Interim Results
Sainsbury(J) PLC
15 November 2006
15 November 2006
Interim Results for the 28 weeks ended 7 October 2006
Strong first half profit growth - recovery on track
Making Sainsbury's Great Again
• Seven quarters of consecutive like-for-like sales and market share growth
• Delivered £1.3 billion additional sales after 18 months, just over halfway
to £2.5 billion target (1)
• Focus on fresh and healthy food differentiates Sainsbury's and customers
increasingly look for the values which are at the heart of the Company's
heritage and brand
• Significant improvement in first 18 months on price, quality, availability
and customer service
• Delivery of cost savings on track
• Early progress in re-establishing property pipeline
• Convenience and non-food offers delivering to plan
• Voted 'Supermarket of the Year' in the 2006 Retail Industry Awards
Financial summary
• Underlying profit before tax (2) £189 million (2005/06: £118 million), up
60.2 per cent
• Profit before tax of £194 million (2005/06: £87 million), up 123.0 per cent
• Underlying basic earnings per share (3) 7.3 pence (2005/06: 4.8 pence), up
52.1 per cent
• Basic earnings per share 7.5 pence (2005/06: 3.5 pence), up 114.3 per cent
• Interim dividend of 2.40 pence per share (2005/06: 2.15 pence), up 11.6 per
cent
Retailing - Supermarkets and Convenience
• Total sales (inc VAT) up 8.3 per cent to £9,549 million
• Like-for-like sales growth (inc VAT) (4) of 6.2 per cent
• Retailing underlying operating profit (6) £215 million up 28.0 per cent
• Operational gearing continues to be delivered with retailing operating
margin (7) up 37 basis points
Financial Services - Sainsbury's Bank
• Breakeven at operating level (2005/06: operating loss of £5 million)
• Business stabilised, costs reduced and debt trends improving
Philip Hampton, Chairman, said: 'We are now halfway through our three year plan
and the recovery is on track. This has been a strong first half performance for
Sainsbury's with underlying profit before tax up 60.2 per cent at £189 million.
The Board have approved an interim dividend of 2.40 pence per share, an increase
of 11.6 per cent on last half year. This represents 30 per cent of last year's
total dividend. In future years we expect to maintain the approach of 30 per
cent of the previous year's total dividend for the first half.'
Justin King, Chief Executive, said: 'We have made good progress during the first
six months of the year reporting our seventh consecutive quarter of
like-for-like sales growth, our best performance for many years. Total sales
(inc VAT) for the first half increased by 8.3 per cent and like-for-like sales
growth (4) was 6.2 per cent. A strong performance on food together with good
performances from online and non-food have driven higher sales densities which
are up 5.6 per cent. At the same time we have realised cost savings, delivered
operational gearing and increased the retailing operating margin by 37 basis
points.
'We have now delivered £1.3 billion of additional sales after 18 months, which
is just over halfway towards our target to grow sales by £2.5 billion (1) by
March 2008. Over the same period, our market share has increased with weekly
customer transactions growing 1.5 million as we have introduced better quality
products, lowered prices, and improved product availability and customer
service.
'Looking forward, we face tougher sales comparatives of over five per cent which
were achieved in quarters three and four of 2005/06. We believe that our focus
on healthy, safe, fresh and tasty food is becoming increasingly important for
customers. We expect the market to remain highly competitive but our first half
performance gives us good momentum as customers continue to look for better
quality products at competitive prices.'
Notes:
1 Making Sainsbury' s Great Again sales target: Includes VAT and excludes
fuel and Sainsbury's Bank sales.
2 Underlying profit before tax: Profit before tax before any gain or loss on
the sale of properties, impairment of goodwill, financing fair value
movements and one-off items that are material and infrequent in nature.
For the 28 weeks to 8 October 2005, these one-off items were the Business
Review costs.
3 Underlying basic earnings per share: Profit after tax attributable to
equity holders before any gain or loss on the sale of properties,
impairment of goodwill, financing fair value movements and one-off items
that are material and infrequent in nature, divided by the weighted average
number of ordinary shares in issue during the period, excluding those held
by the ESOP trusts, which are treated as cancelled.
4 Excluding fuel and Easter adjusted: See (5) below.
5 Easter adjustment: Like-for-like sales are impacted by the timing of the
Good Friday trading week (none in H1 2005/06 and one in H1 2006/07).
6 Retailing underlying operating profit: Underlying profit before tax
excluding Sainsbury's Bank, before finance income and finance costs.
7 Retailing operating margin: Retailing underlying operating profit
divided by retail sales (ex VAT).
8 Certain statements made in this announcement are forward looking
statements. Such statements are based on current expectations and are
subject to a number of risks and uncertainties that could cause actual
results to differ materially from any expected future events or results
referred to in these forward looking statements.
9 Sainsbury's will announce its third quarter trading statement on 11
January 2007.
10 We will be holding a presentation for analysts and investors at 9:45 am
(GMT) on 15 November 2006.
To view the slides of the Results Presentation and the Webcast:
We recommend that you register for this event in advance. To do so, please
visit www.j-sainsbury.co.uk and follow the on-screen instructions. To
participate in the live event, please go to the website from 9.30 am on the
day of the announcement, and further instructions will be on the website.
The archive of this event will be available from 16:00 (GMT) on the day in
the form of a delayed webcast.
To listen to the Results Presentation:
To participate, ten minutes prior to the start of the presentation, dial
+44 (0) 20 7806 1956. You will be asked to give your name and Company
details. You will then be placed on hold and will hear music until the
presentation starts.
An archive of this event will be available from 12.30 GMT on the day by
calling +44 (0) 20 7806 1970, pin number 5973746# until midnight GMT on
Friday 17 November 2006.
To view the transcript of the Results Presentation:
Go to www.j-sainsbury.co.uk from Friday 17 November 2006.
Enquiries:
Investor Relations Media
Lynda Ashton Pip Wood
+44 (0) 20 7695 7162 +44 (0) 20 7695 6127
Operating review
Making Sainsbury's Great Again
The Sainsbury's shopping experience has substantially improved since the Company
embarked on its recovery plan, Making Sainsbury's Great Again (MSGA), in October
2004. Significant investment has been made in pricing and this continued during
the first half despite considerable cost pressure in the market. Prices were
maintained at the same level as the first half of 2005/06 despite wider grocery
market inflation. The £400 million catch up investment in the customer offer has
substantially been made and has resulted in Sainsbury's delivering its most
competitive price position for many years. Going forward, in line with the
recovery plan, the Company expects to continue to invest 100 to 150 basis points
per annum in the customer offer, as it is committed to maintaining its
competitive position in the market.
