Interim Results & Dino Adriano's Comments

Sainsbury(J) PLC 23 November 1999 J Sainsbury plc - Interim Results 1999/2000 Dino Adriano, Group Chief Executive comments 'We have made good progress in changing Sainsbury's Supermarkets and driving our offer forward. Homebase, Shaw's and Sainsbury's Bank are well placed for strong profit growth. Our prospects in e-business are exciting, with our link with LineOne as the first step to providing a range of benefits for customers and shareholders.' Key Points - Programmes to drive sales growth and cut costs now well underway at Sainsbury's Supermarkets. - Value focus at Homebase drives like-for-like sales and market share growth. On track for profit growth over a comparative 12 month period. - Strong profit growth in Shaw's. Integration of Star Markets progressing well. - Sainsbury's Bank moves into profit. - Group PBT before exceptional costs was £352 million. - Setting up a new e-business to position our strong supermarket and DIY brands on the internet. Page 1 of 16 Review of Performance (28 weeks ending 16 October 1999) Group Summary Group sales increased by 4.5% to £9.1 billion driven by strong sales performance in Homebase and Shaw's. Investment in new initiatives and price to grow sales resulted in a 23.2% decline in the operating profit of Sainsbury's Supermarkets in the first half. This was the primary factor in the decline in the Group's profit before exceptional costs and tax of 17.6% to £352 million. Both Shaw's and Sainsbury's Bank produced strong operating profit growth with Shaw's up 36.2% and the Bank reporting an operating profit of £0.9 million compared with a £3.6 million loss in the first half last year. Sainsbury's Supermarkets Performance Total sales in the first half increased by 0.7% including a like-for-like decline of 1.3%. Inflation in the first half averaged 1.2%. An increasingly competitive market and the impact of the initial implementation of the initiatives to drive our offer forward had an adverse effect on sales performance. Operating profit was adversely affected by the gross margin investment in price, as well as the investment of £20 million on rebranding and top line growth initiatives going forward. The plans announced in June to restructure the economics of our business, improve our stores and change the way we work are now underway. The costs savings target of £50 million, before associated costs of £30 million is expected to be achieved. Driving our offer forward The following progress has been made on the six priorities set out for the Supermarket business in our preliminary announcement on 2 June 1999. Investing in our estate - An additional 265,000 square feet of sales area to be added from extensions this financial year. Nine stores extended and two refurbished in the first half. Extensions in the first half generated average year-on-year growth after extension of 7.2%. - By the end of the financial year, we expect to have completed 22 extensions and 22 refurbishments with a further 8 expected to start on site. - Extensions completed in the first half are significantly larger than before, increasing space by an average of 37% compared with 28% last year. Managing space for Better Choice - Average of 250 lines added to every store between May and July. - Further action taken at 93 stores where we have introduced up to 800 additional lines through the use of wider gondolas coupled with more effective use of space. Page 2 of 16 Changing the way we work - Refreshing the Sainsbury's brand rolled out across the estate. - Workshops held in all stores to communicate objectives to colleagues. - Customer and colleague discussion groups taking place in all stores. Delivering more and better customer service - More staff available to help customers. - Increased help at checkouts. Stretching our quality lead - Expanding our Organics range. - Rigorous product quality improvement programme comparing own label products with those of other food retailers and brands. Delivering good value to all our customers - Launch of price guarantee on 1,500 lines. - Deeper, more focused promotions. - More vigorous marketing to support price and promotions position including radio and newspaper campaigns. Homebase Homebase again delivered impressive sales growth in the first half, generating strong like-for-like sales growth adjusting for Easter of 12.3%. On a reported basis, like-for-like sales growth was 9.7%. Operating profit declined by 23.7% to £36.8 million due to the lack of Easter in the first half and other seasonal trading differences, combined with a heavy initial investment of gross margin and advertising to drive sales. On a comparable basis, operating profit at Homebase