Final Results
14 May 2008
Preliminary Results for the 52 weeks to 22 March 2008
Three-year targets exceeded
Financial Summary 2008
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Total retail sales (inc VAT) up 5.8 per cent to £19,287 million (2007: £18,227 million)
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Like-for-like sales (ex fuel, inc VAT) up 3.9 per cent (1)
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Underlying profit before tax up 28.4 per cent at £488 million (2007: £380 million) (2)
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Profit before tax of £479 million (2007: £477 million)
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Underlying basic earnings per share 19.6 pence (2007: 14.7 pence) (3)
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Basic earnings per share of 19.1 pence (2007: 19.2 pence)
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Proposed final dividend of 9.00 pence per share (2007: 7.35 pence), up 22.4 per cent making full year dividend of 12.00 pence (2007: 9.75 pence) up 23.1 per cent
Making Sainsbury's Great Again: Targets exceeded
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Grown sales by £2.7 billion: exceeding plan to reach £2.5 billion sales growth by March 2008 (4)
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13 quarters of consecutive like-for-like sales growth
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Over £450 million invested in customer offer delivering best price position for many years
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Cost savings of over £440 million achieved
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Profit more than doubled (£488 million vs. £238 million) demonstrating strong operational gearing (5)
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117,000 colleagues share annual bonus of £47 million: Over £150 million awarded in past three years
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2.5 million additional customers: over 16.5 million a week compared to 14 million a week in 2005 (6)
Making Sainsbury's Great Again: Recovery to growth
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Transacted around £2 billion of asset management activity including two property JVs since March 2007 (7)
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New 30,000 sq ft non-food offer launched in April 2008
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Plans announced to launch an online non-food offer: £15 million revenue investment in 2008/09
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Strengthening of operating board with four new members
Philip Hampton, chairman, said: 'This year has been particularly significant for Sainsbury's since it marked the completion of the Making Sainsbury's Great Again ('MSGA') recovery plan announced in October 2004 and we moved from a period of recovery to growth. Underlying profit before tax for the year was up 28.4 per cent to £488 million, more than double the £238 million reported for the year to March 2005, which was prior to our recovery plan.
'It is a credit to the management team and colleagues at Sainsbury's that our performance over the past 12 months was delivered against an extended backdrop of speculation concerning the potential take-over of the company which lasted for the majority of 2007. Throughout this period the business continued to perform well reflecting the exceptional leadership and commitment from the management team. The Board is recommending a final dividend of 9.00 pence per share, making the full year dividend 12.00 pence, an increase of 23.1 per cent compared to last year. This is covered 1.63 times by earnings which is in line with our stated policy of dividend cover in the range of between 1.5 times and 1.75 times.'
Justin King, chief executive, said 'When I joined Sainsbury's we undertook a complete review of the business and outlined a plan to Making Sainsbury's Great Again in October 2004. The plan was based on delivering great quality food at fair prices. To achieve this on an ongoing basis we needed to fix many fundamental parts of our operation. Only by satisfying customers and improving sales could we return to sustainable growth in both sales and profitability and this has driven everything we have done over the past three and a half years.
'Over the past 12 months we have continued to make good progress growing like-for-like sales (excluding fuel) by 3.9 per cent and I'm delighted that the year culminated in fulfilling the commitments made in October 2004. We have now reported 13 consecutive quarters of like-for-like sales growth and achieved £2.7 billion additional sales by March 2008 against the original stretching target of £2.5 billion. This is a great achievement in a challenging market. Our sales growth is also reflected in substantially improved profits and operational gearing is coming through. We have good momentum as we now focus on taking Sainsbury's from recovery to growth. This is an outstanding achievement and I would like to thank all 150,000 Sainsbury's colleagues for the part they played.
'Our passion for healthy, safe, fresh and tasty food, our value, innovation and strong ethical approach to business provides differentiation between us and our major competitors and are what customers want and expect from Sainsbury's. We remain focused on building and stretching our lead in food and are committed to providing great quality food at fair prices whatever our customers' budgets. We're accelerating the development of our complementary non-food offer to provide customers with a broader shopping experience and our ability to do this is being driven by the addition of sales space through both extensions and new store developments. We also continue to extend our relationship with customers beyond the traditional supermarket environment through the growth of our convenience store operation, our online offer and Sainsbury's Bank. We are today announcing plans to launch a non-food online business in the first half of 2009/10.
'Our active property management is enabling us to retain operational flexibility while exploiting the development potential of our property assets and maximise value. Since March 2007 we have undertaken around £2 billion of asset management activity, including two joint ventures.
'In May 2007 we outlined a number of new targets which build on our recovery to date to expand and drive further growth. These are ambitious plans that bring together the ongoing improvements we are making in efficient operational performance with the work we have already completed on developing a universal customer offer.
'Achieving the MSGA targets has provided a firm base for ongoing sales and profit growth and new space development. However, as we said throughout the second half of 2007/08, consumer budgets are clearly under pressure and we expect the market to remain intensely competitive. Sainsbury's is now a much better business able to compete and grow in this challenging environment. We will continue to focus on developing our offer in line with changing customer requirements and on driving further operational savings. This will ensure we continue to make progress in the year ahead.'
Notes:
1. Like-for-like sales: Like-for-like sales are Easter adjusted for comparative purposes. 2007/08 included two Good Friday trading weeks and one Easter Monday trading week. 2006/07 included one Good Friday trading week and one Easter Monday trading week. 2008/09 will include one Easter Monday trading week only.
2. Underlying profit before tax: Profit before tax from continuing operations before any gain or loss on the sale of properties, impairment of goodwill, impairment of properties held within joint ventures, 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 costs relating to approach from Delta Two, the costs associated with Office of Fair Trading dairy inquiry and fair value gain on other financial asset. In the prior financial year, these one-off items were the profit on part disposal of Sainsbury's Bank and past service gains on defined benefit schemes.
3. 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.
4. MSGA Sales: Are defined as retailing sales including VAT excluding fuel.
5. £238 million was the Group's underlying profit before tax in 2004/05.
6. Customer numbers: Are quoted on a consistent basis, but exclude the Bells & Jacksons convenience stores' customers of approximately 1.3 million a week.
7. Since March 2007 the Group has undertaken around £2 billion of asset management activity. This includes two joint ventures, the acquisition of freeholds and the disposal of surplus and mature assets. This activity has not all been completed within the 2007/08 financial year.
8. Certain statements made in this announcement are forward looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward looking statements. Unless otherwise required by applicable law, regulation or accounting standard, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.
9. Sainsbury's will announce its First Quarter Trading Statement on 18 June 2008.
10. Analyst and investors presentation: 9:45am (BST). To view the presentation slides and Webcast: Please register in advance by visiting www.j-sainsbury.co.uk and follow the instructions. To participate in the live event, go to the website from 9.30am (BST) for instructions. To listen to the Presentation: Dial +44 (0) 1296 317500, pass code 375066 at least ten minutes before the start and give your name and company details. You will be placed on hold until the presentation starts. A transcript will be available from 15th May 2008 at www.j-sainsbury.co.uk.
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Making Sainsbury's Great Again
Over the past three years significant improvements have been made to the company's operation providing a firm base for future growth. The task, encompassing fixing many basics, from product range and pricing to supply chain and IT, was a huge undertaking for a business the size of Sainsbury's and, as acknowledged at the time, was a job for the medium to long-term.
A good example of the progress that has been made is in product availability, cited in 2004 as the company's number one performance issue. The depot network has been successfully reorganised improving service to stores and today availability is the highest it has been since the company's records began. A significant amount of work has been undertaken in improving customer service and the product offer and customer transactions have now risen from around 14 million in 2004 to over 16.5 million a week. Over £450 million has been invested in price and quality and Sainsbury's price competitiveness is the best it has been for many years.
The company has achieved over £440 million of cost savings since March 2005 despite the fact that some of the original intended areas of saving, such as marketing, were re-assessed due to the changing competitive conditions. Overall, the first three years of MSGA have been successful and all the initial retailing targets set in October 2004 have been achieved.
Recovery to growth
In May 2007 Sainsbury's set new three-year targets that build on the strong progress made to date and drive further growth in the business. Five areas of focus have been identified to take Sainsbury's from recovery to growth.
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Great food at fair prices: To build on and stretch the lead in food. By sharing customers' passion for healthy, safe, fresh and tasty food Sainsbury's will continue to innovate and provide leadership in delivering quality products at fair prices, sourced with integrity.
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Accelerating the growth of complementary non-food ranges: To continue to develop and accelerate the development of non-food ranges following the same principles of quality, value and innovation and to provide a broader shopping experience for customers.
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Reaching more customers through additional channels: To extend the reach of Sainsbury's brand by opening new convenience stores, developing the online home delivery operation and growing Sainsbury's Bank.
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Growing supermarket space: To expand the company's store estate, actively seeking and developing a pipeline of new stores and extending the largely under-developed store portfolio to provide an even better food offer while also growing space for non-food ranges.
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Active property management: The ownership of property assets provides operational flexibility and the exploitation of potential development opportunities will maximise value.
To help lead the company through this next stage of its development, Sainsbury's has today announced the strengthening of the operating board with the addition of four directors responsible for IT and change, commercial services, property and strategy. The changes are effective from mid June 2008 and give greater representation on the board for key areas of increasing significance as the business moves from recovery to growth.
In addition the company has strengthened its property team as the natural next step in its active property management. A new division has been created to dedicate resource to the ongoing management of Sainsbury's property joint ventures and potential development opportunities to maximise value of the assets.
The 2007-2010 targets are underpinned by ongoing operational efficiencies. The cost savings achieved over the last three years have delivered significant progress and there are further plans to reduce the cost base over the coming years, with the target to offset at least half of operating cost inflation.
Creating operational efficiencies is now embedded within the various functions of the business including the store estate, the distribution network, property development and central functions. In stores, night shift operations have been improved and bi-optic scanners and self checkouts are being introduced to help drive efficiency. Shelf ready packaging continues to be rolled out to improve replenishment further and additional enhancements to in-store labour management are planned for the year ahead.
Within the distribution network there has been significant improvement to depot productivity and store deliveries. These have been driven by new processes, network re-organisation, a new transport management system and the introduction of new facilities such as a new 530,000 sq ft depot at Northampton, built under carbon-negative conditions, which opened in November 2007.
In April 2008 Sainsbury's announced the appointment of Roger Burnley, previously supply chain director, into the new role of retail and logistics director on the company's operating board. This reflected in part that the task had changed from fixing the basics to ongoing operational improvements by consolidating the responsibility for both store and depot operations.