Sainsbury's product availability is at its highest level for many years. The
Company is committed to further improvements in product availability and the
challenge for the second half is on delivering consistency. Focus in the supply
chain has been on securing the benefits of the recent reorganisation and
delivering underlying efficiencies. The reorganised depots are handling the
increased volume compared to last year giving an improved service to stores with
less resource. The cost per case to deliver products to stores has significantly
improved and is now in line with industry benchmarks.
Sainsbury's focus on food
Great food at fair prices is the foundation of Sainsbury's offer and central to
the Company's universal appeal. Placing the priority on quality fresh food
offers customers a different proposition to that of major competitors. The
target to grow grocery sales by £1.4 billion, as part of the recovery plan, is
dependent upon the continuation of Sainsbury's lead in quality and ensuring
prices remain competitive. With the sales growth delivered to date, the Company
is ahead of achieving that target.
Last month Sainsbury's achieved outstanding success at the Retail Industry
Awards 2006, winning four awards including Fresh Produce Retailer of the Year
and Supermarket of the Year. Customers value the focus on better quality, fresh
and seasonal food which has been synonymous with Sainsbury's brand for over 100
years. The Company works closely with suppliers to source as many products as
possible from the UK and was the first retailer to get a variety of British
seasonal produce into store this year.
Following the launch of 'Farm Promise' milk from British farms converting to
organic standards, Sainsbury's has adopted a similar approach to boost UK apple
production. The UK currently produces 180,000 tons of apples, yet new growing
techniques could potentially triple this amount. Over the past year Sainsbury's
has been in regular contact with 32 of its beef farmers holding partnership
meetings organised through its primary beef supplier. Recent discussions have
focused on the use of older beef, whole carcass utilisation, imports, exports
and the future of supplies. The Company also has the leading industry beef
maturation standards for products sold as 21 day beef.
Sainsbury's 'Supply something new' programme was launched in May 2006 to give
local suppliers access to a wider market through the Company's stores. Managers
meet new suppliers to search for high quality, innovative, locally produced food
for customers to enjoy. Two events have taken place so far and Sainsbury's is
planning to introduce new products into stores over the coming months. New
Organic Patisserie cheesecakes are already in store.
The trend for choosing organic food continues to grow and Sainsbury's supports
and celebrates organic food that is seasonal and British. All organic primary
chicken, beef, pork, milk, eggs, cheddar cheese and in-season lamb is sourced
from the UK. The Company's premium range 'Taste the difference' (TTD) was
relaunched in September. Products must meet strict quality standards and do not
have any artificial colours, flavours or hydrogenated fats. Originally launched
in November 2000, the range has grown from 250 products to over 1,100 and is set
to be a £1 billion brand next year.
The 'Wheel of Health' is Sainsbury's multiple traffic light nutritional front of
pack labeling introduced in January 2005. The Company believes colour-coding the
content of salt, fat, saturates, total sugars and calories is the most effective
way of helping customers know more about the food they buy so that they can make
better, healthier choices at the shelf edge. The 'Wheel of Health' is now on
over 2,200 own label products including TTD.
Try Something New Today
'Try Something New Today' celebrated its first anniversary in September.
Inspired by the insight that most customers shopped from a selection of around
only 150 products, the campaign suggests simple ways to make small but impactful
changes to the food we eat and has been incredibly successful. Items featured in
advertising have inspired customers to try different products. Mango sales
volumes increased over 400 per cent year on year when it featured in a 'Try' tip
in July. This year's Christmas campaign will give 'Try' tips for a number of
products and a Christmas recipes and ideas booklet will show how to cook
products from scratch, as well as enhance pre-prepared products such as mince
pies.
Complementary non-food
Sainsbury's believes that food should remain at the heart of its offer but
complementary non-food is targeted to deliver sales growth of £700 million as
set out in October 2004. The Company remains on track to deliver this with sales
on core ranges such as cards, wrapping paper and entertainment growing in the
region of 20 per cent as improvements have been made to the range, space,
fixtures and displays dedicated to these products in store.
Following successful trials in 15 stores last year where space was re-laid with
new fixtures and fittings for the non-food ranges, a further 31 stores have been
re-laid in the first half. It is anticipated, as a result of the success so far,
that there will be a further 20 stores with this improved offer by the end of
the financial year. A number of the extended stores have had a significant
amount of space added for the complementary non-food offer and have also traded
well. As the extension programme accelerates it will provide the opportunity to
add complementary non-food into further stores. An additional 28 pharmacies
also opened during the first half bringing the total to 192 pharmacies. By
building on these early results, and by adding improved systems and processes,
the Company is confident that it remains on track to grow the complementary
non-food business faster in the second half of the three year recovery plan.
TU, Sainsbury's clothing range, celebrated its second anniversary in September
and is now approaching a £250 million label, on an annualised basis. TU
continues to be developed and further improved with a 25 per cent increase in
the number of styles offered and with additional ranges introduced during the
half. A range of 22 items of clothing made from Fairtrade certified cotton will
be on sale in 66 stores from early 2007. This follows the UK's biggest ever
single order of Fairtrade certified cotton placed earlier this year for the
Company's Sport Relief t-shirts. During the first half, TU was introduced into
30 more stores, bringing the total to 232 with plans for ten more stores to have
TU added during the second half of this year. Substantial improvements have
been made to the infrastructure behind the brand to enable the business to
continue to expand.
Corporate responsibility
Corporate responsibility has been an important part of Sainsbury's since the
first store opened in 1869 and is of increasing importance to customers. It
remains core to the way we do business with an Operating Board Director
sponsoring each one of the five principles.
Sainsbury's aims to be 'the best for food and health' and is committed to giving
customers access to healthy and tasty food regardless of budget. A recent
example of this is the commitment to remove all artificial colours, flavours and
hydrogenated fats from the production of own label products by January 2007.
Ten years ago Sainsbury's was the first major British food retailer to publish a
comprehensive report on its environmental performance and 'respect for our
environment' remains a key concern. Sainsbury's leads the industry in many areas
and continues to innovate to set even higher standards. In September, the
Company revolutionised product packaging with the introduction of maize,
sugar-cane or starch compostable packaging for over 500 products. The move will
save over 4,000 tonnes of fossil fuel (3,550 tonnes of plastic) from Sainsbury's
output alone each year and reduces rubbish collected for landfill. Similar
savings will be achieved through the recent launch of the 33 per cent orange
recycled bag.
The Company will not be sending a printed interim report to all shareholders but
is instead advertising the interim results in the Financial Times on Friday 17
November and publishing the report on www.j-sainsbury.co.uk saving over 30
tonnes of paper this year. Sainsbury's has also joined eTree, an organisation
that promotes electronic shareholder communication, and is donating a sapling to
the Woodland Trust, the UK's leading woodland conservation charity, for every
shareholder registering with the service. So far almost 5,000 shareholders have
signed up, equivalent to approximately six acres of tree planting.
