores, £53
million (2004/05: £51 million) on extensions, and £193 million (2004/05: £109
million) on refurbishments, which includes 28 of the 131 stores that have
received limited investment for a number of years.  Further expenditure of £100
million (2004/05: £169 million) was incurred in relation to IT investments,
supply chain and central projects.



Capital expenditure in the current year is expected to increase to between £650
million and £700 million as a result of the carry over from the prior year,
additional extensions, the extra refurbishments to be completed as part of the
Making Sainsbury's Great Again plan and the development of our new store
pipeline.



Adoption of International Financial Reporting Standards

The financial information presented has been prepared on the basis of
International Financial Reporting Standards (IFRS), which have been fully
adopted since the beginning of 2005/06.  All comparatives have been restated on
a consistent basis, with the exception of IAS 32 and IAS 39, as the Group took
the option to defer their implementation until 2005/06.



Overall there are no material differences between underlying profit on an IFRS
or UK GAAP basis and the impact of the IFRS adjustments to underlying profit
before tax are consistent with guidance given on 26 April 2005 and confirmed
during the interims.



Treasury management

Treasury policies are reviewed and approved by the Board.  The chief executive
and chief financial officer have joint delegated authority from the Board to
approve finance transactions up to £300 million.



The central treasury function is responsible for managing the Group's liquid
resources, funding requirements and interest rate and currency exposures.  Group
policy permits the use of derivative instruments but only for reducing exposures
arising from underlying business activity and not for speculative purposes.



Sainsbury's Bank

Treasury operations in respect of Sainsbury's Bank are managed separately from
the central treasury function.  Responsibility for the control of risk within
the Bank is vested in the Risk Management Committee, which reports directly to
the Board of Directors of Sainsbury's Bank.







Group Income Statement
for the 52 weeks to 25 March 2006


                                                                                               2006           2005
                                                                              Note               £m             £m
  Continuing operations
  Revenue                                                                      3             16,061         15,202

  Cost of sales                                                                            (14,994)       (14,544)
  Gross profit                                                                                1,067            658

  Administrative expenses                                                                     (839)          (830)
  Other income                                                                                    1             21
  Operating profit/(loss)                                                                       229          (151)
  Finance income                                                               4                 30             44
  Finance costs                                                                4              (155)          (132)
  Share of post-tax profit from joint ventures                                                    -              1
  Profit/(loss) before taxation                                                                 104          (238)


  Analysed as:
  Underlying profit before tax from continuing operations (1)                                   267            238
  Business Review and Transformation operating costs                           5               (51)          (497)
  IT insourcing costs                                                          6               (63)              -
  Profit on sale of properties                                                                    1             21
  Financing fair value movements                                               4               (12)              -
  Debt restructuring costs                                                     4               (38)              -
                                                                                                104          (238)

  Income tax (expense)/credit                                                  7               (46)             51
  Profit/(loss) from continuing operations                                                       58          (187)


  Discontinued operations
  Profit attributable to discontinued operations                                                  -            375

  Profit for the financial year                                                                  58            188


  Attributable to:
  Equity holders of the parent                                                                   64            184
  Minority interests                                                                            (6)              4
                                                                                                 58            188

  Earnings/(losses) per share                                                  8              pence          pence

  Basic                                                                                         3.8            4.1
  Diluted                                                                                       3.8            4.1
  From continuing operations:
  Basic                                                                                         3.8         (17.4)
  Diluted                                                                                       3.8         (17.4)






(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.  In the
current financial year, these one off items were the Business Review costs, IT
insourcing costs and debt restructuring costs.  In the prior financial year,
these one off items were the Business Review and Transformation costs.

Group Statement of Recognised Income and Expense
for the 52 weeks to 25 March 2006


                                                                                            2006              2005
                                                                       Note                   £m                £m
Currency translation differences                                                               2               (3)
Actuarial (losses)/gains on defined benefit pension schemes                                (255)               128
Available-for-sale financial assets
- fair value movements                                                                        26                 -
Cash flow hedges
- effective portion of fair value movements                                                    1                 -
- transferred to income statement                                                            (1)                 -
Share-based payment tax deduction                                                              5                 -
Tax on items recognised directly in equity                              7                     68              (38)
Net (loss)/income recognised directly in equity                                            (154)                87

Profit for the financial year                                                                 58               188
Total recognised income and expense for the financial year                                  (96)               275


Attributable to:
Equity holders of the parent                                                                (90)               271
Minority interests                                                                           (6)                 4
                                                                                            (96)               275


Effect of changes in accounting policy on adoption of                   14

IAS 32 and IAS 39:

Equity holders of the parent                                                                (78)
Minority interests                                                                             -
                                                                                            (78)




Group Balance Sheet
at 25 March 2006 and 26 March 2005


                                                                                            2006            2005
                                                                         Note                 £m              £m
Non-current assets

Property, plant and equipment                                                              7,060           7,076
Intangible assets                                                                            191             203
Investments                                                                                   10              20
Available-for-sale financial assets                                                          113               -
Amounts due from Sainsbury's Bank customers                                                1,473           1,331
Other receivables                                                                              -               -
Deferred income tax asset                                                                     55               -
                                                                                           8,902           8,630
Current assets

Inventories                                                                                  576             559
Trade and other receivables                                                                  276             319
Amounts due from Sainsbury's Bank customers and other banks                                1,888           1,227
Available-for-sale financial assets                                                           52               -
Investments                                                                                    -              90
Cash and cash equivalents                                                 11b              1,028             706
                                                                                           3,820           2,901
Non-current assets held for sale                                                              25              87
                                                                                           3,845           2,988
Total assets                                                                              12,747          11,618

Current liabilities

Trade and other payables                                                                 (2,094)         (2,093)
Amounts due to Sainsbury's Bank customers and other banks                                (2,299)         (2,464)
Short term borrowings                                                                      (253)           (354)
Derivative financial instruments                                                            (10)               -
Taxes payable                                                                               (63)            (55)
                                                                                         (4,719)         (4,966)
Net current liabilities                                                                    (874)         (1,978)

Non-current liabilities

Other payables                                                                              (30)            (31)
Amounts due to Sainsbury's Bank customers and other banks                                (1,009)            (22)
Long term borrowings                                                                     (2,178)         (1,793)
Derivative financial instruments                                                             (2)               -
Deferred income tax liability                                                                  -             (1)
Provisions                                                                                 (186)           (157)
Retirement benefit obligations                                                             (658)           (536)
                                                                                         (4,063)         (2,540)
Net assets                                                                                 3,965           4,112

Equity

Called up share capital                                                                      489             620
Share premium account                                                                        782             761
Capital redemption reserve                                                                   668             547
Other reserves                                                                               (1)              87
Retained earnings                                                                          1,948           2,012
Equity shareholders' funds                                                10               3,886           4,027