A 355,000 sq ft ambient facility was acquired in Staffordshire in March 2008 and a 550,000 sq ft centre in North Yorkshire, to be operated by logistics specialist Wincanton, will be used to consolidate the convenience store supply chain operation currently based in two centres at Maltby and Skelton. These will close later this year. The new depot will also provide relief for the supermarket estate this Christmas and when fully operational will employ around 500 colleagues. At Waltham Point, some of the automated equipment has been removed and similar refurbishment is planned at Hams Hall later this year.
Cost savings within the central functions are being delivered through more cost effective solutions, such as the recent creation of a shared services support centre in Manchester, the ongoing improvements to data analytics from the Nectar card loyalty scheme for targeting marketing spend and the future planned relocation of the central store support centre in Holborn, London to Kings Cross in 2011.
With the renewed focus on growing supermarket space, an enhanced store opening plan is now in place. The company has developed its capability in this area to deliver more efficient capital spend from the recently strengthened store development and property team. This team is focused on building and renovating for less by bringing in-house many of the procurement and planning functions previously contracted outside the business.
Operating review: the Sainsbury's brand - 'Different values'
The values of the Sainsbury's brand; the passion for healthy, safe, fresh and tasty food, the focus on delivering great products at fair prices, a history of innovation and leadership and a strong regard for the social, ethical and environmental effect of the company's operation, have continued to stand the test of time. Since its first shop opened in 1869, Sainsbury's has informed debate and led on issues of the day. With customer numbers now at over 16.5 million each week, initiatives introduced by Sainsbury's can have a real impact on UK consumers and in particular the food they eat - a responsibility the company takes seriously.
A number of awards and audits over the past year recognised the company's achievements. In October 2007 Sainsbury's was voted 'Supermarket of the Year' at the Retail Industry Awards for the second year running. Other accolades include the highest mark awarded for environmental performance in the National Consumer Council's 'Green Grocers' report, the only 'A' awarded to a major supermarket by Greenpeace and 'best volume retailer' and 'most improved supermarket' by Compassion in World Farming for the company's commitment to improving animal welfare.
Sainsbury's publishes a separate report on its corporate responsibility performance which can be found at http://www.j-sainsbury.co.uk/cr. Five principles are at the core of Sainsbury's brand; to be 'the best for food and health', 'sourcing with integrity', to have 'respect for our environment', 'making a positive difference to our community' and to be 'a great place to work'. They provide differentiation from major competitors and define and direct the company's activities.
Best for Food and Health: Over recent years customers have become increasingly concerned with the nutritional benefit of individual foods as well as eating a better and more healthy diet. Providing innovation and clear, honest information helps customers choose a healthier diet and the right food for their lifestyles. Sainsbury's was the first supermarket to put nutritional labels on the front of products when it introduced its Wheel of Health multiple traffic light label in 2005. This is now on around 5,000 products. Continuing its innovation in healthy products, Sainsbury's launched the first own label 1 per cent fat milk in April 2008. This contains around half the fat of semi-skimmed milk but retains the flavour and same amount of calcium and vitamin B. If UK consumers switched from semi-skimmed milk to the new 1 per cent milk they could more than halve their saturated fat intake from milk each year.
Sourcing with integrity: Sainsbury's believes in sourcing and producing products in a responsible manner. In November 2007 it announced that palm oil used in its own brand food would come from certified sustainable sources as increased demand is having a significant environmental impact. The first food on UK supermarket shelves to contain certified sustainable palm oil will be Sainsbury's 'basics' Fish Fingers later this month making an everyday food more ethical. This will equate to around eight million fish fingers this year which are also Marine Stewardship Council (MSC) approved.
By July 2008, Sainsbury's soap will also contain certified sustainable palm oil. Providing honest and transparent labelling, Sainsbury's will also be the first supermarket to label the use of palm oil in its food with the first range labelled by July 2008.
Respect for our environment: Much of the company's work in respecting the environment is about good housekeeping to improve efficiency and further reduce energy consumption. In April 2007 it launched 'Make the difference days' ('Mtdd') to raise awareness and action around different social, environmental and ethical issues and work in partnership with customers to make a sustained difference. The first day highlighted the issue of free one-use disposable plastic bags. Over three Mtdds in total Sainsbury's has given away 15 million free 'Bags for Life' made from 100 per cent recycled material. It encouraged people to re-use these bags and has since seen a 10 per cent reduction in disposable bags used by customers.
In April 2008, to mark the first anniversary of Mtdd, Sainsbury's announced the ambition to halve free plastic bag usage by April 2009. It is also increasing the recycled content of its single use bags from 33 per cent to 50 per cent, further reducing the environmental impact, and will issue Nectar loyalty points to customers re-using their own bags when shopping in Sainsbury's stores from June 2008.
Making a positive difference to our community: Sainsbury's stores are at the heart of the communities they serve and during the year, cash and in-kind donations to charitable organisations and other community projects totalled £7.6 million (2007: £6.6 million). Sainsbury's colleagues, customers and suppliers raised £5.4 million (2007: £12.4 million which included Comic Relief) for charities through events supported by the company. Activities focus on areas that matter most to colleagues and customers such as food, family, health and children.
The Active Kids programme is a great example of this where customers earn vouchers against spend in-store and online which can then be redeemed by schools, Scout and Guide groups against activity and cookery equipment. Since the launch in 2005, £52 million of sports equipment, kit and coaching have been donated to over 26,000 UK children's groups and nearly 40,000 registrations have been received for the 2008 scheme. New to this year's scheme is the opportunity for British children to donate vouchers to schools in developing countries.
A great place to work: Most store colleagues live within the communities served by their store and many donate time and effort to causes outside work. Sainsbury's Local Heroes scheme recognises and encourages colleagues who do this with awards of £200 to £500. Providing a great place to work and community involvement are combined in activities such as sponsorship. Sainsbury's has been the retail sponsor of Comic Relief since 1999 and raised £2.3 million for Sport Relief in March 2008. In October 2007, four colleagues from the Scunthorpe store which had raised the single highest donation for Comic Relief in March 2007, went to India to see projects that were benefiting from money raised such as the Railway Children project which helps support some of the 18 million children living on the streets in India.
117,000 colleagues will share a bonus of £47 million this year bringing the total amount paid out over the past three years to over £150 million. The bonus scheme is linked to the delivery of great service and product availability as well as overall sales and profit measures. The targets for the one-off MSGA share plan have also been met in full at the end of the three-year period meaning that the first payment under the scheme, due in May 2008, will be made to around 1,000 managers. The second payment due in May 2009 will depend on continued strong performance.
Great food at fair prices
Sainsbury's customers expect quality to be maintained in the delivery of competitive pricing. Even though consumers have had to manage their expenditure more carefully over the past year they still want healthy, safe, fresh and tasty food as well as fair prices. Sainsbury's price competitiveness is currently the best it has been for many years following the investment of more than £450 million over the last three years. Around 15,000 prices are checked every week to make sure the company's competitive position is maintained and developed.
In August 2007, Sainsbury's launched its 'Different Values' campaign to emphasise the higher quality specifications and great value of Sainsbury's own brand products. In March 2008, the 'Feed your family for a fiver' campaign showed customers how affordable, healthy and nutritious meals for a family of four could be prepared within a budget of £5. Since the campaign began sales of featured ingredients have shown a marked increase. Sales of the minced meat in the launch television advertisement increased by 200 per cent and demand for 'basics' spaghetti and tinned tomatoes also saw significant increases.
The campaign has particular relevance as consumers face increasing constraints on household spending but clearly shows that at Sainsbury's they do not have to compromise on food quality when shopping on a budget. Customers also respond very positively to the tip cards which accompany the campaign. Sainsbury's first issued the cards when it launched its 'Try Something New Today' branding in September 2005 and since that time 200 million cards have been distributed covering 350 different ideas.
The company has worked hard to restore the universal appeal of the Sainsbury's brand by developing products that meet a diverse range of requirements. There is a clear rise in the 'savvy shopper' who buys both 'basics' ingredients, where an item's appearance is not a primary concern, alongside premium 'Taste the difference' products, such as meat and fish, where strict quality and taste standards are required.
'Taste the difference' ('Ttd') is Sainsbury's biggest sub brand at around £1 billion of sales a year. It comprises around 1,300 products and was the company's first own brand range to be free of artificial colours, flavours and hydrogenated fats. In the autumn of 2007 Sainsbury's staged the UK's biggest ever taste test with over five million samples of over 200 different Ttd products tried in store by customers. Fresh meat and fish have seen significant growth, driven by both the increase in awareness of higher welfare chicken and a strong promotional programme.
Following its reinvigoration in April 2007 and significant range expansion, the company's entry level 'basics' range had a strong year with growth, at 20 per cent, significantly ahead of the market. Comprising around 500 products, it is Sainsbury's fastest growing sub brand. 'Sainsbury's SO organic' range has over 450 products. All fresh organic meat, eggs and milk come from British farms and 90 per cent of organic fresh produce is in home-compostable, recyclable or recycled packaging.
Sainsbury's has removed artificial colours, flavour enhancers, the sweeteners aspartame, saccharin and acesulfame k, and the benzoate group of preservatives from virtually all its 12,000 plus own brand food and drink including market firsts for cola and lime cordial. The only exceptions are where it compromises product quality and in these cases there is clear labelling on product packaging. Sucralose is now the only sweetener used in Sainsbury's own brand food and drink where, for a variety of reasons, customers wish to avoid natural sugars. The company has not permitted the use of specific additives, as recommended for voluntary ban by the Food Standards Agency in April 2007, to be used in food and drink since 2005.
The company has a long history of supporting British farmers. Support goes beyond the stocking of products to working with farmers to help raise capacity, skills, and empowering them to build sustainable businesses. In November 2007 Sainsbury's became the first supermarket to use flour from guaranteed traceable UK farms in its 360 in-store bakeries by using top quality British wheat grown in East Anglia. Via the 'Year of Food and Farming' campaign, the company is also helping to raise the profile of British agriculture. This is linked to Sainsbury's Active Kids scheme by providing information and equipment to schools and this year the company will be offering schools farm and store tours in partnership with suppliers in each of its key agricultural regions.