Sainsbury's has a long tradition of working closely with suppliers and 'sourcing
with integrity' is a fundamental platform in its relationships. The Company has
industry-leading fish sustainability plans, supported by the Marine Conservation
Society, and was the first to sell Marine Stewardship Council approved cod from
a sustainable supply.
Sainsbury's has always been an integral part of the communities in which it
trades and this was evident in the welcome the Company received when it opened
its new store in Upper Norwood in August. 'Making a positive difference to your
community' ensures that the Company tailors each new store to the local
community as well as driving initiatives such as Active Kids and its support of
Comic Relief.
Active Kids provides schools with activity equipment and experiences in return
for vouchers earned in store. Over the past two years Sainsbury's has donated
over £34 million of activity equipment benefiting 26,000 primary, secondary and
special needs schools as well as nurseries. Through the Youth Sports Trust the
Company supports the 'Top Activity' programme in around 500 primary and
secondary schools. This together with Active Kids has helped the government
exceed its target of 75 per cent of children receiving two hours of quality
physical exercise and sport per week.
Re-engaging colleagues around the principles of Sainsbury's business is
fundamental to the MSGA plan and in establishing 'a great place to work'.
Training in new leadership styles was piloted by the Operating Board and then
delivered to 1,000 managers from stores and central teams last financial year.
These 1,000 managers have, in turn, delivered the training to 9,000 colleagues.
The last workshop was held on 31 October, meaning the entire programme from the
Operating Board downwards was completed in just over a year with a total of 235
workshops held across the country and as part of the process around 54,000
colleagues have provided feedback to managers.
Property development
The target remains to grow total trading space by up to five per cent per annum
and the Company expects to build toward this target in a time frame of three to
five years. This is a significant step up in development of the property
pipeline and a number of UK locations where a Sainsbury's supermarket could be
introduced to the local community over the longer term have been identified.
Freehold and leasehold properties are sought although space growth is expected
to be predominantly leasehold in the short term, as it is likely that the
freehold sites acquired will be later in the development cycle. The Company has
recently demonstrated its differentiated approach to working with local
communities and as a result has been chosen to develop new stores against tough
competition. It gained planning approval at Urmston in Manchester and the right
to bid at Penrith, Cumbria. In addition Sainsbury's will, when it is possible,
buy in freeholds of trading sites where it believes there are potential long
term development opportunities.
Supermarkets
Sainsbury's has continued to develop its store estate and is ahead of its
planned footage growth for the current financial year due to the acquisition of
a number of stores from Somerfield. In the first half seven new stores were
opened (including four acquired from Somerfield), five stores extended, one
downsized and 32 refurbished. Eleven new stores, including three replacements,
are expected to open in the second half, including five also acquired from
Somerfield which are due to open before Christmas. In the second half,
Sainsbury's expects to complete 13 extensions and 16 refurbishments and further
opportunities continue to be identified. Together this will mean the new space
for the year will be approximately 2.5 per cent to 3.0 per cent, up from 1.5 per
cent to 2.0 per cent previously expected. As stores are refurbished,
improvements in sales densities are being achieved and there remains
considerable potential to grow densities further.
Convenience
The convenience operation is now under the leadership of Lawrence Christensen.
It is targeted to achieve £400 million of additional sales in the MSGA plan and
is currently in line with this plan. The focus is on growing the business and
improving operating processes.
Sainsbury's now has 290 convenience stores which are generally located in
neighbourhood and town centre locations. During the first half, ten new stores
opened and the Company refurbished 17 stores into 'Sainsbury's @ Jacksons' and
carried out 20 other refurbishments. In the second half, it is expected that a
further 20 new stores will be added and over 40 stores refurbished.
Refurbishments are ongoing and converted Bells and Jackson's stores have
continued to show over 20 per cent sales growth year on year, driven primarily
by increasing demand for quality fresh food.
Sainsbury's Online
The focus on improving the online shopping service continues to produce
outstanding results as more customers try the service each week. The number of
deliveries has increased with record numbers achieved in recent weeks with
orders approaching 60,000 per week. The service is attracting its highest number
of first time customers primarily through the recommendation of existing
customers.
Sales in the first half grew by over 40 per cent year on year and the service is
now available to 83 per cent of UK households. The 108th online store, and the
first in Northern Ireland, opened in Sprucefield last week and a total of 125
stores are targeted to be available by the end of the financial year. The
online business will then reach 85 per cent of UK households.
Sainsbury's Bank
The Bank has made good progress delivering a breakeven operating result for the
first half and is targeting breakeven at operating level in the current
financial year. The Bank is now stabilising its business and it plans to move
into profitability in 2007/08 as the customer proposition is improved.
Competition Commission
Sainsbury's has made its submission to the Competition Commission (CC) and
attended its hearing. A summary of the Company's submission is on Sainsbury's
(www.j-sainsbury.co.uk) and the CC's websites. In summary the Company believes
that there are two highly competitive markets, 'one stop shop' and '
convenience', and that customers would benefit from changes to the local
planning regime with a move away from the fascia test and needs test to a market
share test. It also believes that the supplier code of conduct should be
extended to encompass all retailers. Sainsbury's is co-operating fully with the
CC and awaits the publication of their emerging thinking in due course.
Looking forward
The Preliminary Results in May 2006 stated that the second half of the current
financial year will be impacted by higher energy costs and tougher sales
comparatives and this remains the case. The market is also expected to remain
highly competitive. The strong performance to date gives good momentum as
Sainsbury's enters the second half of the year and the second half of its
three-year recovery plan.
Financial review
The results for the 28 weeks to 7 October 2006 ('half year') reflect a strong
start to the second year of the Making Sainsbury's Great Again plan.
Income statement
Sales (inc VAT) increased by 8.3 per cent to £9,724 million (2005/06: £8,978
million). Underlying profit before tax was up 60.2 per cent at £189 million
(2005/06: £118 million). Profit before tax was £194 million (2005/06: £87
million) and reflects the impact of having no one-off items this half year (2005
/06: expense of £14 million). Underlying basic earnings per share increased to
7.3 pence (2005/06: 4.8 pence). Basic earnings per share increased to 7.5 pence
(2005/06: 3.5 pence). An interim dividend of 2.40 pence per share has been
approved by the Board of Directors (2005/06: 2.15 pence).
