14th Nov 2007 07:01
Sainsbury(J) PLC14 November 2007 Interim Results for the 28 weeks to 6 October 2007 Strong First Half Performance Financial Summary 2007/08 • Total retail sales (inc VAT) up 4.7 per cent to £9,998 million (2006/07: £9,549 million) • Like-for-like sales growth excluding fuel (inc VAT) of 4.0 per cent • Underlying profit before tax (1) up 27.0 per cent at £240 million (2006/07: £189 million) • Profit before tax of £232 million (2006/07: £194 million) • Underlying basic earnings per share (2) up 32.9 per cent to 9.7 pence (2006/07: 7.3 pence) • Basic earnings per share of 9.4 pence (2006/07: 7.5 pence), up 25.3 per cent • Interim dividend of 3.0 pence (2006/07: 2.4 pence) up 25.0 per cent Making Sainsbury's Great Again • Grown sales by £2.3 billion: Ahead of plan to reach £2.5 billion sales growth by March 2008 • Eleven quarters of consecutive like-for-like sales and market share growth • Heritage provides strong brand position: Launch of 'Different Values' campaign • On track to deliver cost savings of £155 million in 2007/08 and £440 million since March 2005 • Growth in customer numbers: Now 16.5 million customer transactions each week • Voted Supermarket of the Year for second consecutive year in Retail Industry Awards • Highly rated in National Consumer Council audit of retailers' environmental performance • Active property strategy: Just under £0.5 billion of property development since March 2007 • JV with Land Securities plc: To unlock development value from £113 million of freehold assets (3) Philip Hampton, Chairman, said: "We have delivered another strong performanceduring the first half of the year and have increased our interim dividend by25.0 per cent. Our recovery is well advanced and ahead of plan. Since March2005, we have grown sales by £2.3 billion and we are ahead of our target toreach £2.5 billion by March 2008. Our underlying profit before tax for the firsthalf was up 27.0 per cent to £240 million. "These results demonstrate our continued ability to grow the business. Salesgrowth has remained ahead of the market (4) with a good first half performancetowards the new targets outlined in May 2007. During this period we heldprotracted discussions with Delta Two. It has announced it will not beproceeding with an offer for Sainsbury's, and we continue to focuswholeheartedly on delivering our targets. Sainsbury's has great potential underthe leadership of its strong management team and the company remains committedto completing its recovery plan and continuing to deliver improved performance." Justin King, Chief Executive, said: "Everyone at Sainsbury's has been focused onserving customers better despite the potential distraction of corporate activityand these results are a credit to the hard work and commitment of our 150,000colleagues. We now have 16.5 million customers each week and in the first halfwe grew like-for-like sales excluding fuel by 4.0 per cent despite toughcomparatives from the previous year and challenging weather conditions duringthe summer. This takes our recovery plan into its third and final year andbuilds on the excellent results delivered last year. Our two-year like-for-likegrowth is around ten per cent and strong operational gearing provides a firmbase for future growth. "With a heritage of more than 130 years of innovation in environmental, socialand ethical issues, Sainsbury's is well placed as customers increasingly lookfor businesses to operate to high standards and principles. We are the onlymajor grocer to put product quality on a truly equal footing with price asdemonstrated through our 'Different Values' campaign. Offering a choice of greatproducts at fair prices has driven our recovery and is, of course, a fundamentalprinciple of our history. "While there are tighter constraints on current consumer spending, we have astrong Christmas offer and the company is significantly stronger than it waswhen we launched our Making Sainsbury's Great Again plan in 2004. We have had astrong first half and we are confident that the new three-year plans outlined inMay 2007 provide Sainsbury's with substantial opportunity for furtherdevelopment of our business." Notes: 1. Underlying profit before tax: Profit before tax from continuingoperations before any gain or loss on the sale of properties, impairment ofgoodwill, financing fair value movements and one-off items that are material andinfrequent in nature. For the 28 weeks to 6 October 2007, these one-off itemswere the costs relating to approach from Delta Two. 2. Underlying basic earnings per share: Profit after tax fromcontinuing operations attributable to ordinary shareholders before any gain orloss on the sale of properties, impairment of goodwill, financing fair valuemovements and one-off items that are material and infrequent in nature, dividedby the weighted average number of ordinary shares in issue during the period,excluding those held by the ESOP trusts, which are treated as cancelled. 3. Refer to separate announcement on 14 November 2007. 4. Based on TNS data released on 7 October 2007. 5. Underlying operating profit: Underlying profit before tax fromcontinuing operations before finance income, finance costs and share of post-taxprofit or loss from joint ventures. 