Interim Results
Sainsbury(J) PLC
17 November 2004
17 November 2004
Interim Results for 28 weeks ended 9 October 2004
Key Points
• Underlying profit before tax of £131 million (2003: £366 million) (1)
• Interim dividend of 2.15 pence per share (2003: 4.33 pence per share),
as previously announced
• Sale of Shaw's Supermarkets completed 30 April 2004: profit on
disposal £275 million
• £639 million returned to shareholders via B share scheme (2)
• Significant Board and management changes: Philip Hampton appointed as
Chairman in July 2004
• Sales led profit recovery adopted following Business Review
• Business Review exceptional operating costs of £401 million and
property write downs of £25 million
• Net debt reduced to £1.8 billion (27 March 2004: £2.1 billion)
Sainsbury's Supermarkets
• Total sales up 3.5 per cent to £8,348 million (3) (2003 restated:
£8,063 million) (4)
• Like-for-like sales growth (including petrol) of 1.5 per cent (2003:
0.1 per cent) (5)
• Like-for-like sales growth (excluding petrol) of negative 0.9 per cent
(2003: negative 0.8 per cent) (5)
• Underlying operating profit of £155 million (2003: £313 million) (6)
• Jacksons Stores Ltd acquired in August 2004 (114 convenience stores)
• 14 stores acquired from Morrisons in April 2004, 13 now converted
Sainsbury's Bank
• Net income up 32 per cent to £87 million (2003 restated: £66 million)
(4)
• Operating profit down to £6 million (2003: £8 million)
Outlook - no change from that announced on 19 October 2004
• Underlying profit before tax for second half not expected to be
significantly different from first half
• Dividend for full year expected to be 7.8 pence per share (2003: 15.69
pence per share)
• Full year exceptional items from the Business Review expected to be
approximately £550 million
(1) Before exceptional items of £168 million (2003: £36 million) and
amortisation of goodwill of £2 million (2003: £7 million)
(2) £41 million of B shares still to be redeemed
(3) Including VAT of £502 million
(4) Restated for the change in accounting policy for turnover in accordance
with FRS 5 Application Note G
(5) All like-for-like sales are Easter adjusted
(6) Underlying operating profit of Sainsbury's Supermarkets is stated before
exceptional operating costs of £427 million (2003: £37 million) comprising
£401 million in respect of the Business Review (2003: NIL), £26 million from
the Business Transformation Programme (2003: £29 million) and NIL Safeway
bid costs (2003: £8 million) and amortisation of goodwill of £1 million
(2003: NIL)
Philip Hampton, Chairman, said: 'Our performance in the first half has been
impacted by our significant investment in the customer offer. Investing in
price, improving availability and clearing surplus general merchandise all
impacted first half results. Exceptional costs relating to our Business Review,
the sale of Shaw's Supermarkets and the return of capital also significantly
affected the results for the period. We have a new and experienced management
team in place, which we have continued to strengthen, led by Justin King. We
have now embarked on a sales led recovery, which we believe will enable
Sainsbury's to deliver long term sustainable performance and profit.'
Justin King, Chief Executive, said: 'We are clear on the actions we need to take
to make Sainsbury's great again. We are now beginning the implementation of the
plans arising from the Business Review to rebuild a sustainable sales led
recovery. Early and short-term actions to restore the effective delivery of our
customer offer are being implemented. We have re-opened Buntingford depot to
help improve availability and deliveries from this location start next week.
New improved products are being added to our ranges and many of our Christmas
lines are now in store. The recruitment of 3,000 additional colleagues is also
well underway.'
Business Review
The Business Review, announced on 19 October 2004, including dividend policy and
management changes, will be mailed to shareholders as part of the interim
results report. It can also be found on the company's website at
www.sainsburys.co.uk, by selecting 'company info' and following the instructions
on screen or by visiting www.j-sainsbury.co.uk/interims04.
Outlook
The Business Review included an Outlook statement for the current year, through
to 2007/08. This has been repeated below.
Following the decision by the Board to adopt a sales led profit recovery
programme, performance for the second half of the year (2004/05) will be
affected by further investment in the customer offer. Accordingly, underlying
profit before tax for the second half is not expected to be significantly
different from the first half.
The plans outlined are a considerable change from previous years and will be
implemented by a new management team with proven retail experience and a track
record of delivery. Substantial investment is being made in the customer offer,
rather than infrastructure, to drive sales and this is underpinned by tight cash
flow management and a strong balance sheet. The customer is now at the heart of
all decision-making and this is supported by changes to organisation structure
and culture.