Minority interests                                                        10                  79              85
Total equity                                                              10               3,965           4,112



Group Cash Flow Statement
for the 52 weeks to 25 March 2006


                                                                                            2006            2005
                                                                         Note                 £m              £m
Cash flows from operating activities

Cash generated from operations                                            11a                780             946

Interest paid                                                                              (159)           (107)

Corporation tax received/(paid)                                                                3            (71)

Net cash from operating activities                                                           624             768


Cash flows from investing activities

Purchase of property, plant and equipment                                                  (549)           (710)
Purchase of intangible assets                                                                (6)            (14)
Proceeds from disposal of property, plant and equipment                                      164             266
Acquisition of subsidiaries, net of cash acquired                                            (6)            (99)
(Costs)/proceeds from disposal of operations, net of cash disposed                          (13)           1,117
Interest received                                                                              6              32
Net cash from investing activities                                                         (404)             592


Cash flows from financing activities

Proceeds from issuance of ordinary shares                                                     22               5
Capital redemption                                                                           (9)           (549)
Repayment of short term borrowings                                                         (348)            (14)
Repayment of long term borrowings                                                        (1,701)           (185)
Proceeds from short term borrowings                                                           50               -
Proceeds from long term borrowings                                                         2,056               -
Debt restructuring costs                                                                    (22)               -
Repayment of capital element of obligations under finance lease                              (1)           (116)
borrowings
Interest elements of obligations under finance lease payments                                (3)             (8)
Dividends paid                                                             9               (131)           (254)
B share preference dividends paid                                          9                   -           (113)
Issue of loan from minority shareholder                                                        9               9
Net cash from financing activities                                                          (78)         (1,225)


Net increase in cash and cash equivalents                                                    142             135

Opening cash and cash equivalents                                                            700             513
Cash attributable to discontinued operations                                                   -              51
                                                                                             700             564
Effects of foreign exchange rates                                                              -               1
Closing cash and cash equivalents                                         11b                842             700



Notes to the financial information



1             Status of financial information

The financial information is derived from the full Group financial statements
for the 52 weeks to 25 March 2006 and does not constitute full accounts within
the meaning of section 240 of the Companies Act 1985 (as amended). The Group
Annual Report and Financial Statements 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 in June.



2             Basis of preparation

The financial information has been prepared in accordance with International
Financial Reporting Standards ('IFRS') as adopted by the European Union and
International Financial Reporting Interpretations Committee ('IFRIC')
interpretations and with those parts of the Companies Act 1985 applicable to
companies reporting under IFRS.



These are the Group's first financial statements prepared under IFRS and
therefore, IFRS 1 'First-time Adoption of International Financial Reporting
Standards' has been applied.  An explanation of the transition to IFRS is
provided in note 13.



The financial statements have been prepared under the historical cost
convention, except for derivative financial instruments and available-for-sale
financial assets that have been measured at fair value in the 2005/06 financial
year.


3             Segment reporting

The Group's primary reporting format is business segments, with each segment
representing a business unit that offers different products and serves different
markets.



The businesses are organised into two operating divisions:

•         Retailing (Supermarkets and Convenience); and

•         Financial services (Sainsbury's Bank).



All material continuing operations are carried out in the UK.  Discontinued
operations relate to the US supermarkets business, Shaw's Supermarkets, which
was sold in the last financial year.



Segment results, assets and liabilities include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis.  Segment
capital expenditure is the total cost incurred during the period to acquire
segment assets that are expected to be used for more than one period.


   2006                                                                     Retailing    Financial        Group
                                                                                   £m     services           £m
                                                                                                £m
   Segment revenue

   Sales to external customers                                                 15,731            -       15,731
   Services to external customers                                                   -          330          330
   Total revenue                                                               15,731          330       16,061

   Underlying operating profit/(loss) from continuing operations (1)              352         (10)          342
   Business Review and Transformation operating costs                            (51)            -         (51)
   IT insourcing costs                                                           (63)            -         (63)
   Profit on sale of properties                                                     1            -            1

   Segment result                                                                 239         (10)          229

   Finance income                                                                                            30
   Finance costs                                                                                          (155)
   Income tax expense                                                                                      (46)
   Profit for the financial year                                                                             58


   Assets                                                                       9,058        3,679       12,737

   Investment in joint ventures                                                    10            -           10
   Segment assets                                                                                        12,747


   Segment liabilities                                                          5,281        3,501        8,782


   Other segment items

   Capital expenditure                                                            518            7          525
   Depreciation expense                                                           442            7          449
   Amortisation expense                                                            19            2           21
   Impairment of amounts due from Sainsbury's Bank customers                        -          106          106






   2005                                                                      Retailing    Financial        Group
                                                                                    £m     services           £m
                                                                                                 £m
   Segment revenue

   Sales to external customers                                                  14,914            -       14,914
   Services to external customers                                                    -          288          288
   Total revenue                                                                14,914          288       15,202

   Underlying operating profit from continuing operations (1)                      308           17          325
   Business Review and Transformation operating costs                            (497)            -        (497)
   Profit on sale of properties                                                     21            -           21

   Segment result                                                                (168)           17        (151)
   Finance income
                                                                                                              44
   Finance costs                                                                                           (132)
   Share of post-tax profit from joint ventures                                      1            -            1
   Income tax credit                                                                                          51
   Profit attributable to discontinued operations                                  375            -          375
   Profit for the financial year
                                                                                                             188


   Assets                                                                        8,754        2,854       11,608

   Investment in joint ventures                                                     10            -           10
   Segment assets                                                                                         11,618


   Segment liabilities                                                           4,843        2,663        7,506


   Other segment items

   Capital expenditure                                                             885           16          901
   Depreciation expense                                                            717            5          722
   Amortisation expense                                                             24            2           26
   Impairment of amounts due from Sainsbury's Bank customers                         -           64           64




(1)       Underlying profit before tax from continuing operations before finance
income and finance costs.



4             Finance income and finance costs
                                                                                            2006            2005
                                                                                              £m              £m
Interest on bank deposits                                                                      7              33
Net return on pension schemes                                                                 23              11
Finance income                                                                                30              44


Financing fair value movements (1)
Fair value losses  - Bank                                                                    (4)               -
                   - Retail                                                                  (8)               -
                                                                                            (12)               -


Debt restructuring costs                                                                    (38)               -



Borrowing costs

Bank loans and overdrafts                                                                    (3)             (3)
Other loans                                                                                (107)           (126)
B share preference dividends                                                                 (1)               -
Obligations under finance leases                                                             (3)             (8)
Provisions - amortisation of discount                                                        (1)               -
                                                                                           (115)           (137)
Amounts included in the cost of qualifying assets

Interest capitalised - qualifying assets                                                      10               5
Finance costs                                                                              (155)           (132)




(1)       Fair value movements relate to fair value adjustments on derivatives
relating to financing activities and hedged items in fair value hedges.