28 weeks to 28 weeks to
7 October 8 October
2006 2005
£m £m % change
Continuing operations
Sales (inc VAT)
Retailing - Supermarkets and Convenience 9,549 8,815 8.3
Financial services - Sainsbury's Bank 175 163 7.4
Total sales (inc VAT) 9,724 8,978 8.3
Sales (ex VAT)
Retailing - Supermarkets and Convenience 8,841 8,164 8.3
Financial services - Sainsbury's Bank 175 163 7.4
Total sales (ex VAT) 9,016 8,327 8.3
Underlying operating profit
Retailing - Supermarkets and Convenience 215 168 28.0
Financial services - Sainsbury's Bank - (5) n/a
Total underlying operating profit 215 163 31.9
Underlying net finance costs (1) (26) (45) 42.2
Underlying profit before tax 189 118 60.2
Business Review costs - (14) n/a
Profit/(loss) on sale of properties 1 (7) n/a
Financing fair value movements 4 (10) n/a
Profit before tax 194 87 123.0
Income tax expense (68) (34) (100.0)
Profit for the financial period 126 53 137.7
Underlying basic earnings per share 7.3p 4.8p 52.1
Basic earnings per share 7.5p 3.5p 114.3
Approved interim dividend per share 2.40p 2.15p 11.6
(1) Underlying net finance costs: Net finance costs pre financing fair value
movements.
Retailing - Supermarkets and Convenience
Sales (inc VAT) increased by 8.3 per cent to £9,549 million (2005/06: £8,815
million) reflecting a significant contribution from like-for-like growth as well
as new space and fuel. Easter adjusted like-for-like sales performance (ex
fuel) was up 6.2 per cent. The positive sales growth reflected higher volumes
and overall grocery price inflation of nil. The impact of fuel on like-for-like
growth remained positive with Easter adjusted like-for-like sales including fuel
up 6.8 per cent. Online orders increased by over 40 per cent driven by strong
like-for-like volumes and the extension in the geographical area covered by the
service.
28 weeks to 28 weeks to 52 weeks to
7 October 8 October 25 March
2006 2005 2006
Like-for-like sales % (ex fuel) 6.2 2.1 3.7
(Easter adjusted)
Like-for-like sales % (inc fuel) 6.8 3.1 4.1
(Easter adjusted)
Grocery price inflation/(deflation) % nil (1.4) (1.5)
Retailing underlying operating
profit (£m) 215 168 352
Year on year growth % 28.0 13.5 14.3
Retailing underlying operating
margin % (1) 2.43 2.06 2.24
(1) Retailing underlying operating profit divided by retail sales (ex VAT).
New space provided a positive contribution to sales in the half year. Seven new
supermarkets, including four stores acquired from Somerfield, and ten new
convenience stores were opened. Five extensions, 32 refurbishments and one
downsize were completed within the supermarket estate. In convenience, there
were 20 refurbishments and 17 conversions completed. A further 31 supermarkets
benefited from investment in their complementary non-food offer following
successful trials in 15 stores last financial year.
Supermarkets Convenience Total
Number Area 000 Number Area 000 Number Area 000
sq ft sq ft sq ft
As at 25 March 2006 (1) 472 16,090 280 635 752 16,725
New stores 7 134 10 27 17 161
Extensions/downsizes/
refurbishments - 29 - - - 29
As at 7 October 2006 479 16,253 290 662 769 16,915
Memorandum
Extensions/downsizes/
refurbishments 38 37 75
(1) Reflects central supermarkets reclassified from Convenience to Supermarket
and other size adjustments.
Retailing underlying operating profit increased by 28.0 per cent to £215 million
(2005/06: £168 million) reflecting the strong sales performance and a 37 basis
point improvement in underlying operating margin (ex VAT) to 2.43 per cent for
the half year (2005/06: 2.06 per cent). Continued improvement in operational
gearing has been driven from higher sales volumes, improved stock loss and cost
savings. This has helped to mitigate the impact of continued investment in
price and product quality. In line with the MSGA plan, the strategic investment
in price has now been largely completed although the price position will
continue to be maintained within the competitive environment whilst the Group
also focuses on improving quality and service for the customer.
Key areas of cost saving have been in supply chain, labour and IT costs where
following the insourcing from Accenture at the end of the last financial year,
IT costs have fallen slightly ahead of expectations. In addition, there
continues to be a tight focus on managing central costs and a continued drive to
reduce stock loss, although shrinkage challenges in particular remain an issue
as the external environment has become tougher. The Group remains on track to
achieve the £440 million cost savings over three years that underpin the MSGA
plan and support the investment in the customer offer. External cost pressures
on oil-related costs and business rates have been widely reported within the
industry. Due to the timing of the Group's energy contract renewal, there has
been no impact of higher energy costs in the half. However there will be a
significant step up in energy costs of around £55 million in the second half
compared to the second half of last year.
Financial services - Sainsbury's Bank
Sainsbury's Bank has made good progress in stabilising its business during the
half year and at the operating level the business was breakeven (2005/06:
operating loss of £5 million). A tight focus on cost control has more than
offset a higher bad and doubtful debt charge, which primarily relates to the
remaining portion of the business written in 2003 and 2004. The tighter risk
management actions now implemented should lead to reduced bad debt for the
future. Overall for the full year, Sainsbury's Bank is continuing to target a
breakeven position at the operating level.
Underlying net finance costs
Underlying net finance costs decreased by £19 million to £26 million (2005/06:
£45 million), which comprised a £4 million reduction in underlying finance costs
and a £15 million increase in finance income. The Group expects that second
half finance costs will remain broadly level year on year reflecting the
progress made in the second half of the last financial year.
28 weeks to 28 weeks to
7 October 8 October
2006 2005
£m £m
Interest income 7 3
Net return on pension schemes 23 12
Underlying finance income 30 15
Interest costs (61) (62)
Capitalised interest 5 2
Underlying finance costs (56) (60)
Underlying net finance costs (1) (26) (45)
(1) Underlying net finance costs: Net finance costs pre financing fair value
movements.
The composition of the finance costs reflects the impact of the debt
restructuring and one-off pension contribution of £350 million announced on 24
March 2006. The net return on pension scheme assets has increased as a result
of the pension contribution but this is offset with higher interest costs. The
debt restructuring generated an underlying saving of £7 million within interest
costs as the switch into commercial mortgage backed securities enabled the Group
to benefit from lower interest rates. There has been a further saving of £9
million on net interest costs primarily relating to improved cash management.
Capitalised interest increased by £3 million, which reflected the timing of
capital projects.
Profit/loss on sale of properties
Surplus assets were sold generating total cash proceeds of £21 million (2005/06:
£121 million) and an overall profit on sale of £1 million (2005/06: loss of £7
million). For the full year it is expected that the total proceeds will be
between £75 million and £100 million.
Financing fair value movements
Fair value movements for the Group resulted in a £4 million gain (2005/06: £10
million loss). The debt restructuring has reduced the number of non-compliant
hedges which are subject to volatility from the mark to market adjustments.
Taxation
The income tax expense was £68 million (2005/06: £34 million), with an
underlying rate of 35.4 per cent (2005/06: 35.5 per cent) and an effective rate
of 35.1 per cent (2005/06: 39.5 per cent). The underlying rate exceeded the
nominal rate of UK corporation tax principally due to the lack of effective tax
relief on depreciation of UK retail properties.