We expect to grow sales, excluding petrol and Sainsbury's Bank, by £2.5 billion
over the next three years to the end of 2007/08. We expect to achieve market
growth in sales by the end of 2005/06 and the benefits of the operational
gearing in the business to be delivered strongly in the second half of 2006/07.
Enquiries:
Investor relations Media
+44 (0) 20 7695 7162 +44 (0) 20 7695 6127
Roger Matthews Pip Wood
Lynda Ashton
We will not be holding an Interim Results Presentation, however a conference
call, hosted by Justin King, will take place at 8:30 GMT. Please visit
www.sainsburys.co.uk, select 'company info' and follow the instructions on
screen or you can access this information directly from
www.j-sainsbury.co.uk/interims04 for the Investor Briefing material
A webcast replay of the conference call will be available from 11:00 GMT by
visiting
www.sainsburys.co.uk, selecting 'company info' and following the instructions on
screen, or by visiting
www.j-sainsbury.co.uk/interims04.
Group financial summary
Sainsbury's financial results for the first half year were principally impacted
by three major factors:
• The sale of Shaw's Supermarkets in the United States on 30 April 2004
and the subsequent return of capital
• Investment in Sainsbury's Supermarkets through lower prices, extra
costs in the supply chain and higher wastage from the drive to improve
availability
• Business Review exceptional costs, as announced on 19 October 2004
Underlying operating profit (1) from continuing operations was £161 million, a
decrease of £160 million compared to 2003.
Underlying profit before tax (2) decreased to £131 million (2003: £366 million).
After exceptional costs, the loss before tax in the first half was £39 million
(2003 profit: £323 million).
Sales (3) Profit
change on 2004 change on
2004 last year % last year %
£m £m
Sainsbury's Supermarkets 8,348 3.5 155 (50.5)
Sainsbury's Bank 133 30.4 6 (25.0)
Total Continuing Operations 8,481 3.9 161 (49.8)
Discontinued Operations - Shaw's 209 11
Sales/underlying operating profit (1) 8,690 (10.4) 172 (57.1)
Interest (41)
Underlying profit before tax (2) 131 (64.2)
Exceptional items (168)
Amortisation of goodwill (2)
Loss before tax (39)
Tax on loss 65
Profit after tax 26
Sainsbury's Supermarkets' total sales (3) grew by 3.5 per cent to £8,348 million
(2003 restated: £8,063 million) (4). Sales growth for the first half includes
the acquisition of the Bells and Jacksons convenience store chains, the stores
from Morrisons and robust petrol sales growth.
Like-for-like sales growth (including petrol) was 1.5 per cent (2003: 0.1 per
cent). Excluding petrol, like-for-like sales growth for the first half was
negative 0.9 per cent (2003: negative 0.8 per cent).
Gross margin in the first half was impacted by an acceleration in the investment
in the customer offer. Our objective is to increase quality and lower prices.
Significant price reductions were implemented in May and the Taste the
Difference range was recently relaunched.
Operating costs increased year on year, including wastage, driven by the push
for improvements in availability and system implementation issues. Other
increases related to the continued under-performance of the automated depots and
higher depreciation as a result of prior year capital expenditure.
Sainsbury's Supermarkets' underlying operating profit (1) for the first half was
£155 million (2003: £313 million). The underlying operating margin (1) decreased
from 3.9 (4) per cent to 1.9 per cent.
(1) Underlying operating profit is stated before amortisation of goodwill
of £2 million (2003: £7 million), £1 million of which relates to discontinued
operations (2003: £7 million), and exceptional operating costs of £427 million
(2003: £37 million)
(2) Underlying profit before tax is stated before amortisation of goodwill
of £2 million (2003: £7 million), £1 million of which relates to discontinued
operations (2003: £7 million), and exceptional items of £168 million (2003: £36
million)
(3) Including VAT at Sainsbury's Supermarkets of £502 million and sales tax
at Shaw's Supermarkets of £2 million
(4) Restated for the change in accounting policy for turnover in accordance
with FRS 5 Application Note G
Sainsbury's Bank achieved net income growth of 32 per cent in the first half,
but operating profit was £2 million lower than last year at £6 million (2003: £8
million) due to further revenue investment in growing the long-term customer
base of the business and an increase in the bad debt provision. Year on year
customer accounts increased by 25 per cent to 2.1 million and loan balances were
up 40 per cent to £1.4 billion.
