Final Results

RNS Number : 3412G

Sainsbury(J) PLC

11 May 2011

 



11 May 2011

Preliminary results for the 52 weeks to 19 March 2011

Good sales and profit performance; continued delivery against growth plans

Financial summary

·     Total sales (inc VAT) up 7.1 per cent to £22,943 million (2009/10: £21,421 million)

·     Total sales (inc VAT, ex fuel) up 4.9 per cent, like-for-like sales (inc VAT, ex fuel) up 2.3 per cent

·     Underlying profit before tax up 9.0 per cent to £665 million (2009/10: £610 million) ⁽¹⁾

·     Underlying basic earnings per share up 10.9 per cent to 26.5 pence (2009/10: 23.9 pence)⁽²⁾

·     Return on capital employed of 11.1 per cent, up 11 bps (2009/10: 11.0 per cent) ⁽³⁾

·     Proposed full year dividend of 15.1 pence, up 6.3 per cent, cover 1.75x (2009/10: 14.2 pence, cover 1.68x)

Statutory

·     Revenue (ex VAT, inc fuel) up 5.7 per cent to £21,102 million (2009/10: £19,964 million)

·     Profit before tax up 12.8 per cent to £827 million (2009/10: £733 million)

·     Basic earnings per share up 7.2 per cent to 34.4 pence (2009/10: 32.1 pence)

Operating highlights

·     Outperformed the market in challenging environment, increasing market share ⁽⁴⁾

·     Weekly customer transactions now 21 million, up one million on last year

·     Over 6,000 jobs created through store investment

·     Hat-trick of awards at 2010 Retail Industry Awards: Community Retailer of the Year, Convenience Retailer of the Year, Seafood Retailer of the Year

·     Cost savings fully offset inflationary increases

·     Underlying operating margin accretion of 14 bps (20 bps at constant fuel prices)

Making Sainsbury's Great Again

·    Food: Opened six new food colleges to train over 10,000 colleagues each year.  Successful re-launch of £1 billion 'Taste the Difference' brand.  Largest ever investment in own label underway with review of 6,500 'by Sainsbury's' products

·    Non-food: Growing at more than three times the rate of food.  Now UK's seventh largest clothing retailer ⁽⁵⁾

·    Channels: Convenience now £1 billion business; groceries online growing at over 20 per cent; 'Click & Collect' in over 160 stores; Sainsbury's Bank pre-tax operating profit up over 50 per cent

·    Space: 1.5 million sq ft gross new space this year, exceeding 15 per cent two-year target

·    Property: Value of portfolio now £10.5 billion ⁽⁶⁾, up £0.7 billion. £275 million net proceeds from sale and leasebacks, and £108 million property profits

David Tyler, Chairman, said: "Despite a challenging economic environment, our strategy of universal appeal, underpinned by our values, has enabled us to deliver a good sales and profit performance.  We continue to gain market share and achieved growth in underlying earnings per share of over 10 per cent. As a result, the Board is recommending a full year dividend of 15.1 pence, an increase of 6.3 per cent over last year."

Justin King, Chief Executive said: "Sainsbury's has continued to perform well. Customer numbers are at an all-time high of 21 million transactions every week, which is up one million on last year, a clear indication of our growing universal customer appeal across all channels. We have added gross space of 1.5 million sq ft to our store estate, creating over 6,000 new jobs with Sainsbury's.  Strong sales growth, combined with productivity savings and tight control on operating costs, have helped to deliver good profit growth. Our colleagues continue to deliver great service, exceeding our stretching customer service targets, and we are delighted to be paying our colleagues a bonus of around £60 million."

"We expect the economic environment to remain uncertain over the coming year.  We remain confident that our strategy, alongside continued strong operational performance, will enable the business to make further good progress."

Notes:

1.   Underlying profit before tax: Profit before tax before any profit or loss on the disposal of properties, investmentproperty fair value movements, impairment of goodwill, financing fair value movements, IAS 19 pension financing element and one-off items that are material and infrequent in nature.

2.   Underlying basic earnings per share: Underlying profit, net of attributable taxation, divided by the weighted average number of ordinary shares in issue during the period, excluding those held by the ESOP trusts, which are treated as cancelled.

3.   Return on capital employed: underlying profit before interest and tax, divided by the average of opening and closing capital employed (net assets before net debt).

4.   Sainsbury's market share grew to 16.3 per cent from 16.1 per cent (source: Kantar for the 52 weeks ended 20 March 2011).

5.   Sainsbury's share of the total clothing, footwear and accessories market grew to 3.3 per cent from 2.6 per cent (source: Kantar for the 24 weeks ended 20 March 2011).

6.   The property value has been estimated based on independent third party valuations as at 31 March 2011 covering a representative sample of around 50 per cent of our freehold and long leasehold properties. The basis of valuation is investment market value based on rent and yield, assuming sale and leaseback on the standard institutional lease which the Company currently uses when transacting its disposals of mature assets.

7.   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. They appear in a number of places throughout this announcement and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. 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. 

8.   Sainsbury's will report its 2011/12 First Quarter Trading Statement at 07:00 on 15 June 2011.

A results presentation for analysts and investors will be held at 09:45 (BST) on 11 May 2011.

To view the slides of the results presentation and the webcast:

We recommend that you register for this event in advance. To do so, please visit www.j-sainsbury.co.uk and follow the on-screen instructions. To participate in the live event, please go to the website from 09:30 on the day of the announcement, and further instructions will be on the website. An archive of the webcast will be available from 12:00.

To listen to the results presentation:

You may dial in to listen to the results on [phone], pass code 900 932. An archive recording of this event will be available from 12:00 by calling [phone], pass code 21821029. The archive is available for 28 days.

To view the transcript of the presentation:

Go to www.j-sainsbury.co.uk

Enquiries:
Investor Relations	Media
Erica Judge	Ben Crowther
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Operating Review

Sainsbury's has continued to grow market share with customers responding well to our offer of healthy, fresh and tasty food at great value. Customer numbers are now at an all-time high with 21 million transactions a week, which is one million higher than this time last year.

We have made strong progress in each of our five areas of focus.  Offering great food at fair prices remains at the heart of our offer, as we have continued to invest in our own-brand products.  For example, we had a major re-launch of our Taste the Difference range, whilst our Great Food initiative is ensuring we offer the very best quality and service at our fresh food counters.  We are accelerating the growth of complementary non-food and services with an expansion of our range, which we have made available to more customers through the development of our estate and online offer.  We are reaching more customers through additional channels, with our convenience stores now bringing in annual sales of over £1 billion and online sales continuing to grow strongly.  We continue to grow supermarket space successfully and have exceeded the space growth target of 15 per cent we set ourselves two years ago.  Finally, we continue to focus on active property management and during the year we generated £275 million proceeds from the sale and leaseback of stores with no further property development potential, contributing to total property profits of £108 million.

Trading and operational review

Sainsbury's has continued to outperform the market in challenging economic conditions.  Total sales (including VAT, excluding fuel) were up 4.9 per cent, with like-for-like sales up 2.3 per cent.  This was delivered during a period when household budgets have been under significant pressure, most notably from record fuel price inflation.  Customer transactions are now at an all-time high of 21 million per week.  We attracted new customers not only to our new stores but also to our existing stores, demonstrating the strength of our universal customer appeal.  In particular, we have worked hard to keep our prices as low as possible, while not compromising on quality or choice.  Trading intensity in our existing estate continued to grow.  However, this progression was offset by a greater number of new stores whose sales are still in their growth stage, the higher proportion of space dedicated to non-food and the disruption experienced at the increased number of extensions this year.  Overall trading intensity therefore decreased year on year.

Over the year, we have done much to help customers manage their weekly spend as they are increasingly savvy with their shopping and look around for the best value.  Our Value where it matters campaign offers savings on leading brands; we check over 30,000 competitor prices each week to ensure our prices remain great value and this is supported by other campaigns such as offering over 1,000 products for £1 or less.  Our meal planner tip cards have also been very popular, helping shoppers feed a family of four with five tasty and nutritious meals cooked from scratch for £20.  In addition, sales of our expanding Basics range of over 650 products are growing year on year, as customers continue to look for ways to save money.