Total interest income amounted to £217 million (2005: £220 million), including
interest income attributable to Sainsbury's Bank of £210 million (2005: £187
million) included in revenue. Total interest costs amounted to £230 million
(2005: £237 million) including interest costs attributable to Sainsbury's Bank
of £115 million (2005: £100 million) included in cost of sales.



5             Business Review and Transformation operating costs

The Business Transformation Programme concluded in the year ended 26 March 2005,
with no further costs recognised in the current financial year.  Business Review
costs in the current financial year are primarily employee and pension related
costs associated with the reorganisation of the depot network, as set out below:
                                                                                               2006           2005
                                                                                                 £m             £m
Business Transformation operating costs                                                           -             22

IT systems                                                                                        -            145
Employee and pension related                                                                     47             41
Inventories                                                                                       -             90
Supply chain                                                                                      -            119
Property                                                                                          -             65
Other                                                                                             4             15
Business Review operating costs                                                                  51            475

Total Business Review and Transformation operating costs                                         51            497



6             IT insourcing costs

On 27 October 2005, the Group announced that the IT services previously provided
by Accenture would be migrated back to the Group, together with a number of
Accenture employees.  The costs associated with the transition process are £63
million, of which £3 million has been paid by 25 March 2006.  The remaining £60
million is held within provisions.



7             Income tax expense
                                                                                              2006            2005
                                                                                                £m              £m
Current tax expense
Current year                                                                                    38               6
Overprovision in prior periods                                                                 (2)             (4)
                                                                                                36               2
Deferred tax expense
Origination and reversal of temporary differences                                               15            (53)
Overprovision in prior periods                                                                 (5)               -
                                                                                                10            (53)

Total income tax expense/(credit) in income statement                                           46            (51)


Tax expense on underlying profit

Tax on underlying profit from continuing operations (1)                                         95              89
Tax on Business Review and Transformation operating costs                                     (15)           (140)
Tax on IT insourcing costs                                                                    (19)               -
Tax on financing fair value movements                                                          (3)               -
Tax on debt restructuring costs                                                               (12)               -
                                                                                                46            (51)



(1)       Tax charge attributable to underlying profit before tax from
continuing operations.


The effective tax rate of 44.2 per cent (2005: 21.4 per cent) is higher than the
standard rate of corporation tax in the UK.  The differences are explained
below:
                                                                                               2006           2005
                                                                                                 £m             £m
Profit/(loss) before taxation                                                                   104          (238)

Income tax at UK Corporation tax rate of 30% (2005: 30%)                                         31           (71)
Effects of:
Disallowed depreciation on UK properties                                                         21             19
Non-deductible expenses                                                                           1              5
Over provision in prior years                                                                   (7)            (4)
Total income tax expense/(credit) per income statement                                           46           (51)



The deferred income tax charged or credited to equity during the year is as
follows:
                                                                                               2006           2005
                                                                                                 £m             £m
Tax on items taken to equity

Actuarial gains and losses on defined benefit pension schemes                                  (75)             38
Available-for-sale financial assets                                                               7              -
                                                                                               (68)             38
Share-based payment tax deduction                                                               (5)              -
                                                                                               (73)             38



8             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 Plan
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 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.  In the
current financial year, these one off items were the Business Review costs, IT
insourcing costs and debt restructuring costs.  In the prior financial year,
these one off items were the Business Review and Transformation costs.  This
alternative measure of earnings per share is presented to reflect the Group's
underlying trading performance.


                                                                                           2006             2005
                                                                                        million          million
Weighted average number of shares in issue                                              1,679.0          1,749.9
Weighted average number of dilutive share options                                          13.2              6.7
Total number of shares for calculating diluted earnings per share                       1,692.2          1,756.6

                                                                                             £m               £m
Profit for the financial year attributable to equity holders of the parent                   64              184
Less:  preference dividend on B shares classified in equity                                   -            (113)
Profit for the financial year after B share preference dividends                             64               71

Less:  profit attributable to discontinued operations                                         -            (375)
Profit/(loss) from continuing operations after B share preference dividends                  64            (304)
Add: preference dividend on B shares classified in equity                                     -              113
     Business Review and Transformation operating costs, net of tax                          36              357
     IT insourcing costs, net of tax                                                         44                -
     profit on sale of properties                                                           (1)             (21)
     financing fair value movements, net of tax                                               7                -
     debt restructuring costs, net of tax                                                    26                -
Underlying profit after tax from continuing operations                                      176              145


                                                                                              2006           2005
                                                                                             Pence          Pence
                                                                                         per share      per share
All operations
Basic earnings                                                                                 3.8            4.1
Diluted earnings                                                                               3.8            4.1

Continuing operations
Basic earnings                                                                                 3.8         (17.4)
Diluted earnings                                                                               3.8         (17.4)
Underlying basic earnings                                                                     10.5            8.3
Underlying diluted earnings                                                                   10.4            8.3

Discontinued operations
Basic earnings                                                                                   -           21.4
Diluted earnings                                                                                 -           21.4




9             Dividend

(a)        Equity dividends
                                                                           2006        2005
                                                                          pence       pence        2006        2005
                                                                      per share   per share          £m          £m
Amounts recognised as distributions to equity holders in the year:
Final dividend of prior year                                               5.65       11.36          95         218
Interim dividend of current year                                           2.15        2.15          36          36
                                                                           7.80       13.51         131         254



After the balance sheet date, a final dividend of 5.85 pence per share (2005:
5.65 pence per share) was proposed by the Directors in respect of the 52 weeks
ended 25 March 2006, resulting in a total final proposed dividend of £99 million
(2005: £95 million).  The proposed final dividend has not been included as a
liability at 25 March 2006.



(b)       B share preference dividends
                                                                                                 2006           2005
                                                                                                   £m             £m
B share preference dividend                                                                         -            113
                                                                                                    



In the current financial year, B shares have been classified as short term
borrowings in accordance with IAS 32 'Financial Instruments: Disclosure and
Presentation' (note 14).  Accordingly, preference dividends paid in respect of B
shares are shown as finance costs in the income statement (note 4) and as part
of operating activities in the cash flow statement for the current financial
year.