Net interest payable increased to £41 million (2003: £35 million). Capitalised
interest was lower at £3 million (2003: £9 million) and lower average net debt
due to the sale of Shaw's was offset by higher interest rates.
Exceptional operating costs of £26 million relating to the conclusion of
previous years' Business Transformation Programme were charged in the first half
(2003: £29 million Business Transformation Programme, £8 million Safeway bid
costs).
Costs directly associated with the Business Review were treated as exceptional
operating items due both to their size and non-recurring nature. These
primarily relate to the write-off of redundant information technology assets,
the write-off of automated equipment in the new fulfilment centres, a write down
in the carrying value of stock, employee-related reorganisation costs and
property costs associated with store closures. The total in the first half was
£401 million, a further £25 million has been treated as a non-operating property
write down and an estimated £550 million of exceptional costs from the Business
Review are expected for the full year.
Business Review Exceptionals
First half Full year
(estimated)
£m £m
IT systems 145 145
Employee-related 0 90
Stock 77 77
Supply chain 119 119
Property 39 73
Other 21 21
Operating exceptionals 401 525
Property write-off 25 25
426 550
Property profits of £8 million (2003: £1 million) include the sale of London
Colney, Business Review write-downs of £25 million and other property
adjustments. Cash proceeds from property disposals in the half-year were £88
million.
There was a tax credit of £65 million in the first half (2003: charge of £114
million) as a result of the high level of exceptional costs, many of which were
deductible for tax purposes. The underlying effective tax rate, before
exceptional items and amortisation of goodwill, was 36.2 per cent (2003: 32.5
per cent).
Underlying earnings per share, before non equity dividends of £112 million
associated with the return of capital, exceptional items and amortisation of
goodwill, was 4.5 pence (2003: 12.8 pence). Basic earnings per share before non
equity dividends was 1.3 pence (2003: 10.8 pence) mainly as a result of the
level of exceptional operating costs. Basic loss per share after the non equity
dividends was 4.8 pence (2003: earnings per share 10.8 pence).
The Board has declared an interim dividend of 2.15 pence per share (2003: 4.33
pence per share), which represents a decrease of 50 per cent over the previous
year. The interim dividend will be paid on 7 January 2005 to shareholders on the
Register of Members at the close of business on 26 November 2004. Barring any
unforeseen circumstances, the dividend for the full year is expected to be 7.8
pence per share (2003: 15.69 pence per share) - also a reduction of 50 per cent.
The medium term objective is to restore dividend cover to at least 1.5 times.
Underlying EBITDA (1) decreased to £424 million (2003: £610 million). On
continuing operations underlying EBITDA decreased to £410 million (2003: £497
million). Working capital improved by £208 million in the half year, including
effects of the disposal of Shaw's and Business Review exceptional items.
Capital expenditure in the first half increased by £203 million to £553 million
(2003: £350 million). However, excluding Shaw's and the acquisition of the
stores from Morrisons, capital expenditure of £238 million was broadly in line
with last year (2003: £217 million), and we are on track to deliver our target
for the year of £500 million. In the first half, 12 new stores were opened
(including 9 Locals), 14 ex-Safeway/Morrisons stores were acquired, and 3 stores
were extended or refurbished.
Jacksons, a chain of 114 convenience stores, was acquired in August 2004.
The Group sold its US supermarkets business Shaw's Supermarkets to Albertson's
Inc. on 30 April 2004 for a total consideration of $2,475 million, including
$368 million in assumed lease liabilities. Proceeds, net of expenses, of £1,170
million were received by the Group and a profit of £275 million was realised on
the sale. This was offset by £24 million of adjustments relating to prior
disposals.
Following the sale of Shaw's, Sainsbury's proposed a return of capital of 35
pence per share which equated to £680 million. Total capital returned to
shareholders by 9 October 2004 amounted to £639 million, of which £112 million
was by way of dividend and £527 million was share redemption. There remain a
further 116 million B shares valued at £41 million to be redeemed at a future
date.
In addition to the return of capital, there was also a consolidation of
Sainsbury's shares. For every eight Sainsbury's shares held at the close of
business on 16 July 2004, shareholders received seven new ordinary shares. As a
result, the number of shares in issue reduced from 1,943 million to 1,700
million.