In addition we benefit from the competitive advantages the Nectar loyalty programme brings us.  The scheme is now even stronger through the addition of British Gas and easyJet offering our customers even more ways to earn or spend their points.  There are now 17.5 million Nectar card holders and there are 800,000 more card holders shopping at Sainsbury's than this time last year.  Customers have enjoyed targeted offers through our coupon at till programme, unique in the UK, and in the last year alone we issued over 240 million coupons.  Our ability to apply the unique insight Nectar data provides was recognised at the Data Strategy Awards with the Best use of data in retail award.

More than ever, customers expect high ethical standards in our sourcing and this shows in our sales figures.  For example, having been rated by Greenpeace as the best UK retailer for sustainable tuna and through wider recognition of our sustainable sourcing methods, sales of our tinned tuna rose by nearly 15 per cent in the final quarter alone.  Also, Christmas sales of ourFreedom Food Norfolk Black turkeys were up 30 per cent on last year.  In fact, despite the challenging weather conditions, we had a record-breaking Christmas.  Our colleagues worked extremely hard to provide great service to our customers, serving over 24.6 million of them in the seven days up to and including Christmas Eve.

We continue to look for opportunities to streamline our operations, improve the customer shopping experience and make things simpler for colleagues, while also making significant cost savings.  We now offer the option of self-scan checkouts in nearly 700 stores and they account for over 40 per cent of transactions in these stores.  We have reduced the amount of paper used for store receipts by two fifths, equivalent to over 350 tonnes annually by using double-sided printing.  Over the last four yearsour Energy Reset programme has saved the equivalent energy needed for 90 supermarkets,reducing energy usage by 16 per cent in each store.

We have also introduced further efficiencies within our supply chain to get products onto our shelves more quickly and to improve the efficiency of our warehouses, vehicle use and driver deployment.  For example, we have reduced the distance our products travel from depot to store by around 2.5 per cent and our investment in new supply chain technology will significantly reduce waste and cut CO₂ emissions by almost 70,000 tonnes a year.  Additionally we have reduced own-brand packaging by 8,000 tonnes in the last year, as we make it easier for our customers to reduce, re-use and recycle.  On Easter eggs alone we have reduced our packaging by nearly 60 per cent since 2008.

Our in-house procurement team has helped keep a tight control on operating costs and was independently recognised as world-class for its effectiveness and efficiency.  This, together with productivity savings and our strong sales performance, has increased underlying operational margin by 14 bps and has helped to achieve good underlying profit before tax growth of nine per cent.  We are proud of the strong achievements we have made and are pleased that colleagues will share in a bonus of around £60 million as a result of their hard work.  This is less than last year's record bonus award as we set ourselves stretching targets and will continue to do so.

Our five areas of focus

We continue to operate around our five areas of focus that are key to achieving a successful business performance.  These areas of strategic focus are underpinned by our five key values which help us to prioritise and ensure we conduct ourselves in an honest, ethical and sustainable manner.  We believe they set us apart from other retailers.

1. Great food at fair prices

Offering safe, healthy, fresh and tasty food is at the heart of what we do.  A major area of development this year has been our Great Food programme, which aims to ensure we continue to have a market-leading food and wine offer.  In particular, our investment in our food counters has made them a destination for many of our customers.  We refreshed the offer, from the range to the display, in 110 stores and have now introduced fresh pizza counters to nearly 140 stores.  Over the coming year we will recruit and train more than 500 new counter and café colleagues to meet increased demand at the counters and to support the growth in our cafés.  These recruits, as well as up to 10,000 colleagues already working on the meat, fish, deli, hot foodcounters and cafés, will receive training at one of the six Food Colleges we have opened across the UK.  The colleges provide in-depth training from experts in areas like product knowledge and food preparation, helping us to offer the very best food and service to customers.

Customers remain very loyal to our own-brand products and we sell more than any of the major supermarkets.  This gives us a significant competitive advantage and is an important way of offering our customers great value.  We have invested across all our own-brand ranges this year, with over 5,000 new or improved products introduced, including a major re-launch of our Taste the Difference range prior to Christmas.  This re-launch covered the entire range of over 1,000 products and was our largest ever one-off investment in own-brand.  Our core own-brand range offers quality equal to or better than the leading brand but is at least 20 per cent cheaper.  Over the next year we will be reviewing this 6,500 product range individually and benchmarking all aspects, including taste, nutrition and packaging, to ensure we offer the best products on the market.  This will be our largest ever investment in our own-brand products.

We go to great lengths to source with integrity, and continue to support British agriculture.  In recognition of this, we were awarded a BBC Radio 4 Food and Farming Award for our work in helping farmers reduce their carbon footprint.  We offer British products at their best, when in season and when quality meets our customers' expectations.  In Spring, we were number one in the UK for British asparagus and Jersey Royals.  We are also number one for English pears and we sell almost one in four of all British apples when in season.  We continued our direct-to-store initiative, with over 80 stores receiving strawberries or potatoes direct from local farmers.  Nearly 80 per cent of our bakeries bake a selection of products from scratch and they only use British flour for this.

Our British seasonal fish sales were up over 50 per cent over the year and we now offer 100 per cent fresh fish (never frozen) on our counters; in addition we were the first UK supermarket to sell fresh dab as a way to reduce fish being discarded from the catch.  We are also proud to be the UK's leading retailer of Marine Stewardship Certified (MSC) fish, with over 80 different sustainable MSC products.  In recognition of our efforts, we were awarded Seafood Retailer of the Year at the 2010 Retail Industry Awards, a credit to our buying teams and a reflection of our commitment to do the right thing for our environment and sustainable sourcing.

Ethical issues remain important to our customers and, with over 12 per cent of our own-brand products coming from certified sustainable sources, we are meeting their needs.  One pound in every four spent on Fairtrade in the UK is spent at a Sainsbury's store and, as more products have been added, our sales of Fairtrade products have reached over £280 million this year.  Having been the first ever UK retailer to offer eggs from cage-free birds, all our fresh eggs now meet this standard and the RSPCA Freedom Food criteria.  The RSPCA recognised our commitment to animal welfare with the Most Progress award at their annual Good Business Awards.

It has been an outstanding year for the quality and value of our products and our high standards have been recognised by many other industry awards this year.  In July, we won Meat and Fish Retailer of the Year at the Supermeat and Fish Awards; we won over 100 awards at the Nantwich International Cheese Awards; and we won nine Quality Food Awards, more than any other retailer.  Great food is complemented by great wine and our new House range is now one of the UK's fastest-growing wine brands.  We won Drinks Retailer of the Year at the Drinks Business Awards and enjoyed the most wins at both the International Wines and Spirits Competition and the Quality Drink Awards.

Our leadership position in offering great food, which is also sustainably and ethically sourced, remains key to our customers and we will continue to invest further in our offer as we strive to exceed the standards they expect of us.

2. Accelerating the growth of complementary non-food and services

At present, supermarkets account for less than 15 per cent of the UK non-food market and this represents a significant opportunity for us.  This year we have made excellent progress in the development and accessibility of our non-food ranges and sales are growing at more than three times the rate of food.  Our focus on high street style at supermarket prices is clearly popular with customers and, together with the convenience of buying general merchandise at the same time as shopping for food, this has helped to grow our market share.

In clothing, our TU brand is now the seventh largest in the UK market by volume, which underlines our fashion credibility.  In womenswear, we are expanding successfully into accessories and lingerie.  Our childrenswear is now seventh in the market by volume, with sales having grown by over 20 per cent  year on year, and the success of our Back to School range makes us now fourth in that market, up from sixth last year.  Menswear has also grown by over 18 per cent on last year.  As we continue to expand our ranges, we were delighted to announce that Gok Wan will create a number of womenswear collections for us with the first collection hitting the shelves later this year.

Our general merchandise ranges have been important to our non-food growth.  We are enjoying growth rates of over 20 per cent in many areas, including books and home textiles.  In entertainment and electricals market-leading offers on key titles have been a great success.  For example, prior to Christmas, nearly one in four of all copies of Shrek 4 DVDs sold in shops were bought at Sainsbury's.  These figures will continue to become more significant as it is expected that 40 per cent of new space will be devoted to our non-food ranges, which will account for one third of our supermarket sales growth.  As a result of the growth of our non-food business, and the further development of our direct sourcing in this area, we have seen an increase in the levels of our inventory at the end of the year. 