Sainsbury's has sold Fairtrade goods since 1994 but the conversion of Sainsbury's bananas to Fairtrade, completed in July 2007, has made an enormous difference to Fairtrade farmers and their communities. By selling Fairtrade bananas at the same price as conventional bananas Sainsbury's and its customers have helped create a social premium of around £4 million in 2007 which will be returned to the growers and their communities. This is the biggest conversion of its kind worldwide and Sainsbury's now sells more Fairtrade bananas than all other major UK supermarkets combined with a market share in excess of 60 per cent.
To celebrate the 100 per cent conversion, in August 2007 the company launched 'The Sainsbury's Fair Development Fund'. Run by Comic Relief and financed with an initial commitment of £1 million from Sainsbury's, the fund will be used to support a number of Fairtrade initiatives over a four-year period. It is hoped the fund will provide a major boost to the livelihoods of producers, especially in Africa, who will be supported in entering the Fairtrade system.
In September 2007, 14 'Local Hero' store colleagues visited Sainsbury's Fairtrade producers in Kenya and Tanzania as acknowledgement of their charitable work and to gain better understanding of the products and the benefits provided to farmers, workers and communities. In October 2007, Sainsbury's announced that 100 per cent of its entire own brand tea would become Fairtrade, followed by roast and ground coffee. This is expected to triple the Fairtrade certified tea sold in the UK and create an increased return of around £2 million each year in Fairtrade premiums for developing countries. The company has more than doubled its Fairtrade sales over the last year and when this move is completed at the end of 2010, Sainsbury's will be the UK's largest retailer of Fairtrade tea and coffee.
Accelerating the growth of complementary non-food
Sainsbury's values are just as relevant in non-food ranges as in food. Non-food products follow the same principles of quality, value and innovation and although food is at the heart of Sainsbury's brand, the development of ranges such as clothing, home, electricals and entertainment is enabling the company to complement the food shop and provide a broader offer for customers.
TU, the company's own label clothing range which launched in September 2004, continues to be a star performer. Sainsbury's is now the eleventh largest UK clothing retailer by volume and during the past year sales have grown by around 40 per cent taking TU clothing to a £300 million brand. TU clothing is now in 270 Sainsbury's stores but, with the full range still only in 74, there is significant potential to grow sales as TU is extended further across the store estate. TU's in-house designers follow the same focus on quality and value while tracking the latest developments in fashion and clothing technology.
In March 2006 Sainsbury's launched a range of Fairtrade certified cotton clothing and sales of Fairtrade t-shirts are significantly ahead of the company's expectations. In March 2008 Sainsbury's launched two new TU clothing ranges called 'Grace' in sizes 18 to 28 and 'Petite' catering for women 5ft 3in and under sized from 8 to 18. Each range consists of 45 items and is in 50 and 25 stores respectively.
The TU brand is now well established with Sainsbury's customers and just as the 'basics' and 'Ttd' (via 'Different by design') sub brands have also been applied to non-food products, a new 1,700 homeware range called 'TU home' was launched in two stores in Sydenham (London) and Oldbury (West Midlands) in April 2008. This completes Sainsbury's 'good, better, best' range hierarchy in non-food, as in its food ranges, and complements 1,700 home and lifestyle products, such as storage, home office and toys, already in the company's core non-food product range. This total offer of 3,400 items will be rolled out to additional stores over the next year.
Sainsbury's had a strong Christmas offer across gifts, cards and wrapping and was the company's first to be sourced direct by its in-house team. It also included a number of special buys and 'stunt' deals of large electrical products and had a particularly strong performance in games, small electrical appliances and new technology such as MP3 players, digital cameras and satellite navigation systems. More recent product launches within Sainsbury's home and lifestyle offer include a children's cookware range, designed to help encourage children to get cooking, and the expansion of the company's premium homeware range 'Different by design'.
Sainsbury's Health and Beauty ranges had a good year and 35 stores were refitted with a new look and layout for these products. The company increased its promotional programme to include 'stunt' deals on products such as nappies and the Champneys skincare range saw its third year of consecutive growth with over two million products being sold. Sainsbury's had 222 pharmacies within its supermarkets at the end of March 2008. The company recruited additional pharmacists to strengthen its team as well as assisting pharmacy colleagues to continue their professional development to continuously improve this area of service for customers. The first General Practitioners' ('GP') surgery to be located in a supermarket opened at one of Sainsbury's Manchester stores in March 2008. Designed to give patients convenient access to GP services during evenings and weekends, this initiative has generated interest nationwide from GPs and Primary Care Trusts.
The addition of sales space through both new store development and extensions is a key strand of the strategy to grow the contribution of non-food ranges. Over the three years to March 2010, the company expects overall sales growth to be split two thirds from food and one third from non-food with half the new space in that same period given to the company's growing non-food offer. By the end of March 2010, sixty 60,000 sq ft or larger stores will have over 15,000 sq ft of non-food merchandise with TU clothing within 300 stores.
In August 2007, Sainsbury's announced its intention to move its central non-food operation to Coventry and the move is due to be completed by January 2009. The TU clothing team has been based at the Coventry site since the clothing brand launched in 2004 but this will see it become a consolidated general merchandise operation. Sainsbury's is strengthening its senior non-food team with key recent hires bringing extensive non-food retail experience from major competitors. The company is also recruiting around 150 product designers, buyers, merchandisers and administrative colleagues to support the Coventry operation. Sainsbury's specialist non-food team has grown over the last three years and investment has also been made across IT and the supply chain. The first general merchandise range to be fully designed from the Coventry site will be Autumn/Winter 2008. Sainsbury's has also strengthened its Asian direct sourcing operation, based in Hong Kong, which now has around 50 colleagues.
Reaching more customers through additional channels
Consumers' shopping habits continue to change as customers increasingly want to be able to shop more frequently and more locally as well as via the internet.
Sainsbury's online home shopping operation has had an outstanding year. Sales grew by 43 per cent with a record Christmas performance. The service operated from 147 stores at the end of the 2008 financial year but had reached 151 stores by the end of April 2008. It covers 85 per cent of UK postcodes and delivers to more than 90,000 customers each week, 40 per cent more than the previous year. The company is expanding the number of delivery slots available to customers and continues to make operational improvements. It is also the first grocery retailer to operate an Electric Zero Emission vehicle. Many more are planned this year and drivers continue to collect customers' unwanted Sainsbury's plastic carrier bags for recycling.
A natural extension of Sainsbury's increasing in-store offer will be a service providing non-food products online and the company has today announced the launch of a non-food online offer in the first half of the 2010 financial year. The new service will provide customers with the choice of a range of Sainsbury's own-brand and branded non-food products. The company's central online team is being doubled to work on developing and implementing the non-food offer online. It will also require dedicated IT and its own supply chain as well as retail and central trading support representing an estimated revenue investment of circa £15 million in the 2009 financial year and a similar amount in the following year.
Sainsbury's Bank is an important part of the Group and following the creation of a 50:50 joint venture with HBOS in February 2007, the service was integrated into the core supermarket offer later that year. The Bank was re-launched with a product offer more in line with customer aspirations, including a market leading internet saving product. Under the new joint venture arrangement with HBOS, Sainsbury's is reporting a small loss of £3 million for the full year. Rob Walker retired as CEO of Sainsbury's Bank earlier this month as planned after completing his two year contract. Under Rob, the Bank has made real progress and is now in a much stronger position for the future with more products and revenue streams and significantly reduced underlying bad debt. Neil Chandler, previously Head of Loans with HBOS, took over the CEO role at the beginning of May 2008.
Convenience stores: Growing presence in the convenience sector has been an important part of the MSGA plans and in March 2008 Dido Harding joined the company to head up the convenience operation taking over from Lawrence Christensen.
During the year 27 convenience stores were opened, six were closed, one was extended and 15 were refurbished giving a total of 319 by the end of March 2008. Almost all of the 168 stores originally acquired from Bells and Jacksons have now been transferred to the 'Sainsbury's Local' fascia with the exception of 36 stores considered unsuitable for conversion and for which a sale process commenced in March 2008. Nine stores have been sold to the Co-op and a sale has been agreed for the remaining 27 to Martin McColls which will complete in stages over the next couple of months.
The company has also ended its agreement with Shell UK whereby Sainsbury's Local stores operated on Shell forecourts. A total of 24 sites carried the offer but the return on investment was not satisfactory to either party and 21 will return to Shell while three will continue to trade as Sainsbury's Local.
Growing supermarket space
Following its improved performance, Sainsbury's last year began actively searching again for locations where it could introduce its offer to new communities. New space growth opportunities are being developed as part of the plans outlined in May 2007 to grow space by ten per cent by March 2010. Half the targeted new space growth is set to come from new stores as Sainsbury's plans to open 30 new supermarkets and 100 convenience stores. Total new space will be split equally across food and non-food ranges. This will enable the continued development of a great food offer via expanded food halls as well as growing total non-food space.
Supermarkets: During the year 14 supermarkets (net of two closures) were opened including acquisitions, 15 stores were extended and a further 52 were refurbished. The second half of the year saw a step up in the store development programme with 15 stores acquired from Kwiksave in October 2007 transferring to the Sainsbury's operation. Eleven stores became small supermarkets and four converted to Sainsbury's Local. All were trading by Christmas 2007. At the end of March 2008 Sainsbury's had 504 supermarkets.
Gross selling area of 576,000 sq ft was added in the year; 472,000 sq ft in supermarkets and 104,000 sq ft in convenience stores. Some 39,000 sq ft of selling space was closed, resulting in net space added of 537,000 sq ft, growing ahead of plans at 3.1 per cent footage growth. 1.3 per cent of this growth came from extensions with 2.0 per cent from new store space. Closures reduced growth by 0.2 per cent.
Sainsbury's environmental Greenwich store, which originally opened in 1999 representing a watershed in supermarket architecture, was refurbished in the second half of the year. The store is a major investment in the environment and the refurbishment has taken its green credentials to the next level with the addition of features such as the use of carbon dioxide for the refrigeration system, an enhanced lighting scheme which includes greater use of natural light along with automatically dimming sales floor lighting and the inclusion of solar powered fans.
Active property management
The company believes that ownership of its property assets enables it to retain operational flexibility while exploiting development opportunities and maximising value. Over the year this has included buying freeholds of stores with development potential, the disposal of mature and non-trading assets and joint ventures to both access specialist development expertise for potential mixed use development as well as store extension opportunities.
Since March 2007 the Group has undertaken around £2 billion of asset management activity, including two joint ventures as part of the company's active property management. Sainsbury's has acquired the freehold to 10 sites for £285 million. As part of this process the company's specialist in-house property team will now be able to extend and develop stores, providing an improved customer offer and increasing their long-term value. The company has also disposed of surplus and mature assets to realise cash and to fund its development investments. A number of transactions, including the sale and leaseback of four depots and disposal of two stores, have raised £341 million in proceeds since March 2007.