Net debt at the half-year decreased by £0.3 billion to £1.8 billion (27 March
2004: £2.1 billion) and gearing decreased to 40 per cent (27 March 2004
restated: 42 per cent). Excluding the proceeds for the sale of Shaw's, the
return of capital and the purchase of new stores, underlying cashflow for the
half year was positive, an improvement on last year of over £300 million.
Return on capital employed decreased to 5.0 per cent (2003 restated: 11.6 per
cent) as a result of the fall in profit in Sainsbury's Supermarkets.
International Financial Reporting Standards (IFRS)
We are preparing for the adoption of IFRS. In 2005/06 we will produce IFRS
compliant accounts, reconciled to UK GAAP. To help understanding of the key
issues, we will be updating investors and analysts before the preliminary
announcement on 18 May 2005. We are also intending to issue restated 2004/05
accounts prior to the 2005/06 interim results announcement.
(1) Underlying EBITDA is underlying operating profit of £172 million
(2003: £401 million) before exceptional operating costs of £427 million (2003:
£37 million) and adjusted for depreciation of £252 million (2003: £209 million).
On continuing operations, underlying EBITDA is before the same exceptional
operating costs and comprises underlying operating profit of £161 million (2003:
£321 million) and depreciation of £249 million (2003: £176 million).
Group profit and loss account
Restated (1)
28 weeks to 9 28 weeks to
October 2004 11 October 2003
(Unaudited) (Unaudited)
£m £m
Note
Turnover including VAT and sales tax (2) 2 8,690 9,695
VAT and sales tax (504) (580)
Continuing operations 7,979 7,597
Discontinued operations 207 1,518
Turnover excluding VAT and sales tax 2 8,186 9,115
Continuing operations - underlying operating profit (3) 161 321
Exceptional operating costs 3 (427) (37)
Amortisation of goodwill (1) -
Continuing operations - operating (loss)/profit (267) 284
Discontinued operations - underlying operating profit (3) 11 80
Amortisation of goodwill (1) (7)
Discontinued operations - operating profit 10 73
Group operating (loss)/profit 2 (257) 357
Profit on sale of properties 3 8 1
Disposal of operations - discontinued 3 251 -
Profit on ordinary activities before interest 2 358
Net interest payable and similar items (41) (35)
Underlying profit on ordinary activities before tax (4) 131 366
Exceptional items (168) (36)
Amortisation of goodwill (2) (7)
(Loss)/profit on ordinary activities before tax (39) 323
Tax on loss/(profit) on ordinary activities 4 65 (114)
Profit on ordinary activities after tax 26 209
Equity minority interest (2) (3)
Profit for the financial period 24 206
Non equity dividends 8 (112) -
Profit for the financial period after non equity dividends (88) 206
Equity dividends (36) (83)
Retained (loss)/profit for the financial period (124) 123
Basic (loss)/earnings per share after non equity dividends 5 (4.8)p 10.8p
Basic earnings per share before non equity dividends 5 1.3p 10.8p
Underlying earnings per share before non equity dividends (4) 5 4.5p 12.8p
Diluted (loss)/earnings per share after non equity dividends 5 (4.8)p 10.8p
Diluted earnings per share before non equity dividends 5 1.3p 10.8p
Underlying diluted earnings per share before non equity dividends (4) 5 4.5p 12.7p
Dividend per share 2.15p 4.33p
(1) Restated for the change in accounting policy for turnover in accordance
with FRS 5 Application Note G (see note 1)
(2) Including VAT at Sainsbury's Supermarkets and sales tax at Shaw's
Supermarkets
(3) Before exceptional operating costs and amortisation of goodwill
(4) Before exceptional items and amortisation of goodwill
Group statement of total recognised gains and losses
28 weeks to 28 weeks to
9 October 2004 11 October 2003
(Unaudited) (Unaudited)
£m £m
Profit for the financial period 24 206
Currency translation differences on foreign currency net investments 1 (4)
Total recognised gains since last annual report 25 202
There is no material difference between the above profit for the financial
period and the historical cost equivalent.
