Half Yearly Report

RNS Number : 9136V

Sainsbury(J) PLC

10 November 2010

 



 

 

10 November 2010

Interim results for the 28 weeks to 2 October 2010

Outperforming the market; with strong growth plans

Financial summary

·     Total sales (inc VAT) up 7.0 per cent to £11,944 million (2009/10: £11,158 million)

·     Total sales (inc VAT, ex fuel) up 4.8 per cent

·     Like-for-like sales (inc VAT, ex fuel) up 2.0 per cent

·     Underlying operating profit up 8.2 per cent to £370 million (2009/10: £342 million)

·     Underlying profit before tax up 8.1 per cent to £332 million (2009/10: £307 million)⁽¹⁾

·     Profit before tax up 36.3 per cent to £466 million (2009/10: £342 million)

·     Underlying basic earnings per share up 8.3 per cent to 13.1 pence (2009/10: 12.1 pence)⁽²⁾

·     Basic earnings per share up 33.6 per cent to 18.7 pence (2009/10: 14.0 pence)

·     Interim dividend of 4.3 pence (2009/10: 4.0 pence), up 7.5 per cent⁽³⁾

Operating highlights

·     Strong growth, outperforming the market with increased market share⁽⁴⁾

·     Over 2,000 new jobs created in the first half through store investment

·     Weekly transactions now over 20 million, up one million on last year

·     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 efficiency savings fully offset inflationary pressures

Making Sainsbury's Great Again: Accelerating our growth

·     Food: Successful re-launch of £1 billion 'Taste the Difference' brand

·     Non-food: Growing at three times rate of food and tenth largest clothing retailer

·     Channels: Convenience now £1 billion business; online growth at over 25 per cent; 'Click & Collect' now at over 140 stores; Sainsbury's Bank customer growth of five per cent

·     Space: 540,000 sq ft of gross space added; first 100,000 sq ft store opened

·     Property: Value of portfolio now £10.2 billion⁽⁵⁾, up £0.4 billion. £254 million net cash proceeds including sale and leasebacks

David Tyler, Chairman, said: "The Board is pleased with Sainsbury's continued strong performance in the first half of the year. We continue to gain market share and have seen good profit growth with both underlying profit before tax and underlying earnings per share up over eight per cent.  We have made excellent progress towards delivering our strategic objectives, particularly in offering our customers great food at fair prices and growing our space.  Our interim dividend is 4.3 pence per share, which is in line with our policy to pay this at 30 per cent of the previous year's full-year dividend."

Justin King, Chief Executive said: "Sainsbury's has continued to outperform, as we offer healthy, fresh and tasty food at great value and continue to grow our new space.  Customer numbers are now at an all-time high of over 20 million transactions every week, which is up one million on last year, a clear indication of our growing universal customer appeal.  We are also pleased with the growth of our channels and services as we continue to extend our offer to more customers.  We now have over 340 Convenience stores; online sales are growing by over 25 per cent and the Bank has delivered strong profit growth.  Total sales (ex fuel) for the first half were up 4.8 per cent and like-for-like sales were up two per cent.

"Colleagues have worked hard to deliver great service, resulting in higher customer satisfaction.  Further productivity savings, tight control on operating costs, together with our strong sales performance have all helped to deliver good profit growth.  We have added gross space of 540,000 sq ft to our store estate, opening or extending 29 stores and creating over 2,000 new jobs with Sainsbury's.  We remain on track to deliver our target space growth of 15 per cent over the two years to March 2011.

"As we enter the second half, we expect the economic environment to remain challenging.  We remain confident that our universal customer appeal, combined with our strong space growth momentum, means we are in a good position to perform well in this environment."

Notes:

1.     Underlying profit before tax: Profit before tax from continuing operations before any profit or loss on the sale 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.

2.     Underlying basic earnings per share: Profit after tax from continuing operations attributable to ordinary shareholders before any profit or loss on the sale 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, 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.     This is in line with our policy to pay at 30 per cent of the previous year's full-year dividend

4.     Sainsbury's market share grew to 16.2 per cent from 15.9 per cent (Kantar 52 weeks ending 3 October 2010)

5.     The property value has been estimated based on independent third party valuations as at 2 October 2010 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.

6.     Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward-looking statements. 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. 

7.     Sainsbury's will report its 2010/11 Third Quarter Trading Statement at 07:00 on 12 January 2011.

8.     Sainsbury's 2010/11 Third Quarter Trading Statement will reflect the 14 weeks ending 8 January 2011 and its 2010/11 Fourth Quarter Trading statement will reflect the 10 weeks ending 19 March 2011.

A results presentation for analysts and investors will be held at 09:45 on 10 November 2010.

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 942 708. An archive recording of this event will be available from 12:00 (BST) by calling [phone], pass code 10762932. The archive is available for 28 days.

A transcript of the presentation will be available at www.j-sainsbury.co.uk.

Enquiries:
Investor Relations	Media
Anna Tee	Ben Crowther
[phone]	[phone]

Operating Review

Trading and operations

Sainsbury's has continued to outperform in a highly competitive market, delivering further good profit growth. This demonstrates the strength of our universal customer appeal in what have remained challenging economic conditions.  This success has been recognised not only by our customers but also by the retail industry, culminating in a hat-trick of Retail Industry Awards for Sainsbury's, with 'Convenience Retailer of the Year', 'Community Retailer of the Year', as well as 'Seafood Retailer of the Year'. Judges praised the store standards, pricing strategy, customer experience, fresh food growth and 'neighbourhood feel' of our stores.

We are delivering value uniquely for our customers, through a combination of our own brand and Nectar.   We continue to invest in 'basics', which goes from strength to strength, as customers continue to look for ways to save money. At the other end of the spectrum, our 'Taste the Difference' range has recently been re-launched with over 1,100 premium products. Our Nectar card data shows us that our customers shop through the tiers and ranges depending on their needs.  In fact, over half of all Nectar customers who buy 'Taste the Difference' products also buy 'basics' products in the same shopping trip.

We have maintained a balance across our promotions, with market-leading deals being matched with competitive prices.  With the rising cost of goods, we have worked hard to keep prices low for customers.  Our campaigns have continued to strike a chord with customers, such as 'Value where it matters', which offers customers and in particular families, great offers on leading brands.  Every week we check around 30,000 of our major competitors' prices to ensure that we offer competitive prices and great value to help customers manage their household budgets. 

More so than ever before, customers also expect the products on our shelves to be sourced sustainably and ethically.  Sales of 'ethical' products continue to grow, demonstrating our leadership in this area.  For example, in addition to being the world's largest Fairtrade retailer with sales growth of over 20 per cent, we are also the UK's largest retailer of RSPCA Freedom Food products with over 60 per cent of the market.  Our commitment to sourcing with integrity and raising welfare standards for millions of animals is recognised throughout the industry.  We are very proud to have been awarded the 'UK's best volume supermarket' and a 'Good Chicken' Award by Compassion in World Farming.  And the RSPCA acknowledged our commitment with the 'Most Progress' Award at their Good Business Awards. It is leadership positions such as these that have enabled us to retain a leading position on the Dow Jones Sustainability Index.

We continue to benefit from Nectar and the competitive advantages that it brings us.  In the last six months alone a further 1.4 million customers have signed up to Nectar.  There are now over 12 million Nectar card holders as more customers join and benefit from the scheme.  Customers have enjoyed more points offers in-store, as well as the coupons offered at till, with an ever increasing number of customers redeeming their coupons.  The way in which we use the unique insight that the data provides helped towards us being awarded 'Best use of data in retail' at the Data Strategy Awards.

We are proud of our high standards of customer service and availability both in-store and online and we have continued to invest in improving the customer shopping experience and service.  Self-scan checkouts provide customers with more choice and therefore have been installed in a further 365 stores in the last six months in a move to improve shopper experience and reduce queue times at the till. 

Sainsbury's invests considerable resources in training and development.  In May, we opened our Bakery College, an industry first, to ensure 1,500 bakery colleagues are able to deliver great quality fresh products to our customers.  We continue to expand and improve our apprenticeships and so far this year we have recruited nearly 200 new apprentices across our bakery, meat and fish schemes.  This is in addition to over 2,000 new jobs we have created in the first half and the 14,000 seasonal jobs we will be recruiting for Christmas.  Our graduate scheme remains one of the most highly regarded and sought after in the industry.  This year we have over 100 opportunities for graduates and students to work with us in a variety of different positions across the business.  We recently became the first food retailer to be awarded a gold accreditation from 'Investors in People'.  The award recognises our commitment to improve our business through investment in our colleagues.  