In November 2007, Sainsbury's announced the formation of a strategic joint venture ('JV') with Land Securities to bring together undeveloped properties and development expertise. The JV started with three properties but now comprises four following the addition of a property in the second half of the year. The JV now has a market value of £125 million and the stores owned by the JV have significant potential beyond standard store extensions, such as mixed-use developments. Both partners intend to add properties to the JV as well as actively pursuing other suitable opportunities together.
In March 2008 the company announced an investment of £273 million into an existing vehicle, owned by British Land and comprising 39 stores, to create a new 50:50 JV company. At 1.3 million sq ft, the 39 stores held by this securitised property JV, including many of the company's most important stores, accounts for eight per cent of Sainsbury's total net selling space. The JV has a valuation of
£1.2 billion and the investment represents a net equivalent yield of 5.1 per cent. Creation of this JV unlocks the opportunity to significantly develop these stores and deliver an improved customer offer. It will seek to maximise the full potential of these development opportunities, including extending up to 25 sites by an estimated 500,000 sq ft of net selling area. Sainsbury's will benefit from both the enhanced trading performance of the extensions as well as retaining a share of the increased property value.
As laid out in May 2007 the company's active property management is expected to be cash flow neutral over the medium-term.
Competition Commission ('CC')
The findings published by the CC at the end of April bring its investigation to a conclusion. Sainsbury's welcomed the Commission's findings that the UK groceries market is 'delivering a good deal for consumers'. This is consistent with the significant improvements the company's customers have experienced in product quality, availability, service and price over recent years.
The CC recommended that a competition assessment should be introduced into the planning system. Sainsbury's has argued for this for new stores throughout the inquiry to protect local markets from exploitation in the future. The CC also stated its intention to require more retailers to adhere to a new Grocery Suppliers' Code of Practice, a proposal welcomed by Sainsbury's. However, the company believes the creation of an ombudsman to look into aspects of relationships between suppliers and grocery retailers is unnecessary. Sainsbury's will continue to play a full part in discussions with the CC and other parties, to ensure remedies are implemented in the most effective and efficient way to improve choice for UK consumers.
Office of Fair Trading ('OFT')
In December 2007 Sainsbury's agreed to pay a settlement of £27 million to the OFT relating to its investigation into dairy retail price initiatives for milk and cheese in 2002 and 2003. The company was disappointed to be penalised for actions that were intended to help British farmers, but recognised the benefit of a speedy settlement with the OFT. The OFT is currently investigating a possible competition infringement in the tobacco industry and also making early enquiries into the pricing of a number of other products sold by supermarkets. Sainsbury's has strict guidelines for compliance with competition law and is cooperating with the OFT in each of its enquiries.
Financial review
The financial results for the 52 weeks to 22 March 2008 represent continued strong performance in line with the Making Sainsbury's Great Again ('MSGA') plan and completes the first stage of MSGA.
Income Statement
Retailing sales (inc VAT) increased by 5.8 per cent to £19,287 million (2007: £18,227 million). Underlying profit before tax was up 28.4 per cent at £488 million (2007: £380 million). Profit before tax was £479 million (2007: £477 million). Underlying basic earnings per share increased to 19.6 pence (2007: 14.7 pence), up 33.3 per cent. Basic earnings per share were 19.1 pence (2007: 19.2 pence). A final proposed dividend of 9.0 pence per share has been approved by the Board (2007: 7.35 pence) making a full year dividend of 12.0 pence per share, up 23.1 per cent year on year (2007: 9.75 pence).
|
Summary income statement |
2008 |
2007 |
|
|
for the 52 weeks to 22 March 2008 |
£m |
£m |
% change |
|
Continuing operations |
|
|
|
|
Sales (inc VAT) |
|
|
|
|
Retailing - Supermarkets and Convenience |
19,287 |
18,227 |
5.8 |
|
Financial services - Sainsbury's Bank (1) |
- |
291 |
n/a |
|
Total sales (inc VAT) |
19,287 |
18,518 |
4.2 |
|
Sales (ex VAT) |
|
|
|
|
Retailing - Supermarkets and Convenience |
17,837 |
16,860 |
5.8 |
|
Financial services - Sainsbury's Bank (1) |
- |
291 |
n/a |
|
Total sales (ex VAT) |
17,837 |
17,151 |
4.0 |
|
Underlying operating profit (2) |
|
|
|
|
Retailing - Supermarkets and Convenience |
535 |
429 |
24.7 |
|
Financial services - Sainsbury's Bank (1) |
- |
2 |
(100.0) |
|
Total underlying operating profit |
535 |
431 |
24.1 |
|
Underlying net finance costs (3) |
(45) |
(51) |
11.8 |
|
Share of post-tax loss from joint ventures (4) |
(2) |
- |
n/a |
|
Underlying profit before tax |
488 |
380 |
28.4 |
|
Profit on sales of properties |
7 |
7 |
0.0 |
|
Financing fair value movements |
(4) |
8 |
n/a |
|
One-off items |
(12) |
82 |
n/a |
|
Profit before tax |
479 |
477 |
0.4 |
|
Income tax expense |
(150) |
(153) |
2.0 |
|
Profit for the financial period |
329 |
324 |
1.5 |
|
|
|
|
|
|
Underlying basic earnings per share |
19.6p |
14.7p |
33.3 |
|
Basic earnings per share |
19.1p |
19.2p |
(0.5) |
|
Approved dividend per share |
12.0p |
9.75p |
23.1 |
|
|
|
|
|
(1) In 2007 Sainsbury's Bank was fully consolidated until the Group sold five per cent of its shareholding in February 2007; thereafter it has been equity accounted
as a joint venture
(2) Underlying profit before tax from continuing operations before finance income and finance costs and share of post-tax profit or loss from joint ventures.
(3) Net finance costs pre financing fair value movements
(4) 2008 includes Sainsbury's Bank (£3 million loss) and joint venture with Land Securities (£1 million profit).
Retailing - Supermarkets & Convenience
Retailing sales (inc VAT and fuel) increased by 5.8 per cent to £19,287 million (2007: £18,227 million) driven by good like-for-like ('LFL') growth and new space. LFL sales (inc VAT and inc fuel) were up 4.4 per cent. LFL sales (inc VAT and ex fuel) were up 3.9 per cent, in line with the Group's medium term planning assumption of LFL growth of between three and four per cent, and includes 0.8 per cent contributed by extensions. The profile of the LFL (inc VAT and ex fuel) sales performance was Quarter 1: 5.1 per cent, Quarter 2: 3.1 per cent, Quarter 3: 3.7 per cent and Quarter 4: 4.1 per cent. This profile reflects strong growth in Quarter 1 and the impact of poor weather and tough comparatives in Quarter 2. Both Quarter 3 and Quarter 4 reflected good growth against a toughening consumer environment and included good Christmas and January sale periods.
|
Key retailing metrics for the 52 weeks to 22 March 2008 |
|
|
|
||||
|
Sales inc fuel |
2008 |
|
2007 |
||||
|
Like-for-like sales (inc fuel) % (Easter adjusted) |
4.4 |
|
5.7 |
||||
|
Removal of Easter adjustment % (1) |
0.3 |
|
0.3 |
||||
|
New space (ex extensions) % |
1.1 |
|
1.3 |
||||
|
Total sales growth (inc fuel) % |
5.8 |
|
7.3 |
||||
|
|
|
|
|
||||
|
Sales ex fuel |
|
|
|
||||
|
Like-for-like sales (ex fuel) % (Easter adjusted) |
3.9 |
|
5.9 |
||||
|
Removal of Easter adjustment % (1) |
0.4 |
|
0.3 |
||||
|
New space (ex extensions) % |
1.4 |
|
1.5 |
||||
|
Total sales growth (ex fuel) % |
5.7 |
|
7.7 |
||||
|
|
|
|
|
||||
|
Retailing underlying operating profit (£m) |
535 |
|
429 |
||||
|
Year on year retail profit growth % |
24.7 |
|
21.9 |
||||
|
Retailing underlying operating margin % (2) |
3.00 |
|
2.54 |
||||
(1) Like-for-like sales growth has been Easter adjusted for comparative purposes. 2008 included two Good Friday trading weeks and one Easter Monday trading week. 2007 included one Good Friday trading week and one Easter Monday trading week. 2009 will include one Easter Monday trading week only.
(2) Retailing underlying operating profit divided by retailing sales (ex VAT).
During the full year 537,000 sq ft of new space was added, a space uplift of 3.1 per cent on the March 2007 year end. 16 new supermarkets opened during the year generating an additional 242,000 sq ft of space and there were two closures reducing retailing space by 27,000 sq ft. 15 extensions during the year provided an additional 195,000 sq ft to the estate and 52 refurbishments in the supermarket estate provided 35,000 sq ft. In the convenience estate, 27 new stores opened, six stores closed, 15 were refurbished and 124 local conversions were completed. In total the convenience estate increased by 92,000 sq ft over the year. The Group expects that total space growth will be around 3.0 per cent in 2009, with new stores of around 2.0 per cent and extensions of around 2.0 per cent offset by disposals and closures of 1.0 per cent.
Sales from net new space (ex extensions and ex fuel) contributed 1.4 per cent of sales growth in the year. The Group expects the sales contribution from net new space including convenience disposals but excluding extensions to be around 1.0 per cent in 2009, comprising new stores of 1.5 per cent less closures and disposals of 0.5 per cent.
|
Retailing space summary Including checkouts |
Supermarkets (includes small central supermarkets) |
Convenience |
Total |
|||
|
|
Number |
Area 000 sq ft |
Number |
Area 000 sq ft |
Number |
Area 000 sq ft |
|
As at 24 March 2007 |
490 |
16,680 |
298 |
684 |
788 |
17,364 |
|
New stores |
16 |
242 |
27 |
102 |
43 |
344 |
|
Closures |
(2) |
(27) |
(6) |
(12) |
(8) |
(39) |
|
Extensions/downsizes/refurbishments |
|
230 |
|
2 |
|
232 |
|
As at 22 March 2008 |
504 |
17,125 |
319 |
776 |
823 |
17,901 |
|
|
|
|
|
|
|
|
|
Memorandum |
|
|
|
|
|
|
|
Extensions |
15 |
195 |
1 |
2 |
16 |
197 |
|
Refurbishments |
52 |
35 |
15 |
0 |
67 |
35 |
|
Total projects |
67 |
230 |
16 |
2 |
83 |
232 |
Going forward the Group is changing the way it measures retailing space to be in line with industry practice by excluding checkout space from the measurement. This broadly results in a reduction of the Group's retailing space by ten per cent.
|
Retailing space summary Restated to exclude checkouts |
Supermarkets (includes small Central supermarkets) |
Convenience |
Total |
|||
|
As at 22 March 2008 |
504 |
15,495 |
319 |
696 |
823 |
16,191 |
Retailing underlying operating profit increased by 24.7 per cent to £535 million (2007: £429 million) reflecting the positive sales performance and operational gearing driven from higher sales volumes and achievement of the final year of the MSGA cost savings programme. This helped to mitigate the impact of continued investment in price and product quality and higher energy prices. Retailing operating margin (ex VAT) increased by 46 basis points to 3.00 per cent for the year (2007: 2.54 per cent).