Reconciliation of movements in equity shareholders' funds
Restated (1)
28 weeks to 28 weeks to
9 October 2004 11 October
2003
(Unaudited) (Unaudited)
Note £m £m
Profit for the financial period 24 206
Non equity dividends 8 (112) -
Equity dividends (36) (83)
(124) 123
Currency translation differences 1 (4)
Goodwill previously written off to reserves 86 -
Share redemption 8 (527) -
Share redemption expenses (2) -
Proceeds from ordinary shares issued for cash - 4
Net movement in equity shareholders' funds (566) 123
Opening equity shareholders' funds as restated (1) 5,018 4,917
Closing equity shareholders' funds 4,452 5,040
(1) Restated for change in accounting policy in accordance with UITF Abstract 38
'Accounting for ESOP Trusts' (see note 1). Shareholders' funds as published
were £5,126 million at 11 October 2003 before deducting a prior year adjustment
of £86 million (£5,104 million at 27 March 2004 before deducting a prior year
adjustment of £86 million)
Group balance sheet
Restated (1) Restated (1)
9 October 11 October 27 March
2004 2003 2004
(Unaudited) (Unaudited) (Audited)
Note £m £m £m
Fixed assets
Intangible assets 120 206 208
Tangible assets 7,335 7,559 8,214
Investments 19 24 30
7,474 7,789 8,452
Current assets
Stock 553 898 753
Debtors 256 246 319
Sainsbury's Bank's current assets 6 1,352 1,414 1,329
Sainsbury's Bank's debtors due after more
than one year 6 1,295 996 1,170
Assets held for resale 60 - -
Investments 29 26 19
Cash at bank and in hand 389 352 465
3,934 3,932 4,055
Creditors: amounts falling due within one year
Sainsbury's Bank's current liabilities 6 (2,450) (2,236) (2,306)
Other (2,290) (2,248) (2,600)
(4,740) (4,484) (4,906)
Net current liabilities (806) (552) (851)
Total assets less current liabilities 6,668 7,237 7,601
Creditors: amounts falling due after more (1,779) (1,870) (2,194)
than one year
Provisions for liabilities and charges (354) (255) (308)
Total net assets 4,535 5,112 5,099
Capital and reserves
Called up share capital 640 485 486
Share premium account 757 1,427 1,438
Capital redemption reserve fund 8 527 - -
Revaluation reserve 22 22 22
Profit and loss account 2,506 3,106 3,072
Equity shareholders' funds 4,452 5,040 5,018
Equity minority interest 83 72 81
4,535 5,112 5,099
(1) Restated for the change in accounting policy in accordance with UITF
Abstract 38 (see note 1). Shareholders' funds as published were £5,126 million
at 11 October 2003 before deducting a prior year adjustment of £86 million
(£5,104 million at 27 March 2004 before deducting a prior year adjustment of £86
million). Investments have been correspondingly reduced.
The effect of the change of accounting policy on the Group balance sheet at 9
October 2004 is to reduce shareholders' funds and investments by £86 million.
Group cash flow statement
28 weeks to 28 weeks to
9 October 11 October
2004 2003
(Unaudited) (Unaudited)
Note £m £m
Net cash inflow from operating activities 7 483 444
Dividend received from joint venture - 1
Returns on investments and servicing of finance
Interest received 16 16
Interest paid (67) (59)
Interest element of finance lease payments (2) (20)
Non equity dividends paid 8 (112) -
Net cash outflow from returns on investments and (165) (63)
servicing of finance
Taxation (71) (100)
Capital expenditure and financial investment
Purchase of tangible fixed assets (515) (439)
Sale of tangible fixed assets 88 77
Net cash outflow from capital expenditure and
financial investment (427) (362)
Acquisitions and disposals
Payments relating to disposal of fixed asset
investments - (23)
Acquisition of subsidiaries (94) -
Cash balances of businesses acquired 2 -
Proceeds from disposal of operations 1,164 -
Cash balances of businesses sold (27) -
Net cash inflow/(outflow) for acquisitions and from
disposals 1,045 (23)
Equity dividends paid to shareholders (218) (217)
Net cash outflow before use of liquid resources and
financing 647 (320)
Financing
Issue of ordinary share capital - 4
Capital redeemed 8 (527) -
Capital redemption expenses (2) -
(Decrease)/increase in short-term borrowings (3) 87
Decrease in long-term borrowings (150) (1)
Capital element of finance lease payments (32) (35)
Net cash (outflow)/inflow from financing (714) 55
Decrease in net cash in the period (67) (265)
Reconciliation of net cash flow to movement in net debt
Decrease in net cash in the period (67) (265)
Decrease/(increase) in debt 153 (86)
Loans and finance leases disposed of with subsidiaries 230 -
Movement in finance leases 32 (9)
Exchange adjustments (20) 53
Movement in net debt in the period 9 328 (307)
Net debt at the beginning of the period 9 (2,088) (1,404)
Net debt at the end of the period 9 (1,760) (1,711)
Notes to the results
1. Accounting policies
The financial information has been prepared using the accounting policies set
out in the Annual Report and Financial Statements 2004 with the exception of the
policies for revenue recognition, accounting for ESOP Trusts and employee share
schemes.