There is a clear opportunity to turn more of our supermarkets into larger destination stores.  Our new 100,000 sq ft stores in Crayford, Lincoln and Stanway are good examples.  They represent a major change in the scale and presentation of our clothing, general merchandise and electrical goods ranges, and feature leading popular brands such as Disney, Clarks, O₂ and Speedo.  To support our growth in non-food we have also invested in people, IT and the supply chain.  Our Shanghai office is improving our buying capacity and we have strengthened our clothing sourcing capabilities by opening an office in Bangladesh.  Through these and logistics efficienciesin warehouse operation and route planning we ensure we keep the environmental footprint of our non-food business as low as possible. 

We are extending our brand into other complementary non-food areas, while also maximising the benefits of the Nectar scheme for customers.  Sainsbury's Energy, in partnership with British Gas and linked to Nectar, offers customers convenient access to products such as solar panels and insulation, as well as advice such as home energy assessments, to help make their homes more efficient, keep their bills down and reduce their impact on the environment.

Sainsbury's Bank, providing insurance products, banking services and transactional services such as travel money, had a strong year with pre-tax operating profits growing by over 50 per cent.  We have continued to focus on growing customer loyalty and have strengthened our relationship with our customers through the Double Nectar Reward proposition, which is now available on five finance products.  Our insurance business has also grown strongly, with new business up 25 per cent on the year.  We now have 118 travel money kiosks in our stores, attracting over half a million customers this year alone, and we also provide our customers with over 1,200 ATM machines.

Our industry-leading offer has been recognised by a number of high-profile consumer and industry awards in the last year including: Best Credit Card Provider (Consumer Moneyfacts Awards 2011); Best New Credit Card and Best Personal Loan Provider (Moneynet Personal Finance Awards 2011); and Best Overall Online Provider (Your Money Awards 2010).

3. Reaching more customers through additional channels

With 377 stores and over 900,000 sq ft of space our convenience store business is well established and delivers annual sales of over £1 billion with like-for-like sales growth ahead of our supermarkets.  The stores give our customers an opportunity to top up their supermarket shop, while providing local communities with a strong fresh food offer, easy shopping and excellent customer service, which was recognised with the award of Convenience Retailer of the Year at the Retail Industry Awards.

The convenience store market is still unconsolidated, with supermarket chains owning only 15 per cent of the market's 50,000 shops.  We opened 47 new stores this year and we plan to open one to two stores per week over the next year, with a healthy pipeline of prospective stores and opportunities for leasehold sites.  We have also recently opened a trial Fresh Kitchen store in Central London, serving hot and cold food and drink for breakfast and lunch customers.

Our online groceries business continues to grow, with annual sales up over 20 per cent and weekly orders now regularly over 130,000.  The service can now reach over 93 per cent of UK households, through 187 stores.  Non-food online sales also continue to grow, supported by the introduction of our Click & Collect service, now in over 160 stores, which allows customers the freedom to pick up non-food items ordered online at a store and time convenient for them, rather than waiting at home for a delivery.

4. Growing supermarket space

We continue to take advantage of the unique opportunity that we have to grow our space.  This year, we opened 21 new stores, 24 extensions and 47 convenience stores, equivalent to 1.5 million sq ft of gross new space, or 8.5 per cent growth year-on-year.  In the two years to March 2011 we have grown our gross space by 15.9 per cent, beating the 15 per cent target we set in March 2009.  Of our new stores opened in the last two years, over 70 per cent were in Scotland, Wales or the South West where we are under-represented.  Our extensions are largely in the South and East where we are principally introducing or extending our non-food offer.  We expect to maintain this momentum into next year, growing gross space by seven to eight per cent in 2011/12 including 15-20 new stores, 15-20 extensions and one to two convenience stores a week.

In future years, we plan to add around 1.25 million sq ft of new space per year and we expect to continue to be able to secure new development opportunities as quickly as we open stores, which offers us growth potential for many years to come.  We now have a strong property pipeline with clear line of sight on new stores and extensions we will open in the future.  This pipeline is supported by over 70 planning consents for future store extensions.  At the same time, economies of scale are enabling us to carry out our store expansion programme more cost-effectively and build to standard specifications with minimum customer disruption.  Over the past three years we have reduced standard build and fit-out costs by 15-20 per cent per sq ft and we continue to improve on this.  As a result of our cost efficiency savings and good sales growth we have achieved growth in return on capital employed in spite of the cumulative effect of our accelerated investment in space growth since June 2009 and the greater proportion of our stores yet to reach maturity.  We expect to achieve a pre-tax rate of return in excess of 15 per cent on our investment programme.

As we grow our estate, we are conducting industry-leading initiatives aimed at reducing our environmental impact as our aim is to grow our sales but minimise our emissions.  These include rainwater harvesting, biomass boilers which reduce mains energy use by 30 per cent and CO₂ emissions by ten per cent, and the use of natural light and energy-saving lighting.  The extension of our Crayford store also achieved a world first by using Geo Exchange technology to capture unused heat and store it deep underground for later use.  Despite the store doubling in size, we have capped its carbon emissions at the same level as the former store.

We set out to generate a positive economic and social impact in the communities we serve.  In the past year alone, we have created over 6,000 new jobs through our store expansion plans and over the next three years we will create over 20,000 new full and part-time positions, with opportunities to suit all members of the community.  We know the success of our business relies on lively, productive and customer-focused colleagues and through our You Can training and skills programme we aim to be the employer of choice in the retail sector.  Our progress is demonstrated through being the first-ever major food retailer to have been awarded a gold accreditation from Investors in People.  Our colleagues invest a large amount of time supporting local charities and community groups; through our support for local charities over £1.5 million has gone to local causes in the last year and our colleagues have volunteered over 6,500 days.  Our efforts have been recognised with the Community Retailer of the Year award, which acknowledged in particular the time and investment given by our colleagues in their local communities.

5. Active property management

At 19 March 2011, the market value of the property we own was estimated at £10.5 billion, an increase of £0.7 billion over the year.  Of this increase, £0.5 billion has been from an improvement in yields and a further £0.5 billion has come from the value created through our development activity, offset by disposals of £0.3 billion.  Owning this valuable property asset allows us to retain operational flexibility, provide security for funding, make the most of development opportunities, as well as unlock value through sale and leasebacks when these properties are fully developed.  All of these factors serve to maximise value for shareholders.

We believe we have built and maintained a very strong property portfolio.  It includes 304 freehold and long-leasehold supermarkets, plus 41 stores in property joint ventures in which we have a 50 per cent share.  Our freehold to leasehold split across our supermarket property portfolio remains around 65 per cent.  Of the supermarkets we own, 86 are in our development plan, with a further 16 having potential for mixed-use schemes, and 143 having longer-term potential subject to planning, economic and physical viability.  Of the properties held in joint ventures, 16 are in the development plan, with a further 16 having longer-term potential.  There are also three potential mixed-use schemes.

A key element of our property strategy is recycling capital to invest in profitable growth.  Stores which are fully developed, we consider for sale.  By taking advantage of attractive yields on these assets, we generated £275 million proceeds during the year contributing to property profits of £108 million, up from £27 million last year.

Going forward, the creation of value through our property portfolio and our growth in supermarket space is key to increasing the return on our investments. 

Financial review

Sainsbury's has increased its market share in an increasingly challenging economic environment, whilst delivering its growth strategy and maintaining the strength of its balance sheet.  Sainsbury's is also investing in the long-term growth of the business and taking advantage of market conditions to generate funds from the sale and leaseback of supermarkets that have no further development potential.  This leaves the company well placed to deliver sustainable growth going forward.

Sales (including VAT) increased by 7.1 per cent to £22,943 million (2009/10: £21,421 million).  Underlying profit before tax improved by 9.0 per cent to £665 million (2009/10: £610 million).  Profit before tax was up 12.8 per cent, at £827 million (2009/10: £733 million), supported by property profits of £108 million (2009/10: £27 million) and a surplus on the revaluation of properties within the joint ventures ("JV") of £39 million (2009/10: £123 million).

Underlying basic earnings per share increased to 26.5 pence (2009/10: 23.9 pence), up 10.9 per cent.  This was higher than the growth in underlying profit before tax, as the impact of additional shares from the June 2009 equity placing was more than offset by a lower tax rate.  Basic earnings per share increased to 34.4 pence (2009/10: 32.1 pence).  This was higher than the underlying basic earnings per share due mainly to the property profits and the surplus on the revaluation of JV properties.

A final dividend of 10.8 pence has been proposed by the Board (2009/10: 10.2 pence) making a full year dividend of 15.1 pence, up 6.3 per cent year on year (2009/10: 14.2 pence).

