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. This information is provided by RNS The company news service from the London Stock Exchange
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