6. Certain statements made in this announcement are forwardlooking statements. Such statements are based on current expectations and aresubject to a number of risks and uncertainties that could cause actual events orresults to differ materially from any expected future events or results referredto in these forward looking statements. Unless otherwise required by applicablelaw, regulation or accounting standard, we do not undertake any obligation toupdate or revise any forward looking statements, whether as a result of newinformation, future developments or otherwise. 7. We will be holding a presentation for analysts and investors at09:45 (GMT) on 14 November 2007. 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 visitwww.j-sainsbury.co.uk and follow the on-screen instructions. To participate inthe live event, please go to the website from 09:30 (GMT) on the day of theannouncement, and further instructions will be on the website. The archive ofthis event will be available from 16:00 (GMT) on the day in the form of adelayed webcast. To listen to the Results Presentation: To participate, dial +44 (0) 870 608 1510 at least ten minutes prior to thestart of the presentation. You will be asked to give the passcode, 145 565, yourname and company details. You will then be placed on hold and will hear musicuntil the presentation starts. An archive of this event will be available from 13:00 GMT on the day by calling+44 (0) 20 7136 9233, pin number 3796 7117 until midnight GMT on Friday 16November 2007. To view the transcript of the presentation: Go to www.j-sainsbury.co.uk from 16November 2007. Enquiries: Investor Relations MediaElliot Jordan Pip Wood+44 (0) 20 7695 4931 +44 (0) 20 7695 6127 Operating review: From recovery to growth Sainsbury's is now in the third year of its Making Sainsbury's Great Again ('MSGA') recovery plan and continues to make strong progress against its targets. Despite challenging trading conditions and tough comparatives from the previous year, the company's performance during the first half of 2007/08 has shown that Sainsbury's recovery continues to be sustained and is ahead of plan. The company has also made a good start to the 'recovery to growth' targetsannounced in May 2007. These build on the original MSGA foundations to expandand drive further growth. Sainsbury's is targeting £3.5 billion of additionalsales by 2010 and fundamental to this is the significant addition to thecompany's store estate. The company plans to deliver space growth of 10 per centby 2010 from both new stores and extensions and actively managing its propertyestate is central to delivering Sainsbury's growth and maximising shareholdervalue. Sainsbury's heritage and its ongoing passion for food continues to differentiatethe company's offer from that of its major competitors. The emphasis on 'greatproducts at fair prices' is at the centre of current consumer thinking ascustomers actively look for healthy, safe, fresh and tasty food from companiesthey trust. Two thirds of the targeted £3.5 billion of sales growth is plannedfrom grocery sales as new space provides the opportunity to further enhance itsfood offer and continue to invest in both quality and price. Sainsbury's non-food ranges centre around complementing its food offer as thedevelopment of quality and innovatively designed clothing and homeware productsis accelerated. Fifty per cent of the new space will be dedicated to non-foodranges as the company develops larger stores and is now confident in its abilityto trade stores over 70,000 sq ft. Additional channels also help Sainsbury's reach more customers and ambitiousplans are in place to expand the company's online home delivery service and itsnetwork of convenience stores. At the same time Sainsbury's continues toincrease efficiency through improved operations and cost reduction. Great products at fair prices 'Great products at fair prices' underpins Sainsbury's customer proposition andthe company's goal is to exceed customer expectations for healthy, safe, freshand tasty food. As more retailers start to focus on the quality of theirproducts, Sainsbury's challenge is to keep innovating and leading the way oningredient standards and sourcing. In September 2007 Sainsbury's was votedSupermarket of the Year for the second year in succession at the Retail IndustryAwards. The judges acknowledged the company for being "at the leading edge offood" and Sainsbury's also received awards highlighting achievements made withinits fresh produce, seafood and beers, wines and spirits offering. Quality is of paramount importance to customers but the company also ensures itmaintains a competitive offer and has continued its investment in price.Sainsbury's launched its 'Different Values' campaign in August to underline theadditional quality of Sainsbury's own brand products. This highlights thehigher quality specifications of Sainsbury's products - a number of which are atthe same price - compared to similar items sold by major competitors. The 'Taste the difference' range now comprises around 1,300 products which meetstrict quality standards and was the first Sainsbury's sub-brand to be free ofartificial colours, flavours and hydrogenated fats. During September and Octoberthe company staged the UK's biggest ever taste test, with over 200 'Taste thedifference' products sampled in-store by over five million customers. In eachweek of the Taste Festival, 'Taste the difference', which is a £1 billionsub-brand, achieved its highest sales of any week outside of the key Christmasand Easter trading weeks with many products experiencing sales uplifts of over100 per cent. 