Summary income statement 52 weeks to 19 March 2011	2011	2010	Change
	£m	£m	%
Sales (including VAT) (1)	22,943	21,421	7.1
Sales (excluding VAT)	21,102	19,964	5.7
Underlying operating profit	738	671	10.0
Underlying net finance costs (2)	(97)	(79)	(22.8)
Underlying share of post-tax profit from JVs (3)	24	18	33.3
Underlying profit before tax	665	610	9.0
Profit on disposal of properties	108	27	n/a
Investment property fair value movements	39	123	n/a
Financing fair value movements	7	(15)	n/a
IAS 19 pension financing credit/(charge)	3	(24)	n/a
One-off items	5	12	n/a
Profit before tax	827	733	12.8
Income tax expense	(187)	(148)	(26.4)
Profit for the financial period	640	585	9.4
Underlying basic earnings per share	26.5p	23.9p	10.9
Basic earnings per share	34.4p	32.1p	7.2
Dividend per share	15.1p	14.2p	6.3

(1)    The standard rate of VAT increased from 15 per cent to 17.5 per cent on 1 January 2010 and to 20 per cent on 4 January 2011.

(2)    Net finance costs before financing fair value movements and the IAS 19 pension financing element.

(3)    The underlying share of post-tax profits from joint ventures is stated before investment property fair value movements and financing fair value movements.

Sales (including VAT) and space

Sales (including fuel) increased by 7.1 per cent through a combination of market-beating like-for-like ("LFL") sales growth in difficult trading conditions, an increased contribution from new space and higher fuel sales, driven by good volume growth as well as higher fuel prices.

The 7.1 per cent growth includes a 2.4 per cent contribution from net new space (excluding extensions and replacements).  LFL sales (including fuel) were up 4.7 per cent, higher than for sales excluding fuel due to the impact of higher fuel sales.

Sales growth (including VAT, including fuel) 52 weeks to 19 March 2011		2011 %	2010 %
Like-for-like sales (including fuel)		4.7	3.0
Easter impact (1)		-	0.3
Net new space (excluding extensions and replacements)		2.4	1.8
Total sales growth		7.1	5.1

(1) Like-for-like sales growth in 2009/10 included an element of growth due to the timing of Easter in 2009.

Sales (excluding fuel) grew by 4.9 per cent.  LFL growth of 2.3 per cent was below Sainsbury's medium-term planning assumption of between three and four per cent, but ahead of the market.  Sainsbury's market share for the year to 19 March 2011 grew by 18 basis points, to 16.3 per cent (as measured by Kantar).

LFL sales growth was 2.0 per cent in the first half, and 2.6 per cent in the second half.  The second half performance reflected a strong third quarter, with LFL sales up 3.6 per cent, but a more subdued fourth quarter, with LFL growth of 1.0 per cent.  The contribution from net new space (excluding extensions and replacements) of 2.6 per cent was in line with Sainsbury's expectations.  Non-food sales grew at more than three times the rate of grocery growth, and online sales increased by over 20 per cent.

Sales growth (including VAT, excluding fuel) 52 weeks to 19 March 2011		2011 %	2010 %
Like-for-like sales (1)		2.3	4.3
Easter impact (2)		-	0.4
Net new space (excluding extensions and replacements)		2.6	2.0
Total sales growth		4.9	6.7

(1)    This includes 0.6 per cent growth from stores extended in 2010/11, net of disruption.

(2)    Like-for-like sales growth in 2009/10 included an element of growth due to the timing of Easter in 2009.

Average trading intensity excluding fuel ("TI") decreased from £20.42 to £20.04 per sq ft per week.  Whilst the TI in those stores not newly opened or extended continued to increase, this progression was offset by the increased proportion of stores not trading at maturity, the higher proportion of space dedicated to complementary non-food, which trades less intensively than food, and the disruption caused at the 29 supermarkets replaced or extended in the year (2009/10: 16 replacements or extensions).

Sainsbury's added a gross 1,516,000 sq ft of selling space in the year (including extensions and replacements), an increase of 8.5 per cent since the start of the year (2009/10: 6.8 per cent).  Sainsbury's has opened a gross 2,659,000 sq ft of selling space since March 2009, equivalent to a 15.9 per cent increase, and ahead of its two-year target of 15.0 per cent.

The pace of supermarket property activity continued with 1,416,000 sq ft either opened or extended (2009/10: 1,021,000 sq ft).  The number of stores opened or extended (45 stores) was slightly lower than in 2009/10 (51 stores), which included the acquisition of former Co-op and Somerfield stores.  The 2010/11 opening programme included 21 new supermarkets, of which five were replacement stores.  These created an additional 829,000 sq ft of gross selling space (net 673,000 sq ft) and there were no other closures apart from the replaced stores.  The 24 supermarket extensions added 558,000 sq ft of selling space, with a further 29,000 sq ft from five full and 26 minor refurbishments.  In the last two years, over 70 per cent of supermarket new store openings have been in areas in which Sainsbury's has been under-represented, such as Scotland, Wales and South West England.

There was also continued growth in the convenience estate, with 47 stores added during the year, of which one was a replacement, and 19 stores refurbished.

Net of replacements, closures and disposals, closing space of 19,108,000 sq ft was 1,358,000 sq ft higher than last year (20 March 2010: 17,750,000 sq ft).  The 7.7 per cent year-on-year increase was a further step-up from the 2009/10 growth of 6.3 per cent.

Store numbers and retailing space
at 19 March 2011	Supermarkets		Convenience		Total
	Number	Area 000 sq ft	Number	Area 000 sq ft	Number	Area 000 sq ft
At 20 March 2010	537	16,909	335	841	872	17,750
New stores	21	829	47	104	68	933
Disposals/closures	(5)	(156)	(1)	(2)	(6)	(158)
Extensions/downsizes/refurbishments	-	587	-	(4)	-	583
Reclassifications (1)	4	30	(4)	(30)	-	-
At 19 March 2011	557	18,199	377	909	934	19,108
Memorandum:
Extensions	24	558	-	-	24	558
Refurbishments/downsizes	31	29	19	(4)	50	25
Total projects	55	587	19	(4)	74	583

(1)    Four stores previously classified as convenience now operate under the supermarket fascia.

Gross space growth of seven to eight per cent is expected in 2011/12.  Net new store space excluding extensions and replacements is expected to contribute around 2.5 per cent to total sales growth (excluding fuel) in 2011/12.

Underlying operating profit

Underlying operating profit increased by 10.0 per cent to £738 million (2009/10: £671 million).  This reflected the solid sales performance and the delivery of cost efficiency savings which have fully offset cost inflation as well as supporting sustained investment in the customer offer.

Underlying operating margin improved by 14 bps, to 3.50 per cent (2009/10: 3.36 per cent), which was an increase of 20 bps at constant fuel prices.  Underlying EBITDAR margin improved to 7.81 per cent and increased by 17 bps at constant fuel prices.

Underlying operating profit 52 weeks to 19 March 2011	2011	2010	Change	Change at constant fuel prices
Underlying operating profit (£m) (1)	738	671	10.0%
Underlying operating margin (%) (2)	3.50	3.36	14 bps	20 bps
Underlying EBITDAR (£m) (3)	1,649	1,555	6.0%
Underlying EBITDAR margin (%) (4)	7.81	7.79	2 bps	17 bps

(1)        Underlying earnings before interest and tax before Sainsbury's share of post-tax profits from joint ventures.

(2)        Underlying operating profit divided by sales excluding VAT.

(3)        Underlying operating profit before rent, depreciation and amortisation.

(4)        Underlying EBITDAR divided by sales excluding VAT.

Cost inflation for 2011/12 is expected to fall at the higher end of the two to three per cent medium-term range, with cost savings expected to offset around 75 per cent of this inflation.

Sainsbury's Bank joint venture

Sainsbury's share of Sainsbury's Bank post-tax profit amounted to £11 million (2009/10: £7 million).  The bank performed strongly in a challenging economic climate with loans and advances to customers continuing to grow against the backdrop of strong back book management.  The Sainsbury's Bank JV is expected to contribute a further step-up in profit in 2011/12.

Property joint ventures

Sainsbury's underlying share of post-tax profit from the JV with British Land was £11 million (2009/10: £10 million).  Its underlying share of post-tax profit from its JV with Land Securities was £2 million (2009/10: £1 million).  Property JVs are expected to deliver a similar level of profit in 2011/12.