10         Reconciliation of movements in equity
                                  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 27 March 2005                        620       761           634     2,012           4,027         85     4,112
IAS 32 and IAS 39 adjustments         (133)         1            71      (17)            (78)          -      (78)
Restated at 27 March 2005               487       762           705     1,995           3,949         85     4,034
Profit for the year                       -         -             -        64              64        (6)        58
Dividends paid                            -         -             -     (131)           (131)          -     (131)
Share-based payment                       -         -             -        28              28          -        28
Currency translation differences          -         -             2         -               2          -         2
Actuarial losses                          -         -         (180)         -           (180)          -     (180)
Available-for-sale financial              -         -            19         -              19          -        19
assets
Cash flow hedges
- effective portion of fair value         -         -             1         -               1          -         1
movements
- transferred to income statement         -         -           (1)         -             (1)          -       (1)
B shares redemption                       -         -           121       (9)             112          -       112
Shares purchased                          -         -             -       (1)             (1)          -       (1)
Shares vested                             -         -             -         2               2          -         2
Allotted in respect of share              2        20             -         -              22          -        22
option schemes
At 25 March 2006                        489       782           667     1,948           3,886         79     3,965

At 28 March 2004                        486     1,438             -     2,735           4,659         81     4,740
Profit for the year                       -         -             -       184             184          4       188
B share preference dividends              -         -             -     (113)           (113)          -     (113)
Equity dividends                          -         -             -      (36)            (36)          -      (36)
Prior year dividends paid                 -         -             -     (218)           (218)          -     (218)
Share-based payment                       -         -             -         8               8          -         8
Currency translation differences          -         -           (3)         -             (3)          -       (3)
Actuarial gains                           -         -            90         -              90          -        90
Issue of B shares (1)                   680     (681)             -         -             (1)          -       (1)
B shares redemption (2)               (547)         -           547     (549)           (549)          -     (549)
Shares vested                             -         -             -         1               1          -         1
Allotted in respect of share              1         4             -         -               5          -         5
option schemes
At 26 March 2005                        620       761           634     2,012           4,027         85     4,112



(1)       Share premium account includes B shares issue costs of £1 million.

(2)       Retained earnings include B shares redemption expenses of £2 million.


11         Notes to the cash flow statement

(a)        Reconciliation of operating profit/(loss) to cash generated from
operations
                                                                                           2006             2005
                                                                                             £m               £m
Operating profit/(loss)                                                                     229            (151)
Adjustments for:
- Depreciation of property, plant and equipment                                             449              722
- Amortisation of intangible assets                                                          21               26
- Profit on sale of property, plant and equipment                                           (1)             (21)
- Share-based payments                                                                       23                8
Operating cash flows before changes in working capital                                      721              584
Changes in working capital
- (Increase)/decrease in inventories                                                       (17)               38
- Decrease in current available-for-sale financial assets                                    38              119
- Decrease in trade and other receivables                                                     7               17
- Increase in amounts due from Sainsbury's Bank customers and other banks                 (805)            (423)
- Increase in trade and other payables                                                       83              275
- Increase in amounts due to Sainsbury's Bank customers and other banks                     819              286
- (Decrease)/increase in provisions and other liabilities (1)                              (66)               50
Cash generated from operations                                                              780              946



(1)                   Includes £110 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:
                                                                                           2006              2005
                                                                                             £m                £m
Cash and cash equivalents                                                                 1,028               706
Bank overdrafts                                                                           (186)               (6)
                                                                                            842               700



12         Analysis of net debt
                                           26 March        IAS 32    Restated  Cash flow     Other      25 March
                                              2005                   27 March                               2006
                                                       and IAS 39        2005                non-cash
                                                      adjustments                           movements
                                                 £m            £m          £m         £m           £m         £m

Current assets

Cash and cash equivalents                       585           103         688        174            -        862
Sainsbury's Bank cash                           121             -         121         45            -        166
Derivative financial instruments                  -             7           7        (4)          (3)          -
                                                706           110         816        215          (3)      1,028
Non-current assets

Derivative financial instruments                  -           151         151      (169)           18          -

Current liabilities

Bank overdrafts                                 (6)         (103)       (109)       (77)            -      (186)
Borrowings                                    (348)         (143)       (491)        321          103       (67)
Derivative financial instruments                  -          (36)        (36)        (2)           28       (10)
                                              (354)         (282)       (636)        242          131      (263)
Non-current liabilities

Borrowings                                  (1,704)         (181)     (1,885)       (46)        (150)    (2,081)
Finance leases                                 (53)             -        (53)          1            -       (52)
Loan from minority shareholder                 (36)             -        (36)        (9)            -       (45)
Derivative financial instruments                  -           (1)         (1)          -          (1)        (2)
                                            (1,793)         (182)     (1,975)       (54)        (151)    (2,180)
                                            (2,147)         (464)     (2,611)        188         (20)    (2,443)
Total net debt                              (1,441)         (203)     (1,644)        234          (5)    (1,415)





Of which:
Net debt (excluding Sainsbury's Bank)      (1,526)        (203)    (1,729)        198          (5)    (1,536)
Sainsbury's Bank                                85            -         85         36            -        121
                                           (1,441)        (203)    (1,644)        234          (5)    (1,415)



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.  Sainsbury's Bank derivatives and borrowings, which
relate to the working capital of the bank, are excluded from the Group net debt.



Reconciliation of net cash flow to movement in net debt

                                                                                                 2006           2005
                                                                                                   £m             £m
Increase in cash and cash equivalents                                                             142            135
Decrease in debt                                                                                   91            190
Loans and finance leases disposed of with subsidiaries                                              -            230
Movement in finance leases                                                                          1            116
Foreign exchange adjustments and other non-cash movements                                         (5)           (24)
Decrease in net debt before impact of IAS 32 and IAS 39                                           229            647

IAS 32 and IAS 39 adjustments to net debt                                                       (203)              -
Decrease in net debt in the year                                                                   26            647
Opening net debt at the beginning of the year                                                 (1,441)        (2,088)
Closing net debt at the end of the year                                                       (1,415)        (1,441)




13         Explanation of transition to IFRS

This is the first year that the Group has presented its financial statements
under IFRS. The last financial statements under UK GAAP were for the 52 weeks
ended 26 March 2005 and the date of transition to IFRS was 28 March 2004.



IFRS 1 'First-time Adoption of International Financial Reporting Standards'
allows companies adopting IFRS for the first time to take certain exemptions
from the full requirements of IFRS in the year of transition (i.e. the financial
year ended 26 March 2005).



The Group has elected to take the following key exemptions:



(i)                 IFRS 3 - Business combinations

The Group has elected not to apply IFRS 3 'Business Combinations'
retrospectively to acquisitions that took place before the date of transition.
As a result, the carrying amount of goodwill in the UK GAAP balance sheet at 27
March 2004 is brought forward to the IFRS opening balance sheet without
adjustment.



(ii)               IAS 19 - Employee benefits - actuarial gains and losses

The Group has elected to recognise all cumulative actuarial gains and losses at
the date of transition.



(iii)             IAS 21 - Cumulative translation differences

Under IFRS, cumulative translation differences arising on the consolidation of
foreign entities are required to be recycled through the income statement when a
foreign entity is sold as part of the gain or loss on sale. IFRS 1 allows the
Group to not record cumulative translation differences arising before the date
of transition. The Group has elected to take this exemption and has brought
forward a nil balance in respect of these translation differences.