declined, as expected, by 6.0%. Over a comparative 12 month period, Homebase is well positioned to produce strong like-for-like sales performance, market share growth and an operating profit increase. The previously announced reduction in the cost base of the business has now started, underpinning the profit improvement. Homebase management is delivering the company's repositioning strategy as planned. A trial larger format store opened in Dundee in October and is trading well. E-business J Sainsbury plc has entered into a partnership agreement with LineOne a leading UK, subscription free, Internet Service Provider. This enables us to focus on developing, launching and being the leader in food & drink and home & garden portals. We have already announced costs of £30 million arising this year relating to the development of this plan. Of this, around £15 million is likely to be portal costs for 'food & drink', with £7 million for the 'home & garden' portal. Costs of £8 million will be incurred by the company's Orderline activities this financial year. The future level of on-going operating costs will depend on the volume of users. Page 3 of 16 Shaw's/Star Markets Shaw's benefited from strong promotional activity in the first half, resulting in total first half sales growth, excluding Star Markets of 4.6%, including like-for-like sales growth of 2.9%. Sales growth including Star Markets was 22.5%. Inflation over the period averaged 2%. The improvement in performance from the Connecticut stores coupled with strong sales growth contributed to operating profit growth excluding Star Markets of 26.0% in the first half. Sainsbury's Bank Sainsbury's Bank reported operating profits of £0.9 million for the first half, an improvement of £4.5 million over the previous year. A number of new products were launched in the first half including Drive, a car purchase finance scheme, a Stepped Rate Savings Bond and an annual travel insurance policy. Egyptian Distribution Group SAE (Edge) Last month, we acquired an additional 55% of Edge, our Egyptian supermarket chain, from our partners. Edge operates 94 neighbourhood stores in the Cairo area. The initial consideration was £29 million, with a further potential performance related payment. We now own 80.1% of the ordinary share capital. This acquisition gives us a leadership position in Egypt. Finance - Cash outflow before financing was £483 million in the first half, in part due to the acquisition of Star Markets. Consequently, net debt increased to £1.2 billion as at 16 October 1999. - Group capital expenditure for the first half totalled £354 million. It is expected that Group capital expenditure for the year will be around £860 million. - The underlying tax rate for the year is expected to be 31.7% compared to 31.25% reported last year. - We completed our Year 2000 compliance programmes on systems and infrastructure at the end of October. Project teams are now concentrating on event planning and business continuity initiatives. Group costs for the current year are expected to be £4 million resulting in a total Year 2000 cost of £54 million. Page 4 of 16 Dividend and Share Capital The Board has declared an interim dividend of 4.02p per share (1998: 4.02p) to be paid on 14 January 2000 to shareholders on the register of members at the close of business on 10 December 1999. Outlook We have made real progress with the six priorities we set ourselves for Sainsbury's Supermarkets in June. The business is now undergoing an extensive programme of change. Trading in the second half is dependent on the crucial Christmas and Millennium periods. We are confident of meeting our target of positive like-for-like sales growth by the end of this financial year. Homebase, Shaw's and Sainsbury's Bank are well positioned for future profit growth. Page 5 of 16 The unaudited Group Profit and Loss Account for the 28 weeks to 16 October 1999, compared with the 28 weeks to 17 October 1998, is set out below. The unaudited Group Profit and Loss Account presented in accordance with FRS3 has been subject to an interim review by our auditors PricewaterhouseCoopers and is set out on page 11. Note 28 weeks 28 weeks 28 weeks to 16 to 17 to 19 October October September 1999 1998* % Change 1998* £million GROUP SALES (including taxes) 2 9,053 8,661 4.5 8,667 GROUP OPERATING PROFIT BEFORE YEAR 2000 AND EURO COSTS,EXCEPTIONAL COSTS AND PROFIT SHARING 2 399 494 -19.3 502 Year 2000 and Euro costs (4) (18) (18) Associated Undertakings - share of (loss)/profit (1) 9 9 Profit sharing 3 (10) (26) (27) Net interest payable (32) (32) (32) GROUP PROFIT BEFORE TAX,EXCEPTIONAL COSTS AND PROPERTY PROFITS 352 427 -17.6 434 Exceptional severance and