At the year end, a total surplus on revaluation of £39 million was recognised within the share of post-tax profit from the JVs in the income statement (2009/10: £123 million).  This represents an increase on revaluation of these properties to an average yield of 4.9 per cent (2009/10: 5.2 per cent).

Underlying net finance costs

Underlying net finance costs increased by £18 million to £97 million (2009/10: £79 million), in part as a result of the higher RPI rate, which increases the rate on Sainsbury's inflation-linked debt.

Interest cover was 7.9 times (2009/10: 8.7 times) and fixed charge cover was 2.3 times (2009/10: 2.3 times).

Underlying net finance costs 52 weeks to 19 March 2011		2011 £m	2010 £m
Underlying finance income (1)		19	33
Interest costs		(143)	(127)
Capitalised interest		27	15
Underlying finance costs (1)		(116)	(112)
Underlying net finance costs (1)		(97)	(79)

(1)    Finance income/costs pre financing fair value movements and IAS 19 pension financing element.

Sainsbury's expects underlying net finance costs in 2011/12 to increase by £10 to £15 million due to the effect of the increase in RPI on the interest rate charged on its inflation-linked debt.  The interest rate on the inflation-linked debt resets annually in April by reference to the RPI rate (capped at five per cent) prevailing in January.

Taxation

The income tax charge was £187 million (2009/10: £148 million), with an underlying tax rate of 26.0 per cent (2009/10: 28.5 per cent) and an effective tax rate of 22.6 per cent (2009/10: 20.2 per cent).  The underlying rate is lower than last year primarily due to the resolution of a number of outstanding items and the effect of the change in the corporation tax rate on the deferred tax balances.  These factors, in addition to the non-taxable profit on disposal of properties and investment property fair value movements, result in the effective tax rate being lower than the statutory rate.

Underlying tax rate calculation
52 weeks to 19 March 2011	Profit £m	Tax £m	Rate %
Profit before tax, and tax thereon	827	187	22.6
Adjustments (and tax thereon) for:
Profit on disposal of properties	(108)	(3)
Investment property fair value movements	(39)	-
Financing fair value movements	(7)	(3)
IAS 19 pension financing element	(3)	(1)
One-off items	(5)	-
Revaluation of deferred tax balances	-	(7)
Underlying profit before tax, and tax thereon	665	173	26.0

Sainsbury's expects the underlying tax rate to be around 27 per cent in 2011/12, with the impact of disallowable depreciation being partly offset by the further reduction in the statutory corporation tax rate.

Earnings per share

Underlying basic earnings per share increased by 10.9 per cent to 26.5 pence (2009/10: 23.9 pence), reflecting the improvement in underlying profit and the year-on-year reduction in the underlying tax rate.  These more than offset the full-year effect of the additional shares issued in June 2009.

The weighted average number of shares in issue rose by 2.0 per cent to 1,858.7 million (2009/10: 1,821.7 million).  Basic earnings per share were up 7.2 per cent, at 34.4 pence (2009/10: 32.1 pence).

Underlying earnings per share calculation 52 weeks to 19 March 2011			2011	2010
			pence	pence
Basic earnings per share			34.4	32.1
Adjustments (net of tax) for:
Profit on disposal of properties			(5.6)	(2.3)
Investment property fair value movements			(2.1)	(6.7)
Financing fair value movements			(0.2)	0.6
IAS 19 pension financing element			(0.1)	0.9
One-off items			(0.3)	(0.7)
Revaluation of deferred tax balances			0.4	-
Underlying basic earnings			26.5	23.9

Dividends

The Board has recommended a final dividend of 10.8 pence per share (2009/10: 10.2 pence), which will be paid on 15 July 2011 to shareholders on the Register of Members at the close of business on 20 May 2011, subject to approval.  This will increase the full year dividend by 6.3 per cent to 15.1 pence per share (2009/10: 14.2 pence).  The proposed final dividend was recommended by the Board on 10 May 2011 and, as such, has not been included as a liability as at 19 March 2011.

The dividend is covered 1.75 times by underlying earnings (2009/10: 1.68 times), in line with Sainsbury's policy of providing cover of between 1.50 and 1.75 times.

Return on capital employed

The return on average capital employed ("ROCE") over the 52 weeks to 19 March 2011 was 11.1 per cent, a year-on-year increase of 11 bps (2009/10: 11.0 per cent).  ROCE growth was lower than last year in part due to the cumulative effect of Sainsbury's accelerated investment in space growth since June 2009.  This has an initially dilutive impact on profits as the stores mature, whilst increasing the value of capital employed.

Return on capital employed 52 weeks to 19 March 2011		2011	2010
Underlying operating profit (£m)		738	671
Underlying share of post-tax profit from joint ventures (£m)		24	18
Underlying profit before interest and tax (£m)		762	689
Average capital employed (£m) (1)		6,877	6,281
Return on capital employed (%)		11.1	11.0
Year-on-year improvement		11 bps	85 bps

(1)    Average of opening and closing net assets before net debt.

Net debt and cash flows

Sainsbury's net debt as at 19 March 2011 was £1,814 million (20 March 2010: £1,549 million), a year-on-year increase of £265 million.  The increase was driven primarily by the accelerated estate development, partially funded by sale and leasebacks, and the increase in working capital.

Working capital increased by £78 million, mainly due to increased inventories, which are £110 million higher than at 20 March 2010 with higher levels of non-food stock to support sales growth and an increase in the level of goods-in-transit, driven by increased direct sourcing operations.

Summary cash flow statement 52 weeks to 19 March 2011		2011 £m	2010 £m
Operating cash flow before changes in working capital		1,216	1,114
(Increase)/decrease in working capital		(78)	92
Cash generated from operations		1,138	1,206
Interest paid		(126)	(111)
Corporation tax paid		(158)	(89)
Net cash from operating activities		854	1,006
Net cash used in investing activities		(902)	(900)
Proceeds from issue of shares		17	250
Proceeds from borrowings		45	235
Repayment of borrowings		(79)	(115)
Dividends paid		(269)	(241)
(Decrease)/increase in cash and cash equivalents		(334)	235
Increase/(decrease) in debt		71	(83)
Fair value and other non-cash movements		(2)	(30)
Movement in net debt		(265)	122

Sainsbury's expects net debt to be around £2.0 billion at the end of 2011/12.

Financing

Sainsbury's seeks to manage its financing by diversifying funding sources, minimising refinancing risk and maintaining sufficient stand-by liquidity.  Sainsbury's has overall debt and credit facilities of £3 billion at its disposal.

The principal elements of Sainsbury's core funding comprise two long-term loans of £1,069 million due 2018 and £840 million due 2031, secured over property assets.  In addition, Sainsbury's has unsecured debt of £180 million and €50 million due between 2012 and 2015, together with £190 million of convertible bonds due July 2014.

In October 2010, Sainsbury's terminated its syndicated £400 million and £163 million revolving credit facilities and its £50 million bilateral revolving credit facility and replaced them with a £690 million syndicated revolving credit facility due October 2015.  There were £nil drawings under the facility as at 19 March 2011 (20 March 2010: £nil drawings).

Capital expenditure

Core capital expenditure increased by £252 million to £1,138 million (2009/10: £886 million), driven by an acceleration of Sainsbury's extensions programme.  Acquisition of freehold and trading properties reduced as 2009/10 included the purchase of 33 stores from the Co-op/Somerfield.

Sainsbury's also took advantage of good property yields to increase its sale and leaseback activity of mature stores with no further property development potential, generating proceeds of £275 million (2009/10: £131 million), which contributed to a total profit on disposal of properties of £108 million (2009/10: £27 million).  Net capital expenditure was £880 million (2009/10: £915 million).

Capital expenditure 52 weeks to 19 March 2011		2011	2010
		£m	£m
New store development		547	496
Extensions and refurbishments		470	320
Other - including supply chain and IT		121	70
Core capital expenditure		1,138	886
Acquisition of freehold and trading properties		17	160
Proceeds from property transactions		(275)	(131)
Net capital expenditure		880	915

Sainsbury's expects 2011/12 core capital expenditure of around £1.2 billion.

Summary balance sheet

Shareholders' funds as at 19 March 2011 were £5,424 million (20 March 2010: £4,966 million), a rise of £458 million, mainly attributable to the continued profitable growth of the underlying business.