'Basics', Sainsbury's range of 500 entry-level low price everyday essentials, isan important part of the company's own label product range providing customerswith a universally appealing offer. 'Basics' and 'Sainsbury's SO organic'compete to be the company's fastest growing sub brand as sales of organic foodcontinue to grow with organic fresh produce up over 20 per cent year on year. 'Sainsbury's SO organic' range is the company's second largest sub brand and allorganic primary chicken, beef, pork, milk, eggs, and lamb is sourced from theUK. Sainsbury's has continued to develop a number of initiatives to support Britishfarmers such as its Farm Connections scheme which has donated over 400 computersand software worth over £280,000 to beef producers as well as IT training andsupport. Since July, Sainsbury's has sold only British fresh lamb and inOctober launched two new lamb lines to help drive British lamb sales and supportfarmers affected by the partial foot and mouth export ban. With 16.5 million customers each week the company has a real impact on UKconsumers. In October three separate audits placed Sainsbury's significantlyabove major competitors for its effort and commitment in the sourcing andquality of its products. In the National Consumer Council's 'Green Grocers'report Sainsbury's received the highest mark awarded for environmentalperformance. As the only major supermarket attaining this score, it was praisedfor overcoming the complexity of achieving results on a large scale and wasstrongly rated for its progress in fish sustainability, Forest StewardshipCouncil ('FSC') certified toilet paper and its focus on re-usable bags. The company was the only major supermarket to be given an 'A' by Greenpeace forits environmentally responsible timber and paper sourcing having converted itsentire range of own-brand tissue, toilet paper and kitchen towel to FSC orrecycled paper. Sainsbury's was also acknowledged in a Local GovernmentAssociation report as having the highest level of recyclable food packagingamong major food retailers. All packaging for Sainsbury's ready meals is movingto 100 per cent compostable material by March 2008 and when Sainsbury's convertsan entire range to more sustainable packaging, it can make a huge difference. Customers are looking to companies to implement and communicate policies onenvironmental, social and ethical issues and in April 2007 Sainsbury's announcedits 'Make the difference' programme. Consumers want companies to take theirresponsibilities seriously, but they also want to know what they can dothemselves. The plan puts the company and customers in partnership as each montha 'Make the difference' day is held to raise awareness and take action on aspecific issue. In October, to coincide with the end of British summer time,Sainsbury's gave away around one million free energy saving light bulbs, theamount approximately sold each year, to customers making an energy savingpledge. Five principles are at the core of Sainsbury's brand and underpin itsactivities. These are to be 'the best for food and health', 'sourcing withintegrity', to have 'respect for our environment', 'making a positive differenceto our community' and to be 'a great place to work'. The best for food and health: Providing clear and honest product informationhelps customers choose the right food for them. Sainsbury's believes it has aresponsibility to lead debate and action on issues intrinsically linked to itsoperation. In October it organised and hosted its second event to move forwardthe debate about food and health. Following the first event in 2006 Sainsbury'sbegan a partnership with MEND, the UK's largest prevention and treatmentprogramme for overweight and obese children and their families. Over the nextthree years, fully trained Sainsbury's and local Youth Sport Trust colleagueswill be running 450 MEND programmes. Sourcing with integrity: Sainsbury's sells more Fairtrade bananas than all othermajor UK supermarkets combined following the conversion of its entire bananarange to Fairtrade. Completed in August it was the biggest conversion of itskind worldwide. Selling Fairtrade bananas at the same price as conventionalbananas makes an enormous difference to Fairtrade farmers and their communities.In August Sainsbury's set up a 'Fair Development Fund' in conjunction with ComicRelief to encourage more developing countries to benefit from the Fairtradesystem and has subsequently announced the conversion of own label tea toFairtrade over the next three years, making it the UK's biggest Fairtrade tearetailer and tripling UK Fairtrade tea sales. The first tea to be converted willbe Sainsbury's Red Label, a 100-year-old brand still sourced from the originalsupplier. Respect for our environment: The 'Make the difference' days in April and May2007 saw Sainsbury's highlighting the issue of disposable plastic carrier bagsby giving customers over nine million free 'Bags for Life'. This bag, made from100 per cent recycled material is much more durable and can be exchanged for anew bag once worn out, with Sainsbury's recycling the old one. Sainsbury'sdisposable bag