Financial services - Sainsbury's Bank
The accounting for Sainsbury's Bank in the full year reflects the sale of five per cent of the Group's shareholding in Sainsbury's Bank to HBOS plc on 8 February 2007. Following this date the Group's equity share (i.e. 50 per cent) of the Bank's post-tax loss has been reported through 'Share of post-tax loss from joint ventures'. This amounted to a £3 million loss for the full year primarily driven by investment in new products and lower profit on insurance sales. In addition during the year, the Group invested £15 million in the ordinary share capital of Sainsbury's Bank, which reflects the growth of the savings balances. The Group expects the Bank to achieve a small profit in 2009.
Active property management
During the year the Group continued its active property strategy of increasing its control over key trading assets with significant development potential whilst disposing of fully developed mature assets. On 14 November 2007, the Group entered a 50:50 joint venture ('JV') with Land Securities. This involved the Group transferring two properties and Land Securities transferring one property into the new entity. Subsequent to this date the Group contributed a further £15 million for the JV to purchase an additional property. The results of the JV have been equity accounted since inception and the Group's share of the post-tax profit of the entity is £1 million. The Group expects a similar small profit in 2009.
In addition, the Group announced on 26 March 2008 an investment of £273 million to create a 50:50 JV with British Land. This securitised property JV holds 39 stores, including many of Sainsbury's most important stores, with a valuation of £1.2 billion, representing a net equivalent yield of 5.1 per cent. British Land's existing £722 million of outstanding securitised third party debt, at a fixed interest rate of 4.96 per cent and average life of 12 years, has been retained by the joint venture. Due to timing this transaction has had no impact on the results of the business for the 2008 financial year. As previously disclosed, the Group expects the British Land joint venture to be EPS neutral in 2009, although the underlying profit measure will be reduced by £5 million given that the incremental interest charge of around £15 million is recognised before tax and the expected JV profit of £10 million is included on a post-tax basis.
Underlying net finance costs
Underlying net finance costs decreased by £6 million to £45 million (2007: £51 million), which comprised a £27 million increase in finance income and a £21 million increase in underlying finance costs. The key movements relate to a £13 million increase in the net return on pension scheme assets reflecting the full year effect of the one-off contributions announced in 2006 and a benefit relating to cash flow improvements, which have been partially offset by the impact of higher interest rates on the Group's variable rate and inflation-linked borrowings.
The Group expects interest costs to increase by £20 million in 2009 due to the impact of the British Land JV and a higher average net debt position.
Furthermore, due to the significant movement in the pension balance sheet position there are a number of changes to the pension charges in 2009 compared to 2008. This will result in an increase of £30 million in net finance charges of which £19 million is due to an increase in interest on pension liabilities and £11 million is due to a lower rate of return on pension assets. At an underlying profit before tax ('UPBT') level the impact of the increased pension charges of £30 million will be reduced by £24 million due to lower service charges, which are credited to operating profit. Hence the net impact of these changes is a £6 million reduction to UPBT.
|
Underlying net finance costs for the 52 weeks to 22 March 2008 |
2008 £m |
2007 £m |
|
Interest income |
29 |
15 |
|
Net return on pension scheme assets |
54 |
41 |
|
Underlying finance income (1) |
83 |
56 |
|
|
|
|
|
Interest costs |
(136) |
(117) |
|
Capitalised interest |
8 |
10 |
|
Underlying finance costs (1) |
(128) |
(107) |
|
|
|
|
|
Underlying net finance costs |
(45) |
(51) |
|
(1) Finance income/costs pre financing fair value movements. |
||
Profit on sale of properties
A profit of £7 million was delivered on the sale of properties during the year, which includes a profit realised on disposal to the Land Securities JV, compared to a profit of £7 million in 2007.
Financing fair value movements
Fair value movements for the Group resulted in a £4 million expense in the year (2007: £8 million income). The Group has one non-compliant hedge remaining as at 22 March 2008, with a notional principle value of £75 million.
One-off items
Fair value gain on other financial asset
During the year the Group recognised a £22 million fair value gain on a financial asset. This asset was disposed of during the year.
Costs associated with Office of Fair Trading dairy inquiry
The Group has incurred £27 million of costs associated with the Office of Fair Trading dairy inquiry.
Costs incurred in relation to approach from Delta Two
The Group has incurred £7 million of costs in relation to the approach from Delta Two.
Taxation
The income tax charge was £150 million (2007: £153 million), with an underlying rate of 30.9 per cent (2007: 34.8 per cent) and an effective rate of 31.3 per cent (2007: 32.2 per cent). The underlying rate exceeded the nominal rate of UK corporation tax due to the lack of effective tax relief on depreciation of UK retail properties, offset by the deferred tax rate change and over provisions in prior years. The disallowable depreciation amounted to £71 million in 2008 (2007: £73 million) and is anticipated to be similar in the next financial year. The effective tax rate is lower than in the previous year due to over provisions in prior years offset by higher non-deductible expenses for tax purposes principally driven by the costs associated with the Office of Fair Trading dairy inquiry. The Group expects an underlying tax rate of around 32 per cent to 33 per cent in 2009.
Underlying basic earnings per share
Underlying basic earnings per share increased by 33.3 per cent from 14.7 pence to 19.6 pence in 2008, reflecting the improvement in underlying profit after tax attributable to equity holders.
The weighted average number of shares increased by 27.4 million due to the vesting of share option schemes.
Dividends
A final dividend of 9.0 pence per share has been approved by the Board (2007: 7.35 pence) and will be paid on 18 July 2008 to shareholders on the Register of Members at the close of business on 23 May 2008.
Underlying dividend cover ratio is 1.63 times, in line with our policy of being between 1.5 times and 1.75 times.
Summary cash flow statement
Group net debt as at 22 March 2008 was £1,503 million (2007: £1,380 million) an increase of
£123 million from the 2007 year-end position, of which £150 million reflects the reversal of the working capital timing differences identified at the 2007 year-end.
|
Summary cash flow statement |
2008 |
2007 |
|
for the 52 weeks to 22 March 2008 |
£m |
£m |
|
Cash generated from operations (1) |
998 |
830 |
|
Net interest |
(97) |
(83) |
|
Corporation tax (paid)/received |
(64) |
9 |
|
Cash flow before appropriations |
837 |
756 |
|
Purchase of non-current assets |
(986) |
(788) |
|
Disposal of non-current assets/operations |
197 |
93 |
|
Proceeds from issuance of ordinary shares |
43 |
81 |
|
Capital redemption |
(10) |
(2) |
|
Investment in joint ventures |
(31) |
- |
|
Repayment of borrowings |
(36) |
(75) |
|
Debt restructuring costs |
- |
(2) |
|
Dividends paid |
(178) |
(140) |
|
Net decrease in cash and cash equivalents |
(164) |
(77) |
|
Increase in debt |
46 |
79 |
|
Other non-cash movements |
(5) |
33 |
|
Movement in net debt |
(123) |
35 |
|
Opening net debt |
(1,380) |
(1,415) |
|
Closing net debt |
(1,503) |
(1,380) |
(1) 2007 comparatives includes £240 million cash paid into the defined benefit pension schemes.
Depreciation and amortisation
The full year depreciation and amortisation charge of £481 million was £19 million lower than in 2007, of which £12 million related to Sainsbury's Bank which is no longer consolidated.
Capital expenditure
Net capital expenditure amounted to £799 million (2007: £631 million) in the year, which included £308 million on new store development (2007: £244 million) and £424 million on extensions and refurbishments (2007: £368 million). In addition during the year, freehold properties amounting to £168 million were acquired (2007: £64 million), in line with the Group's plans to buy freeholds of trading sites where it believes there are potential long-term development opportunities. This expenditure has been more than offset by cash receipts of £219 million (2007: £106 million) in relation to corporate property transactions, resulting in net capital expenditure for the year of £799 million. Core capital expenditure is forecast to be in the region of £800 million for the next financial year, with an additional net £100 million relating to the Group's active property management inclusive of the £273 million investment in the British Land JV.
|
|
Capital expenditure for the 52 weeks to 22 March 2008 |
|
2008 £m |
2007 £m |
|
|
|
New store development |
|
308 |
244 |
|
|
|
Extensions and refurbishments |
|
424 |
368 |
|
|
|
Other - including supply chain and IT |
|
118 |
57 |
|
|
|
Core retail capital expenditure |
|
850 |
669 |
|
|
|
Freehold properties |
|
168 |
64 |
|
|
|
Proceeds from property transactions |
|
(219) |
(106) |
|
|
|
Net retail capital expenditure |
|
799 |
627 |
|
|
|
Sainsbury's Bank |
|
- |
4 |
|
|
|
Net group capital expenditure |
|
799 |
631 |
|
Summary balance sheet
Total equity as at 22 March 2008 was £4,935 million (2007: £4,349 million). Gearing reduced year on year to 30 per cent (2007: 32 per cent), which primarily reflects the improvement in the pension scheme position. The Group expects net debt to be between £1.6 billion and £1.7 billion at the end of 2009.
|
|
Summary balance sheet At 22 March 2008 |
|
2008 £m |
2007 £m |
|
|
|
Non-current assets |
|
8,505 |
7,661 |
|
|
|
Inventories |
|
681 |
590 |
|
|
|
Trade and other receivables |
|
206 |
197 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
719 |
1,128 |
|
|
|
Debt |
|
(2,222) |
(2,508) |
|
|
|
Net debt |
|
(1,503) |
(1,380) |
|
|
|
Trade and other payables and provisions |
|
(2,954) |
(2,719) |
|
|
|
|
|
|
|
|
|
|
Net assets |
|
4,935 |
4,349 |
|
Pensions
The retirement benefit obligations as at 22 March 2008 have been calculated on a consistent basis with the previous year where appropriate, with updates provided on market based assumptions.