Property, plant and equipment assets have increased by £581 million as a result of increased space growth and the increase in the value of properties held within the property JVs.

Net debt is £265 million higher than at 20 March 2010, less than the increase in non-current assets mainly as a result of the sale and leasebacks and the timing of capital expenditure and property disposals.  Gearing increased to 33.4 per cent (2009/10: 31.2 per cent) as a result of the higher net debt.

Summary balance sheet
at 19 March 2011		2011 £m	2010 £m	Movement                 £m
Land and buildings (freehold and long leasehold)		6,440	6,059	381
Land and buildings (short leasehold)		622	559	63
Fixtures and fittings		1,722	1,585	137
Property, plant and equipment		8,784	8,203	581
Other non-current assets		842	811	31
Inventories		812	702	110
Trade and other receivables		303	215	88
Cash and cash equivalents		501	837	(336)
Debt		(2,315)	(2,386)	71
Net debt		(1,814)	(1,549)	(265)
Trade and other payables and provisions		(3,262)	(3,113)	(149)
Retirement benefit obligations, net of deferred tax		(241)	(303)	62
Net assets		5,424	4,966	458

As at 19 March 2011, Sainsbury's estimated market value of properties is £10.5 billion (20 March 2010: £9.8 billion), equivalent to a yield of 4.9 per cent and including a 50 per cent share of properties held within its property joint ventures.

Pensions

As at 19 March 2011, the post-tax pension deficit was £241 million (20 March 2010: £303 million), supported by a nine per cent increase in the value of plan assets.  Liabilities increased by £0.3 billion, with a 0.2 per cent reduction in the real discount rate being offset by adopting the legislative change to apply CPI rather than RPI in the calculation of future pension increases.

The IAS 19 pension service cost included within UPBT was £55 million, £7 million higher than last year. Sainsbury's expects this to be around £60 million in 2011/12.

Retirement benefit obligations
at 19 March 2011		2011 £m	2010 £m
Present value of funded obligations		(4,945)	(4,649)
Fair value of plan assets		4,614	4,237
Pension deficit		(331)	(412)
Present value of unfunded obligations		(9)	(9)
Retirement benefit obligations		(340)	(421)
Deferred income tax asset		99	118
Net retirement benefit obligations		(241)	(303)

Group income statement

for the 52 weeks to 19 March 2011

			2011	2010
		Note	£m	£m
	Revenue	4	21,102	19,964
	Cost of sales		(19,942)	(18,882)
	Gross profit		1,160	1,082
	Administrative expenses		(417)	(399)
	Other income		108	27
	Operating profit		851	710
	Finance income	5	32	33
	Finance costs	5	(116)	(148)
	Share of post-tax profit from joint ventures		60	138
	Profit before taxation		827	733
	Analysed as:
	Underlying profit before tax		665	610
	Profit on disposal of properties	3	108	27
	Investment property fair value movements	3	39	123
	Financing fair value movements	3	7	(15)
	IAS 19 pension financing credit/(charge)	3	3	(24)
	One-off items	3	5	12
			827	733
	Income tax expense	6	(187)	(148)
	Profit for the financial year		640	585
	Earnings per share	7	pence	pence
	Basic		34.4	32.1
	Diluted		33.8	31.6
	Underlying basic		26.5	23.9
	Underlying diluted		26.1	23.6
	Dividends per share	8	pence	pence
	Interim		4.30	4.00
	Proposed final (not recognised as a liability at balance sheet date)		10.80	10.20

Group statement of comprehensive income

for the 52 weeks to 19 March 2011

		2011	2010
		£m	£m
Profit for the period		640	585
Other comprehensive income/(expense):
Net actuarial gains/(losses) on defined benefit pension scheme		29	(173)
Available-for-sale financial assets fair value movements:
Group		14	43
Joint ventures		2	24
Cash flow hedges effective portion of fair value movements:
Group		(8)	(3)
Joint ventures		2	-
Current tax on items recognised directly in other comprehensive income		(1)	16
Deferred tax on items recognised directly in other comprehensive income		(5)	21
Total other comprehensive income/(expense) for the period (net of tax)		33	(72)
Total comprehensive income for the period		673	513

Group balance sheet

At 19 March 2011 and 20 March 2010

		2011	2010
	Note	£m	£m
Non-current assets
Property, plant and equipment		8,784	8,203
Intangible assets		151	144
Investments in joint ventures		502	449
Available-for-sale financial assets		176	150
Other receivables		36	36
Derivative financial instruments		29	20
		9,678	9,002
Current assets
Inventories		812	702
Trade and other receivables		343	215
Derivative financial instruments		52	43
Cash and cash equivalents	9	501	837
		1,708	1,797
Non-current assets held for sale		13	56
		1,721	1,853
Total assets		11,399	10,855
Current liabilities
Trade and other payables		(2,597)	(2,466)
Borrowings		(74)	(73)
Derivative financial instruments		(59)	(41)
Taxes payable		(201)	(200)
Provisions		(11)	(13)
		(2,942)	(2,793)
Net current liabilities		(1,221)	(940)
Non-current liabilities
Other payables		(120)	(106)
Borrowings		(2,339)	(2,357)
Derivative financial instruments		-	(2)
Deferred income tax liability		(172)	(144)
Provisions		(62)	(66)
Retirement benefit obligations	11	(340)	(421)
		(3,033)	(3,096)
Net assets		5,424	4,966
Equity
Called up share capital		535	532
Share premium account		1,048	1,033
Capital redemption reserve		680	680
Other reserves		(213)	(242)
Retained earnings		3,374	2,963
Total equity		5,424	4,966

 

Group cash flow statement

for the 52 weeks to 19 March 2011

		2011	2010
	Note	£m	£m
Cash flows from operating activities
Cash generated from operations	9	1,138	1,206
Interest paid		(126)	(111)
Corporation tax paid		(158)	(89)
Net cash generated from operating activities		854	1,006
Cash flows from investing activities
Purchase of property, plant and equipment		(1,136)	(1,036)
Purchase of intangible assets		(15)	(11)
Proceeds from disposal of property, plant and equipment		282	139
Acquisition of and investment in subsidiaries, net of cash acquired		(1)	-
Investment in joint ventures		(2)	(2)
Investment in financial assets		(50)	(10)
Interest received		19	18
Dividends received		1	2
Net cash used in investing activities		(902)	(900)
Cash flows from financing activities
Proceeds from issuance of ordinary shares		17	250
Repayment of short-term borrowings		(11)	(36)
Proceeds from long-term borrowings		45	235
Repayment of long-term borrowings		(61)	(74)
Repayment of capital element of obligations under finance lease payments		(3)	(2)
Interest elements of obligations under finance lease payments		(4)	(3)
Dividends paid	8	(269)	(241)
Net cash (used in) / generated from financing activities		(286)	129
Net (decrease) / increase in cash and cash equivalents		(334)	235
Opening cash and cash equivalents		834	599
Closing cash and cash equivalents	9	500	834

Group statement of changes in equity

for the 52 weeks to 19 March 2011

		Called up share capital	Share premium account	Capital redemption and other reserves	Retained earnings	Total equity
	Note	£m	£m	£m	£m	£m
At 21 March 2010		532	1,033	438	2,963	4,966
Profit for the period		-	-	-	640	640
Other comprehensive income/(expense):
Actuarial gains on defined benefit pension scheme (net of tax)		-	-	26	-	26
Available-for-sale financial assets fair value movements (net of tax):
Group		-	-	11	-	11
Joint ventures		-	-	2	-	2
Cash flow hedges effective portion of changes in fair value (net of tax):
Group		-	-	(8)	-	(8)
Joint ventures		-	-	2	-	2
Total comprehensive income/(expense) for the 52 weeks ended 19 March 2011		-	-	33	640	673
Transactions with owners:
Dividends paid	8	-	-	-	(269)	(269)
Amortisation of convertible bond equity component		-	-	(4)	4	-
Share-based payment (net of tax)		-	-	-	37	37
Allotted in respect of share option schemes		3	15	-	(1)	17
At 19 March 2011		535	1,048	467	3,374	5,424
At 22 March 2009		501	909	489	2,477	4,376
Profit for the period		-	-	-	585	585
Other comprehensive income/(expense):
Actuarial losses on defined benefit pension schemes (net of tax)		-	-	(125)	-	(125)
Available-for-sale financial assets fair value movements (net of tax):
Group		-	-	32	-	32
Joint ventures		-	-	24	-	24
Cash flow hedges effective portion of changes in fair value (net of tax):
Group		-	-	(3)	-	(3)
Total comprehensive income/(expense) for the 52 weeks ended 20 March 2010		-	-	(72)	585	513
Transactions with owners:
Dividends paid	8	-	-	-	(241)	(241)
Convertible bond - equity component		-	-	24	-	24
Amortisation of convertible bond equity component		-	-	(3)	3	-
Share-based payment (net of tax)		-	-	-	44	44
Shares issued		22	113	102	-	237
Transfer to retained earnings		-	-	(102)	102	-
Shares vested		-	-	-	12	12
Allotted in respect of share option schemes		9	11	-	(19)	1
At 20 March 2010		532	1,033	438	2,963	4,966

Notes to the financial information

1      Status of financial information

The financial information, which comprises the Group income statement, Group statement of comprehensive income, Group balance sheet, Group cash flow statement, Group statement of changes in equity and related notes, is derived from the full Group financial statements for the 52 weeks to 19 March 2011 and does not constitute full accounts within the meaning of section 435 (1) and (2) of the Companies Act 2006.