UITF Abstract 38 - Accounting for ESOP Trusts requires that the cost of shares
held by ESOPs should be shown as a deduction from equity shareholders' funds,
whereas they were previously shown as investments in the Group balance sheet.
The effect of this change in accounting policy is to reduce shareholders' funds
in 2004 by £86 million (2003: £86 million). Investments have been
correspondingly reduced. There was no material impact from UITF Abstract 17
(revised 2003) - Employee share schemes.
In accordance with FRS 5 Application note G - Revenue Recognition, sales through
retail outlets are shown net of the cost of Nectar reward points issued and
redeemed, staff discounts, vouchers and sales made on an agency basis. In the
previous interim statement, these costs were reported as an expense in cost of
sales. FRS 5 (ANG) requires that only commission earned from sales through
concessions can be recognised in turnover, whereas previously gross concession
turnover was included as sales. The effect of this change in accounting policy
is to reduce turnover in 2004 by £133 million (2003: £145 million) and to reduce
cost of sales correspondingly.
2. Group turnover and operating profit
Set out below are the Group turnover and operating profit.
28 weeks to Restated (1) 28 weeks to
9 October 2004 11 October 2003
(Unaudited) (Unaudited)
£m £m
Group turnover Turnover Turnover Turnover Turnover
Continuing operations including VAT excluding VAT including VAT excluding VAT
Food retailing - UK 8,348 7,846 8,063 7,495
Financial services - UK 133 133 102 102
Total 8,481 7,979 8,165 7,597
Discontinued operations
Property development - UK - - 13 13
Food retailing - US 209 207 1,517 1,505
Total 209 207 1,530 1,518
Total turnover 8,690 8,186 9,695 9,115
(1) Prior year comparative sales have been restated in order to comply with FRS
5 (ANG) and are now shown net of Nectar reward points issued and redeemed, staff
discounts, vouchers and sales made on an agency basis.
Group operating (loss)/profit 28 weeks to 28 weeks to
9 October 2004 11 October 2003
(Unaudited) (Unaudited)
£m £m
Continuing operations
Food retailing - UK 155 313
Financial services - UK 6 8
Total 161 321
Discontinued operations
Property development - UK - 6
Food retailing - US 11 74
Total 11 80
Underlying operating profit before exceptional costs
and amortisation of goodwill 172 401
Exceptional operating costs - Food retailing - UK (427) (37)
Amortisation of goodwill - Food retailing - UK (1) -
Food retailing - US (1) (7)
Total (257) 357
3. Exceptional items
3.1 Exceptional operating costs
28 weeks to 28 weeks to
9 October 2004 11 October 2003
(Unaudited) (Unaudited)
£m £m
Business Transformation Programme costs 26 29
Business Review costs 401 -
Safeway bid costs - 8
Exceptional operating costs 427 37
Exceptional costs relating to the conclusion of the previous years' Business
Transformation Programme comprised primarily of reorganisation and asset
write-offs.
Costs directly associated with the Business Review have been treated as
exceptional operating items due both to their size and non-recurring nature.
Business Review costs primarily relate to the write-off of redundant information
technology assets, the write-off of automated equipment in the new fulfillment
centres, a write down in the carrying value of stock and property costs
associated with store closures and development sites. An estimated £550 million
exceptional cost as a result of the Business Review is expected to be incurred
for the full year.
3.2 Exceptional non-operating items
Profits on sale of properties were as follows:
28 weeks to 28 weeks to
9 October 2004 11 October 2003
(Unaudited) (Unaudited)
£m £m
Sainsbury's Supermarkets 8 1
Profit/(loss) on disposal of operations were as follows:
28 weeks to 28 weeks to
9 October 2004 11 October 2003
(Unaudited) (Unaudited)
£m £m
Note
Shaw's Supermarkets 10 275 -
Other previously discontinued operations (24) -
251 -
4. Taxation
Taxation in the profit and loss account comprises:
28 weeks to 28 weeks to
9 October 2004 11 October 2003
(Unaudited) (Unaudited)
£m £m
Current tax 47 112
Deferred tax - 7
Tax relief on exceptional operating costs -current (33) (5)
-deferred (79) -
Tax on (loss)/profit on ordinary activities (65) 114
Current tax exceeds the charge based on the statutory rate of UK corporation tax
principally due to the lack of effective tax relief on depreciation of UK retail
properties.