As at 22 March 2008, the retirement benefit obligations less the fair value of plan assets was a surplus of £503 million (2007: deficit of £97 million). The net surplus after deferred tax was £366 million (2007: deficit of £55 million). The movement into surplus mainly reflects favourable market conditions around bond yields, which have increased the discount rate on liabilities.
|
Pensions |
|
|
|
|
|
|
2008 £m |
2007 £m |
|
Present value of funded obligations |
|
(3,668) |
(4,395) |
|
Fair value of plan assets |
|
4,171 |
4,298 |
|
|
|
503 |
(97) |
|
Present value of unfunded obligations |
|
(8) |
(6) |
|
Retirement benefit asset/(obligations) |
|
495 |
(103) |
|
Deferred income tax (liability)/asset |
|
(129) |
48 |
|
Net retirement benefit asset/(obligations) |
|
366 |
(55) |
Group income statement
for the 52 weeks to 22 March 2008
|
|
|
|
2008 |
2007 (1) |
|
|
|
|
Note |
£m |
£m |
|
|
|
Continuing operations |
|
|
|
|
|
|
Revenue |
3 |
17,837 |
17,151 |
|
|
|
Cost of sales |
|
(16,835) |
(15,979) |
|
|
|
Gross profit |
|
1,002 |
1,172 |
|
|
|
Administrative expenses |
|
(502) |
(669) |
|
|
|
Other income |
|
30 |
17 |
|
|
|
Operating profit |
|
530 |
520 |
|
|
|
Finance income |
4 |
83 |
64 |
|
|
|
Finance costs |
4 |
(132) |
(107) |
|
|
|
Share of post-tax loss from joint ventures |
|
(2) |
- |
|
|
|
Profit before taxation |
|
479 |
477 |
|
|
|
|
|
|
|
|
|
|
Analysed as: |
|
|
|
|
|
|
Underlying profit before tax |
|
488 |
380 |
|
|
|
Profit on sale of properties |
5 |
7 |
7 |
|
|
|
Financing fair value movements |
4,5 |
(4) |
8 |
|
|
|
One-off items |
5 |
(12) |
82 |
|
|
|
|
|
479 |
477 |
|
|
|
|
|
|
|
|
|
|
Income tax expense |
6 |
(150) |
(153) |
|
|
|
|
|
|
|
|
|
|
Profit for the financial year |
|
329 |
324 |
|
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
Equity holders of the parent |
|
329 |
325 |
|
|
|
Minority interests |
|
- |
(1) |
|
|
|
|
|
329 |
324 |
|
|
|
|
|
|
|
|
|
|
Earnings per share |
7 |
pence |
pence |
|
|
|
Basic |
|
19.1 |
19.2 |
|
|
|
Diluted |
|
18.6 |
18.9 |
|
|
|
Underlying basic |
|
19.6 |
14.7 |
|
|
|
Underlying diluted |
|
19.1 |
14.5 |
|
|
|
|
|
|
|
|
|
|
Dividends per share |
8 |
pence |
pence |
|
|
|
Interim |
|
3.00 |
2.40 |
|
|
|
Proposed final (not recognised as a liability at balance sheet date) |
|
9.00 |
7.35 |
|
|
|
|
|
|
|
|
(1) Sainsbury's Bank was fully consolidated until the Group sold five per cent of its shareholding in February 2007; thereafter it has been equity accounted as a joint venture.
Group statement of recognised income and expense
for the 52 weeks to 22 March 2008
|
|
|
2008 |
2007 |
|
|
|
|
£m |
£m |
|
|
Actuarial gains on defined benefit pension schemes |
|
542 |
179 |
|
|
Available-for-sale financial assets fair value movements |
|
|
|
|
|
Group |
|
(31) |
24 |
|
|
Joint ventures |
|
48 |
- |
|
|
Cash flow hedges effective portion of fair value movements |
|
|
|
|
|
Group |
|
2 |
- |
|
|
Joint ventures |
|
(58) |
- |
|
|
Share-based payment tax recognised directly in equity |
|
(10) |
17 |
|
|
Deferred tax on items recognised directly in equity |
|
(152) |
(59) |
|
|
Net income recognised directly in equity |
|
341 |
161 |
|
|
Profit for the financial year |
|
329 |
324 |
|
|
Total recognised income for the financial year |
|
670 |
485 |
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
Equity holders of the parent |
|
670 |
486 |
|
|
Minority interests |
|
- |
(1) |
|
|
|
|
670 |
485 |
|
Group balance sheet
at 22 March 2008 and 24 March 2007
|
|
|
2008 |
2007 |
|
|
|
Note |
£m |
£m |
|
|
Non-current assets |
|
|
|
|
|
Property, plant and equipment |
|
7,424 |
7,176 |
|
|
Intangible assets |
|
165 |
175 |
|
|
Investments in joint ventures |
|
148 |
98 |
|
|
Available-for-sale financial assets |
|
106 |
137 |
|
|
Other receivables |
|
55 |
50 |
|
|
Retirement benefit asset |
12 |
495 |
- |
|
|
|
|
8,393 |
7,636 |
|
|
Current assets |
|
|
|
|
|
Inventories |
|
681 |
590 |
|
|
Trade and other receivables |
|
206 |
197 |
|
|
Derivative financial instruments |
|
4 |
- |
|
|
Cash and cash equivalents |
10b |
719 |
1,128 |
|
|
|
|
1,610 |
1,915 |
|
|
Non-current assets held for sale |
|
112 |
25 |
|
|
|
|
1,722 |
1,940 |
|
|
Total assets |
|
10,115 |
9,576 |
|
|
Current liabilities |
|
|
|
|
|
Trade and other payables |
|
(2,280) |
(2,267) |
|
|
Short-term borrowings |
|
(118) |
(373) |
|
|
Derivative financial instruments |
|
(6) |
(2) |
|
|
Taxes payable |
|
(191) |
(65) |
|
|
Provisions |
|
(10) |
(14) |
|
|
|
|
(2,605) |
(2,721) |
|
|
Net current liabilities |
|
(883) |
(781) |
|
|
Non-current liabilities |
|
|
|
|
|
Other payables |
|
(89) |
(33) |
|
|
Long-term borrowings |
|
(2,084) |
(2,090) |
|
|
Derivative financial instruments |
|
(18) |
(43) |
|
|
Deferred income tax liability |
|
(321) |
(168) |
|
|
Provisions |
|
(63) |
(69) |
|
|
Retirement benefit obligations |
12 |
- |
(103) |
|
|
|
|
(2,575) |
(2,506) |
|
|
Net assets |
|
4,935 |
4,349 |
|
|
Equity |
|
|
|
|
|
Called up share capital |
|
499 |
495 |
|
|
Share premium account |
|
896 |
857 |
|
|
Capital redemption reserve |
|
680 |
670 |
|
|
Other reserves |
|
494 |
143 |
|
|
Retained earnings |
|
2,366 |
2,184 |
|
|
Total equity |
9 |
4,935 |
4,349 |
|
Group cash flow statement
for the 52 weeks to 22 March 2008
|
|
|
2008 |
2007 |
|
|
|
Note |
£m |
£m |
|
|
Cash flows from operating activities |
|
|
|
|
|
Cash generated from operations |
10a |
998 |
830 |
|
|
Interest paid |
|
(123) |
(95) |
|
|
Corporation tax (paid)/received |
|
(64) |
9 |
|
|
Net cash from operating activities |
|
811 |
744 |
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
Purchase of property, plant and equipment |
|
(973) |
(778) |
|
|
Purchase of intangible assets |
|
(6) |
(7) |
|
|
Proceeds from disposal of property, plant and equipment and other assets |
|
198 |
106 |
|
|
Acquisition of and investment in subsidiaries and businesses, net of cash acquired |
|
(7) |
(3) |
|
|
Investment in joint ventures |
|
(31) |
- |
|
|
Proceeds from part disposal of Sainsbury's Bank |
|
- |
21 |
|
|
Cash disposed on part disposal of Sainsbury's Bank |
|
- |
(33) |
|
|
Costs of disposal of operations |
|
(1) |
(1) |
|
|
Interest received |
|
29 |
15 |
|
|
Net cash from investing activities |
|
(791) |
(680) |
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
Proceeds from issuance of ordinary shares |
|
43 |
81 |
|
|
Capital redemption |
|
(10) |
(2) |
|
|
Repayment of short-term borrowings |
|
- |
(53) |
|
|
Repayment of long-term borrowings |
|
(36) |
(22) |
|
|
Debt restructuring costs |
|
- |
(2) |
|
|
Interest elements of obligations under finance lease payments |
|
(3) |
(3) |
|
|
Dividends paid |
8 |
(178) |
(140) |
|
|
Net cash from financing activities |
|
(184) |
(141) |
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
(164) |
(77) |
|
|
|
|
|
|
|
|
Opening cash and cash equivalents |
|
765 |
842 |
|
|
|
|
|
|
|
|
Closing cash and cash equivalents |
10b |
601 |
765 |
|
Notes to the financial statements
1 Status of financial information
The financial information, which comprises the Group income statement, Group statement of recognised income and expense, Group balance sheet, Group cash flow statement and related notes, is derived from the full Group financial statements for the 52 weeks to 22 March 2008 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 2008 on which the auditors have given an unqualified report and 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 made available to shareholders in June 2008.
The financial year represents the 52 weeks to 22 March 2008 (prior financial year 52 weeks to 24 March 2007). The consolidated financial statements for the 52 weeks to 22 March 2008 comprise the financial statements of the Company and its subsidiaries ('Group') and the Group's interests in associates and joint ventures.
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.
The financial statements are presented in sterling, rounded to the nearest million (£m) unless otherwise stated. They 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.
Investment property
Investment property is property held to earn rental income and/or for capital appreciation. Investment property assets are carried at cost less accumulated depreciation and any recognised impairment in value. The depreciation policies for investment property are consistent with other Sainsbury's properties. Any impairment in value is shown outside underlying profit before tax.