(iv)             IAS 32 and IAS 39 - Financial instruments

The Group has taken the option to defer the implementation of IAS 32 and IAS 39
to the financial year ended 25 March 2006. Therefore, financial instruments
continue to be accounted for and presented in accordance with UK GAAP for the
year ended 26 March 2005.





(v)               IAS 16 - Valuation of properties

The Group has elected to treat the revalued amount of properties at 28 March
2004 as deemed cost as at that date and will not revalue properties for
accounting purposes in the future.



(vi)             IFRS 2 - Share-based payment

IFRS 1 provides an exemption which allows entities to only apply IFRS 2 '
Share-based Payment' to share-based payment awards granted after 7 November
2002. The Group has not taken this exemption but has elected to apply IFRS 2 to
share options granted before 7 November 2002.  The fair value of those options
has been published on our website www.j-sainsbury.co.uk on 26 April 2005.



Reconciliations between UK GAAP and IFRS

Set out below are the UK GAAP to IFRS equity reconciliations for the Group at 28
March 2004 (date of transition) and 26 March 2005 (last financial statements
under UK GAAP) and profit reconciliation for the 52 weeks ended 26 March 2005.



Subsequent to the IFRS transition announcement made on 16 June 2005 (please
visit our website www.j-sainsbury.co.uk for more details), further adjustments
have been made to the reconciliations as set out below:

•         Leases with predetermined, fixed rental increases (reconciling item
note (c));

•         Retirement benefit obligations -inclusion of unfunded pension
liability (reconciling item note (d));

•         Cash and cash equivalents (reconciling item note (m)); and

•         Revaluation reserve (reconciling item note (n)).




Group reconciliations

Reconciliation of equity at 28 March 2004 (date of transition)


                                                                                  UK GAAP   Adjustments      IFRS
                                                                          Note         £m            £m        £m
Non-current assets

Property, plant and equipment                                        (a), (g),      8,214         (881)     7,333
                                                                      (j), (l)
Intangible assets                                                     (g), (l)        208          (74)       134
Investments                                                                (l)         30          (10)        20
Amounts due from Sainsbury's Bank customers                                         1,166             -     1,166
                                                                                    9,618         (965)     8,653
Current assets
Inventories                                                                (l)        753         (156)       597
Trade and other receivables                                                (l)        394          (74)       320
Amounts due from Sainsbury's Bank customers and other banks                           969             -       969
Investments                                                                (m)        228          (19)       209
Cash and cash equivalents                                             (l), (m)        545          (32)       513
                                                                                    2,889         (281)     2,608
Non-current assets held for sale                                           (l)          -         1,232     1,232
                                                                                    2,889           951     3,840
Total assets                                                                       12,507          (14)    12,493

Current liabilities
Trade and other payables                                              (k), (l)    (2,161)           460   (1,701)
Amounts due to Sainsbury's Bank customers                                         (2,200)             -   (2,200)
Short term borrowings                                                               (403)             -     (403)
Taxes payable                                                                       (115)             -     (115)
                                                                                  (4,879)           460   (4,419)
Non-current liabilities held for sale                                 (d), (l)          -         (493)     (493)
                                                                                  (4,879)          (33)   (4,912)
Net current liabilities                                                           (1,990)           918   (1,072)

Non-current liabilities
Other payables                                                        (b), (c)       (25)          (21)      (46)
Long term borrowings                                                  (a), (l)    (2,196)           168   (2,028)
Deferred income tax liability                                                       (234)           213      (21)
Provisions                                                            (d), (e)       (74)             -      (74)
Retirement benefit obligations                                             (d)          -         (672)     (672)
                                                                                  (2,529)         (312)   (2,841)
Net assets                                                                          5,099         (359)     4,740

Equity
Called up share capital                                                               486             -       486
Share premium account                                                               1,438             -     1,438
Other reserves                                                             (n)         22          (22)         -
Retained earnings                                                                   3,072         (337)     2,735
Equity shareholders' funds                                                          5,018         (359)     4,659
Minority interests                                                                     81             -        81
Total equity                                                                        5,099         (359)     4,740



Reconciliation of profit for the 52 weeks ended 26 March 2005


                                                                              UK GAAP (1)  Adjustments      IFRS
                                                                        Note           £m           £m        £m
Continuing operations
Revenue                                                                   (l)      15,409        (207)    15,202

Cost of sales                                                  (c), (d), (f),    (14,722)          178  (14,544)
                                                                          (l)
Gross profit                                                                          687         (29)       658
Administrative expenses                                        (a), (b), (f),       (850)           20     (830)
                                                                (h), (j), (l)
Other income                                                                           21            -        21
Operating loss                                                                      (142)          (9)     (151)
Finance income                                                            (d)          33           11        44
Finance costs                                                             (a)       (129)          (3)     (132)
Share of post-tax profit from joint ventures                                            1            -         1
Loss before taxation                                                                (237)          (1)     (238)

Analysed as:
Underlying profit before tax from continuing operations (2)                           254         (16)       238
Business Review and Transformation operating costs                       (j)        (507)           10     (497)
Profit on sale of properties                                                           21            -        21
Goodwill amortisation                                                    (h)          (5)            5         -
                                                                                    (237)          (1)     (238)

Income tax credit                                                                      50            1        51
Loss from continuing operations                                                     (187)            -     (187)

Discontinued operations
Profit attributable to discontinued operations                 (d), (i), (l)          252          123       375

Profit for the financial year                                                          65          123       188

Attributable to:
Equity holders of the parent                                                           61          123       184
Minority interests                                                                      4            -         4
                                                                                       65          123       188



(1)       £4 million of interest incurred by Sainsbury's Bank for the 52 weeks
to 26 March 2005 has been reclassified from cost of sales to finance income/
costs, in order to be consistent with the treatment in the current period.  This
adjustment does not impact underlying or statutory profit before tax.



(2)       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.  In this
financial year, these one off items were the Business Review and Transformation
costs.