Current tax relief on exceptional operating costs relates primarily to stock
provisions. Deferred tax relief on exceptional operating costs relates to the
write-off of redundant information technology assets and the write-off of
automated equipment in the new fulfillment centres. There was no current or
deferred tax arising on the disposal of operations or properties in 2004.
5. Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to
ordinary shareholders, after deducting the non equity dividends paid as part of
the return of capital to shareholders in July 2004, by the weighted average
number of ordinary shares in issue during the period, excluding those held by
the Employee Share Ownership Trusts which are treated as cancelled.
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all dilutive potential 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 to 9 October 2004.
28 weeks to 28 weeks to
9 October 2004 11 October 2003
(Unaudited) (Unaudited)
million million
Weighted average number of shares in issue 1,814.3 1,912.7
Weighted average number of dilutive share options 3.0 1.6
Total number of shares for calculating diluted earnings per share 1,817.3 1,914.3
The alternative measure of earnings per share is provided because it reflects
the Group's underlying trading performance by excluding the effect of non equity
dividends realised as a result of the capital return to shareholders,
exceptional items and amortisation of goodwill.
28 weeks to 28 weeks to
9 October 11 October
2004 2003
(Unaudited) (Unaudited)
Earnings Per share Earnings Per share
£m amount £m amount
pence pence
Basic (loss)/earnings after
deducting non equity dividends (88) (4.8) 206 10.8
Add back non equity dividends 112 6.1 - -
Basic earnings before non equity
dividends 24 1.3 206 10.8
Exceptional items net of tax:
Included in operating profit 315 17.3 32 1.7
Profit on sale of properties (8) (0.4) (1) (0.1)
Disposal of operations (251) (13.8) - -
Amortisation of goodwill 2 0.1 7 0.4
Underlying earnings before non
equity dividends, exceptional
items and amortisation of
goodwill 82 4.5 244 12.8
Diluted (loss)/earnings after
deducting non equity dividends (88) (4.8) 206 10.8
Diluted earnings before non
equity dividends 24 1.3 206 10.8
Underlying diluted earnings
before non equity dividends,
exceptional items and
amortisation of goodwill 82 4.5 244 12.7
In accordance with FRS 14, prior period earnings per share has not been restated
for the capital return and share consolidation as the overall commercial effect
is that of a share repurchase at fair value.
6. Current assets and current liabilities of Sainsbury's Bank
9 October 2004 11 October 2003 27 March 2004
(Unaudited) (Unaudited) (Audited)
£m £m £m
Current assets
Cash 92 47 78
Treasury bills and other eligible bills 66 70 61
Loans and advances to banks 91 109 33
Loans and advances to customers 1,041 781 934
Debt securities 25 374 148
Prepayments and accrued income 37 33 75
1,352 1,414 1,329
Loans and advances to customers due in more than one year 1,295 996 1,170
2,647 2,410 2,499
Current liabilities: amounts falling due within one year
Loan from minority shareholder 27 20 27
Deposits by banks - 5 -
Customer accounts 2,318 2,132 2,200
Accruals and deferred income 105 79 79
2,450 2,236 2,306
In addition to the above assets, Sainsbury's Bank had fixed assets of £29
million at 9 October 2004 (11 October 2003: £16 million; 27 March 2004:
£27 million) included in tangible fixed assets and inter company liabilities of
£39 million (11 October 2003: £31 million; 27 March 2004: £38 million) included
in creditors due within one year.
7. Reconciliation of operating profit to net cash inflow from operating
activities
28 weeks to 28 weeks to
9 October 2004 11 October 2003
(Unaudited) (Unaudited)
£m £m
Group operating (loss)/ profit (257) 357
Depreciation 252 209
Exceptional write-off of fixed assets 282 5
Amortisation of intangible assets 2 8
Loss on sale of equipment, fixtures and vehicles - 10
Decrease/(Increase) in stocks 53 (107)
(Increase)/Decrease in debtors (13) 34
Increase/(Decrease) in creditors and provisions 168 (58)
Increase in Sainsbury's Bank current assets (148) (13)
Increase/(Decrease) in Sainsbury's Bank current liabilities 144 (1)
Net cash inflow from operating activities 483 444
8. Share Redemption and Capital Return
J Sainsbury plc proposed a capital return of 35 pence per share which equated to
£680 million. The return, by way of a B share scheme, was approved by
shareholders at the Company's Annual General Meeting on 12 July 2004.