Cost efficiencies

We continue to look for opportunities to simplify our operations, improve the customer shopping experience and make it simpler for colleagues, whilst also delivering significant cost savings.  These cost efficiency savings have fully offset inflationary pressures during the first half.

Through the simplification of in-store processes and the rollout of self-scan checkouts, we have continued to reduce our labour costs relative to sales.  Self-scan checkouts are now in over 600 stores and account for over 40 per cent of transactions every week in these stores, as customers benefit from the choice and increased speed at the checkouts.  Cost savings in logistics also continue to be achieved through optimising the use of our trailer space, removing unnecessary journeys and ensuring our drivers' days are planned as efficiently as possible.

We are also delivering energy efficiency savings in our stores through our Energy Reset programme.  Over half of our main stores have now been through this programme with nearly 5,000 individual energy savings initiatives having been identified. The average energy saving for stores that were 'reset' last year was an impressive 17 per cent and a further 180 stores have completed the programme in the first half of this year.

We have also made great progress in our drive to reduce waste and packaging.  Our investment in new supply-chain technology, with real-time ordering and forecasting, will significantly reduce waste and will cut CO₂ emissions by over 1,400 tonnes a year.  Additionally we have reduced packaging by eight million kilos in the last year.

We also continue to invest for the long term.  We have expanded our non-food infrastructure, which included the opening of a new sourcing office in Bangladesh, and we have entered one of our biggest ever periods of new space growth.  We have also invested in the rollout of 'Click & Collect' for non-food to over 140 stores.  Increased sales and tight cost control have improved our underlying operating margin, which rose by eight basis points to 3.36 per cent and improved by 15 basis points at constant fuel prices. 

Making Sainsbury's Great Again: Accelerating our growth

We have made strong progress against our five areas of focus:

·     Great food at fair prices

·     Accelerating the growth of complementary non-food and services

·     Reaching more customers through additional channels

·     Growing supermarket space

·     Active property management

Our universal appeal continues to bring existing as well as new customers to our stores. We serve over 20 million customers each week, an increase of one million on last year.  Our Convenience business is now delivering annual sales of £1 billion and online sales are still growing by over 25 per cent.  We have successfully accelerated the addition of new space and our investments are performing ahead of expectations.  We continue to manage our property estate for long-term value through a series of initiatives, which include our sale and leaseback programme.

Great food at fair prices

For 141 years we have been delivering great food at fair prices and this year we have stepped this on again.  In September, we re-launched our £1 billion 'Taste the Difference' range, which was benchmarked against other leading premium ranges.  This re-launch was a major investment in our own brand, with over 1,100 products in the range. Around two thirds of the range is either new or improved and every product was taste-tested by customers or selected by experts.  The re-launch included a new range of 'Bistro' products - restaurant-quality food to eat at home.

It has been a summer of significant investment in new product launches, with over 3,200 new or improved products launched over the last six months.  The investment was supported by campaigns such as 'Fresh and Tasty', which showcased the strength of our fresh food offer.  Great food is complemented by our wine range and our new 'House' range of wines is now one of the fastest growing brands in the market and has won a series of awards.

We are committed to providing fresh, tasty and healthy produce to our customers.  As part of this we constantly listen to them and get their feedback.  As a consequence, we announced in May our move to offering 100 per cent fresh (and never frozen) fish on our counters.  Our British 'in season' fish sales were also up 150 per cent year-on-year, due to an increased range offering great value to customers.  Our leadership in fresh fish and our focus on counter display and range was one of the reasons why we were named'Seafood Retailer of the Year' at the Retail Industry Awards in September.  We continue to source with integrity and are proud to offer the largest range of Marine Stewardship Certified (MSC) fish, offering our customers over 60 different sustainable MSC products.

Customers tell us how important they find the freshness of our offer and we are continually improving our counters.  For example, we have now rolled out fresh pizza counters to 70 stores.  Also as part of our 'Great Food' programme, we have been trialling a step-change in our offer in several stores, with a new range of products, a new look and feel and an enhanced training programme for colleagues.  These can be seen in our new 100,000 sq ft store in Crayford, from which we are already enjoying some very positive results. 

Our belief in the quality and value of our products has been recognised by several industry awards.  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 were also named 'Drinks Retailer of the Year' at the Drinks Business Awards.  We enjoyed the most wins at both the International Wines and Spirits Competition and the Quality Drink Awards, and we won seven gold and three silver awards at The Grocer Own-Label Food and Drink Awards. Awards such as these demonstrate our credentials as being the 'Best for Food and Health'.

We continue to focus on supporting British agriculture.  We are a market leader for sourcing British products when in season.  We were number one for British asparagus and tomato sales this year.  We sell almost one in three of all British apples when in season and this year we sold 80 per cent of the British apricot crop. We continued our direct-to-store initiative with 49 stores receiving strawberries and 40 stores receiving potatoes direct from local farmers.  At the same time we reinforced our commitment to British farming by announcing a further £40 million investment in our Development Group model, including our Dairy Development Group, over the next three years. The Dairy Development Group model has been so successful that we have rolled it out across our primary agricultural suppliers.  Nine development groups now exist from milk and cheese to produce and grain.

Accelerating the growth of complementary non-food and services

The first half of the year has seen significant progress in the development and accessibility of our non-food range.  This has been driven through our store extensions programme, which is turning our supermarkets into 'destination' stores.

The opening of our largest store at Crayford, at 100,000 sq ft, marked a significant milestone in this journey.  In addition to an industry-leading 55,000 sq ft food offer, the store demonstrates a major step-change in the scale and presentation of our non-food offer across clothing, general merchandise and electrical goods.  This store was a first in many ways, not least because of our very first Disney, O₂, Sports World and Baby World in-store retail areas.  As our non-food success grows, more and more leading brands wish to be associated with our offer.

At six years old, our TU clothing brand has become very well established and is the tenth largest in the market by volume.  To support our growth in this area we have opened a sourcing office in Bangladesh. Childrenswear, which now stands at seventh in the market by volume, has been a star performer, with our 'Back to School' range receiving praise for its high quality and excellent value.  We are the fastest-growing retailer of schoolwear and are now fourth in the market, up from seventh last year.

Our non-food offer continues to grow strongly at over three times the rate of food.  We are enjoying growth rates in excess of 20 per cent in many areas including books, home textiles and televisions.  This will continue to become more significant as we open more retail space, of which non-food will represent around 40 per cent of supermarket space.

Sainsbury's Bank, as a trusted brand, has made further progress in what has remained a challenging market.  The Bank continues to innovate, launching a market-leading 'Gold Credit Card' with unrivalled benefits offered by no other retailer, which has been extremely well received by customers and financial commentators.  Almost a year on, the Double Nectar Reward scheme available on selected finance products has helped to strengthen further our relationship with our core shoppers and grow our financial business. The reward approach, which revolves around rewarding the Sainsbury's Bank customer every time they shop in store, has seen customer numbers and customers with multiple products increase. 

We now have 111 Travel Money Bureaux, which have attracted half a million customers this year alone.  Our insurance business has also grown strongly, with our Pet Insurance achieving record sales growth of 26 per cent, driven by an improved online offer.  In July, Sainsbury's Finance was named 'Best Overall Online Provider' in the annual personal finance awards of Your Money magazine.  It was also awarded 'Best Personal Loans Provider', 'Best Online Credit Card Provider' and 'Best Online Life Insurance Provider'.

Reaching more customers through additional channels

We have continued to develop our Convenience business, which is well established and delivers annual sales of £1 billion.  Customers like our stores for their strong fresh food offer, easy shopping experience and excellent customer service.  As a result, we are delivering good underlying sales growth across the estate and we were recognised as 'Convenience Retailer of the Year' at the Retail Industry Awards. So far this year we have opened 13 new stores and plan to open up to another 50 by the end of the year.

Our online groceries business continues to go from strength to strength, with annual sales up over 20 per cent, and weekly orders now regularly in excess of 120,000.  Our offer is even more widely available across the country, with over 90 per cent of households able to access the service.  At the same time we continue to see further improvement in our availability and customer satisfaction, with both performing ahead of target.

We are also pleased with the development of our non-food online offer, which has been supported by the rollout of 'Click & Collect.  Following successful trials earlier in the year, this is now available at over 140 stores and has been well received by customers.