integration costs 4 (55) (17) (17) Property profits - 11 11 GROUP PROFIT BEFORE TAX 297 421 -29.5 428 Tax 5 (94) (128) (131) GROUP PROFIT AFTER TAX 203 293 297 Minority equity interest - 1 2 PROFIT FOR THE FINANCIAL PERIOD 203 294 299 EQUITY DIVIDENDS (77) (77) (77) PROFIT RETAINED 126 217 222 EARNINGS PER SHARE 6 10.6p 15.4p -31.2 15.7p Earnings per share before exceptional costs and property profits 6 12.5p 15.5p -19.4 15.7p DILUTED EARNINGS PER SHARE - before exceptional costs and property profits 6 12.5p 15.3p -18.3 15.6p DIVIDEND PER SHARE 4.02p 4.02p 4.02p * The 1998 interim results published in October 1998 covered the 28 weeks to 19 September 1998. To facilitate comparisons, the above summary also presents the 28 weeks to 17 October 1998 (see note 1). The 1998 results have been restated to include a provision for profit sharing (see note 3). Page 6 of 16 Notes to the Results 1. Accounting policies and financial period The financial information has been prepared using the accounting policies set out in the 1999 Annual Accounts. The 1999 financial year covered a 56 week period rather than 52 weeks. To facilitate comparison, where appropriate, information for the 28 weeks to 17 October 1998 is presented in addition to the 28 weeks to 19 September 1998 which was published at the first half stage last year. 2. Analysis of Group sales and operating profit 28 weeks 28 weeks 28 weeks to 16 to 17 to 19 October October September 1999 1998 % Change 1998 Sales (£ million) Sainsbury's Supermarkets 6,924.2 6,875.5 0.7 6,878.5 Homebase 778.9 707.8 10.0 715.9 Shaw's 1,246.4 987.8 26.2 984.3 Sainsbury's Bank 64.9 72.5 70.6 JS Developments 38.2 17.0 17.0 Other operating activities 0.0 0.5 0.5 Group Sales 9,052.6 8,661.1 4.5 8,666.8 Sainsbury's Supermarkets 319.0 415.3 -23.2 428.9 Homebase 36.8 48.2 -23.7 43.2 Shaw's 38.7 27.6 40.2 27.9 Sainsbury's Bank 0.9 (3.6) (4.4) JS Developments 3.2 6.0 6.0 Other operating activities 0.3 0.6 0.7 Group operating profit 398.9 494.1 -19.3 502.3 Shaw's sales and operating profit ($ million) Sales 2,007.4 1,639.1 22.5 1,628.0 Operating profit 62.4 45.8 36.2 46.0 Shaw's sales and operating profit have been translated at an average exchange rate for the period of £1 = $1.61 (28 weeks to 17 October 1998: £1 = $1.66, 28 weeks to 19 September 1998: £1 = $1.65). Shaw's sales and operating profit for 1999 include $295.1 million and $4.7 million respectively in respect of Star Markets, which was acquired on 28 June 1999 (see note 10). Operating profit is shown before deducting Year 2000 and Euro costs, which represents the incremental costs incurred in converting computer software to deal with the Year 2000 date change and the introduction of the Euro, and before profit sharing and exceptional costs (see note 4). Included in the above operating profit is a loss of £5 million relating to the Group's entry into e-commerce. As development of this business accelerates, the revenue investment will grow to around £30 million for the full year when there will be a separate disclosure for this activity. 3. Employee profit sharing scheme Provision has been made in the Interim Accounts towards the end of year allocation of profit to the profit sharing fund for eligible employees in the UK retail companies. This provision is calculated on the actual results for the 28 weeks to 16 October 1999 whereas the allocation under the Scheme will be calculated by reference to the results for the full year. Prior year comparatives have been restated on the same basis. The annual cash payment to employees will continue to be made in August. Page 7 of 16 4. Exceptional costs The exceptional costs comprise the following: £m Sainsbury's Supermarkets 27.3 Homebase 15.4 Shaw's 12.2 54.9 The costs incurred in Sainsbury's Supermarkets were the result of simplifying central and store operations and streamlining the store management structure. The integration of Savacentre into Sainsbury's Supermarkets is now complete. Homebase has closed 99 kitchen studios which were loss making and is utilising the space released for extending its own range of products. The costs of closure amounted to £11.4 million. Homebase has also simplified its operations which resulted in associated severance costs of £4 million. The exceptional costs at Shaw's all relate to the integration of the recently acquired Star Markets business (see note 10). 5. Tax The tax charge for the first half of the current year is based on the estimated tax charge for the full year at a rate of 31.7 per cent (1998 : 31.25 per cent). 6. Earnings per share The calculation of earnings per share is based on profit after tax and minority interest, divided by the weighted average number of ordinary shares in issue during the period. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The group has only one category of dilutive potential ordinary shares: those 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. 28 weeks to 16 October 17 October 19 September 1999 1998 1998 Weighted average exercise price of exercisable share option (£) 3.48 3.60 3.60 Average share price in period (£) 3.96 5.23 5.16 Dilution ratio applied in exercisable share options (%) 12.1 31.2 30.2 Weighted average of exercisable share options (million) 53.3 67.6 67.2 Dilution effect of exercisable share options (million) 6.5 21.1 20.3 Weighted average of shares in issue (million) 1,917.2 1,906.0 1,903.8 Total shares for calculating diluted earnings per share 1,923.7 1,927.1 1,924.1 Page 8 of 16 7. Current assets and creditors of Sainsbury's Bank 16 October 19 September 3 April 1999 1998 1999 £m £m £m Current assets Treasury bills and other eligible bills 69 9 83 Loans and advances to banks 829 1,359 1,212 Loans and advances to customers* 512 285 398 Debt securities 244 93 48 Prepayments and accrued income 28 24 25 1,682 1,770 1,766 Creditors: due within one year Customer accounts 1,555 1,648 1,653 Accruals and deferred income 32 35 16 1,587 1,683 1,669 * Loans and advances to customers include £244 million of loans and advances repayable in more than one year (1998 : £110 million). In addition to the above assets, Sainsbury's Bank had other assets of £5 million at 16 October 1999 (1998 : £4 million). 8. Reconciliation of operating profit to net cash inflow from operating activities 28 weeks 56 weeks ended ended 16 October 19 September 3 April 1999 1998* 1999 £m £m £m Operating profit before profit sharing 340 467 881 Profit sharing (10) (27) (45) Depreciation 209 189 388 Loss on sale of equipment, fixtures and vehicles - - 6 Increase in stocks (177) (68) (75) Increase in debtors (19) (7) (73) (Decrease)/increase in creditors (33) 184 261 Decrease/(increase) in Sainsbury's Bank current assets 84 (185) (182) (Decrease)/increase in Sainsbury's Bank creditors (82) 182 166 312 735 1,327 Payments against provisions (1) - (5) 311 735 1,322 * Restated for provision for profit sharing. Page 9 of 16 9. Analysis of net debt At 3 Cash Other Debt in Exchange At 16 April Flow non-cash subsidiaries movements October 1999 movements acquired 1999 £m £m £m £m £m £m Cash and liquid funds 742 (351) - - (8) 383 Overdrafts (128) (61) - - 1 (188) (412) Debt due within 1 year (532) (75) - (72) 16 (663) Debt due after 1 year (653) 4 - - 8 (641) Finance leases (133) 3 (4) - 5 (129) (68) Total (704) (480) (4) (72) 22 (1,238) 10. Acquisitions Star Markets On 28 June 1999, Shaw's Supermarkets Inc. acquired the entire share capital of Star Markets Inc. for a total consideration of $497 million including debt acquired. Star Markets operates 52 supermarkets, mainly in the greater Boston area. In the year ended 30 January 1999, Star Markets reported sales of $1.06 billion, earnings before interest, tax and depreciation of $54.6 million and a loss before tax, after financing costs, of $5.3 million. The company is being integrated into the operations of Shaw's Supermarkets with targeted synergies of $40 million per annum. A fair value exercise is near completion and the results of this will be disclosed in the full year accounts. It is anticipated that goodwill arising will amount to around $350 million (£209 million). This goodwill is assumed to have an indefinite life and will be subject to an annual impairment test. Hampden Group PLC On 1 October 1999, Homebase Group Limited acquired a further 24.3% of the ordinary share capital of Hampden Group PLC to bring its total ownership to 53.5%. It subsequently made a recommended offer to purchase the remaining shares. At 16 October 1999, Homebase owned 58.8% of the share capital and Hampden was consolidated as a subsidiary. The consideration for the 70.8% of share capital not owned prior to 1 October 1999 is estimated at £14 million. Hampden operates seven Homebase stores in Northern Ireland and three stores in the Republic of Ireland through a franchise agreement. In the year ended 2 January 1999, Hampden Group reported sales of £43 million and a profit before tax of £1 million. Egyptian Distribution Group SAE On 20 October 1999, J Sainsbury plc acquired a further 55% of the ordinary share capital of the Egyptian Distribution Group SAE ('Edge') taking its ownership up to 80.1%. The consideration comprises an initial cost of £29 million with a further potential performance related payment. Edge operates 94 small supermarkets in Greater Cairo. 