The Group Annual Report and Financial Statements 2011 on which the auditors have given an unqualified report and which does not contain a statement under section 498(2) or (3) of the Companies Act 2006, will be delivered to the Registrar of Companies in due course, and made available to shareholders in June 2011.

The financial year represents the 52 weeks to 19 March 2011 (prior financial year 52 weeks to 20 March 2010).  The consolidated financial statements for the 52 weeks to 19 March 2011 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 Group's financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union and International Financial Reporting Interpretations Committee ("IFRICs") interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRSs.

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, investment properties, available-for-sale financial assets, share-based payments and retirement benefit plan assets that have been measured at fair value.

The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future.  Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

The Group has adopted the following new and amended statements and interpretations as of 21 March 2010 and concluded that they are either not relevant to the Group or that they would not have a significant impact on the Group's financial statements.

·     Amendments to IAS 1 'Presentation of Financial Statements'

·     Amendments to IFRS 5 'Non-current assets held for sale and discontinued operations'

·     Amendments to IAS 39 'Financial instruments: recognition and measurement'

·     IFRS 3 'Business Combinations' (revised)

·     IAS 27 'Consolidated and Separate Financial Statements' (revised)

·     IFRIC 17 'Distributions of non-cash assets to owners'

·     IFRIC 18 'Transfers of assets from customers'

·     Amendments to certain IFRSs and IASs arising from April 2009 Annual Improvements to IFRSs by the International Accounting Standards Board ('IASB')

·     Amendments to IFRS 2 'Share-based Payment' relating to group cash-settled share-based payment transactions which clarify how an individual subsidiary in a group should account for some share-based payment arrangements in its own financial statements

·     Amendments to IAS 32 'Classification of rights issues'

3      Non-GAAP performance measures

 

Certain items recognised in reported profit before tax can vary significantly from year to year and therefore create volatility in reported earnings which does not reflect the Group's underlying performance.  The Directors believe that the 'underlying profit before tax' ("UPBT") 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.  Underlying profit is not defined by IFRSs and therefore may not be directly comparable with the 'adjusted' profit measures of other companies.  The adjusted items are:

·     Profit/loss on disposal of properties;

·     Investment property fair value movements - these reflect the difference between the fair value of an investment property at the reporting date and its carrying amount at the previous reporting date;

·     Financing fair value movements - these are fair value gains and losses on non-derivative financial assets and liabilities carried at amortised cost, on derivatives relating to financing activities and on hedged items in fair value hedges;

·     Impairment of goodwill;

·     The financing element of IAS 19 'Employee Benefits'; and

·     One-off items - these are items which are material and infrequent in nature and do not relate to the Group's underlying performance.

The adjustments made to reported profit before tax to arrive at underlying profit before tax are:

		2011	2010
		£m	£m
Underlying profit before tax		665	610
Profit on disposal of properties		108	27
Investment property fair value movements		39	123
Financing fair value movements (1)		7	(15)
IAS 19 pension financing credit/(charge)		3	(24)
One-off items		5	12
Total adjustments		162	123
Profit before tax		827	733

(1)    Financing fair value movements for the financial year comprised £10 million gain for the Group (2010: £(12) million loss for the Group) and £(3) million loss for the joint ventures (2010: £(3) million loss).

One-off items

The £5 million one-off item in the current financial year relates to the release of a disposal provision which is no longer required.

In the prior financial year, the Group reversed £12 million of costs associated with the Office of Fair Trading dairy inquiry.

4      Segment reporting

The Group's businesses are organised into three operating segments:

·     Retailing (Supermarkets and Convenience);

·     Financial services (Sainsbury's Bank joint venture); and

·     Property investment (The British Land Company PLC joint venture and Land Securities PLC joint venture).

Management have determined the operating segments based on the information provided to the Operating Board (the Chief Operating Decision Maker for the Group) to make operational decisions on the management of the Group.  All material operations and assets are in the UK.  The business of the Group is not subject to highly seasonal fluctuations although there is an increase in trading in the period leading up to Christmas.

The Group has continued to include additional voluntary disclosure analysing the Group's Financial Services and Property investment joint ventures into separate reportable segments.

Revenue from operating segments is measured on a basis consistent with the income statement. All revenue is generated by the sale of goods and services.

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.

The Operating Board assesses the performance of all segments on the basis of underlying profit before tax.  The reconciliation provided below reconciles underlying operating profit from each of the segments disclosed to profit before tax.

	52 weeks to 19 March 2011	Retailing £m	Financial services £m	Property investments £m	Group £m
	Segment revenue	21,102	-	-	21,102
	Underlying operating profit	738	-	-	738
	Underlying finance income	19	-	-	19
	Underlying finance costs	(116)	-	-	(116)
	Underlying share of post-tax profit from joint ventures	-	11	13	24
	Underlying profit before tax	641	11	13	665
	Profit on disposal of properties	108	-	-	108
	Investment property fair value movements	-	-	39	39
	Financing fair value movements	10	-	(3)	7
	IAS 19 pension financing credit	3	-	-	3
	One-off item (note 3)	5	-	-	5
	Profit before tax	767	11	49	827
	Income tax expense				(187)
	Profit for the financial year				640
	Assets	10,897	-	-	10,897
	Investment in joint ventures	-	115	387	502
	Segment assets	10,897	115	387	11,399
	Segment liabilities	(5,975)	-	-	(5,975)
	Other segment items
	Capital expenditure (1)	1,319	-	-	1,319
	Depreciation expense	468	-	-	468
	Amortisation expense	14	-	-	14
	Share-based payments	35	-	-	35

(1)    Capital expenditure consists of property, plant and equipment additions of £1,297 million and intangibles additions of £22 million.

4      Segment reporting continued

	52 weeks to 20 March 2010	Retailing £m	Financial services £m	Property investments £m	Group £m
	Segment revenue	19,964	-	-	19,964
	Underlying operating profit	671	-	-	671
	Underlying finance income	33	-	-	33
	Underlying finance costs	(112)	-	-	(112)
	Underlying share of post-tax profit from joint ventures	-	7	11	18
	Underlying profit before tax	592	7	11	610
	Profit on disposal of properties	27	-	-	27
	Investment property fair value movements	-	-	123	123
	Financing fair value movements	(12)	-	(3)	(15)
	IAS 19 pension financing charge	(24)	-	-	(24)
	One-off item (note 3)	12	-	-	12
	Profit before tax	595	7	131	733
	Income tax expense				(148)
	Profit for the financial year				585
	Assets	10,406	-	-	10,406
	Investment in joint ventures	-	102	347	449
	Segment assets	10,406	102	347	10,855
	Segment liabilities	(5,889)	-	-	(5,889)
	Other segment items
	Capital expenditure (2)	1,003	-	-	1,003
	Depreciation expense	466	-	-	466
	Amortisation expense	13	-	-	13
	Provision for impairment of receivables	1	-	-	1
	Share-based payments	42	-	-	42

(2)    Capital expenditure consists of property, plant and equipment additions of £992 million, property, and intangibles additions of £11 million.