A £9 million cash refund of corporation tax in relation to overpayments made in
prior years was received during the half (2005/06: £18 million received). The
Group does not expect to make a corporation tax cash payment in the current year
largely because of the tax relief associated with the one-off pension
contribution announced at the time of the debt restructuring.
Earnings per share
Underlying basic earnings per share increased by 52.1 per cent from 4.8 pence to
7.3 pence, reflecting the improvement in underlying profit after tax
attributable to equity holders, after adjusting for the minority interests in
Sainsbury's Bank. Basic earnings per share increased to 7.5 pence (2005/06:
3.5 pence).
Dividends
An interim dividend of 2.40 pence per share has been approved by the Board of
Directors (2005/06: 2.15 pence) and will be paid on 5 January 2007 to
shareholders on the Register of Members at the close of business on 24 November
2006. This represents 30 per cent of last year's total dividend and this will
be the basis for the half year dividend going forward.
Cash flow statement
Group net debt increased in the half year by £229 million from £1,415 million at
the prior year-end to £1,644 million. This increase was due to the £240 million
pension contribution made in May 2006 and a £65 million impact relating to
one-off items previously charged against profit. After adjusting for these
items there was an underlying net debt improvement of £76 million.
28 weeks to 28 weeks to 52 weeks to
7 October 8 October 25 March
2006 2005 2006
£m £m £m
Operating cash flows 276 369 780
Net interest (29) (85) (156)
Taxation 9 18 3
Cash flow before appropriations 256 302 627
Purchase of non-current assets (392) (301) (561)
Disposal of non-current
assets/operations 21 112 151
Debt restructuring costs - - (22)
Proceeds from issue of shares 8 1 22
Dividends paid (99) (95) (131)
Repayment of borrowings (10) (214) 65
Capital redemption (2) (6) (9)
Net (decrease)/increase in cash and
cash equivalents (218) (201) 142
Decrease/(increase) in debt 10 214 (65)
IAS 32 and IAS 39 adjustments (21) (62) (51)
Movement in net debt (229) (49) 26
Opening net debt (1,415) (1,441) (1,441)
Closing net debt (1,644) (1,490) (1,415)
Of which:
Retailing (1,765) (1,581) (1,536)
Financial services 121 91 121
Closing net debt (1,644) (1,490) (1,415)
Capital expenditure
Capital expenditure increased in the half year to £348 million (2005/06: £216
million). This included £127 million on new stores, (2005/06: £63 million) and
£205 million on extensions and refurbishments (2005/06: £103 million). Capital
expenditure is forecast to be in the region of £700 million to £750 million for
the full year, an increase of £50 million from previous expectations as a result
of the purchase of additional freehold properties.
Balance sheet
Shareholders' funds were £3,964 million (March 2006: £3,965 million). Gearing
increased year on year to 41 per cent (March 2006: 36 per cent), primarily
reflecting the £350 million one-off pension contribution.
Restated (1)
7 October 8 October 25 March
2006 2005 2006
£m £m £m
Non-current assets 8,836 8,808 8,927
Inventories 574 551 576
Trade and other receivables 2,291 1,591 2,216
Cash and cash equivalents 910 619 1,028
Debt (2,554) (2,109) (2,443)
Net debt (1,644) (1,490) (1,415)
Trade and other creditors and provisions (6,093) (5,377) (6,339)
Net assets 3,964 4,083 3,965
Equity shareholders' funds 3,886 4,003 3,886
Minority interests 78 80 79
Total equity 3,964 4,083 3,965
(1) Interim results as at October 2005 restated to reflect IFRS accounting
policies as at 25 March 2006.
Pensions
At the time of the debt restructuring last financial year, the Group made a
commitment to make a one-off contribution of £350 million into the Group's
defined benefit pension schemes. £110 million of this was paid into the scheme
on 24 March 2006 and was reflected in the year-end deficit of £651 million. A
further £240 million was paid on 19 May 2006. In addition the Group has agreed
to increase annual deficit contributions by £18 million to £38 million from
March 2007. These contributions along with the £350 million one-off contribution
were designed to fund the reported gross deficit which, calculated under IAS 19,
was £582 million as at 8 October 2005.
7 October 8 October 25 March
2006 2005 2006
£m £m £m
Present value of funded obligations (4,483) (3,848) (4,361)
Fair value of plan assets 4,006 3,266 3,710
(477) (582) (651)
Present value of unfunded obligations (6) (7) (7)
Retirement benefit obligations (483) (589) (658)
Deferred income tax asset 207 176 227
Net retirement benefit obligations (276) (413) (431)
The next triennial actuarial valuation is currently in progress and the results
are expected in early 2007 which will include any new commutation assumptions
following changes to the Finance Act effective from April 2006 ('A-Day'). At 7
October 2006, the net retirement benefit obligations are £276 million (March
2006: £431 million).
Group income statement (unaudited)
for the 28 weeks to 7 October 2006
28 weeks to 28 weeks to 52 weeks to
7 October 8 October 25 March
2006 2005 2006
Note £m £m £m
Continuing operations
Revenue 3 9,016 8,327 16,061
Cost of sales (8,425) (7,747) (14,994)
Gross profit 591 580 1,067
Administrative expenses (376) (431) (839)
Other income/(expense) 1 (7) 1
Operating profit 216 142 229
Finance income 4 34 15 30
Finance costs 4 (56) (70) (155)
Profit before taxation 194 87 104
Analysed as:
Underlying profit before tax (1) 189 118 267
Business Review operating costs - (14) (51)
IT insourcing costs - - (63)
Profit/(loss) on sale of
properties 1 (7) 1
Financing fair value movements 4 4 (10) (12)
Debt restructuring costs 4 - - (38)
194 87 104
Income tax expense 5 (68) (34) (46)
Profit for the financial period 126 53 58
Attributable to:
Equity holders of the parent 127 58 64
Minority interests (1) (5) (6)
126 53 58
Earnings per share 6 pence pence pence
Basic 7.5 3.5 3.8
Diluted 7.5 3.4 3.8
(1) Profit before tax before any gain or loss on the sale of properties,
impairment of goodwill, financing fair value movements and one-off items that
are material and infrequent in nature. For the 28 weeks to 8 October 2005,
these one-off items were the Business Review costs. For the 52 weeks to 25
March 2006, these one-off items were the Business Review costs, IT insourcing
costs and debt restructuring costs.
An interim dividend of 2.40 pence per share (October 2005: 2.15 pence per share)
has been approved by the Board of Directors for the 28 weeks to 7 October 2006,
resulting in a total interim dividend of £41 million (October 2005: £36
million).