Growing supermarket space

In the first half of the year we opened seven new stores, nine extensions and 13 convenience stores.  This added a gross 540,000 sq ft of space and represents one of our busiest-ever periods of new space growth.  We are well on track to grow new space by eight per cent this year, delivering over 15 per cent in the two years to March 2011. This will equate to 2.5 million sq ft of selling space.  Much of our development activity is in the North and West where we are currently under-represented.

Most of our Co-op and Somerfield acquisition stores have now been open for a year, with strong sales growth.  In one seven-day period, we opened our largest stores in England, Scotland and Wales - in Crayford, Darnley and Newport respectively.  These stores alone created over 520 new jobs and added over 175,000 sq ft of new space. Overall, new store openings and extensions in the first half of the year have led to the creation of over 2,000 new jobs.  We expect to achieve an internal rate of return in excess of 15 per cent on a pre-tax basis on our current investment programme, and this new space is performing ahead of our expectations.  

We are also able to secure further development opportunities as quickly as we open them, with over 70 planning consents for extensions already in the pipeline.  Given our expectation to deliver strong space growth of circa 1.5 million sq ft this year, we expect to maintain this momentum into next year and to deliver circa 1.5 million sq ft of additional space in 2011/12.

Our store development programme is also delivering some industry-leading initiatives, aimed at reducing our impact on the environment and improving our investment returns.  This includes a reduction in our construction waste and a decrease in our stores' energy demand as we 'build more for less'.  Our newly-extended store in Crayford in Kent, for example, achieved a world first through the use of geothermal technology to use energy from the earth to heat or cool the store.  As a result of this and other energy saving innovations, the store's mains energy consumption has reduced by around a third despite more than doubling in size.

Many environmental innovations tested now form part of the standard specifications for all new stores. These include rainwater harvesting to reduce store water usage, biomass boilers which reduce mains energy usage by 30 per cent and CO₂ emissions by ten per cent, and energy-saving lighting.  

We continue to put all of our stores at the heart of the communities they serve.  Our store in Colne in Lancashire, for example, has made a major contribution to the regeneration of the area. It was built on a derelict site, created 240 new jobs and is performing ahead of expectations.  Our sponsorship of the London 2012 Paralympic Games provides a fantastic opportunity to develop our community links further, as we link local Paralympians with our stores and customers.  We have also donated over £100 million of Active Kids equipment and experiences to local schools and youth organisations since the scheme started in 2005.  Over 45,000 organisations now participate in the scheme, which aims to offer children of all ages and abilities the chance to engage in sports and cooking activities.  We are also very pleased that Jodie Williams and Ellie Simmons, two London 2012 Olympic and Paralympic hopefuls, have both joined as ambassadors to the scheme.

Our efforts in making a positive difference to our community have been recognised through our 'Community Retailer of the Year' award, which acknowledged in particular the time and investment given by our colleagues in their local communities.

Active property management

Ownership of our assets continues to provide increasing value for our shareholders due to the operational flexibility we control, allowing us to exploit fully the development opportunities available whilst retaining the full property value uplift that results.

We are working with our joint venture ("JV") partners to maximise the value of the 41 sites held in JVs. Of these sites, 17 are on the development plan, with a further 16 having longer-term potential. Our extension at Banbury, which is within our JV with British Land, reopened on 10 June and we are currently on site to extend our Thornhill store.  In our JV with Land Securities, our store in Lincoln will be opening on 24 November and will be our second 100,000 sq ft store.

We continue to sell and lease back dry supermarkets that have been fully developed and to use these proceeds to invest in stores with development potential.  During the first half of the year, we took advantage of attractive yields to generate net proceeds from disposals of £254 million, realising a total profit of £106 million.

At 2 October 2010, the value of our freehold property estate was estimated at £10.2 billion, which represents a further increase of £0.4 billion in property value since March 2010.  Yield improvement resulted in an increase in value of £0.4 billion.  A further £0.2 billion of property value was created by new stores and extensions built in the half, which was then offset by £0.2 billion through the sale and leaseback of eight supermarkets.  Our freehold to leasehold split of our supermarket estate remains at circa 65 per cent.

Financial Review

Sainsbury's continues to perform well in what remains a challenging economic environment, continuing to develop its offer and invest for the future, 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 some of its mature supermarkets. This leaves the Group well placed to deliver sustainable growth going forward.

Sales (including VAT) increased by 7.0 per cent to £11,944 million (2009/10: £11,158 million). Underlying profit before tax improved by 8.1 per cent to £332 million (2009/10: £307 million). Profit before tax was up 36.3 per cent, at £466 million (2009/10: £342 million), supported by property profits and investment property fair value movements.

Underlying basic earnings per share increased to 13.1 pence (2009/10: 12.1 pence), up 8.3 per cent, similar to the increase seen in underlying profit before tax, as the impact of additional shares from the June 2009 equity placing was offset by a lower tax rate. Basic earnings per share increased by 33.6 per cent to 18.7 pence (2009/10: 14.0 pence), more than the increase in underlying earnings per share primarily due to the property profits and the movements in investment property fair value.

An interim dividend of 4.3 pence has been approved by the Board (2009/10: 4.0 pence), in line with the Group's policy to pay 30 per cent of the previous year's full-year dividend as an interim dividend.

Summary income statement	28 weeks to 2 October 2010	28 weeks to 3 October 2009	Change	52 weeks to 20 March 2010
	£m	£m	%	£m
Sales (including VAT)1	11,944	11,158	7.0	21,421
Sales (excluding VAT)	11,020	10,433	5.6	19,964
Underlying operating profit	370	342	8.2	671
Underlying net finance costs 2	(51)	(44)	(15.9)	(79)
Underlying share of post-tax profit from JVs 3	13	9	44.4	18
Underlying profit before tax	332	307	8.1	610
Profit on sale of properties	106	15	n/a	27
Investment property fair value movements	20	37	n/a	123
Financing fair value movements	6	(4)	n/a	(15)
IAS19 pension financing credit/(charge)	2	(13)	n/a	(24)
One-off item: Office of Fair Trading dairy inquiry	-	-	n/a	12
Profit before tax	466	342	36.3	733
Income tax expense	(119)	(90)	(32.2)	(148)
Profit for the financial period	347	252	37.7	585
Underlying basic earnings per share	13.1p	12.1p	8.3	23.9p
Basic earnings per share	18.7p	14.0p	33.6	32.1p
Dividend per share	4.3p	4.0p	7.5	14.2p

1      The standard rate of VAT increased from 15.0 per cent to 17.5 per cent on 1 January 2010.

2      Net finance costs before financing fair value movements and the IAS19 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 7.0 per cent to £11,944 million (2009/10: £11,158 million) through a combination of strong like-for-like ("LFL") performance, an increased contribution from new space and higher fuel prices.

The 7.0 per cent growth includes a 2.6 per cent contribution from net new space. LFL sales (including fuel) were up 4.4 per cent, higher than for sales excluding fuel due to the impact of higher fuel prices.

Sales growth (including VAT, including fuel)	28 weeks to 2 October 2010 %	28 weeks to 3 October 2009 %	52 weeks to 20 March 2010 %
Like-for-like sales (including fuel)	4.4	1.9	3.0
Addition of Easter adjustment1	-	0.5	0.3
Net new space (excluding extensions)	2.6	1.3	1.8
Total sales growth	7.0	3.7	5.1

1      Like-for-like sales growth in 2009/10 was Easter-adjusted for comparative purposes.

Sales (excluding fuel) grew by 4.8 per cent with LFL growth of 2.0 per cent, of which 0.2 per cent was contributed by extensions in their first year of trading, net of disruptions. The LFL growth rate was below Sainsbury's medium-term planning assumption of between three and four per cent, but represented a good performance in tough economic conditions, and was ahead of market growth. The LFL growth was 1.1 per cent in the first quarter and 2.9 per cent in the second quarter. Non-food sales grew at more than three times the rate of grocery growth, and online sales increased by over 25 per cent.

Sales growth (including VAT, excluding fuel)	28 weeks to 2 October 2010 %	28 weeks to 3 October 2009 %	52 weeks to 20 March 2010 %
Like-for-like sales	2.0	5.7	4.3
Addition of Easter adjustment1	-	0.8	0.4
Net new space (excluding extensions)	2.8	1.4	2.0
Total sales growth	4.8	7.9	6.7

1      Like-for-like sales growth in 2009/10 was Easter-adjusted for comparative purposes.

New space (excluding extensions) contributed a net 2.8 per cent to sales growth of 4.8 per cent (excluding fuel). Sainsbury's added a gross 540,000 sq ft of selling area, an increase of 3.0 per cent since the start of the year (2009/10: 3.2 per cent), and 6.7 per cent over the 52 weeks to 2 October 2010. Including the impact of replacements this translated into net space growth of 512,000 sq ft, an increase of 2.9 per cent since the start of the year (2009/10: 3.0 per cent).