5    Finance income and finance costs

	2011	2010
	£m	£m
Interest on bank deposits and other financial assets	19	33
Financing fair value gains (1)	10	-
IAS 19 pension financing credit	3	-
Finance income	32	33
Borrowing costs:
Secured borrowings	(97)	(75)
Unsecured borrowings	(39)	(47)
Obligations under finance leases	(4)	(3)
Provisions - amortisation of discount	(3)	(2)
	(143)	(127)
Other finance costs:
Interest capitalised - qualifying assets	27	15
IAS 19 pension financing charge	-	(24)
Financing fair value losses (1)	-	(12)
	27	(21)
Finance costs	(116)	(148)

(1)    Fair value gains and losses relate to fair value adjustments on non-derivative financial assets and liabilities carried at amortised cost and on derivatives relating to financing activities and hedged items in fair value hedges.

6    Income tax expense

	2011	2010
	£m	£m
Current tax expense	163	79
Deferred tax expense	24	69
Total income tax expense in income statement	187	148
Income tax expense on underlying profit	173	174
Tax on items below:
Profit on disposal of properties	3	(15)
Financing fair value movements	3	(4)
IAS 19 pension financing credit/(charge)	1	(7)
Revaluation of deferred tax balances	7	-
Total income tax expense in income statement	187	148

The effective tax rate of 22.6 per cent (2010: 20.2 per cent) is lower than the standard rate of corporation tax in the UK.  The differences are explained below:

	2011	2010
	£m	£m
Profit before taxation	827	733
Income tax at UK corporation tax rate of 28.0% (2010: 28.0%)	232	205
Effects of:
Disallowed depreciation on UK properties	28	22
Investment property fair value movements	(11)	(34)
Over provision in prior years	(35)	(42)
Profit on disposal of property	(27)	(4)
Other	-	1
Total income tax expense in income statement	187	148

On 22 June 2010, the Chancellor announced that the main rate of UK corporation tax would reduce from 28.0 per cent to 27.0 per cent with effect from 1 April 2011.  This change was substantively enacted in July 2010 and hence the effect of the change on the deferred tax balances has been included in the figures above.

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 earnings attributable to the ordinary shareholders are adjusted by the interest on the convertible bonds (net of tax).  The weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially 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 and the number of shares that would be issued if all convertible bonds are assumed to be converted.

Underlying earnings per share is provided by excluding the effect of any profit or loss on disposal of properties, investment property fair value movements, impairment of goodwill, financing fair value movements, IAS 19 pension financing element 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.

			2011		2010
			million		million
Weighted average number of shares in issue			1,858.7		1,821.7
Weighted average number of dilutive share options			16.9		16.0
Weighted average number of dilutive convertible bonds			45.4		34.9
Total number of shares for calculating diluted earnings per share			1,921.0		1,872.6
			£m		£m
Profit for the financial year			640		585
Add: interest on convertible bonds, net of tax			10		6
Diluted earnings for calculating diluted earnings per share			650		591
			£m		£m
Profit for the financial period attributable to equity holders of the parent			640		585
(Less)/add (net of tax):
	Profit on disposal of properties		(105)		(42)
	Investment property fair value movements		(39)		(123)
	Financing fair value movements		(4)		11
	IAS 19 pension financing (credit)/charge		(2)		17
	One-off items (note 3)		(5)		(12)
	Revaluation of deferred tax balances		7		-
Underlying profit after tax			492		436
Add interest on convertible bonds, net of tax			10		6
Diluted underlying profit after tax			502		442
		pence		pence
		per share		per share
Basic earnings		34.4		32.1
Diluted earnings		33.8		31.6
Underlying basic earnings		26.5		23.9
Underlying diluted earnings		26.1		23.6

8    Dividend

	2011	2010
	pence	pence	2011	2010
	per share	per share	£m	£m
Amounts recognised as distributions to equity holders in the year:
Final dividend of prior financial year	10.20	9.60	189	167
Interim dividend of current financial year	4.30	4.00	80	74
	14.50	13.60	269	241

After the balance sheet date, a final dividend of 10.80 pence per share (2010: 10.20 pence per share) was proposed by the Directors in respect of the 52 weeks to 19 March 2011, resulting in a total final proposed dividend of £201 million (2010: £189 million).  The proposed final dividend has not been included as a liability at 19 March 2011.

9          Notes to the cash flow statement

a.         Reconciliation of operating profit to cash generated from operations

	2011	2010
	£m	£m
Operating profit	851	710
Adjustments for:
Depreciation expense	468	466
Amortisation expense	14	13
Profit on disposal of properties	(108)	(27)
Foreign exchange differences	5	(6)
Share-based payments expense	35	42
Retirement benefit obligations (1)	(49)	(85)
Provision for diminution in value of investment	-	1
Operating cash flows before changes in working capital	1,216	1,114
Changes in working capital:
Increase in inventories	(110)	(13)
(Increase)/decrease in trade and other receivables	(64)	1
Increase in trade and other payables	105	101
(Decrease)/increase in provisions and other liabilities	(9)	3
Cash generated from operations	1,138	1,206

(1)    The adjustment for retirement benefit obligations reflects the difference between the service charge of £56 million (2010: £49 million) for the defined benefit   scheme and the cash contributions of £105 million made by the Group to the defined benefit scheme (2010: £134 million).

b.         Cash and cash equivalents

For the purposes of the cash flow statements, cash and cash equivalents comprise the following:

	2011	2010
	£m	£m
Cash and cash equivalents	501	837
Bank overdrafts	(1)	(3)
	500	834

10        Analysis of net debt

	2011	2010
	£m	£m
Non-current assets
Interest bearing available-for-sale financial assets	36	24
Derivative financial instruments	29	20
	65	44
Current assets
Cash and cash equivalents	501	837
Interest bearing deposit	40	-
Derivative financial instruments	52	43
	593	880
Current liabilities
Bank overdrafts	(1)	(3)
Borrowings	(70)	(67)
Finance leases	(3)	(3)
Derivative financial instruments	(59)	(41)
	(133)	(114)
Non-current liabilities
Borrowings	(2,285)	(2,298)
Finance leases	(54)	(59)
Derivative financial instruments	-	(2)
	(2,339)	(2,359)
Total net debt	(1,814)	(1,549)

Reconciliation of net cash flow to movement in net debt

	2011	2010
	£m	£m
Net debt at beginning of the year	(1,549)	(1,671)
(Decrease)/increase in cash and cash equivalents	(334)	235
Increase in interest bearing available-for-sale assets (1)	10	10
Increase in interest bearing financial asset	40	-
Net decrease/(increase) in borrowings(1)	12	(72)
Net decrease/(increase) in derivatives(1)	6	(23)
Net repayment of obligations under finance leases	3	2
Fair value movements	(4)	(9)
Other non-cash movements	2	(21)
Net debt at the end of the year	(1,814)	(1,549)

(1)    Excluding fair value movements.

11        Retirement benefit obligations

Retirement benefit obligations relate to a defined benefit scheme, the Sainsbury's Pension Scheme, (the 'Scheme') and an unfunded pension liability relating to senior employees.  The Scheme was closed to new employees on 31 January 2002.  The assets of this scheme are held separately from the Group's assets.

The Scheme was subject to a triennial actuarial valuation carried out by Towers Watson, the Scheme's independent actuaries, at March 2009 on the projected unit basis.  The results of this valuation were approved by the Scheme's Trustees in June 2010.  The retirement benefit obligations at 19 March 2011 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.

Change to statutory basis for inflationary increases

On 8 July 2010 the Government announced that the Consumer Price Index (CPI) rather than the Retail Price Index (RPI) will be used as the basis for inflationary increases to pensions in its next update of the statutory requirement.  Accordingly, the value of liabilities due to the past service cost of deferred members has been reduced by £185 million with the corresponding credit to actuarial gains within other comprehensive income.

The amounts recognised in the balance sheet are as follows:

	2011	2010
	£m	£m
Present value of funded obligations	(4,945)	(4,649)
Fair value of plan assets	4,614	4,237
	(331)	(412)
Present value of unfunded obligations	(9)	(9)
Retirement benefit obligations	(340)	(421)
Deferred income tax asset	99	118
Net retirement benefit obligations	(241)	(303)

	2011	2010
	%	%
Discount rate	5.5	5.8
Inflation rate	3.3	3.4
Real discount rate	2.2	2.4

The net retirement benefit obligations and the associated deferred income tax asset or liability are shown within different line items on the balance sheet.

 

END

 

 

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