Group statement of recognised income and expense (unaudited)
for the 28 weeks to 7 October 2006
Restated
28 weeks to 28 weeks to 52 weeks to
7 October 8 October 25 March
2006 2005 2006
Note £m £m £m
Currency translation differences - - 2
Actuarial losses on defined
benefit pension schemes (90) (67) (255)
Available-for-sale financial assets
fair value movements 12 14 26
Cash flow hedges
effective portion of fair value
movements (2) 1 1
transferred to income statement - - (1)
Share-based payment tax deduction 5 - - 5
Tax on items recognised directly
in equity 5 23 16 68
Net loss recognised directly in equity (57) (36) (154)
Profit for the financial period 126 53 58
Total recognised income/(expense) 69 17 (96)
for the financial period
Attributable to:
Equity holders of the parent 70 22 (90)
Minority interests (1) (5) (6)
69 17 (96)
Effect of changes in accounting policy
on adoption of IAS 32 and IAS 39:
Equity holders of the parent 9 - (78) (78)
Minority interests - - -
- (78) (78)
Group balance sheet (unaudited)
at 7 October 2006
Restated
7 October 8 October 25 March
2006 2005 2006
Note £m £m £m
Non-current assets
Property, plant and equipment 7,119 6,978 7,060
Intangible assets 184 196 191
Investments 10 10 10
Available-for-sale financial assets 125 110 113
Amounts due from Sainsbury's Bank customers 1,374 1,459 1,473
Derivative financial instruments - 159 -
Deferred income tax asset 9 11 55
8,821 8,923 8,902
Current assets
Inventories 574 551 576
Trade and other receivables 383 310 276
Amounts due from Sainsbury's Bank
customers and other banks 1,807 1,203 1,888
Available-for-sale financial assets 101 78 52
Derivative financial instruments - 3 -
Cash and cash equivalents 10b 910 619 1,028
3,775 2,764 3,820
Non-current assets held for sale 15 43 25
3,790 2,807 3,845
Total assets 12,611 11,730 12,747
Current liabilities
Trade and other payables (2,178) (1,958) (2,094)
Amounts due to Sainsbury's Bank
customers and other banks (2,344) (2,299) (2,299)
Short-term borrowings (347) (263) (253)
Derivative financial instruments (8) (38) (10)
Taxes payable (113) (106) (63)
Provisions (36) (30) (91)
(5,026) (4,694) (4,810)
Net current liabilities (1,236) (1,887) (965)
Non-current liabilities
Other payables (32) (30) (30)
Amounts due to Sainsbury's Bank
customers and other banks (843) (266) (1,009)
Long-term borrowings (2,178) (1,969) (2,178)
Derivative financial instruments (21) (7) (2)
Provisions (64) (92) (95)
Retirement benefit obligations 8 (483) (589) (658)
(3,621) (2,953) (3,972)
Net assets 3,964 4,083 3,965
Equity
Called up share capital 490 487 489
Share premium account 789 763 782
Capital redemption reserve 670 665 668
Other reserves (58) 122 (1)
Retained earnings 1,995 1,966 1,948
Equity shareholders' funds 3,886 4,003 3,886
Minority interests 78 80 79
Total equity 9 3,964 4,083 3,965
Group cash flow statement (unaudited)
for the 28 weeks to 7 October 2006
28 weeks to 28 weeks to 52 weeks to
7 October 8 October 25 March
2006 2005 2006
Note £m £m £m
Cash flows from operating activities
Cash generated from operations 10a 276 369 780
Interest paid (33) (85) (159)
Corporation tax received 9 18 3
Net cash from operating activities 252 302 624
Cash flows from investing activities
Purchase of property, plant and equipment (388) (292) (549)
Purchase of intangible assets (1) (3) (6)
Proceeds from disposal of
property, plant and equipment 21 121 164
Acquisition of subsidiaries, net
of cash acquired (3) (6) (6)
Costs from disposal of operations - (9) (13)
Interest received 6 2 6
Net cash from investing activities (365) (187) (404)
Cash flows from financing activities
Proceeds from issuance of ordinary shares 8 1 22
Capital redemption (2) (6) (9)
Repayment of short-term borrowings (4) (223) (348)
Repayment of long-term borrowings (6) - (1,701)
Proceeds from short-term borrowings - - 50
Proceeds from long-term borrowings - - 2,056
Debt restructuring costs - - (22)
Repayment of capital element of obligations
under finance lease borrowings - - (1)
Interest elements of obligations
under finance lease payments (2) (2) (3)
Dividends paid 7 (99) (95) (131)
Issue of loan from minority shareholder - 9 9
Net cash from financing activities (105) (316) (78)
Net (decrease)/increase in cash
and cash equivalents (218) (201) 142
Opening cash and cash equivalents 842 700 700
Closing cash and cash equivalents 10b 624 499 842
Notes to the Interim Results (unaudited)
1 General information
The Interim Results are unaudited but have been reviewed by the auditors whose
report is set out on page 24. The financial information presented herein does
not amount to full statutory accounts within the meaning of Section 240 of the
Companies Act 1985 (as amended). The Annual Report and Financial Statements
2006 have been filed with the Registrar of Companies. The Independent Auditors'
report on the Annual Report and Financial Statements 2006 was unqualified and
did not contain a statement under Section 237(2) or 237(3) of the Companies Act
1985.
The financial period represents the 28 weeks to 7 October 2006 (prior financial
period 28 weeks to 8 October 2005; prior financial year 52 weeks to 25 March
2006). The financial information comprises the results of J Sainsbury plc and
its subsidiaries ('Group') and the Group's interests in associates and joint
ventures.
2 Basis of preparation
As permitted, the Group has chosen not to apply IAS 34 'Interim Financial
Reporting' in preparing the Interim Results and therefore, in this respect, this
interim financial information is not in full compliance with International
Financial Reporting Standards (IFRS).
In accordance with the Listing Rules, the financial information contained in the
Interim Results has been prepared on the basis of the Group's IFRS accounting
policies as set out in the Annual Report and Financial Statements 2006. As a
result, the comparative amounts for the 28 weeks to 8 October 2005 have been
restated to reflect the following matters, all of which were taken into account
in the Annual Report and Financial Statements 2006 for the 52 weeks to 25 March
2006.
On adoption of IAS 39 'Financial Instruments: Recognition and Measurement', the
Group has recognised fair value losses relating to interest rate swaps that do
not qualify as hedging instruments, directly in opening retained earnings. New
tax legislation issued in January 2006 required the Group to recognise £7
million of deferred tax assets in relation to these fair value losses.
In accordance with IAS 39, the Group has recognised an available-for-sale
financial asset relating to the Group's beneficial interest in a property
investment pool. At 8 October 2005, the fair value of this asset was £100
million (£82 million after deferred tax).
Provisions of £30 million at 8 October 2005 have been reclassified from
non-current liabilities to current liabilities, consistent with the presentation
set out in the Annual Report and Financial Statements 2006 for the 52 weeks to
25 March 2006.
The financial information contained in the Interim Results is presented in
sterling, rounded to the nearest million (£m) unless otherwise stated.