The pace of supermarket property activity has been maintained in the first half of the year, with 21 stores either opened, extended or refurbished. This includes seven new supermarkets, of which one was a replacement store. These openings have allowed Sainsbury's to increase its presence in areas in which it is under-represented, such as Scotland, Wales and South West England. In addition, Sainsbury's also completed nine supermarket extensions and a further five refurbishments in the half year.

In the convenience estate, Sainsbury's opened 13 new stores, of which one was a replacement, and refurbished 12 stores. For the full year, Sainsbury's expects to open up to another 50 convenience stores.

Store numbers and retailing space
at 2 October 2010	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	7	255	13	29	20	284
Disposals/closures	(1)	(26)	(1)	(2)	(2)	(28)
Extensions/downsizes/refurbishments	-	259	-	(3)	-	256
Reclassifications1	4	30	(4)	(30)	-	-
At 2 October 2010	547	17,427	343	835	890	18,262
Memorandum:
Extensions	9	256	-	-	9	256
Refurbishments/downsizes	5	3	12	(3)	17	-
Total projects	14	259	12	(3)	26	256

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

Gross space growth of around eight per cent is expected for the full year, completing growth of 15 per cent in the two years to March 2011. Net new store space excluding extensions is expected to contribute around 2.5 per cent to total sales growth (excluding fuel) for the full year.

Underlying operating profit

Underlying operating profit increased by 8.2 per cent to £370 million (2009/10: £342 million), reflecting the strong sales performance and an eight basis point improvement in underlying operating margin to 3.36 per cent for the half year (2009/10: 3.28 per cent). Underlying EBITDAR margin has improved by two basis points to 7.74 per cent for the half year (2009/10: 7.72 per cent). At constant fuel prices, underlying operating margin improved by 15 basis points and EBITDAR margin by 17 basis points. The underlying improvement has been driven by strong LFL sales growth and the delivery of cost efficiency savings, which have fully offset cost inflation as well as supporting investment in both the customer offer and future growth.

Underlying operating profit	28 weeks to 2 October 2010	28 weeks to 3 October 2009	Improvement (basis points)	52 weeks to 20 March 2010
Underlying operating profit (£m)1	370	342		671
Underlying operating margin (%)2	3.36	3.28	8bps	3.36
Underlying EBITDAR (£m)3	853	805		1,555
Underlying EBITDAR margin (%)4	7.74	7.72	2bps	7.79

1      Underlying earnings before interest and tax ("EBIT") 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 the full year is expected to fall at the lower end of the two to three per cent medium-term range, with cost savings expected to fully offset this inflation.

Sainsbury's Bank joint venture ("JV")

Sainsbury's Bank has made further good progress, generating a pre-tax operating profit of £17 million (2009/10: £10 million). Sainsbury's 50 per cent equity share of the Bank's post-tax profit amounted to £6 million in the half year (2009/10: £3 million). The Bank has performed strongly in what continues to be a challenging economic climate with loans and advances to customers continuing to grow coupled with strong back book and bad debt management. Sainsbury's Bank's profit in the second half is expected to be similar to that of the first half.

Property joint ventures

Sainsbury's underlying share of post-tax profit from its JV with British Land was £6 million for the half year (2009/10: £5 million). Its underlying share of post-tax profit from its JV with Land Securities was £1 million for the half year (2009/10: £1 million). Full-year profits from property JVs are expected to be similar to 2009/10.

At the half year, the fair value movements in investment properties amounted to £20 million (2009/10: £37 million). This increase represents a revaluation of these properties to an average yield of 5.0 per cent (as at March 2010: 5.2 per cent).

Underlying net finance costs

Underlying net finance costs increased by £7 million to £51 million (2009/10: £44 million) mainly as a result of the increase in the RPI rate on the Group's inflation-linked debt, slightly offset by higher capitalised interest in line with the growth of the new space pipeline.

Interest cover was 7.5 times (2009/10: 8.0 times) and fixed charge cover was 2.2 times (2009/10: 2.2 times).

Underlying net finance costs	28 weeks to 2 October 2010 £m	28 weeks to 3 October 2009 £m	52 weeks to 20 March 2010 £m
Underlying finance income	11	9	33
Interest costs	(75)	(61)	(127)
Capitalised interest	13	8	15
Underlying finance costs	(62)	(53)	(112)
Net underlying finance costs1	(51)	(44)	(79)

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

Sainsbury's expects underlying net finance costs in the second half to be broadly similar to those in the first half.

Taxation

The income tax charge was £119 million (2009/10: £90 million), with an underlying tax rate of 26.5 per cent (2009/10: 29.0 per cent) and an effective tax rate of 25.5 per cent (2009/10: 26.3 per cent). The underlying rate is lower than last year primarily due to the settlement of outstanding items and the effect of the one per cent change in the corporation tax rate on the deferred tax balances.

Underlying tax rate calculation
for the 28 weeks to 2 October 2010	Profit £m	Tax £m	Tax Rate %
Profit before tax, and tax thereon	466	119	25.5
Adjustments (and tax thereon) for:
Profit on sale of properties	(106)	(19)
Investment property fair value movements	(20)	-
Financing fair value movements	(6)	-
IAS19 pension financing element	(2)	(1)
Effect of 1% change in tax rate on deferred tax balances	-	(11)
Underlying profit before tax, and tax thereon	332	88	26.5

The Group expects the underlying tax rate to be in the range of 26 to 27 per cent in 2010/11.

 

Earnings per share

Underlying basic earnings per share increased by 8.3 per cent to 13.1 pence (2009/10: 12.1 pence). The rate of increase reflects the improvement in underlying profit before tax and the effect of the lower tax rate, partially offset by the dilutive effect of the additional 78.1 million shares issued as part of the equity placing in June 2009.

Basic earnings per share were up 33.6 per cent, at 18.7 pence (2009/10: 14.0 pence), more than the increase in underlying earnings per share primarily due to property profits from sale and leasebacks.

Underlying earnings per share calculation	28 weeks to 2 October 2010	28 weeks to 3 October 2009	52 weeks to 20 March 2010
	pence	pence	pence
Basic earnings per share	18.7	14.0	32.1
Adjustments (net of tax) for:
Profit on sale of properties	(4.7)	(0.8)	(2.3)
Investment property fair value movements	(1.1)	(2.1)	(6.7)
Financing fair value movements	(0.3)	0.2	0.6
IAS19 pension financing element	(0.1)	0.8	0.9
Office of Fair Trading dairy inquiry	-	-	(0.7)
Deferred tax rate change from 28% to 27%	0.6	-	-
Underlying basic earnings per share	13.1	12.1	23.9

Dividends

An interim dividend of 4.3 pence per share has been approved by the Board (2009/10: 4.0 pence) and will be paid on 7 January 2011 to shareholders on the Register of Members at the close of business on 19 November 2010. This is in line with the Group's policy to pay 30 per cent of the previous year's full year dividend as an interim dividend. The interim dividend was approved by the Board on 9 November 2010 and, as such, has not been included as a liability as at 2 October 2010.

Return on capital employed

The return on average capital employed over the 52 weeks to 2 October 2010 was 11.2 per cent, 82 basis points higher than for the 52 weeks to 3 October 2009 (10.4 per cent) and an improvement of 24 basis points on the 52 weeks to 20 March 2010 (11.0 per cent).

Pre-tax return on capital employed	52 weeks to 2 October 2010	52 weeks to 20 March 2010	52 weeks to 3 October 2009
Underlying operating profit (£m)	699	671	647
Underlying share of post-tax profit from joint ventures (£m)	22	18	18
Underlying profit before interest and tax	721	689	665
Average capital employed (£m)	6,433	6,281	6,400
Return on average capital employed (%)	11.2	11.0	10.4
Improvement since 52 weeks to 20 March 2010	24bps
Improvement since 52 weeks to 3 October 2009	82bps

Net debt and cash flows

Sainsbury's net debt as at 2 October 2010 was £1,722 million, slightly lower than last year (3 October 2009: £1,765 million). This was an increase of £173 million from the 2009/10 year-end position of £1,549 million. Working capital has increased by £187 million since the year end as a result of increased non-food stockholding and standard timing profiles on payments such as rent and business rates.