usage has subsequently decreased by nearly 10 per cent in realterms and as a result November's 'Make the difference' event this weekend willagain focus on reducing bag usage when the company expects to double the numberof 'bags for life' issued to customers for free. A great place to work: Sainsbury's Local Heroes scheme, now in its seventhyear, recognises and rewards the charitable activities of Sainsbury's colleagueswho fundraise or volunteer time on a regular basis by matching funds raised withawards of between £200 and £500 for the colleague's chosen charities. Tocelebrate their achievements, in September 14 Local Heroes were taken on thetrip of a lifetime to Africa to understand how Fairtrade supports communities indeveloping countries. The trip included visiting Sainsbury's Fairtrade rosesupplier in Kenya, and its coffee supplier in Tanzania. Making a positive difference to our community: 'Active Kids' is a great exampleof working with the local community. Customers earn 'Active Kids' vouchersagainst spend in-store and online which can be redeemed against activity andcookery equipment. Sainsbury's has donated an additional £18 million ofequipment to UK schools, nurseries and Scout and Guide groups this year bringingthe total since the 2005 launch to £52 million. September's 'Make thedifference' day saw 1,000 Sainsbury's colleagues visit local schools to donatecooking ingredients and equipment to promote healthy eating and cookery. Accelerating the growth of complementary non-food Food remains at the heart of Sainsbury's offer but the addition of sales spacethrough both new store development and extensions is playing an increasinglyimportant role in the growth of non-food ranges as this is accelerated in linewith the MSGA plan outlined in October 2004. Sainsbury's is now confident it can trade in stores over 70,000 sq ft and aspart of the new 'recovery to growth' plans, the company plans to operate 60stores over 55,000 sq ft with over 15,000 sq ft of non-food ranges. Half of thecompany's new space by 2010 will be dedicated to non-food ranges demonstratingthe importance of developing these complementary ranges, and one third of the£3.5 billion of additional sales is anticipated from the non-food offer. The company is continuing to develop a specialist non-food team as well asdedicated IT and supply chain infrastructures including offices in Hong Kong andPoland to enable more efficient and effective direct sourcing of product. InAugust the company announced a proposal to create a Non-Food Centre ofExcellence by relocating its General Merchandise business to Coventry to jointhe TU Clothing operation. Growth continues to run at over twice the rate offood growth supported by positive like-for-like performance and strongincremental growth from both new space and extensions. Core ranges such as newspapers, magazines and stationery performed strongly andthe company continues to grow market share in areas such as computer games andbooks. A new range of kitchenware has been launched during the first half andsaw the biggest increase in market share within the company's non-food ranges.Sainsbury's has also signed an exclusive deal with one of Australia's leadingcooks, Donna Hay, to launch her own line of branded gifts in Sainsbury's stores.There are 15 products in the range including gift boxes and cookery books whichare available in 113 stores. This new range complements Sainsbury's ownsuccessful core gifting range. TU, Sainsbury's own brand clothing range, continues to be a star performer andthe company is now the eleventh largest UK clothing retailer by volume and is ontrack to achieve sales in excess of £300 million this year. The range wasintroduced into a further 13 stores during the first half and is now in 262stores with a target to double the space dedicated to TU in the next threeyears. A 'teen' range and men's formalwear has now also been introduced and inNovember Sainsbury's will be moving its best-selling standard TU t-shirt toFairtrade certified cotton. Sainsbury's order of Fairtrade cotton will increasefrom 40 tonnes to 420 tonnes this year and is expected to rise by a further 50per cent by next year. Nearly two million t-shirts will have moved to Fairtradecotton by January 2008. Additional channels reach more customers Sainsbury's online home delivery service continues to grow apace. Salesincreased by over 40 per cent and customer orders are now 80,000 each week. Theservice is available to 83 per cent of UK households and in the first half anadditional 23 stores started running the service taking the total number to 137stores. Going forward, the company believes there is significant growth potential in itsonline operation and plans to increase capacity in areas of high demand. It istargeting 200 stores to operate the service by March 2010 with sales expected tomore than double. In response to customer demand the service has increased thenumber of Christmas delivery slots by 40 per cent. Sainsbury's is the first online grocery retailer to operate an Electric ZeroEmission vehicle. By Autumn 2008 these vans will be transporting 20 per cent ofall online orders, the biggest UK conversion of its kind. Sainsbury's Bank has made good progress in stabilising its operations over thehalf and a tight focus on cost control and tighter risk management actionsimplemented