11. Status of financial information The half year interim results are unaudited but have been reviewed by the auditors. The financial information presented herein does not amount to full accounts within the meaning of Section 240 of the Companies Act 1985 (as amended). The figures for the 56 weeks to 3 April 1999 have been extracted from the 1999 Annual Accounts which have been filed with the Registrar of Companies. The audit report on the 1999 Annual Accounts was unqualified and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985. The company's results will be published in the Interim Statement which will be posted to shareholders on 30 November 1999. Copies will also be available from J Sainsbury plc, Stamford House, Stamford Street, London SE1 9LL and at its paying agents Citibank, N.A., 336 Strand, London, WC2R 1HB and Chase Manhattan Bank, Trinty Tower, 9 Thomas More Street, London, E1 9YT. Page 10 of 16 Group profit and loss account (FRS3 format) Note 28 weeks 28 weeks 56 weeks to 16 to 19 to 3 October September April 1999 1998* 1999 (unaudited) (unaudited) (audited) £m £m £m Group sales including VAT and sales taxes 2 9,053 8,667 17,587 VAT and sales taxes 585 572 1,154 Group sales excluding VAT and sales taxes 8,468 8,095 16,433 Cost of sales and administrative expenses 8,069 7,593 15,501 Exceptional cost of sales 4 55 17 21 Year 2000 and Euro costs 4 18 30 Group operating profit before profit sharing 340 467 881 Profit sharing 3 10 27 45 Group operating profit 330 440 836 Associated Undertakings - share of (loss)/profit (1) 9 12 Profit on sale of properties - 11 11 Profit on disposal of an associate - - 84 Profit on ordinary activities before interest 329 460 943 Net interest payable 32 32 55 Profit on ordinary activities before tax 297 428 888 Tax on profit on ordinary activities 5 94 131 292 Profit on ordinary activities after tax 203 297 596 Minority equity interest - 2 2 Profit for the financial period 203 299 598 Equity dividends 77 77 294 Retained profit 126 222 304 Earnings per share 6 10.6p 15.7p 31.4p Exceptional cost of sales 1.9p 0.6p 0.7p Profit on sale of properties and disposal of associate - (0.6p) (2.9p) Earnings per share before exceptional cost of sales, profit on sale of properties and disposal of an associate 6 12.5p 15.7p 29.2p Diluted earnings per share 6 10.5p 15.6p 31.1p Diluted earnings per share before exceptional cost of sales, profit on sale of properties and disposal of an associate 6 12.5p 15.6p 29.0p * Restated for provision for profit sharing Page 11 of 16 Group statement of total recognised gains and losses 28 weeks 28 weeks 56 weeks to 16 to 19 to 3 October September April 1999 1998* 1999 (unaudited) (unaudited) (audited) £m £m £m Profit for the financial period 203 299 598 Currency translation differences on foreign currency net investments (7) 4 5 Total recognised gains and losses relating to the financial period 196 303 603 * Restated for provision for profit sharing There is no material difference between the above profit for the period and the historical cost equivalent. Reconciliation of movements in equity shareholders' funds 28 weeks 28 weeks 56 weeks to 16 to 19 to 3 October September April 1999 1998* 1999 (unaudited) (unaudited) (audited) £m £m £m Profit for the financial period 203 299 598 Equity dividends (77) (77) (294) 126 222 304 Currency translation differences (7) 4 5 Goodwill added from reserves - - 148 New share capital subscribed less expenses of capital issues 9 41 68 Amounts deducted from the profit and loss account for shares issued to the QUEST (1) - (6) Other - - (2) Net movement in equity shareholders' funds 127 267 517 Opening equity shareholders' funds 4,644 4,127 4,127 Closing equity shareholders' funds 4,771 4,394 4,644 * Restated for provision for profit sharing Page 12 of 16 Group balance sheet 16 October 19 September 3 April 1999 1998* 1999 (unaudited) (unaudited) (audited) £m £m £m Note Fixed assets Tangible assets 6,605 6,216 6,409 Intangible assets 223 - 8 Investments 50 150 33 6,878 6,366 6,450 Current assets Stocks 1,069 798 843 Debtors 291 191 249 Investments 19 15 17 Sainsbury's Bank 7 1,682 1,770 1,766 Cash at bank and in hand 364 313 725 3,425 3,087 3,600 Creditors: due within one year Sainsbury's Bank 7 (1,587) (1,683) (1,669) Other (3,084) (2,415) (2,880) (4,671) (4,098) (4,549) Net current liabilities (1,246) (1,011) (949) Total assets less current liabilities 5,632 5,355 5,501 Creditors: due after one year (804) (909) (804) Provisions for liabilities and charges (7) (11) (8) Total net assets 4,821 4,435 4,689 Capital and reserves Called up share capital 480 478 480 Share premium account 1,368 1,334 1,359 Revaluation reserve 38 39 38 Profit and loss account 2,885 2,543 2,767 Equity shareholders' funds 4,771 4,394 4,644 Minority equity interest 50 41 