3 Segment reporting
The Group's businesses are organised into two operating divisions:
• Retailing (Supermarkets and Convenience); and
• Financial services (Sainsbury's Bank).
All operations are continuing and carried out in the UK.
Financial
Retailing services Group
£m £m £m
28 weeks to 7 October 2006
Segment revenue 8,841 175 9,016
Underlying operating profit (1) 215 - 215
Profit on sale of properties 1 - 1
Segment result 216 - 216
Finance income 34
Finance costs (56)
Income tax expense (68)
Profit for the financial period 126
28 weeks to 8 October 2005
Segment revenue 8,164 163 8,327
Underlying operating profit/(loss) (1) 168 (5) 163
Business Review operating costs (14) - (14)
Loss on sale of properties (7) - (7)
Segment result 147 (5) 142
Finance income 15
Finance costs (70)
Income tax expense (34)
Profit for the financial period 53
52 weeks to 25 March 2006
Segment revenue 15,731 330 16,061
Underlying operating profit/(loss) (1) 352 (10) 342
Business Review operating costs (51) - (51)
IT insourcing costs (63) - (63)
Profit on sale of properties 1 - 1
Segment result 239 (10) 229
Finance income 30
Finance costs (155)
Income tax expense (46)
Profit for the financial period 58
(1) Underlying profit before tax before finance income and finance costs.
4 Finance income and finance costs
28 weeks to 28 weeks to 52 weeks to
7 October 8 October 25 March
2006 2005 2006
£m £m £m
Interest on bank deposits 7 3 7
Net return on pension schemes 23 12 23
Financing fair value gains (1)
- Retailing 4 - -
Finance income 34 15 30
Financing fair value losses (1)
- Financial services - (6) (4)
- Retailing - (4) (8)
- (10) (12)
Debt restructuring costs - - (38)
Borrowing costs
Bank loans and overdrafts (2) - (3)
Other loans (57) (60) (107)
B share preference dividends (2) - - (1)
Obligations under finance leases (2) (2) (3)
Provisions - amortisation of discount - - (1)
(61) (62) (115)
Amounts included in the cost of qualifying
assets
Interest capitalised - qualifying assets 5 2 10
Finance costs (56) (70) (155)
(1) Fair value gains/losses relate to fair value adjustments on derivatives
relating to financing activities and hedged items in fair value hedges.
(2) £0.2 million (October 2005: £0.4 million) of preference dividends were
paid in respect of outstanding B shares during the period.
5 Income tax expense
28 weeks to 28 weeks to 52 weeks to
7 October 8 October 25 March
2006 2005 2006
£m £m £m
Current tax expense (1) 36 36
Deferred tax expense 69 (2) 10
Total income tax expense in income
statement 68 34 46
Tax expense on underlying profit (1) 67 41 95
Tax on Business Review operating
costs - (4) (15)
Tax on IT insourcing costs - - (19)
Tax on financing fair value
movements 1 (3) (3)
Tax on debt restructuring costs - - (12)
68 34 46
Tax on items recognised directly in equity
Actuarial losses on defined benefit
pension schemes (26) (20) (75)
Available-for-sale financial assets
- fair value movements 4 4 7
Cash flow hedge reserve - fair value
movements (1) - -
(23) (16) (68)
Share-based payment tax deduction - - (5)
(23) (16) (73)
(1) Tax charge attributable to underlying profit before tax.
6 Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to
ordinary shareholders by the weighted average number of ordinary shares in issue
during the period, excluding those held by the Employee Share Ownership Plan
trusts (note 9), 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 potential dilutive ordinary
shares. These represent share options granted to employees where the exercise
price is less than the average market price of the Company's ordinary shares
during the period.
Underlying earnings per share is calculated by excluding the effect of any gain
or loss on the sale of properties, impairment of goodwill, financing fair value
movements and one-off items that are material and infrequent in nature. For the
28 weeks to 8 October 2005, these one-off items were the Business Review costs.
For the 52 weeks to 25 March 2006, these one-off items were the Business Review
costs, IT insourcing costs and debt restructuring costs. This alternative
measure of earnings per share is presented to reflect the Group's underlying
trading performance.
All operations are continuing for the periods presented.
28 weeks to 28 weeks to 52 weeks to
7 October 8 October 25 March
2006 2005 2006
Million Million million
Weighted average number of shares in
issue 1,687.4 1,677.3 1,679.0
Weighted average number of dilutive
share options 12.9 5.5 13.2
Total number of shares for calculating
diluted earnings per share 1,700.3 1,682.8 1,692.2
£m £m £m
Profit for the financial period
attributable to equity holders of
the parent 127 58 64
Add: Business Review operating costs,
net of tax - 10 36
IT insourcing costs, net of tax - - 44
(profit)/loss on sale of properties (1) 7 (1)
financing fair value (gains)/losses,
net of tax (3) 5 7
debt restructuring costs, net of tax - - 26
Underlying profit after tax 123 80 176
Pence Pence pence
per share per share per share
Basic earnings 7.5 3.5 3.8
Diluted earnings 7.5 3.4 3.8
Underlying basic earnings 7.3 4.8 10.5
Underlying diluted earnings 7.2 4.8 10.4
7 Dividend
28 weeks to 28 weeks to 52 weeks to
7 October 8 October 25 March
2006 2005 2006
Amounts recognised as distributions to
equity holders in the period:
Dividend per share (pence) 5.85 5.65 7.80
Total dividend paid (£m) 99 95 131
An interim dividend of 2.40 pence per share (October 2005: 2.15 pence per share)
has been approved by the Board of Directors for the financial year ended 24
March 2007, resulting in a total interim dividend of £41 million (October 2005:
£36 million). The interim dividend was approved by the Board on 14 November
2006 and as such has not been included as a liability at 7 October 2006.
8 Retirement benefit obligations
Retirement benefit obligations relate to two funded defined benefit schemes, the
J Sainsbury Pension and Death Benefit Scheme and the J Sainsbury Executive
Pension Scheme and an unfunded pension liability relating to senior employees.
The defined benefit schemes were closed to new employees on 31 January 2002.
The assets of these schemes are held separately from the Group's assets.
The next triennial actuarial valuation carried out by Watson Wyatt, the schemes'
independent actuaries, is currently in progress and the results are expected in
early 2007 which will include any new commutation assumptions following changes
to the Finance Act effective from April 2006 ('A-Day').
As part of the £350 million one-off contribution to the defined benefit pension
schemes, the Group made the second tranche payment of £240 million on 19 May
2006.