over the past two years have strengthened the balance sheet andoffset what has been a worsening environment for consumer credit. Sainsbury'shas invested in growing the bank and in June integrated the service into itscore supermarket offer. It re-launched the bank with a product offer more inline with customer aspirations, including a market leading internet savingproduct. Under the new joint venture arrangement with HBOS, Sainsbury's isreporting a small loss of £2 million in the first half of the year. Increased operational efficiency The depot network has been successfully reorganised to continue to improveservice to stores. Following the refurbishment of Sainsbury's Waltham Point sitethis year to remove some of the automated equipment, the company is nowproposing to undertake a similar refurbishment to its Hams Hall depot in early2008. A new 530,000 sq ft depot opened in Northampton last month creating 750new jobs. Billed as Europe's 'greenest' warehouse, it will initially provideadditional capacity for Christmas and handle around 1.5 million cases a weekwhen fully operational. The company has also recently acquired an additional355,000 sq ft ambient warehouse facility in Tamworth, Staffordshire to provideadditional capacity in line with sales volume growth. At the beginning of the year a more environmentally friendly way of deliveringgoods to stores was trialled by transporting food on the Thames. The deliverieswere made from the Sainsbury's depot in Charlton to its store in Wandsworth. Thetrial was carried out in conjunction with the Port of London Authority, withwhom Sainsbury's has shared its learnings. Overall the company is on target to achieve its planned £155 million of costsavings in 2007/08 and £440 million since March 2005. Supply chain, IT and storeoperations planned savings remain ahead of target while the decision has beenmade to reinvest in other central cost areas such as marketing, strengtheningthe in-house property team and developing the non-food offer. Going forward, the ongoing cost savings target is to offset half of operatingcost inflation by continued simplification of processes. In October, Sainsbury'sannounced that it would be relocating its central office to Kings Cross inLondon in early 2011. This move is driven primarily to remove unnecessary costin the business and the transfer will significantly reduce central office costsfrom 2011/12. The building will boast impressive environmental credentialssupporting Sainsbury's aim to reduce energy use across its business. Active property strategy and space growth opportunities The company believes that ownership of its property assets enables it to retainoperational flexibility while exploiting potential development opportunities andmaximising value for shareholders. Since March 2007 just under £0.5 billionworth of development activity has been either contracted or completed as part ofSainsbury's active property management strategy. Sainsbury's has acquired the freehold to five of its trading sites with a valueof £111 million. In addition the company has agreed to purchase a further fourfreeholds for £139 million. These sites can be extended and developed by thespecialist in-house property team providing an improved customer offer andincreasing their long-term value. Sainsbury's has also disposed of surplus and mature assets to realise cash tofund its development investments. A number of transactions in the first half,including the sale of a long lease for part of the Merton site (Colliers Wood),have raised £66 million in proceeds. Since the end of the first halfSainsbury's has completed the sale of one of its sites within its supply chainnetwork that is mature in their development potential. The sale and leasebackon this depot will realise £39 million which can be used for investment in sitesthat have further value accretion. Today, the company has also announced the formation of a strategic Joint Venture('JV') with Land Securities which brings together undeveloped properties anddevelopment expertise. Initially the JV will own the freeholds to three storesat a market value of £113 million. These sites have significant developmentpotential beyond standard extensions and will use Land Securities developmentexpertise. This JV will operate in a debt efficient manner to deliver cash backinto the business for further investment. Both partners intend to addadditional properties to the JV as well as actively pursuing new opportunitiestogether. The company will consider similar partnerships where there ispotential to develop and increase the value of its property portfolio. Over the next three years, the company is targeting the completion of 75extensions and 190 refurbishments with the large majority undertaken in itsfreehold and long leasehold estate. Following its improved performance,Sainsbury's last year began actively searching again for locations where itcould introduce its offer to new communities. New space growth opportunitiesare being developed as part of the plans outlined in May 2007 to grow space byten per cent over the next three years taking the company's estate to over 19million sq ft. Sainsbury's plans to open 30 new supermarkets and 100 conveniencestores with space split equally across food and non-food ranges. This willenable the continued development of a great food