Non GAAP performance measures
The Directors believe that the 'underlying' profit before tax and 'underlying' diluted and basic earnings per share measures presented provide a clear and consistent presentation of the underlying performance of Sainsbury's ongoing business for shareholders. These measures are consistent with how the business is measured internally. Underlying profit is not defined by IFRS and therefore may not be directly comparable with the 'adjusted' profit measures of other companies. The adjustments made to reported profit before tax are:
Profit on sale of properties - these can vary from year to year and therefore create volatility in reported earnings;
Financing fair value movements - these fair value gains and losses relate to fair value adjustments on derivatives relating to financing activities and hedged items in fair value hedges. The underlying profit measure removes the volatility of these items within profit before tax;
Impairment of goodwill and impairment of properties within joint ventures; and
One-off items - these are material and largely one-off in nature, creating volatility in reported earnings, which does not reflect Sainsbury's underlying performance.
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 operations are carried out in the UK.
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.
|
|
|
Retailing £m |
Financial services £m |
Group £m |
|
|
|
2008 |
|
|
|
|
|
|
Segment revenue |
|
|
|
|
|
|
Sales to external customers |
17,837 |
- |
17,837 |
|
|
|
|
|
|
|
|
|
|
Underlying operating profit (1) |
535 |
- |
535 |
|
|
|
Profit on sale of properties |
7 |
- |
7 |
|
|
|
Costs relating to approach from Delta Two |
(7) |
- |
(7) |
|
|
|
Costs associated with Office of Fair Trading dairy inquiry |
(27) |
- |
(27) |
|
|
|
Fair value gain on other financial asset |
22 |
- |
22 |
|
|
|
|
|
|
|
|
|
|
Segment result |
530 |
- |
530 |
|
|
|
Finance income |
|
|
83 |
|
|
|
Finance costs |
|
|
(132) |
|
|
|
Share of post-tax profit/(loss) from joint ventures |
1 |
(3) |
(2) |
|
|
|
Income tax expense |
|
|
(150) |
|
|
|
Profit for the financial year |
|
|
329 |
|
|
|
|
|
|
|
|
|
|
Assets |
9,967 |
- |
9,967 |
|
|
|
Investment in joint ventures |
59 |
89 |
148 |
|
|
|
Segment assets |
|
|
10,115 |
|
|
|
|
|
|
|
|
|
|
Segment liabilities |
5,180 |
- |
5,180 |
|
|
|
|
|
|
|
|
|
|
Other segment items |
|
|
|
|
|
|
Capital expenditure |
1,006 |
- |
1,006 |
|
|
|
Depreciation expense |
463 |
- |
463 |
|
|
|
Amortisation expense |
18 |
- |
18 |
|
|
|
Reversal of impairment on receivables |
(1) |
- |
(1) |
|
|
|
Other non-cash expenses |
|
|
|
|
|
|
Share-based payments |
53 |
- |
53 |
|
|
|
|
|
|
|
|
(1) Underlying profit before tax from continuing operations before finance income and finance costs and share of post-tax profit or loss from joint ventures.
|
|
Retailing £m |
Financial services £m |
Group £m |
|
|
|
|
2007 |
|
|
|
|
|
|
Segment revenue |
|
|
|
|
|
|
Sales to external customers |
16,860 |
- |
16,860 |
|
|
|
Services to external customers |
- |
291 |
291 |
|
|
|
Total revenue |
16,860 |
291 |
17,151 |
|
|
|
|
|
|
|
|
|
|
Underlying operating profit (1) |
429 |
2 |
431 |
|
|
|
Profit on sale of properties |
7 |
- |
7 |
|
|
|
Profit on part disposal of Sainsbury's Bank |
- |
10 |
10 |
|
|
|
Past service gains on defined benefit schemes |
72 |
- |
72 |
|
|
|
|
|
|
|
|
|
|
Segment result |
508 |
12 |
520 |
|
|
|
Finance income |
|
|
64 |
|
|
|
Finance costs |
|
|
(107) |
|
|
|
Income tax expense |
|
|
(153) |
|
|
|
Profit for the financial year |
|
|
324 |
|
|
|
|
|
|
|
|
|
|
Assets |
9,478 |
- |
9,478 |
|
|
|
Investment in joint ventures |
10 |
88 |
98 |
|
|
|
Segment assets |
|
|
9,576 |
|
|
|
|
|
|
|
|
|
|
Segment liabilities |
5,227 |
- |
5,227 |
|
|
|
|
|
|
|
|
|
|
Other segment items |
|
|
|
|
|
|
Capital expenditure |
733 |
4 |
737 |
|
|
|
Depreciation expense |
469 |
10 |
479 |
|
|
|
Amortisation expense |
19 |
2 |
21 |
|
|
|
Impairment of amounts due from Sainsbury's Bank customers |
- |
89 |
89 |
|
|
|
Other non-cash expenses |
|
|
|
|
|
|
Share-based payments |
38 |
- |
38 |
|
|
|
|
|
|
|
|
(1) Underlying profit before tax from continuing operations before finance income and finance costs and share of post-tax profit or loss from joint ventures.
4 Finance income and finance costs
|
|
2008 |
2007 |
|
|
|
£m |
£m |
|
|
Interest on bank deposits |
29 |
15 |
|
|
Net return on pension schemes |
54 |
41 |
|
|
Financing fair value gains (1) |
|
- |
8 |
|
Finance income |
83 |
64 |
|
|
|
|
|
|
|
Financing fair value losses (1) |
|
(4) |
- |
|
|
|
|
|
|
Borrowing costs |
|
|
|
|
Bank loans and overdrafts |
- |
(2) |
|
|
Other loans |
(132) |
(111) |
|
|
Obligations under finance leases |
(3) |
(3) |
|
|
Provisions - amortisation of discount |
(1) |
(1) |
|
|
|
(136) |
(117) |
|
|
Interest capitalised - qualifying assets |
8 |
10 |
|
|
Finance costs |
(132) |
(107) |
|
(1) Fair value gains or losses relate to fair value adjustments on derivatives relating to financing activities and hedged items in fair value hedges.
5 Non GAAP performance measures
The adjustments made to reported profit before tax to arrive at underlying profit before tax are:
|
|
2008 |
2007 |
|
|
|
£m |
£m |
|
|
Profit on sale of properties |
7 |
7 |
|
|
Financing fair value movements |
|
(4) |
8 |
|
|
|
|
|
|
One-off items for the financial year comprised: |
|
|
|
|
Costs relating to approach from Delta Two |
(7) |
- |
|
|
Costs associated with Office of Fair Trading dairy inquiry |
(27) |
- |
|
|
Fair value gain on other financial asset |
22 |
- |
|
|
Profit on part disposal of Sainsbury's Bank |
- |
10 |
|
|
Past service gains on defined benefit schemes |
- |
72 |
|
|
Total one-off items |
(12) |
82 |
|
|
|
|
|
|
|
Total non GAAP performance measures |
(9) |
97 |
|
Profit on sale of properties
Includes all Group gains or losses on the sale of properties.
Financing fair value movements
Fair value movements relate to fair value adjustments on derivatives relating to financing activities and hedged items in fair value hedges.
Costs relating to approach from Delta Two
The Group has incurred £7 million of costs in relation to the approach from Delta Two.
Costs associated with Office of Fair Trading dairy inquiry
The Group has incurred £27 million of costs associated with the Office of Fair Trading dairy inquiry.
Fair value gain on other financial asset
During the year the Group recognised a £22 million fair value gain on a financial asset. This asset was disposed of during the financial year.
6 Income tax expense
|
|
2008 |
2007 |
|
|
£m |
£m |
|
Current tax expense |
|
|
|
Current year |
173 |
2 |
|
Over provision in prior years |
(9) |
(25) |
|
|
164 |
(23) |
|
Deferred tax expense |
|
|
|
Origination and reversal of temporary differences |
- |
158 |
|
Deferred tax rate change from 30% to 28% |
(8) |
- |
|
(Over)/under provision in prior years |
(6) |
18 |
|
|
(14) |
176 |
|
Total income tax expense in income statement |
150 |
153 |
|
|
|
|
|
Income tax expense on underlying profit (1) |
151 |
132 |
|
Tax on items below: |
|
|
|
Sale of properties |
- |
(3) |
|
Financing fair value movements |
(1) |
2 |
|
Costs relating to approach from Delta Two |
(2) |
- |
|
Fair value gain on other financial asset |
2 |
- |
|
Past service gains on defined benefit schemes |
- |
22 |
|
Total income tax expense in income statement |
150 |
153 |
(1) Tax charge attributable to underlying profit before tax from continuing operations.
The effective tax rate of 31.3 per cent (2007: 32.2 per cent) is higher than the standard rate of corporation tax in the UK. The differences are explained below:
|
|
2008 |
2007 |
|
|
£m |
£m |
|
Profit before taxation |
479 |
477 |
|
|
|
|
|
Income tax at UK corporation tax rate of 30% (2007: 30%) |
144 |
143 |
|
Effects of: |
|
|
|
Disallowed depreciation on UK properties |
21 |
22 |
|
Non-deductible expenses |
18 |
3 |
|
Non-taxable income |
- |
(8) |
|
Capital losses utilised |
(10) |
- |
|
Deferred tax rate change from 30% to 28% |
(8) |
- |
|
Over provision in prior years |
(15) |
(7) |
|
Total income tax expense in income statement |
150 |
153 |
7 Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the 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 year.
Underlying earnings per share is provided by excluding the effect of any gain or loss on the sale of properties, impairment of goodwill, impairment of properties in joint ventures, financing fair value movements and one-off items that are material and infrequent in nature. This alternative measure of earnings per share is presented to reflect the Group's underlying trading performance.