Reconciliation of equity at 26 March 2005


                                                                                 UK GAAP   Adjustments        IFRS
                                                                        Note          £m            £m          £m
Non-current assets
Property, plant and equipment                                      (a), (g),       7,154          (78)       7,076
                                                                         (j)
Intangible assets                                                   (g), (h)         125            78         203
Investments                                                                           20             -          20
Amounts due from Sainsbury's Bank customers                                        1,331             -       1,331
                                                                                   8,630             -       8,630
Current assets
Inventories                                                                          559             -         559
Trade and other receivables                                                          319             -         319
Amounts due from Sainsbury's Bank customers and other banks                        1,227             -       1,227
Investments                                                              (m)         114          (24)          90
Cash and cash equivalents                                                (m)         682            24         706
                                                                                   2,901             -       2,901
Non-current assets held for sale                                                      87             -          87
                                                                                   2,988             -       2,988
Total assets                                                                      11,618             -      11,618

Current liabilities
Trade and other payables                                                 (k)     (2,188)            95     (2,093)
Amounts due to Sainsbury's Bank customers and other banks                        (2,464)             -     (2,464)
Short term borrowings                                                              (354)             -       (354)
Taxes payable                                                                       (55)             -        (55)
                                                                                 (5,061)            95     (4,966)
Net current liabilities                                                          (2,073)            95     (1,978)

Non-current liabilities
Other payables                                                      (b), (c)         (4)          (27)        (31)
Amounts due to Sainsbury's Bank customers and other banks                           (22)             -        (22)
Long term borrowings                                                     (a)     (1,740)          (53)     (1,793)
Deferred income tax liability                                                      (173)           172         (1)
Provisions                                                          (d), (e)       (159)             2       (157)
Retirement benefit obligations                                           (d)           -         (536)       (536)
                                                                                 (2,098)         (442)     (2,540)
Net assets                                                                         4,459         (347)       4,112

Equity
Called up share capital                                                              620             -         620
Share premium account                                                                761             -         761
Capital redemption reserve                                                           547             -         547
Other reserves                                                      (d), (n)          19            68          87
Retained earnings                                                                  2,427         (415)       2,012
Equity shareholders' funds                                                         4,374         (347)       4,027
Minority interests                                                                    85             -          85
Total equity                                                                       4,459         (347)       4,112






Explanation of reconciling items between UK GAAP and IFRS



(a)        Capitalisation of building leases

Under UK GAAP, the Group recognised finance leases under the recognition
criteria set out in SSAP 21.  Although the accounting treatment of finance
leases remains largely the same under IFRS, the application of IAS 17 'Leases'
results in the building element of a number of property leases being classified
as finance leases.  The impact on the Group's financial statements is set out
below:



•         The Group's IFRS opening balance sheet at 28 March 2004 includes
additional property, plant and equipment of £37 million and additional finance
lease obligations (long term borrowings) of £53 million resulting in a reduction
in net assets of £11 million after deferred tax of £5 million.



•         The main impact on the income statement is that the operating lease
payment charged to operating profit under UK GAAP is replaced with a
depreciation charge on the finance lease asset and a financing charge on the
obligation. The pre-tax impact on the income statement for the 52 weeks to 26
March 2005 is a reduction in administrative expenses of £2 million and an
increase in finance costs of £3 million. This results in a net charge of £1
million (£1 million after deferred tax).



•         The Group's IFRS balance sheet at 26 March 2005 includes additional
property, plant and equipment of £36 million and additional finance lease
obligations (long term borrowings) of £53 million resulting in a reduction in
net assets of £12 million after deferred tax of £5 million.




(b)       Lease incentives

Under UK GAAP, rent-free periods were recognised over the period to the first
market rent review.  Under IAS 17, these are amortised over the term of the
lease.  The impact on the Group's financial statements is set out below:



•         The Group's IFRS opening balance sheet at 28 March 2004 includes
additional deferred income of £4 million, resulting in a reduction in net assets
of £3 million after deferred tax.



•         The pre-tax impact on the income statement for the 52 weeks to 26
March 2005 is an increase in administrative expenses of £2 million (£1 million
after deferred tax).



•         The Group's IFRS balance sheet at 26 March 2005 includes additional
deferred income of £6 million, resulting in a reduction in net assets of £4
million after deferred tax.




(c)        Leases with predetermined, fixed rental increases

Comments by IFRIC have indicated that under IFRS it is necessary to account for
leases with predetermined, fixed rental increases on a straight-line basis over
the life of the lease.  Under UK GAAP, the Group accounted for these rental
increases in the year they arose.



The impact on the Group's financial statements is set out below:



•         The impact of this change at the date of transition 28 March 2004 is
an addition of deferred income (non-current) of £17 million, resulting in a
reduction in net assets of £12 million after deferred tax.



•         The pre-tax impact on the income statement for the 52 weeks to 26
March 2005 is an increase in cost of sales of £4 million (£3 million after
deferred tax).



•         The Group's IFRS balance sheet at 26 March 2005 includes additional
deferred income (non-current) of £21 million, resulting in a reduction in net
assets of £15 million after deferred tax.



(d)       Pensions

The Group applied the provisions of SSAP 24 under UK GAAP and provided detailed
disclosure under FRS 17 in accounting for pensions.  Under IFRS, the Group's
balance sheet reflects the assets and liabilities of the Group's defined benefit
schemes. As allowed in the amendment to IAS 19 'Employee Benefits' (December
2004), the Group has elected to recognise all cumulative actuarial gains and
losses through the statement of recognised income and expense.



The impact on the Group's financial statements is set out below:



•         The Group's opening balance sheet at 28 March 2004 reflects the
liabilities of the defined benefit schemes, with a total gross deficit of £715
million.  This liability represents a gross deficit of £665 million relating to
the UK defined benefit pension schemes and £50 million relating to the US
supermarkets business, Shaw's.





The gross deficit relating to the UK defined benefit pension schemes of £665
million is shown together with £7 million of unfunded pension liabilities,
previously recorded within provisions under UK GAAP.



The net pension deficit relating to Shaw's of £30 million (£50 million gross
deficit before deferred tax of £20 million - calculated at the US corporate tax
rate of 40 per cent) has been transferred as part of the sale of Shaw's and has
been included under 'Non-current liabilities held for sale' in the IFRS balance
sheet at 28 March 2004 (note (l)).



•         The income statement adjustment for the 52 weeks to 26 March 2005 is a
small increase in cost of sales of £2 million and a reduction in finance costs
of £11 million, resulting in a net credit of £9 million (£6 million after
deferred tax). The annual charge through the income statement is lower under IAS
19 than under SSAP 24 because the SSAP 24 charge included additional
contributions to amortise the £161 million actuarial deficit identified in March
2003. The calculation of the IAS 19 income statement charge does not include
these contributions.



In addition, the net pension deficit of £30 million relating to Shaw's has been
transferred as part of the sale of Shaw's with the effect of increasing the
reported gain on sale.  This is recorded as an increase in the 'Profit
attributable to discontinued operations' in the income statement for the 52
weeks to 26 March 2005.



•         The Group's IFRS balance sheet at 26 March 2005 reflects the gross
deficit of £527 million relating to the UK defined benefit pension schemes and
£9 million of unfunded pension liabilities, previously recorded within
provisions under UK GAAP.



The gross actuarial gain of £128 million and its associated deferred tax impact
of £38 million (net actuarial gain of £90 million) has been recognised in the
statement of recognised income and expense for the 52 weeks to 26 March 2005.