offer as well as growing totalnon-food space. Organic space development and store acquisitions are currently ahead of plan forthe current financial year and as a result 2007/08 space growth expectationswill be in excess of 2.5 per cent. In October Sainsbury's acquired 15 storesfrom Kwiksave. At an average size of 6,000 sq ft, ten stores will be opened assmall supermarkets and five will be branded as Sainsbury's Locals. The firstfour stores opened at the start of November and all will be trading forChristmas 2007. Supermarkets: During the first half three supermarkets were opened in BishopsStortford, Gosforth and Matlock, and nine stores were extended. Two stores wereclosed and a further 20 were refurbished. The second half of 2007/08 sees a stepup in the store development programme with plans to open 12 new supermarkets ofwhich ten relate to stores acquired from Kwiksave. In addition six stores willbe extended and 30 refurbished. Sainsbury's environmental Greenwich store, which originally opened in 1999, wasthe first store of its kind representing a watershed in supermarket architectureand a major investment in the environment. This week the store re-opens afterrefurbishment, taking its green credentials to the next level. Convenience stores: Eleven convenience stores opened in the first half and wewill have opened 25 stores by the end of the financial year, including thoseacquired from Kwiksave. Growing presence in the convenience channel has been animportant part of the MSGA plans and in October Sainsbury's announced theappointment of Dido Harding. She will join in spring 2008. Competition Commission Sainsbury's is pleased that the provisional findings published by theCompetition Commission bring its investigation nearer to a conclusion. Inparticular, it welcomes the Commission's findings that the UK groceries marketis delivering a good deal for customers but that action is needed to improvecompetition still further. As expected, the provisional report looks in detailat many factors and Sainsbury's will be co-operating fully with the Commissionto ensure the best possible outcome for customers. OFT investigation into dairy market On 20 September 2007 the Office of Fair Trading published a Statement ofObjections to Sainsbury's and other food retailers and producers aroundprovisional findings in the dairy market. The Group is reviewing the findingsand will respond accordingly. Financial review The financial results for the 28 weeks to 6 October 2007 ('half year') representcontinued strong performance in line with the Making Sainsbury's Great Again ('MSGA') plan. Income statement Retailing sales (inc VAT) increased by 4.7 per cent to £9,998 million (2006/07:£9,549 million). Underlying profit before tax was up 27.0 per cent at £240million (2006/07: £189 million). Profit before tax was £232 million (2006/07:£194 million) an increase of 19.6 per cent. Underlying basic earnings per shareincreased to 9.7 pence (2006/07: 7.3 pence), up 32.9 per cent. Basic earningsper share increased to 9.4 pence (2006/07: 7.5 pence), up 25.3 per cent. Aninterim dividend of 3.0 pence per share has been approved by the Board (2006/07:2.4 pence), up 25.0 per cent. Summary income statement 2007 2006for the 28 weeks to 6 October 2007 £m £m % change Continuing operationsSales (inc VAT)Retailing - Supermarkets and Convenience 9,998 9,549 4.7Financial services - Sainsbury's Bank (1) - 175 n/a Total sales (inc VAT) 9,998 9,724 2.8 Sales (ex VAT)Retailing - Supermarkets and Convenience 9,250 8,841 4.6Financial services - Sainsbury's Bank (1) - 175 n/a Total sales (ex VAT) 9,250 9,016 2.6 Underlying operating profitRetailing - Supermarkets and Convenience 266 215 23.7Financial services - Sainsbury's Bank (1) - - n/a Total underlying operating profit 266 215 23.7Underlying net finance costs (2) (24) (26) 7.7Share of post-tax loss from joint ventures (1) (2) - n/a Underlying profit before tax 240 189 27.0Financing fair value movements (1) 4 (125.0)Profit on sales of properties - 1 n/aCosts relating to approach from Delta Two (7) - n/a Profit before tax 232 194 19.6Income tax expense (71) (68) (4.4) Profit for the financial period 161 126 27.8 Underlying basic earnings per share 9.7p 7.3p 32.9Basic earnings per share 9.4p 7.5p 25.3Approved interim dividend per share 3.0p 2.4p 25.0 (1) Sainsbury's Bank has been fully consolidated until the Groupsold five per cent of its shareholding in February 2007; thereafter it has beenequity accounted as a joint venture. (2) Net finance costs pre financing fair value movements. Retailing - Supermarkets and Convenience Retailing sales (inc VAT) increased by 4.7 per cent to £9,998 million (2006/07:£9,549 million) driven by good like-for-like growth and new space.Like-for-like sales (ex fuel) were up 4.0 per cent. The profile of thelike-for-like sales (ex fuel) performance (Quarter 1: 5.1 per cent, Quarter 2:3.1 per cent) reflects the impact of poor summer weather in Quarter 2 as well astough comparatives with sales last year supported by the World Cup andexceptionally warm weather. The two-year like-for-like sales (ex fuel)performance of 10.2 per cent remained broadly level to the performance in thesecond half of 2006/07. Online sales increased by over 40 per cent driven bystrong like-for-like volumes and an extension of the geographical area coveredby the