The amounts recognised in the balance sheet, based on valuations performed by
Watson Wyatt, are as follows:
7 October 8 October 25 March
2006 2005 2006
£m £m £m
Present value of funded obligations (4,483) (3,848) (4,361)
Fair value of plan assets 4,006 3,266 3,710
(477) (582) (651)
Present value of unfunded obligations (6) (7) (7)
Retirement benefit obligations (483) (589) (658)
Deferred income tax asset 207 176 227
Net retirement benefit obligations (276) (413) (431)
The retirement benefit obligations and the associated deferred income tax asset
are shown within different line items on the face of the balance sheet.
9 Reconciliation of movements in equity
The movements in the Group's equity for the 28 weeks to 7 October 2006 and the
comparative period of 28 weeks to 8 October 2005 are set out below.
Called Share Capital Retained Equity Minority Total
premium redemption earnings shareholders' interests equity
up share account and other funds
capital reserves
£m £m £m £m £m £m £m
At 25 March 2006 489 782 667 1,948 3,886 79 3,965
Profit for the period - - - 127 127 (1) 126
Dividends paid - - - (99) (99) - (99)
Share-based payment - - - 22 22 - 22
Actuarial losses on defined benefit
pension schemes, net of tax - - (64) - (64) - (64)
Available-for-sale financial assets
fair value movements, net of tax - - 8 - 8 - 8
Cash flow hedges effective portion
of fair value movements, net of tax - - (1) - (1) - (1)
B shares redemption - - 2 (2) - - -
Shares vested - - - 1 1 - 1
Allotted in respect of share
option schemes 1 7 - (2) 6 - 6
At 7 October 2006 490 789 612 1,995 3,886 78 3,964
At 27 March 2005 620 761 634 2,012 4,027 85 4,112
IAS 32 and IAS 39 adjustments (133) 1 71 (17) (78) - (78)
Restated at 27 March 2005 487 762 705 1,995 3,949 85 4,034
Profit for the period - - - 58 58 (5) 53
Dividends paid - - - (95) (95) - (95)
Share-based payment - - - 12 12 - 12
Actuarial losses on defined benefit
pension schemes, net of tax - - (47) - (47) - (47)
Available-for-sale financial assets
fair value movements, net of tax - - 10 - 10 - 10
Cash flow hedges effective portion of
fair value movements, net of tax - - 1 - 1 - 1
B shares redemption - - 118 (6) 112 - 112
Shares vested - - - 2 2 - 2
Allotted in respect of share option
schemes - 1 - - 1 - 1
At 8 October 2005 487 763 787 1,966 4,003 80 4,083
Own shares held by Employee Share Ownership Plan ('ESOP') trusts
Own shares are held on behalf of employees by ESOP trusts under the Group's
Performance Share Plan and Executive Share Option Plan. The ESOP trusts waive
the rights to the dividends receivable in respect of the shareholder under the
above schemes. At 7 October 2006, £83 million (October 2005: £84 million) of
own shares is deducted from Group retained earnings.
10 Notes to the cash flow statement
(a) Reconciliation of operating profit to cash generated from operations
28 weeks to 28 weeks to 52 weeks to
7 October 8 October 25 March
2006 2005 2006
£m £m £m
Operating profit 216 142 229
Adjustments for:
Depreciation expense 254 238 449
Amortisation expense 11 13 21
(Profit)/loss on sale of properties (1) 7 (1)
Share-based payments expense 22 12 23
Operating cash flows before changes
in working capital 502 412 721
Changes in working capital
Decrease/(increase) in inventories 2 8 (17)
(Increase)/decrease in available-for-sale
financial assets (49) 12 38
(Increase)/decrease in trade and other receivables (109) (28) 7
Decrease/(increase) in amounts due from
Sainsbury's Bank customers and other banks 180 (106) (805)
Increase in trade and other payables 177 22 83
(Decrease)/increase in amounts due to Sainsbury's
Bank customers and other banks (121) 79 819
Decrease in provisions and other liabilities (1) (306) (30) (66)
Cash generated from operations 276 369 780
(1) Includes £240 million (October 2005: £nil; March 2006: £110 million) of
cash paid into the defined benefit pension schemes (note 8).
(b) Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise
the following:
7 October 8 October 25 March
2006 2005 2006
£m £m £m
Cash and cash equivalents 910 619 1,028
Bank overdrafts (286) (120) (186)
624 499 842
11 Analysis of net debt
25 March Cash Other 7 October
2006 flow non-cash 2006
movements
£m £m £m £m
Current assets
Cash and cash equivalents (excluding
Sainsbury's Bank) 862 (118) - 744
Sainsbury's Bank cash and cash equivalents 166 - - 166
1,028 (118) - 910
Current liabilities
Bank overdrafts (186) (100) - (286)
Borrowings (67) 8 (2) (61)
Derivative financial instruments (10) - 2 (8)
(263) (92) - (355)
Non-current liabilities
Borrowings (2,081) 35 (35) (2,081)
Finance leases (52) - - (52)
Loan from minority shareholder (45) - - (45)
Derivative financial instruments (2) - (19) (21)
(2,180) 35 (54) (2,199)
(2,443) (57) (54) (2,554)
Total net debt (1,415) (175) (54) (1,644)
Of which:
Net debt (excluding Sainsbury's Bank) (1,536) (175) (54) (1,765)
Sainsbury's Bank 121 - - 121
(1,415) (175) (54) (1,644)
Net debt incorporates the Group's borrowings (including accrued interest), bank
overdrafts, fair value of derivatives and obligations under finance leases, less
cash and cash equivalents. Sainsbury's Bank derivatives and borrowings, which
relate to the working capital of the bank, are excluded from the Group net debt.
Reconciliation of net cash flow to movement in net debt
28 weeks to 28 weeks to 52 weeks to
7 October 8 October 25 March
2006 2005 2006
£m £m £m
(Decrease)/increase in cash and cash equivalents (218) (201) 142
Decrease in debt 43 302 91
Movement in finance leases - - 1
Other non-cash movements (54) 53 (5)
(Increase)/decrease in net debt before
impact of IAS 32 and IAS 39 (229) 154 229
IAS 32 and IAS 39 adjustments to net debt - (203) (203)
(Increase)/decrease in net debt in the period (229) (49) 26
Opening net debt at the beginning of the period (1,415) (1,441) (1,441)
Closing net debt at the end of the period (1,644) (1,490) (1,415)
Independent review report to J Sainsbury plc
Introduction
We have been instructed by the Company to review the financial information for
the 28 weeks ended 7 October 2006 which comprises the Group income statement,
Group statement of recognised income and expense, 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 Listing Rules
of the Financial Services Authority 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.
This interim report has been prepared in accordance with the basis set out in
Note 2.
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 disclosed accounting policies have
been applied. 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 and therefore provides a lower level of assurance.
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
7 October 2006.
PricewaterhouseCoopers LLP
Chartered Accountants
London
14 November 2006
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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