The following table summarises the movement in the deficit described above:
                                                                                                            £m
IAS 19 gross pension deficit at 28 March 2004                                                            (715)
Current service cost                                                                                      (75)
Past service cost                                                                                          (8)
Gain due to curtailments                                                                                     1
Total service costs and curtailments                                                                      (82)
Finance income                                                                                              11
Contributions                                                                                               81
Shaw's pensions settlements                                                                                 50
Gross actuarial gains                                                                                      128
IAS 19 gross pension deficit at 26 March 2005                                                            (527)
Unfunded pension liability previously recorded within provisions                                           (9)
Total gross pension deficit                                                                              (536)
Deferred tax asset                                                                                         161
Net pension deficit at 26 March 2005                                                                     (375)



(e)       Other employee benefits

Under UK GAAP no provision was made for long-service awards.  Under IAS 19, the
costs of long-service awards are accrued over the period the service is provided
by the employee.





The impact on the Group's financial statements is set out below:



•         A provision for long-service awards is included in the opening IFRS
balance sheet at 28 March 2004 to the value of £7 million (£5 million after
deferred tax).



•         There is no income statement charge in respect of this provision for
the 52 weeks to 26 March 2005 and the provision for long-service awards remains
at £7 million (£5 million after deferred tax) in the Group's IFRS balance sheet
at 26 March 2005.





(f)         Share-based payment

IFRS 2 'Share-based Payment' requires that an expense for share-based payments,
including SAYE schemes, be recognised in the financial statements based on their
fair value at the date of grant.  The expense is recognised over the vesting
period of the scheme.



The additional pre-tax charge arising from the adoption of IFRS 2 on the Group's
income statement for the 52 weeks to 26 March 2005 is £8 million (cost of sales:
£5 million; administrative expenses: £3 million), resulting in a net charge of
£7 million after deferred tax.  The adjustment is comparatively low because the
executive share options granted since 2002 are unlikely to vest and as a result
there is no charge relating to these awards.





(g)       Software capitalisation

Under UK GAAP, software was included within tangible fixed assets. Under IFRS,
software is reclassified from tangible fixed assets and recorded within
intangible assets.



The balance sheet reclassification amounts to £86 million at date of transition
28 March 2004 and £74 million at 26 March 2005.  There is no income statement
impact.



(h)       Goodwill

Previously goodwill on acquisitions was capitalised and amortised over its
useful economic life.  Under IFRS, amortisation is no longer charged, instead
goodwill is tested for impairment annually and again where indicators are deemed
to exist.  Goodwill is carried at cost less accumulated impairment losses.



The impact on the Group's financial statements is set out below:



•         The goodwill amortisation charge for the 52 weeks to 26 March 2005
under UK GAAP of £5 million (including £1 million of goodwill amortisation
relating to Shaw's) reverses in the IFRS accounts. No impairment charge relating
to acquired goodwill has been recognised as at 26 March 2005.



•         The impact on the Group's IFRS balance sheet at 26 March 2005 is to
increase the goodwill balance by £4 million, resulting in an increase in net
assets of £4 million.



(i)          Goodwill - Sale of Shaw's

Under UK GAAP, goodwill previously set off against reserves was recycled on the
sale of the entity to which it related. However, this 'recycling' is not
permitted under IFRS. As a result, the goodwill recycled upon disposal of the US
supermarkets business, Shaw's is reversed, resulting in an increase of £86
million to the gain on sale. This is recorded as an increase in the 'Profit
attributable to discontinued operations' on the face of the income statement for
the 52 weeks to 26 March 2005.



(j)          Impairment of non-financial assets

Under IFRS, the Group reviews the carrying amounts of its tangible and
intangible assets to determine whether there is any indication that those assets
are impaired. If any such indication exists, the recoverable amount of the asset
is estimated in order to determine the extent of the impairment loss (if any).
Where the asset does not generate cash flows that are independent from other
assets, the Group estimates the recoverable amount of the cash-generating unit
('CGU') to which the asset belongs.  For tangible and intangible assets,
excluding goodwill, the CGU is deemed to be each trading store.  For goodwill,
the CGU is deemed to be each retail chain of stores acquired.







The impact on the Group's financial statements is set out below:



•         As at the opening balance sheet date, 28 March 2004, 27 stores were
deemed to be impaired, resulting in an impairment loss of £51 million (£44
million after deferred tax) for property, plant and equipment. This total
includes the 13 stores that the Group announced would be closed as part of the
Business Review.



•         A similar impairment review was performed for the 52 weeks to 26 March
2005 and no further impairment was deemed necessary.  However, as a result of
the above IFRS impairment adjustment at transition date, £11 million (£9 million
after deferred tax) of UK GAAP depreciation charges and write-down costs
relating to those impaired stores is reversed for the 52 weeks to 26 March 2005.




•         The impact on the Group's IFRS balance sheet at 26 March 2005 is an
impairment loss of £40 million (£35 million after deferred tax) for property,
plant and equipment.



The following table summarises the adjustments made to the opening impairment
value:
                                                                                                             £m
IFRS impairment at 28 March 2004                                                                           (51)
Reversal of UK GAAP depreciation and additions on impaired stores                                             1
Reversal of the October 2004 Business Review costs relating to the write-down of those stores                10
impaired under IFRS. These costs were treated as exceptional items under UK GAAP.
                                                                                                             11
IFRS impairment at 26 March 2005                                                                           (40)
Deferred tax                                                                                                  5
Reduction in net assets at 26 March 2005                                                                   (35)



(k)        Dividends

Under UK GAAP, dividends were recognised in the period to which they relate.
IFRS requires that dividends be recognised as a liability when they are declared
(i.e. approved by shareholders or, in the case of interim dividends, when paid).




Accordingly, the accrued final dividends of £218 million for the 2004 financial
year and £95 million for the 2005 financial year are reversed in the balance
sheets at 28 March 2004 and 26 March 2005 respectively.  The 2004 final dividend
of £218 million is recognised directly as an appropriation of retained earnings
in the balance sheet at 26 March 2005.












(l)          Discontinued operations

Under IFRS, assets and liabilities of disposal groups are shown separately on
the balance sheet.  This has the effect of having a single line 'Non-current
assets held for sale' represent the total assets of disposals groups and a
single line 'Non-current liabilities held for sale' represent the total
liabilities of disposal groups.



Similarly, the results of discontinued operations are shown in the income
statement separately from continuing operations.  This has the effect of having
one line representing the trading profit of discontinued operations and any gain
or loss on sale.  This is a re-presentation and there is no impact on the total
Group profit after tax as presented under UK GAAP.