service. Like-for-like sales (inc fuel) were up 3.3 per cent in the half. Key retailing metrics 28 weeks to 28 weeks to 52 weeks to 6 October 2007 7 October 2006 24 March 2007 Like-for-like sales (inc fuel) % (Easter adjusted) 3.3 6.8 5.7Easter adjustment (1) % nil 0.4 0.3New space (ex extensions) % 1.4 1.1 1.3 Total sales growth (inc fuel) % 4.7 8.3 7.3 Like-for-like sales (ex fuel) % (Easter adjusted) 4.0 6.2 5.9Easter adjustment (1) % nil 0.5 0.3New space (ex extensions) % 1.7 1.3 1.5 Total sales growth (ex fuel) % 5.7 8.0 7.7 Retailing underlying operating profit (£m) 266 215 429Year on year retail profit growth % 23.7 28.0 21.9 Retailing underlying operating margin (2) % 2.88 2.43 2.54 (1) Easter adjustment takes into account the timing of Easter. (2) Retailing underlying operating profit divided by retailingsales (ex VAT). Sales from new space (excluding extensions and fuel) contributed 1.7% to salesgrowth in the half. The Group expects this contribution to be around 1.5 % forthe full year. In total, 199,000 square feet of new space was added in the half year, a spaceuplift of 1.1 per cent. Three new supermarkets opened during the half year andthere were two closures. Nine extensions and 20 refurbishments in thesupermarket estate were completed. In the convenience estate, 11 new storesopened, six closed and one extension, 12 refurbishments and one conversion werecompleted. Given the positive momentum on organic space development andacquisitions, the Group expects that total space growth for the full year willbe in excess of 2.5 per cent, ahead of the Group's original target of two percent. Retailing store numbers and space summary Supermarkets Convenience Total Number Area Number Area Number Area 000 sq ft 000 sq ft 000 sq ft As at 24 March 2007 490 16,680 298 684 788 17,364New stores 3 93 11 34 14 127Closures (2) (27) (6) (13) (8) (40)Extensions/downsizes/refurbishments 110 2 112 As at 6 October 2007 491 16,856 303 707 794 17,563 MemorandumExtensions 9 96 1 2 10 98Refurbishments/conversions 20 14 13 - 33 14 Total projects 29 110 14 2 43 112 Retailing underlying operating profit increased by 23.7 per cent to £266 million(2006/07: £215 million) reflecting the positive sales performance and a 45 basispoint improvement in retailing underlying operating margin (ex VAT) to 2.88 percent for the half year (2006/07: 2.43 per cent). Operational gearing has beendriven from higher sales volumes and cost savings. This helped to mitigate theimpact of continued investment in price and product quality and higher energyprices as the Group purchased its energy requirements under a fixed price energycontract, which ended in September 2006. Overall, the Group remains on track todeliver £155 million costs savings in 2007/08, which will ensure £440 millioncost savings as targeted in the MSGA recovery plan. Financial services - Sainsbury's Bank The accounting for Sainsbury's Bank in the half year reflects the sale of fiveper cent of the Group's shareholding in Sainsbury's Bank to HBOS plc on 8February 2007. Following this date, the Group's equity share (i.e. 50 per cent)of Sainsbury's Bank's post tax loss is reported through 'Share of post-tax lossfrom joint ventures'. This amounted to a £2 million loss in the half, reflectinginvestment in new products and lower profit on insurance sales. The Groupexpects a similar result in the second half as Sainsbury's Bank continues toinvest in new products. In addition during the first half, the Group invested afurther £10 million in the ordinary share capital of Sainsbury's Bank. Underlying net finance costs Underlying net finance costs decreased by £2 million to £24 million (2006/07:£26 million) which reflect a higher return on pension scheme assets and loweraverage net debt which offset higher interest rates year on year. The Groupexpects a similar cost in the second half to that of the first. Underlying net finance costs 2007 2006for the 28 weeks to 6 October 2007 £m £m Interest income 17 7Net return on pension scheme assets 29 23 Underlying finance income (1) 46 30 Interest costs (73) (61)Capitalised interest 3 5 Underlying finance costs (1) (70) (56) Underlying net finance costs (24) (26) (1) Finance income/costs pre financing fair value movements. Profit on sale of properties A breakeven position was delivered on the sale of surplus properties during thehalf year, compared to a profit of £1 million in 2006/07. Financing fair value movements Fair value movements for the Group resulted in a £1 million loss in the halfyear (2006/07: £4 million profit). Costs relating to approach from Delta Two The Group has incurred £7 million of costs in relation to the approach fromDelta Two. Taxation The income tax charge was £71 million (2006/07: £68 million), with an underlyingrate of 30.4 per cent (2006/07: 35.4 per cent) and an effective rate of 30.4 percent (2006/07: 35.1 per cent). These rates are lower than in the priorfinancial period, primarily due to the expected decrease in the UK deferred taxliabilities following the reduction in Corporation tax rates from 1 April 2008and higher profits which have diluted the impact of disallowable depreciation. Underlying basic earnings per share Underlying basic earnings per share increased by 32.9 per cent from 7.3 pence to9.7 pence in 2007/08, reflecting the improvement in underlying profit after