45 Total capital employed 4,821 4,435 4,689 * Restated for provision for profit sharing Page 13 of 16 Group cash flow statement 28 weeks 28 weeks 56 weeks to 16 to 19 to 3 October September April 1999 1998* 1999 (unaudited) (unaudited) (audited) £m £m £m Note Net cash inflow from operating activities 8 311 735 1,322 Dividends received from Associated Undertakings - 3 3 Returns on investments and servicing of finance Interest received 15 28 46 Interest paid (35) (59) (113) Interest element of finance lease rental payments (9) (8) (16) Net cash outflow from returns on investments and servicing of finance (29) (39) (83) Tax paid (7) (23) (287) Capital expenditure and financial investment Payments for tangible fixed assets (322) (399) (803) Receipts from sale of tangible fixed assets 24 63 107 Purchase of investments (21) - (2) Net cash outflow from capital expenditure and financial investment (319) (336) (698) Acquisitions and disposals Acquisition of Star Markets Inc. - cash consideration plus costs (225) - - - cash balances acquired with subsidiary 1 - - Investment in Hampden Group PLC - cash consideration plus costs (4) - - - cash balances acquired with subsidiary 3 - - Investment in Sainsbury's Bank by minority shareholder - 5 9 Investment in Egyptian Distribution Group SAE - - (11) Proceeds from disposal of Giant Food Inc. - - 345 Proceeds from disposal of other fixed asset investments 1 2 3 Net cash (outflow)/inflow from acquisitions and disposals (224) 7 346 Equity dividends paid (217) (171) (249) Management of liquid resources 2 - 3 Financing Issue of ordinary share capital 3 18 38 Debt due within a year Increase/(decrease) in short-term borrowings 75 (4) 188 Debt due beyond a year Decrease in long-term borrowing (4) (4) (9) Capital element of finance lease rental payments (3) (3) (6) Net cash inflow from financing 71 7 211 (Decrease)/increase in cash in the period (412) 183 568 Reconciliation of net cash flow to movement in net debt (Decrease)/increase in cash in the period (412) 183 568 Cash (inflow)/outflow from (increase)/ decrease in debt and lease financing (68) 11 (173) Debt in subsidiaries acquired (72) - - New finance leases (4) (13) (17) Currency translation difference 22 19 (5) Movement in net debt in the period (534) 200 373 Net debt at the beginning of the period 9 (704) (1,091) (1,077) Net debt at the end of the period 9 (1,238) (891) (704) Page 14 of 16 Review report by the Auditors to the Board of Directors of J Sainsbury plc Independent Review Report to J Sainsbury plc We have been instructed by the company to review the financial information set out on pages 7 to 14 and we have read the other information contained in the interim report for any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The Listing Rules of the London Stock Exchange require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data, and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the 28 weeks ended 16 October 1999. PricewaterhouseCoopers Chartered Accountants and Registered Auditors 1 Embankment Place London WC2N 6NN 22 November 1999 Page 15 of 16 1999/2000 Factfile (28 weeks ending 16 October 1999) Group - Total sales up by 4.5% to £9.1 billion - Group operating profit before Year 2000 and Euro costs, exceptional costs and profit sharing of £399 million, a decline of 19.3% - Group profit before tax, exceptional costs and property profits of £352m, a decline of 17.6% Sainsbury's Supermarkets - Sales up by 0.7% to £6.9 billion - Operating profit declined by 23.2% to £319 million - Opened 8 new stores and extended 9 stores - Reward Card penetration up to 13 million customers accounting for 83.9% of sales Homebase - Total sales up 10% to £0.8 billion - Operating profit decreased on a calendar basis by 23.7% to £36.8m. On a comparable trading basis, operating profit declined by 6.0% - Opened 2 new stores - Closed 99 remaining kitchen studios - Spend and Save Card penetration up to c.5 million customers accounting for 52% of sales Shaw's/Star Markets - Operating profit up 40.2% to £38.7 million (up 36.2% to $62.4 million). Total sales up 26.2% to £1.2 billion (up 22.5% to $2.0 billion) - Like-for-like sales growth was 2.9% - Opened 2 new stores Sainsbury's Bank - Customer deposits total £1.6 billion while the loan book stands at £500 million. - Introduced 3 new products, (Drive, Stepped Rate Savings Bonds and annual travel insurance), to bring the total to 12 Edge - Ownership in Edge increased to 80.1% on 20 October 1999 - Operates 94 neighbourhood stores in the Cairo area For enquires Investor Relations: Amanda Cobb - 0171 695 6215 Press Office: Pip Wood - 0171 695 6127 Page 16 of 16

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