Summary cash flow statement	28 weeks to 2 October 2010 £m	28 weeks to 3 October 2009 £m	52 weeks to 20 March 2010 £m
Operating cash flow before changes in working capital	657	601	1,114
Changes in working capital	(187)	(242)	92
Cash generated from operations	470	359	1,206
Net interest paid	(53)	(57)	(96)
Corporation tax paid	(69)	(16)	(89)
Cash flow before appropriations	348	286	1,021
Purchase of non-financial assets	(572)	(544)	(1,047)
Investment in joint ventures	(2)	(2)	(2)
Disposal of non-current assets	256	75	139
Proceeds from issue of shares	4	241	250
Investment in financial assets	(50)	(10)	(10)
Net receipt of new debt	8	177	123
Net dividends paid	(189)	(165)	(239)
(Decrease)/increase in cash and cash equivalents	(197)	58	235
Increase/(decrease) in debt	30	(135)	(83)
Fair value and other non-cash movements	(6)	(17)	(30)
(Increase)/decrease in net debt	(173)	(94)	122
Opening net debt	(1,549)	(1,671)	(1,671)
Closing net debt	(1,722)	(1,765)	(1,549)

The Group expects net debt to be around £1.8 billion at the year end.

Financing

Sainsbury's manages its financing by diversifying funding sources, minimising refinancing risk and maintaining sufficient stand-by liquidity to meet the needs of the business. At the half year, Sainsbury's had total debt and committed facilities of £3.0 billion. Sainsbury's core funding of £2.4 billion includes £1.9 billion securitised debt, with £1.1 billion due 2018 and £0.8 billion due 2031, and additional unsecured bank debt of £0.5 billion due between 2012 and 2015. Contingent liquidity has been maintained via committed facilities of £0.6 billion. During the half year, no drawings were made against these committed facilities (2009/10: £nil).

Since the half year, Sainsbury's has terminated its committed facilities of £0.6 billion and replaced them with a new £0.7 billion syndicated revolving credit facility due October 2015.

Capital expenditure

Core capital expenditure amounted to £560 million (2009/10: £516 million) in the first half of the year reflecting a step up in the extensions programme, with nine being opened (2009/10: three extensions). Offsetting this was a reduction in the new store expenditure due to last year including the purchase of the 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 development potential, generating proceeds of £254 million (2009/10: £75 million) and recording a profit of £106 million (2009/10: £15 million).

Capital expenditure	28 weeks to 2 October 2010	28 weeks to 3 October 2009	52 weeks to 20 March 2010
	£m	£m	£m
New store development	245	350	496
Extensions and refurbishments	240	110	320
Other - including supply chain and IT	75	56	70
Core capital expenditure	560	516	886
Acquisition of freehold and trading properties	9	36	160
Proceeds from property transactions	(254)	(75)	(131)
Net capital expenditure	315	477	915

The Group expects 2010/11 net capital expenditure of around £1 billion.

Summary balance sheet

Shareholders' funds as at 2 October 2010 were £5,043 million (20 March 2010: £4,966 million), an increase of £77 million. This is mainly attributable to the half-year profit after tax less the 2009/10 year-end dividend and actuarial losses on the net pension deficit. Gearing, which measures net debt as a percentage of total equity, has improved year-on-year to 34 per cent (3 October 2009: 41 per cent), as a result of the decrease in net debt and the increase in net assets.

Summary balance sheet
	2 October 2010 £m	Movement since 20 March 2010 £m	3 October 2009 £m	20 March 2010 £m
Land and buildings (freehold and long leasehold)	6,318	259	5,955	6,059
Land and buildings (short leasehold)	570	11	543	559
Fixtures and fittings	1,536	(49)	1,499	1,585
Other non-current assets	815	4	664	811
Non-current assets	9,239	225	8,661	9,014
Inventories	809	107	757	702
Trade and other receivables	328	113	274	215
Cash and cash equivalents	651	(186)	665	837
Debt	(2,373)	13	(2,430)	(2,386)
Net debt	(1,722)	(173)	(1,765)	(1,549)
Trade and other payables and provisions	(3,196)	(83)	(2,923)	(3,113)
Retirement benefit obligations, net of deferred tax	(415)	(112)	(668)	(303)
Net assets	5,043	77	4,336	4,966

Pensions

As at 2 October 2010, the present value of retirement benefit obligations less the fair value of plan assets was a deficit after deferred tax of £415 million (3 October 2009: £668 million). The movement from the year-end deficit of £303 million mainly reflects an increase in the present value of funded obligations, caused by market movements in the discount rate (from 5.8 per cent to 5.2 per cent) and the inflation rate (from 3.4 per cent to 3.0 per cent). This is partially offset by a seven per cent increase in the value of assets from £4.2 billion to £4.5 billion.

The IAS 19 current pension service cost included within UPBT was £30 million, £4 million higher than in the first half of last year, and in line with expectations of a £55 million full year charge.

Retirement benefit obligations
	2 October 2010 £m	3 October 2009 £m	20 March 2010 £m
Present value of funded obligations	(5,058)	(4,767)	(4,649)
Fair value of plan assets	4,486	3,848	4,237
Pension deficit	(572)	(919)	(412)
Present value of unfunded obligations	(9)	(9)	(9)
Retirement benefit obligations	(581)	(928)	(421)
Deferred income tax asset	166	260	118
Net retirement benefit obligations	(415)	(668)	(303)

 

 

Group income statement (unaudited)

for the 28 weeks to 2 October 2010

							28 weeks	28 weeks to	52 weeks to
							2 October	3 October	20 March
							2010	2009	2010
						Note	£m	£m	£m
	Revenue					4	11,020	10,433	19,964
	Cost of sales						(10,425)	(9,877)	(18,882)
	Gross profit						595	556	1,082
	Administrative expenses						(225)	(214)	(399)
	Other income						106	15	27
	Operating profit						476	357	710
	Finance income					5	20	9	33
	Finance costs					5	(62)	(69)	(148)
	Share of post-tax profit from joint ventures						32	45	138
	Profit before taxation					4	466	342	733
	Analysed as:
	Underlying profit before tax					4	332	307	610
	Profit on sale of properties					3	106	15	27
	Investment property fair value movements					3	20	37	123
	Financing fair value movements					3	6	(4)	(15)
	IAS 19 pension financing credit/(charge)					3	2	(13)	(24)
	One-off item: Office of Fair Trading dairy inquiry					3	-	-	12
							466	342	733
	Income tax expense					6	(119)	(90)	(148)
	Profit for the financial period						347	252	585
	Earnings per share					7	pence	pence	pence
	Basic						18.7	14.0	32.1
	Diluted						18.4	13.8	31.6
	Underlying basic						13.1	12.1	23.9
	Underlying diluted						13.0	11.9	23.6

Group statement of comprehensive income (unaudited)

for the 28 weeks to 2 October 2010

		28 weeks to	28 weeks to	52 weeks to
		2 October	3 October	20 March
		2010	2009	2010
	Note	£m	£m	£m
Profit for the period		347	252	585
Other comprehensive income/(expense):
Actuarial losses on defined benefit pension scheme		(162)	(609)	(173)
Available-for-sale financial assets fair value movements:
Group		10	14	43
Joint ventures		(1)	23	24
Cash flow hedges effective portion of fair value movements:
Group		(11)	(14)	(3)
Joint ventures		(2)	2	-
Current tax on items recognised directly in other comprehensive income	6	3	-	16
Deferred tax on items recognised directly in other comprehensive income	6	52	172	21
Total other comprehensive expense for the period (net of tax)		(111)	(412)	(72)
Total comprehensive income/(expense) for the period		236	(160)	513