The change in presentation on the Group's IFRS financial statements is set out
below:



•         At the date of transition 28 March 2004, the Group held a disposal
group relating to the US supermarkets business, Shaw's.  As a result, the assets
and liabilities of Shaw's are excluded from the Group's assets and liabilities
and are shown separately in the balance sheet.  The following table summarises
the change in presentation in the balance sheet at 28 March 2004:
                                                                                                               £m
Property, plant and equipment                                                                                 781
Intangible assets                                                                                             160
Other investments                                                                                              10
Inventories                                                                                                   156
Trade and other receivables                                                                                    74
Cash and cash equivalents                                                                                      51
Total assets                                                                                                1,232

Represented by:
Non-current assets held for sale                                                                            1,232

Trade and other payables                                                                                    (242)
Long term borrowings                                                                                        (221)
                                                                                                            (463)
Net pension scheme deficit (note (d))                                                                        (30)
Total liabilities                                                                                           (493)

Represented by:
Non-current liabilities held for sale                                                                       (493)



•         The results of Shaw's have been excluded from the Group's income
statement for the 52 weeks to 26 March 2005 as follows:


                                                                                                             £m
Revenue                                                                                                     207
Cost of sales                                                                                             (189)
Gross profit                                                                                                 18
Administrative expenses                                                                                     (8)
Operating profit                                                                                             10

Analysed as:
Underlying profit before tax from continuing operations                                                      11
Goodwill amortisation                                                                                       (1)
                                                                                                             10

Income tax expense                                                                                          (3)
Profit from discontinued operations                                                                           7
Net pension scheme deficit (note (d))                                                                        30
Goodwill - sale of Shaw's (note (i))                                                                         86
Total adjustment to profit attributable to discontinued operations                                          123



(m)      Cash and cash equivalents

The definition of cash and cash equivalents under IFRS resulted in certain
current assets being reclassified from investments to cash equivalents.



The balance sheet reclassification amounts to £19 million at date of transition
28 March 2004 and £24 million at 26 March 2005.  There is no income statement
impact.









(n)       Revaluation reserve

Under IFRS, deferred tax is accounted for on the basis of taxable temporary
differences between the tax base and accounting base of assets and liabilities.
As a result, an additional deferred tax liability of £7 million arising from the
revaluation reserve of £22 million has been recognised in the IFRS balance
sheets at 28 March 2004 and 26 March 2005.



In addition, the Group has elected to treat the revalued amount of properties as
deemed cost at date of transition 28 March 2004 and will not revalue for
accounting purposes in the future.  As a result, the revaluation reserve of £22
million under UK GAAP has been transferred directly to retained earnings in the
Group's IFRS balance sheets at 28 March 2004 and 26 March 2005.



14    First time adoption of IAS 32 and IAS 39

The Group has adopted IAS 32 'Financial Instruments: Disclosure and
Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement'
with effect from 27 March 2005.  The Group has taken the exemption available in
IFRS 1 'First-time Adoption of International Financial Reporting Standards' not
to restate comparatives for both IAS 32 and IAS 39.




The adjustments to the opening balance sheets at 27 March 2005 are as follows:
                                                                       IFRS       IAS 32       IAS 39   Restated
                                                                             adjustments  adjustments       IFRS
                                                                   27 March
                                                                       2005                             27 March
                                                                                                            2005
                                                                         £m           £m           £m         £m
Non-current assets
Property, plant and equipment                                         7,076            -            -      7,076
Intangible assets                                                       203            -            -        203
Investments                                                              20         (10)            -         10
Available-for-sale financial assets                                       -           10           85         95
Amounts due from Sainsbury's Bank customers                           1,331            -            -      1,331
Derivative financial instruments                                          -            -          154        154
                                                                      8,630            -          239      8,869
Current assets
Inventories                                                             559            -            -        559
Trade and other receivables                                             319            -         (20)        299
Amounts due from Sainsbury's Bank customers and other banks           1,227            -          (2)      1,225
Available-for-sale financial assets                                       -           90            -         90
Derivative financial instruments                                          -            -            7          7
Investments                                                              90         (90)            -          -
Cash and cash equivalents                                               706          103            -        809
                                                                      2,901          103         (15)      2,989
Non-current assets held for sale                                         87            -            -         87
                                                                      2,988          103         (15)      3,076
Current liabilities
Trade and other payables                                            (2,093)            -           68    (2,025)
Amounts due to Sainsbury's Bank customers and other banks           (2,464)            -            -    (2,464)
Short term borrowings                                                 (354)        (236)         (10)      (600)
Derivative financial instruments                                          -            -         (36)       (36)
Taxes payable                                                          (55)            -            -       (55)
                                                                    (4,966)        (236)           22    (5,180)
Non-current liabilities
Other payables                                                         (31)            -            -       (31)
Amounts due to Sainsbury's Bank customers and other banks              (22)            -            -       (22)
Long term borrowings                                                (1,793)            -        (181)    (1,974)
Derivative financial instruments                                          -            -          (3)        (3)
Deferred income tax liability                                           (1)            -          (7)        (8)
Provisions                                                            (157)            -            -      (157)
Retirement benefit obligations                                        (536)            -            -      (536)
                                                                    (2,540)            -        (191)    (2,731)
Net assets                                                            4,112        (133)           55      4,034

Equity
Called up share capital                                                 620        (133)            -        487
Share premium account                                                   761            1            -        762
Capital redemption reserve                                              547            -            -        547
Other reserves                                                           87            -           71        158
Retained earnings                                                     2,012          (1)         (16)      1,995
Equity shareholders' funds                                            4,027        (133)           55      3,949
Minority interests                                                       85            -            -         85
Total equity                                                          4,112        (133)           55      4,034




Under IAS 39 all of the Group's derivative financial instruments are measured at
fair value and recognised on the balance sheet. Where the instruments are part
of a qualifying hedge relationship the carrying amount of the hedged item is
adjusted by the change in fair value that reflects the designated hedged risk.







The Group chooses not to hedge account for certain interest rate and cross
currency swaps.  In these cases the difference between the previously reported
carrying value and the fair value of the derivative financial instrument has
been recognised directly in opening retained earnings.  The difference between
the previously reported carrying value and the fair value of the hedged item
that reflects the designated hedged risk has also been recognised directly in
opening retained earnings and will be fully amortised through the income
statement by maturity.







A portion of the Group's interest rate swaps do not qualify as hedging
instruments under IAS 39. At the date of transition the difference between the
previously reported carrying value and the fair value of these swaps was £23
million (£16 million after deferred tax) and has been recognised directly in
opening retained earnings. Movements in the fair value of these instruments are
recognised in the income statement.







In addition, upon adoption of IAS 39, an available-for-sale financial asset of
£85 million relating to the Group's beneficial interest in a property investment
pool has been recognised, with the corresponding credit made to reserves.  This
asset will be held at fair value with any fair value movements taken to
reserves.



The majority of the Group's bank accounts are pooled in an offset arrangement
for the purpose of charging interest. Under IAS 32 financial assets and
financial liabilities must be separately disclosed. The effect of grossing up
the Group bank accounts at 27 March 2005 is to increase overdrafts and cash at
bank by £103 million.



Under IAS 32, the Group must present the B shares, which have previously been
included as part of equity, as a current liability. Dividends paid on the B
shares are recognised in the income statement as part of finance costs. The
carrying value of the B share capital at 27 March 2005 was £133 million.










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