All operations are continuing for the periods presented.
|
|
2008 |
2007 |
|||
|
|
million |
million |
|||
|
Weighted average number of shares in issue |
1,718.7 |
1,691.3 |
|||
|
Weighted average number of dilutive share options |
48.5 |
28.5 |
|||
|
Total number of shares for calculating diluted earnings per share |
1,767.2 |
1,719.8 |
|||
|
|
|
|
|||
|
|
£m |
£m |
|||
|
Profit for the financial year attributable to equity holders of the parent |
329 |
325 |
|||
|
(Less)/add: |
profit on sale of properties, net of tax |
(7) |
(10) |
||
|
|
financing fair value movements, net of tax |
3 |
(6) |
||
|
|
costs relating to approach from Delta Two, net of tax |
5 |
- |
||
|
|
fair value gain on other financial asset, net of tax |
(20) |
- |
||
|
|
costs associated with Office of Fair Trading dairy inquiry |
27 |
- |
||
|
|
profit on part disposal of Sainsbury's Bank |
- |
(10) |
||
|
|
past service gains on defined benefit schemes, net of tax |
- |
(50) |
||
|
Underlying profit after tax |
337 |
249 |
|||
|
|
|
|
|||
|
|
pence |
pence |
|||
|
|
per share |
per share |
|||
|
Basic earnings |
19.1 |
19.2 |
|||
|
Diluted earnings |
18.6 |
18.9 |
|||
|
Underlying basic earnings |
19.6 |
14.7 |
|||
|
Underlying diluted earnings |
19.1 |
14.5 |
|||
|
|
|
|
|||
8 Dividend
|
|
2008 |
2007 |
|
|
|
|
pence |
pence |
2008 |
2007 |
|
|
per share |
per share |
£m |
£m |
|
Amounts recognised as distributions to equity holders in the year: |
|
|
|
|
|
Final dividend of prior financial year |
7.35 |
5.85 |
126 |
99 |
|
Interim dividend of current financial year |
3.00 |
2.40 |
52 |
41 |
|
|
10.35 |
8.25 |
178 |
140 |
After the balance sheet date, a final dividend of 9.00 pence per share (2007: 7.35 pence per share) was proposed by the Directors in respect of the 52 weeks to 22 March 2008, resulting in a total final proposed dividend of £155 million (2007: £126 million). The proposed final dividend has not been included as a liability at 22 March 2008.
9 Reconciliation of movements in equity
|
|
Called up share capital |
Share premium account |
Capital redemption and other reserves |
Retained earnings |
Equity shareholders' funds |
Minority interests |
Total equity |
|
Group |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
At 25 March 2007 |
495 |
857 |
813 |
2,184 |
4,349 |
- |
4,349 |
|
Profit for the year |
- |
- |
- |
329 |
329 |
- |
329 |
|
Dividends paid |
- |
- |
- |
(178) |
(178) |
- |
(178) |
|
Share-based payment |
- |
- |
- |
41 |
41 |
- |
41 |
|
Actuarial gains on defined benefit pension schemes |
- |
- |
390 |
- |
390 |
- |
390 |
|
Available-for-sale financial assets fair value movements |
|
|
|
|
|
|
|
|
Group |
- |
- |
(31) |
- |
(31) |
- |
(31) |
|
Joint ventures |
- |
- |
48 |
- |
48 |
- |
48 |
|
Cash flow hedges effective portion of fair value movements |
|
|
|
|
|
|
|
|
Group |
- |
- |
2 |
- |
2 |
- |
2 |
|
Joint ventures |
- |
- |
(58) |
- |
(58) |
- |
(58) |
|
B shares redemption |
- |
- |
10 |
(10) |
- |
- |
- |
|
Shares vested |
- |
- |
- |
4 |
4 |
- |
4 |
|
Allotted in respect of share option schemes |
4 |
39 |
- |
(4) |
39 |
- |
39 |
|
At 22 March 2008 |
499 |
896 |
1,174 |
2,366 |
4,935 |
- |
4,935 |
|
|
|
|
|
|
|
|
|
|
At 26 March 2006 |
489 |
782 |
667 |
1,948 |
3,886 |
79 |
3,965 |
|
Profit for the year |
- |
- |
- |
325 |
325 |
(1) |
324 |
|
Dividends paid |
- |
- |
- |
(140) |
(140) |
- |
(140) |
|
Share-based payment |
- |
- |
- |
55 |
55 |
- |
55 |
|
Part disposal of Sainsbury's Bank |
- |
- |
- |
- |
- |
(78) |
(78) |
|
Actuarial gains on defined benefit pension schemes |
- |
- |
127 |
- |
127 |
- |
127 |
|
Available-for-sale financial assets fair value movements |
- |
- |
17 |
- |
17 |
- |
17 |
|
B shares redemption |
- |
- |
2 |
(2) |
- |
- |
- |
|
Shares vested |
- |
- |
- |
1 |
1 |
- |
1 |
|
Allotted in respect of share option schemes |
6 |
75 |
- |
(3) |
78 |
- |
78 |
|
At 24 March 2007 |
495 |
857 |
813 |
2,184 |
4,349 |
- |
4,349 |
10 Notes to the cash flow statement
(a) Reconciliation of operating profit to cash generated from operations
|
|
2008 |
2007 |
|
|
|
£m |
£m |
|
|
Operating profit |
530 |
520 |
|
|
Adjustments for |
|
|
|
|
Depreciation expense |
463 |
479 |
|
|
Amortisation expense |
18 |
21 |
|
|
Profit on sale of properties |
(7) |
(7) |
|
|
Fair value gain on other financial asset |
(22) |
- |
|
|
Profit on part disposal of Sainsbury's Bank |
- |
(10) |
|
|
Foreign exchange differences |
(2) |
6 |
|
|
Share-based payments expense |
53 |
38 |
|
|
Operating cash flows before changes in working capital |
1,033 |
1,047 |
|
|
Changes in working capital |
|
|
|
|
Increase in inventories |
(94) |
(12) |
|
|
Increase in current available-for-sale financial assets |
- |
(45) |
|
|
Increase in trade and other receivables |
(26) |
(50) |
|
|
Decrease in amounts due from Sainsbury's Bank customers and other banks |
- |
188 |
|
|
Increase in trade and other payables |
96 |
314 |
|
|
Decrease in amounts due to Sainsbury's Bank customers and other banks |
- |
(198) |
|
|
Decrease in provisions and other liabilities |
(11) |
(414) |
|
|
Cash generated from operations |
998 |
830 |
|
(b) Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents comprise the following:
|
|
2008 |
2007 |
|
|
|
£m |
£m |
|
|
Cash and cash equivalents |
719 |
1,128 |
|
|
Bank overdrafts |
(118) |
(363) |
|
|
|
601 |
765 |
|
11 Analysis of net debt
|
|
25 March 2007 |
Cash flow |
Disposals |
Other non-cash movements |
22 March 2008 |
|
|
£m |
£m |
£m |
£m |
£m |
|
Current assets |
|
|
|
|
|
|
Cash and cash equivalents |
1,128 |
(409) |
- |
- |
719 |
|
Derivative financial instruments |
- |
- |
- |
4 |
4 |
|
|
1,128 |
(409) |
- |
4 |
723 |
|
Current liabilities |
|
|
|
|
|
|
Bank overdrafts |
(363) |
245 |
- |
- |
(118) |
|
Borrowings |
(10) |
10 |
- |
- |
- |
|
Derivative financial instruments |
(2) |
- |
- |
(4) |
(6) |
|
|
(375) |
255 |
- |
(4) |
(124) |
|
Non-current liabilities |
|
|
|
|
|
|
Borrowings |
(2,039) |
29 |
- |
(25) |
(2,035) |
|
Finance leases |
(51) |
- |
- |
2 |
(49) |
|
Derivative financial instruments |
(43) |
- |
7 |
18 |
(18) |
|
|
(2,133) |
29 |
7 |
(5) |
(2,102) |
|
|
(2,508) |
284 |
7 |
(9) |
(2,226) |
|
Total net debt |
(1,380) |
(125) |
7 |
(5) |
(1,503) |
Net debt incorporates the Group's borrowings (including accrued interest), bank overdrafts, fair value of derivatives and obligations under finance leases, less cash and cash equivalents.
Reconciliation of net cash flow to movement in net debt
|
|
2008 |
2007 |
|
|
£m |
£m |
|
Decrease in cash and cash equivalents |
(164) |
(77) |
|
Decrease in debt |
39 |
79 |
|
Loan disposed of with part disposal of Sainsbury's Bank |
- |
45 |
|
Disposal of derivative financial instruments |
7 |
- |
|
Other non-cash movements |
(5) |
(12) |
|
(Increase)/decrease in net debt in the year |
(123) |
35 |
|
Opening net debt at the beginning of the year |
(1,380) |
(1,415) |
|
Closing net debt at the end of the year |
(1,503) |
(1,380) |
12 Retirement benefit obligations
Retirement benefit obligations relate to two funded defined benefit schemes, the J Sainsbury Pension and Death Benefit Scheme ('JSPDBS') and the J Sainsbury Executive Pension Scheme ('JSEPS') and an unfunded pension liability relating to senior employees. The defined benefit schemes were closed to new employees on 31 January 2002. The assets of these schemes are held separately from the Group's assets.
The defined benefit schemes were subject to a triennial valuation carried out by Watson Wyatt, the schemes' independent actuaries, at March 2006 on the projected unit basis. The results of this valuation were approved by the schemes' trustees in June 2007. The retirement benefit obligations at 22 March 2008 have been calculated, where appropriate, on a basis consistent with this valuation.
The unfunded pension liability is unwound when each employee reaches retirement and takes their pension from the Group payroll or is crystallised in the event of an employee leaving or retiring and choosing to take the provision as a one-off cash payment.
The amounts recognised in the balance sheet are as follows:
|
|
2008 |
2007 |
|
|
£m |
£m |
|
Present value of funded obligations |
(3,668) |
(4,395) |
|
Fair value of plan assets |
4,171 |
4,298 |
|
|
503 |
(97) |
|
Present value of unfunded obligations |
(8) |
(6) |
|
Retirement benefit asset/(obligations) |
495 |
(103) |
|
Deferred income tax (liability)/asset |
(129) |
48 |
|
Net retirement benefit asset/(obligations) |
366 |
(55) |
The retirement benefit asset or obligations and the associated deferred income tax balance are shown within different line items on the face of the balance sheet.
The principal actuarial assumptions used at the balance sheet date are as follows:
|
|
2008 |
2007 |
|
|
% |
% |
|
|
2008 |
2007 |
|
|
% |
% |
|
Discount rate |
6.9 |
5.3 |
|
Expected return on plan assets |
6.6 |
6.6 |
|
Future salary increases |
3.50 |
3.00 |
|
Future pension increases |
2.40 - 3.50 |
2.35 - 3.00 |
A movement of 0.5 per cent in the discount rate would increase or decrease the retirement benefit obligations by £335 million.
Consistent with the prior year, the discount rate is based on the annualised yield on an AA-rated sterling corporate bond index.
The combined life expectancy for both the schemes operated at the balance sheet date for a pensioner at normal retirement age (now 65 years for men and 60 years for women), is as follows:
|
|
2008 |
2007 |
|
|
years |
years |
|
|
2008 |
2007 |
|
|
years |
years |
|
Male pensioner |
21.6 |
21.4 |
|
Female pensioner |
23.1 |
22.9 |
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