Group balance sheet (unaudited)

at 2 October 2010

		2 October	3 October	20 March
		2010	2009	2010
	Note	£m	£m	£m
Non-current assets
Property, plant and equipment		8,424	7,997	8,203
Intangible assets		151	157	144
Investments in joint ventures		466	358	449
Available-for-sale financial assets		172	121	150
Other receivables		36	45	36
Derivative financial instruments		37	37	20
Deferred income tax asset		-	57	-
		9,286	8,772	9,002
Current assets
Inventories		809	757	702
Trade and other receivables		368	274	215
Derivative financial instruments		67	40	43
Cash and cash equivalents	9b	651	665	837
		1,895	1,736	1,797
Non-current assets held for sale		25	2	56
		1,920	1,738	1,853
Total assets		11,206	10,510	10,855
Current liabilities
Trade and other payables		(2,490)	(2,272)	(2,466)
Borrowings		(110)	(96)	(73)
Derivative financial instruments		(75)	(52)	(41)
Taxes payable		(238)	(280)	(200)
Provisions		(16)	(17)	(13)
		(2,929)	(2,717)	(2,793)
Net current liabilities		(1,009)	(979)	(940)
Non-current liabilities
Other payables		(126)	(96)	(106)
Borrowings		(2,366)	(2,364)	(2,357)
Derivative financial instruments		(1)	(14)	(2)
Deferred income tax liability		(92)	-	(144)
Provisions		(68)	(55)	(66)
Retirement benefit obligations	11	(581)	(928)	(421)
		(3,234)	(3,457)	(3,096)
Net assets		5,043	4,336	4,966
Equity
Called up share capital		533	528	532
Share premium account		1,037	1,026	1,033
Capital redemption reserve		680	680	680
Other reserves		(355)	(478)	(242)
Retained earnings		3,148	2,580	2,963
Total equity		5,043	4,336	4,966

Group cash flow statement (unaudited)

for the 28 weeks to 2 October 2010

		28 weeks to	28 weeks to	52 weeks to
		2 October	3 October	20 March
		2010	2009	2010
	Note	£m	£m	£m
Cash flows from operating activities
Cash generated from operations	9a	470	359	1,206
Interest paid		(61)	(65)	(111)
Corporation tax paid		(69)	(16)	(89)
Net cash inflow from operating activities		340	278	1,006
Cash flows from investing activities
Purchase of property, plant and equipment and other assets		(564)	(538)	(1,036)
Purchase of intangible assets		(7)	(6)	(11)
Proceeds from disposal of property, plant and equipment and other assets		256	75	139
Acquisition of and investment in subsidiaries and businesses, net of cash acquired		(1)	-	-
Investment in joint ventures		(2)	(2)	(2)
Investment in financial assets		(50)	(10)	(10)
Interest received		10	9	18
Dividends received		-	2	2
Net cash outflow from investing activities		(358)	(470)	(900)
Cash flows from financing activities
Proceeds from issuance of ordinary shares		4	241	250
Repayment of short-term borrowings		(11)	(35)	(36)
Proceeds from long-term borrowings		45	235	235
Repayment of long-term borrowings		(24)	(23)	(74)
Repayment of capital element of obligations under finance lease payments		(2)	-	(2)
Interest elements of obligations under finance lease payments		(2)	(1)	(3)
Dividends paid		(189)	(167)	(241)
Net cash (outflow)/inflow from financing activities		(179)	250	129
Net (decrease)/increase in cash and cash equivalents		(197)	58	235
Opening cash and cash equivalents		834	599	599
Closing cash and cash equivalents	9b	637	657	834

Group statement of changes in equity (unaudited)

for the 28 weeks to 2 October 2010

	Called up share capital	Share premium account	Capital redemption and other reserves	Retained earnings	Total equity
	£m	£m	£m	£m	£m
At 21 March 2010	532	1,033	438	2,963	4,966
Profit for the period	-	-	-	347	347
Other comprehensive income/(expense):
Actuarial losses on defined benefit pension scheme (net of tax)	-	-	(106)	-	(106)
Available-for-sale financial assets fair value movements (net of tax):
Group	-	-	9	-	9
Joint ventures	-	-	(1)	-	(1)
Cash flow hedges effective portion of changes in fair value (net of tax):
Group	-	-	(11)	-	(11)
Joint ventures	-	-	(2)	-	(2)
Total comprehensive income/(expense) for the period ended 2 October 2010	-	-	(111)	347	236
Transactions with owners:
Dividends paid	-	-	-	(189)	(189)
Amortisation of convertible bond equity component	-	-	(2)	2	-
Share-based payment (net of tax)	-	-	-	26	26
Allotted in respect of share option schemes	1	4	-	(1)	4
At 2 October 2010	533	1,037	325	3,148	5,043
At 22 March 2009	501	909	489	2,477	4,376
Profit for the period	-	-	-	252	252
Other comprehensive income/(expense):
Actuarial losses on defined benefit pension scheme (net of tax)	-	-	(434)	-	(434)
Available-for-sale financial assets fair value movements (net of tax):
Group	-	-	11	-	11
Joint ventures	-	-	23	-	23
Cash flow hedges effective portion of changes in fair value (net of tax):
Group	-	-	(14)	-	(14)
Joint ventures	-	-	2	-	2
Total comprehensive income/(expense) for the period ended 3 October 2009	-	-	(412)	252	(160)
Transactions with owners:
Dividends paid	-	-	-	(167)	(167)
Convertible bond - equity component	-	-	24	-	24
Amortisation of convertible bond equity component	-	-	(1)	1	-
Share-based payment (net of tax)	-	-	-	22	22
Shares issued	22	113	102	-	237
Shares vested	-	-	-	11	11
Allotted in respect of share option schemes	5	4	-	(16)	(7)
At 3 October 2009	528	1,026	202	2,580	4,336

 

 

 

 

Group statement of changes in equity (continued) (unaudited)

for the 28 weeks to 2 October 2010

	Called up share capital	Share premium account	Capital redemption and other reserves	Retained earnings	Total equity
	£m	£m	£m	£m	£m
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 scheme (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 to 20 March 2010	-	-	(72)	585	513
Transactions with owners:
Dividends paid	-	-	-	(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 Interim Results (unaudited)

1    General information

J Sainsbury plc is a public limited company ("Company") incorporated in the United Kingdom, whose shares are publicly traded on the London Stock Exchange.  The Company is domiciled in the United Kingdom and its registered address is 33 Holborn, London EC1N 2HT, United Kingdom.

The Interim Results are unaudited but have been reviewed by the auditors whose report is set out on page 35.  The financial information presented herein does not amount to full statutory accounts within the meaning of Section 434 of the Companies Act 2006.  The Annual Report and Financial Statements 2010 have been filed with the Registrar of Companies.  The Independent Auditors' report on the Annual Report and Financial Statements 2010 was unqualified and did not contain a statement under Section 498 of the Companies Act 2006.

The financial period represents the 28 weeks to 2 October 2010 (prior financial period 28 weeks to 3 October 2009; prior financial year 52 weeks to 20 March 2010). The financial information comprises the results of J Sainsbury plc and its subsidiaries ("Group") and the Group's interests in joint ventures.

2    Basis of preparation

The Interim Results have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 'Interim Financial Reporting' as adopted by the European Union.

The financial information contained in the Interim Results is presented in sterling, rounded to the nearest million (£m) unless otherwise stated.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

The financial information contained in the Interim Results should be read in conjunction with the Annual Report and Financial Statements 2010, which have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union.  The accounting policies have remained unchanged since the year ended 20 March 2010. 

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 considered the following new standards, interpretations and amendments to published standards that are effective for the Group for the financial year beginning 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 2 'Share-based Payment'  arising from April 2009 Annual Improvements to IFRSs and Amendments relating to group cash-settled share-based payment transactions

·     Revised IFRS 3 'Business Combinations', Comprehensive and consequential amendments to IAS 27 'Consolidated and Separate Financial Statements', IAS 28 'Investments in Associates' and IAS 31 'Interests in Joint Ventures'

·     Amendments to IFRS 5 ' Non-current Assets Held for Sale and Discontinued Operations' arising from May 2008 Annual Improvements to IFRSs

·     Amendments to IAS 39 'Financial Instruments: Recognition and Measurement'

·     IFRIC 17 'Distributions of Non-cash Assets to Owners'

·     IFRIC 18 'Transfers of Assets from Customers'

·     Amendments to various IFRSs and IASs arising from April 2009 Annual Improvements to IFRSs

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 sale of properties;

·     Investment property fair value movements - these movements 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 movements 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 items are material and infrequent in nature.

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

	28 weeks to	28 weeks to	52 weeks to
	2 October	3 October	20 March
	2010	2009	2010
	£m	£m	£m
Underlying profit before tax	332	307	610
Profit on sale of properties	106	15	27
Investment property fair value movements	20	37	123
Financing fair value movements1	6	(4)	(15)
IAS 19 pension financing credit/(charge)	2	(13)	(24)
One-off item: Office of Fair Trading dairy inquiry	-	-	12
Total adjustments	134	35	123
Profit before tax	466	342	733

1    Financing fair value movements for the 28 weeks to 2 October 2010 comprised £7 million for the Group (3 October 2009: £(3) million) and £(1) million for

      the joint ventures (3 October 2009: £(1) million).