Shareholders were given the option of receiving a single dividend of 35 pence
for each B share held, redeeming the B shares immediately or in the future.
Total capital returned to shareholders by 9 October 2004 amounted to £639
million, of which £112 million was by way of dividend and £527 million was
through share redemption. There remains a further 116 million B shares valued
at £41 million to be redeemed at a future date.
The dividend of £112 million is shown as a non equity dividend in the profit for
the year and as part of returns on investments and servicing of finance in the
cash flow.
The redemptions are shown in Financing in the cash flow and a transfer has been
made from the profit and loss account to capital redemption reserve of £527
million.
In addition to the return of capital, there was also a consolidation of
Sainsbury's shares whereby for every eight Sainsbury's shares held at the close
of business on 16 July 2004, shareholders received seven new shares. As a
result of this, the number of shares in issue reduced from 1,943 million to
1,700 million.
9. Analysis of net debt
At 27 March Cash Acquisitions Other Exchange At 9 October
2004 flow and non-cash movements 2004
(Audited) £m disposals movements £m (Unaudited)
£m £m £m
Current asset investments 19 10 - - - 29
Cash at bank and in hand 465 (52) (25) - 1 389
484 (42) (25) - 1 418
Due within one year:
Borrowings (362) 3 - - - (359)
Finance leases (41) 32 5 (36) - (40)
Due after one year:
Borrowings (1,879) 150 10 - (16) (1,735)
Finance leases (290) - 215 36 (5) (44)
(2,572) 185 230 - (21) (2,178)
Total net debt (2,088) 143 205 - (20) (1,760)
10. Sale of Shaw's Supermarkets
The Group sold its US supermarkets business ('Shaw's') to Albertson's Inc. on 30
April 2004 for a total consideration of $2,475 million, including $368 million
in assumed lease liabilities. Proceeds, net of expenses, of £1,170 million were
received by the Group and a profit of £275 million was realised on the sale.
£m
Tangible fixed assets 805
Intangible fixed assets 164
Fixed asset investments 11
Stock 162
Debtors and other assets 75
Cash and current asset investments 27
Debt (230)
Net debt (203)
Other creditors and provisions (205)
Net assets disposed 809
Net cash received (1,170)
Goodwill previously written off to 86
reserves
Profit on disposal of the business 275
Shaw's had a £15 million net operating cash outflow prior to its sale, paid £3
million in respect of net returns on investments and servicing of finance and
purchased £11 million of tangible fixed assets.
11. Financial information
The 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 52 weeks to 27 March 2004 have been extracted from the Annual Report and
Financial Statements 2004, which have been filed with the Registrar of
Companies. The audit report on the Annual Report and Financial Statements 2004
was unqualified and did not contain a statement under Section 237 (2) or (3) of
the Companies Act 1985.
The Group's results will be published in the Interim Statement, which will be
posted to shareholders on
22 November 2004. Copies will also be available from J Sainsbury plc, 33
Holborn, London EC1N 2HT and at its paying agents Citibank, N.A., 336 Strand,
London WC2R 1HB and Chase Manhattan Bank, Trinity Tower, 9 Thomas More Street,
London E1 9YT.
Information about Sainsbury's can be obtained by selecting 'company info' from
our website: www.sainsburys.co.uk
Review report by the Auditors to the Board of Directors of J Sainsbury plc
Independent review report to J Sainsbury plc
Introduction
We have been instructed by the Company to review the financial information which
comprises the Group profit and loss account, Group statement of total recognised
gains and losses, reconciliation of movements in equity shareholders' funds,
Group balance sheet, Group cash flow statement, 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
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 Directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which 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 for use in the United Kingdom. A review
consists principally of making enquiries of Group 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 United Kingdom 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. This report, including the
conclusion, has been prepared for and only for the Company for the purpose of
the Listing 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.
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
9 October 2004.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
1 Embankment Place
London
WC2N 6RH
16 November 2004
Notes:
(a) 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 interim report
since it was initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
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