4    Operating segments

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

·     Retailing (Supermarkets and Convenience);

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

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

Management has determined the operating segments based on the information provided to the Operating Board (the Chief Operating Decision Maker) 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 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 and assets include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.  The reconciliation provided below reconciles underlying operating profit from each of the segments disclosed to profit before tax.

	Retailing £m	Financial services £m	Property investment £m	Group £m
28 weeks to 2 October 2010
Segment revenue	11,020	-	-	11,020
Underlying operating profit	370	-	-	370
Underlying finance income	11	-	-	11
Underlying finance costs	(62)	-	-	(62)
Underlying share of post-tax profit from joint ventures	-	6	7	13
Underlying profit before tax	319	6	7	332
Profit on sale of properties	106	-	-	106
Investment property fair value movements	-	-	20	20
Financing fair value movements	7	-	(1)	6
IAS 19 pension financing credit	2	-	-	2
Profit before tax	434	6	26	466
Income tax expense				(119)
Profit for the financial period				347
Assets	10,740	-	-	10,740
Investment in joint ventures	-	107	359	466
Total assets	10,740	107	359	11,206

4    Operating segments (continued)

	Retailing £m	Financial services £m	Property investment £m	Group £m
28 weeks to 3 October 2009
Segment revenue	10,433	-	-	10,433
Underlying operating profit	342	-	-	342
Underlying finance income	9	-	-	9
Underlying finance costs	(53)	-	-	(53)
Underlying share of post-tax profit from joint ventures	-	3	6	9
Underlying profit before tax	298	3	6	307
Profit on sale of properties	15	-	-	15
Investment property fair value movements	-	-	37	37
Financing fair value movements	(3)	-	(1)	(4)
IAS 19 pension financing charge	(13)	-	-	(13)
Profit before tax	297	3	42	342
Income tax expense				(90)
Profit for the financial period				252
Assets	10,152	-	-	10,152
Investment in joint ventures	1	100	257	358
Total assets	10,153	100	257	10,510

	Retailing £m	Financial services £m	Property investment £m	Group £m
52 weeks to 20 March 2010
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 sale 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: Office of Fair Trading dairy inquiry	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
Total assets	10,406	102	347	10,855

5    Finance income and finance costs

	28 weeks to	28 weeks to	52 weeks to
	2 October	3 October	20 March
	2010	2009	2010
	£m	£m	£m
Interest on bank deposits and other financial assets	11	9	33
IAS 19 pension financing credit	2	-	-
Financing fair value movements	7	-	-
Finance income	20	9	33
Borrowing costs:
Secured borrowings	(51)	(42)	(75)
Unsecured borrowings	(21)	(17)	(47)
Obligations under finance leases	(2)	(1)	(3)
Provisions - amortisation of discount	(1)	(1)	(2)
	(75)	(61)	(127)
Interest capitalised - qualifying assets	13	8	15
IAS 19 pension financing charge	-	(13)	(24)
Financing fair value movements	-	(3)	(12)
Finance costs	(62)	(69)	(148)

6    Income tax expense

	28 weeks to	28 weeks to	52 weeks to
	2 October	3 October	20 March
	2010	2009	2010
	£m	£m	£m
Current tax expense	119	72	79
Deferred tax expense	-	18	69
Total income tax expense in income statement	119	90	148
Underlying tax rate	26.5%	29.0%	28.5%
Effective tax rate	25.5%	26.3%	20.2%
	£m	£m	£m
Income tax expense on underlying profit	88	89	174
Tax on items below:
Profit on sale of properties	19	-	(15)
Financing fair value movements	-	-	(4)
IAS 19 pension financing element	1	1	(7)
Deferred tax rate change from 28% to 27%	11	-	-
Total income tax expense in income statement	119	90	148
Current tax on items recognised directly in equity:
Share-based payments	-	(1)	(3)
Actuarial gains and losses on defined benefit pension scheme	(3)	-	(17)
Available-for-sale financial assets fair value movements	-	-	1
Deferred tax on items recognised directly in equity:
Share-based payments	-	2	1
Actuarial gains and losses on defined benefit pension scheme	(51)	(175)	(31)
Available-for-sale financial assets fair value movements	2	3	10
Deferred tax rate change from 28% to 27% - defined benefit pension schemes	(2)	-	-
Deferred tax rate change from 28% to 27% - available-for-sale financial assets	(1)	-	-
Income tax (credited)/charged to equity	(55)	(171)	(39)

The current and deferred tax in relation to the Group's defined benefit pension scheme's actuarial gains and losses and available-for-sale fair value movements have been charged or credited through other comprehensive income. 

On 22 June 2010 the Chancellor announced that the main rate of UK corporation tax will reduce from 28 per cent to 27 per cent with effect from 1 April 2011. This tax change became substantively enacted in July 2010 and hence the effect of the change on the deferred tax balances has been included in the figures above.  Further changes to the rate are proposed to reduce the rate by one per cent per annum to 24 per cent by 1 April 2014, but have not yet been substantively enacted and therefore are not 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 period, 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 period 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 sale 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.

	28 weeks to	28 weeks to	52 weeks to
	2 October	3 October	20 March
	2010	2009	2010
	million	million	million
Weighted average number of shares in issue	1,857.3	1,801.2	1,821.7
Weighted average number of dilutive share options	9.7	16.2	16.0
Weighted average number of dilutive convertible bonds	45.4	25.9	34.9
Total number of shares for calculating diluted earnings per share	1,912.4	1,843.3	1,872.6
	£m	£m	£m
Profit for the financial period	347	252	585
Add interest on convertible bonds, net of tax	5	2	6
Diluted earnings for calculating diluted earnings per share	352	254	591
	£m	£m	£m
Profit for the financial period attributable to equity holders of the parent	347	252	585
(Less)/add (net of tax):
Profit on sale of properties	(87)	(15)	(42)
Investment property fair value movements	(20)	(37)	(123)
Financing fair value movements	(6)	4	11
IAS 19 pension financing (credit)/charge	(1)	14	17
One-off item: Office of Fair Trading dairy inquiry	-	-	(12)
Deferred tax rate change from 28% to 27%	11	-	-
Underlying profit after tax	244	218	436
Add interest on convertible bonds, net of tax	5	2	6
Diluted underlying profit after tax	249	220	442
	pence	pence	pence
	per share	per share	per share
Basic earnings	18.7	14.0	32.1
Diluted earnings	18.4	13.8	31.6
Underlying basic earnings	13.1	12.1	23.9
Underlying diluted earnings	13.0	11.9	23.6

8    Dividend

	28 weeks to	28 weeks to	52 weeks to
	2 October	3 October	20 March
	2010	2009	2010
Amounts recognised as distributions to equity holders in the period:
Dividend per share (pence)	10.20	9.60	13.60
Total dividend charge (£m)	189	167	241

Post the period end, an interim dividend of 4.3 pence per share (3 October 2009: 4.0 pence per share) has been approved by the Board of Directors for the financial year ending 19 March 2011, resulting in a total interim dividend of £80 million (3 October 2009: £74 million).  The interim dividend was approved by the Board on 9 November 2010 and as such has not been included as a liability at 2 October 2010.

9    Notes to the cash flow statement

(a)  Reconciliation of operating profit to cash generated from operations

	28 weeks to	28 weeks to	52 weeks to
	2 October	3 October	20 March
	2010	2009	2010
	£m	£m	£m
Operating profit	476	357	710
Adjustments for:
Depreciation expense	246	240	466
Amortisation expense	8	7	13
Profit on sale of properties	(106)	(15)	(27)
Foreign exchange differences	6	(8)	(6)
Share-based payment expense	27	23	42
Retirement benefit obligations1	-	(3)	(85)
Provision for diminution in value of investment	-	-	1
Operating cash flows before changes in working capital	657	601	1,114
Changes in working capital:
Increase in inventories	(107)	(68)	(13)
(Increase)/decrease in trade and other receivables	(123)	(81)	1
Increase/(decrease) in trade and other payables	39	(90)	101
Increase/(decrease) in provisions and other liabilities	4	(3)	3
Cash generated from operations	470	359	1,206

1    The adjustment for retirement benefit obligations reflects the difference between the IAS 19 service charge of £30 million (3 October 2009: £26 million,

      20 March 2010: £49 million) for the defined benefit scheme and the cash contributions of £30 million made by the Group to the defined benefit scheme

      (3 October 2009: £29 million, 20 March 2010: £134 million).

(b) Cash and cash equivalents

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

	2 October	3 October	20 March
	2010	2009	2010
	£m	£m	£m
Cash and cash equivalents	651	665	837
Bank overdrafts	(14)	(8)	(3)
	637	657	834

10  Analysis of net debt

	2 October 2010	3 October  2009	20 March 2010
	£m	£m	£m
Non-current assets
Interest bearing available-for-sale financial assets	35	19	24
Derivative financial instruments	37	37	20
	72	56	44
Current assets
Cash and cash equivalents	651	665	837
Interest bearing deposit	40	-	-
Derivative financial instruments	67	40	43
	758	705	880
Current liabilities
Bank overdrafts	(14)	(8)	(3)
Borrowings	(93)	(88)	(67)
Obligations under finance leases	(3)	-	(3)
Derivative financial instruments	(75)	(52)	(41)
	(185)	(148)	(114)
Non-current liabilities
Borrowings	(2,309)	(2,316)	(2,298)
Obligations under finance leases	(57)	(48)	(59)
Derivative financial instruments	(1)	(14)	(2)
	(2,367)	(2,378)	(2,359)
Total net debt	(1,722)	(1,765)	(1,549)

Net debt incorporates the Group's borrowings (including accrued interest), bank overdrafts, interest bearing available-for-sale financial assets, interest bearing deposits, fair value of derivatives and obligations under finance leases, less cash and cash equivalents. 

Reconciliation of net cash flow to movement in net debt

	28 weeks to	28 weeks to	52 weeks to
	2 October	3 October	20 March
	2010	2009	2010
	£m	£m	£m
Net debt at beginning of the period	(1,549)	(1,671)	(1,671)
(Decrease)/increase in cash and cash equivalents	(197)	58	235
Increase in interest bearing available-for-sale assets1	10	10	10
Increase in interest bearing deposits	40	-	-
Net increase in borrowings1	(24)	(148)	(72)
Net decrease/(increase) in derivatives1	2	2	(23)
Net repayment of obligations under finance leases	2	1	2
Fair value movements	(6)	(17)	(9)
Other non-cash movements	-	-	(21)
Net debt at the end of the period	(1,722)	(1,765)	(1,549)

1    Excluding fair value movements.

The Group maintained two syndicated revolving credit facilities for amounts of £163 million due May 2011 and £400 million due February 2012 as well as a bilateral revolving credit facility for an amount of £50 million due May 2012. As at 2 October 2010, no amounts were drawn down on these facilities (3 October 2009: £nil).  On 20 October 2010, the Group cancelled and replaced the three revolving credit facilities with a new £690 million syndicated revolving credit facility due October 2015.

In February 2010, the Group entered into a bilateral €50 million five-year term loan.  The loan was fully drawn on 24 March 2010 and the proceeds swapped into sterling.

11  Retirement benefits

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

The defined benefit scheme was subject to a triennial valuation carried out by Towers Watson, the scheme's independent actuaries at March 2009 on the projected unit basis.  As announced on 13 May 2010, as part of the related funding plan, a Property Partnership (the "Partnership") was established with the pension scheme trustees.  On 17 June 2010, properties to a value of £256 million were transferred to the Partnership via a 30-year sale and leaseback providing the scheme with additional security.  In 2011 the Group will transfer a further £500 million of properties to the Partnership by way of the same arrangement. 

The Group's balance sheet, IAS 19 deficit and income statement are unchanged by the establishment of the Partnership.  The investment held by the pension scheme in the Partnership does not qualify as a plan asset for the purposes of the Group's consolidated financial statements and is therefore not included within the fair value of plan assets.   Additionally, the value of the properties transferred to the Partnership remains included within the Group's property, plant and equipment on the balance sheet.

The unfunded pension liability is unwound when each employee reaches retirement and takes their pension from the Group payroll or is crystallised in the event of an employee leaving or retiring and choosing to take the provision as a one-off cash payment.

The amounts recognised in the balance sheet, based on valuations performed by Towers Watson, are as follows:

	2 October	3 October	20 March
	2010	2009	2010
	£m	£m	£m
Present value of funded obligations	(5,058)	(4,767)	(4,649)
Fair value of plan assets	4,486	3,848	4,237
	(572)	(919)	(412)
Present value of unfunded obligations	(9)	(9)	(9)
Retirement benefit obligations	(581)	(928)	(421)
Deferred income tax asset	166	260	118
Net retirement benefit obligations	(415)	(668)	(303)
	2 October	3 October	20 March
	2010	2009	2010
	%	%	%
Discount rate	5.2	5.4	5.8
Inflation rate	3.0	3.1	3.4
Real discount rate	2.2	2.3	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. 

The amounts recognised in the income statement in respect of the IAS 19 charges for the defined benefit scheme are as follows:

	28 weeks to 2 October	28 weeks to 3 October	52 weeks to 20 March
	2010	2009	2010
	£m	£m	£m
Included in underlying profit before tax:
IAS 19 pension service costs	(30)	(26)	(49)
Excluded from underlying profit before tax:
Interest cost on pension scheme liabilities	(143)	(124)	(230)
Expected return on plan assets	145	111	206
IAS 19 pension financing credit/(charge)	2	(13)	(24)
Total IAS 19 income statement expense	(28)	(39)	(73)

12  Capital expenditure and commitments

In the financial period, there were additions to property, plant and equipment of £671 million (3 October 2009: £461 million) and additions to intangible assets of £15 million (3 October 2009: £6 million).

In the financial period, there were disposals of property, plant and equipment with a net book value of £233 million (3 October 2009: £64 million) and disposals of intangible assets of £nil (3 October 2009: net book value £2 million).

At 2 October 2010, capital commitments contracted, but not provided for by the Group, amounted to £235 million (3 October 2009: £273 million).

13  Related party transactions

The Group's significant related parties are its joint ventures as disclosed in its Annual Report and Financial Statements 2010. 

Transactions with joint ventures

For the 28 weeks to 2 October 2010, the Group entered into various transactions with joint ventures as set out below.

	28 weeks to	28 weeks to	52 weeks to
	2 October	3 October	20 March
	2010	2009	2010
	£m	£m	£m
Sale of inventories	-	2	3
Management services provided	9	7	14
Interest income received in respect of interest bearing loans	2	1	1
Dividend income received	-	-	2
Sale of assets1	74	-	-
Rental expenses paid	(41)	(37)	(72)

1    This was a non-cash substitution of properties, which generated a profit of £13 million for the Group.

Balances arising from transactions with joint ventures

	28 weeks to	28 weeks to	52 weeks to
	2 October	3 October	20 March
	2010	2009	2010
	£m	£m	£m
Receivables
Other receivables	3	5	2
Loans due from joint ventures:
Floating rate subordinated undated loan capital	25	25	25
Floating rate subordinated dated loan capital	30	30	30
Other	-	-	1
Payables
Other payables	(48)	(48)	(48)

Principal risks and uncertainties

Risk is an inherent part of doing business.  The J Sainsbury plc Board has overall responsibility for the management of the principal risks and internal control of the Company.  The Board has identified the following factors as the principal potential risks to the successful operation of the business.  These risks, along with the events in the financial markets and their potential impacts on the wider economy, remain those most likely to affect the Group in the second half of the year.

·     Business continuity and acts of terrorism

·     Business strategy

·     Colleague engagement, retention and capability

·     Economic and market risks

·     Environment and sustainability

·     Financial strategy and treasury risk

·     Fraud

·     Health and safety

·     IT systems and infrastructure

·     Pension risk

·     Product safety

·     Regulatory environment

For greater detail of these risks, which are unchanged from the Group's Annual Report and Financial Statements 2010, please refer to page 22 and 23 of the Group's Annual Report and Financial Statements 2010, a copy of which is available on the Group's website www.j-sainsbury.co.uk.

Statement of Directors' responsibilities

The Directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R.

The Directors of J Sainsbury plc are listed in the J Sainsbury plc Annual Report and Financial Statements 2010. On 19 July 2010, John Rogers joined the Board and succeeded Darren Shapland as Chief Financial Officer.   On the same date, Darren Shapland was appointed Group Development Director.

By order of the Board

Justin King

Chief Executive

9 November 2010

John Rogers

Chief Financial Officer

9 November 2010

Independent review report to J Sainsbury plc

 

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report ("Interim Report") for the 28 weeks ended 2 October 2010, 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. We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The Interim Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Interim Report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Interim Report for the 28 weeks ended 2 October 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP

Chartered Accountants

London

9 November 2010

Notes:

The maintenance and integrity of the J Sainsbury plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

END

 

 

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