taxattributable to equity holders. Dividends An interim dividend of 3.0 pence per share has been approved by the Board (2006/07: 2.4 pence) and will be paid on 4 January 2008 to shareholders on theRegister of Members at the close of business on 23 November 2007. Summary cash flow statement Group net debt as at 6 October 2007 was £1,571 million (2006/07: £1,644 million,£1,765 million excluding Sainsbury's Bank) increasing by £191 million from the2006/07 year end position of £1,380 million, of which £150 million reflects thereversal of the working capital timing differences identified at the March 2007year end. After adjusting for these working capital differences, the Groupcontinues to expect to deliver a broadly cash flow neutral position for the fullyear. Summary cash flow statement 28 weeks to 28 weeks to 52 weeks to 6 October 7 October 24 March 2007 2006 2007 £m £m £m Cash generated from operations (1) 445 276 830Net interest (44) (29) (83)Corporation tax received 16 9 9 Cash flow before appropriations 417 256 756Purchase of non-current assets (518) (392) (788)Disposal of non-current assets/operations 26 21 93Investment in joint ventures (10) - -Other financing movements 6 (4) 2Dividends paid (126) (99) (140) Decrease in cash and cash equivalents (205) (218) (77)Decrease in debt 25 10 79IAS 32 and IAS 39 adjustments and other non-cash movements (11) (21) 33 Movement in net debt (191) (229) 35Opening net debt (1,380) (1,415) (1,415) Closing net debt (1,571) (1,644) (1,380)Of which:Retailing (1,571) (1,765) (1,380)Financial services - 121 - Closing net debt (1,571) (1,644) (1,380) (1) 2006/07 comparatives include £240 million of cash paid intothe defined benefit schemes. Capital expenditure Core retail capital expenditure amounted to £416 million (2006/07 £346 million)in the half year, which included £155 million on new store development (2006/07:£127 million) and £209 million on extensions and refurbishments (2006/07: £205million). During the half year, freehold properties of existing trading storesamounting to £111 million were acquired, in line with the Group's plans to buyin freeholds of trading sites where it believes there are potential long-termdevelopment opportunities. This expenditure has been partially offset byproceeds of £66 million in relation to property transactions, resulting in netcapital expenditure for the half year of £461 million. For the full year, theGroup expects that net capital expenditure will be in the region of £750 millionto £800 million, an increase from the previous guidance of £675 millionreflecting the extra space growth and purchase of additional trading freeholds. Capital expenditure 2007 2006 £m £m New store development 155 127Extensions and refurbishments 209 205Other - including supply chain and IT 52 14 Core retail capital expenditure 416 346Freehold properties 111 -Proceeds from property transactions (66) (19) Net retail capital expenditure 461 327Sainsbury's Bank capital expenditure - 2 Net Group capital expenditure 461 329 Summary balance sheet Shareholders' funds as at 6 October 2007 were £4,708 million (2006/07: £3,964million). Gearing reduced year on year to 33 per cent (2006/07: 41 per cent)which primarily reflects the improvement in the net retirement benefitobligation. Summary balance sheet 6 October 7 October 24 March 2007 2006 2007 £m £m £m Non-current assets 8,209 7,462 7,661 Inventories 631 574 590 Trade and other receivables 212 484 197 Amounts due from Sainsbury's Bank customers and other banks - 3,181 - Cash and cash equivalents 800 910 1,128 Debt (2,371) (2,554) (2,508) Net debt (1,571) (1,644) (1,380) Trade and other payables and provisions (2,773) (2,906) (2,719) Amounts due to Sainsbury's Bank customers and other banks - (3,187) - Net assets 4,708 3,964 4,349 Equity shareholders' funds 4,708 3,886 4,349 Minority interests - 78 - Total equity 4,708 3,964 4,349 Pensions The defined benefit schemes were subject to a triennial valuation carried out byWatson Wyatt, the schemes' independent actuaries at March 2006, on the projectedunit basis. The results of this valuation were approved by the schemes' trusteesin June 2007. The retirement benefit obligations as at 6 October 2007 have beencalculated, where appropriate, in line with this valuation. As at 6 October 2007, the retirement benefit obligations less the fair value ofplan assets was a surplus of £299 million (2006/07: deficit of £483 million).The net surplus after deferred tax was £228 million (2006/07: deficit of £276million). The movement into surplus reflects the impact of the £350 million ofone-off cash contributions made in prior years and favourable market conditions. 6 October 2007 7 October 2006 24 March £m £m 2007 £m Present value of funded obligations (4,202) (4,483) (4,395)Fair value of plan assets 4,507 4,006 4,298 305 (477) (97)Present value of unfunded obligations (6) (6) (6) Retirement benefit asset/(obligations) 299 (483) (103)Deferred income tax (liability)/asset (71) 207 48 Net retirement benefit asset/(obligations) 228 (276) (55) Group income statement (unaudited)for the 28 weeks to 6 October 2007 28 weeks to 28 weeks to 52 weeks to 6 October 7 October 24 March 2007 2006 (2) 2007 Note £m £m £m Continuing operations Revenue 3 9,250 9,016 17,151 Cost of sales 3 (8,737) (8,425) (15,979) Gross profit 513 591 1,172 Administrative expenses 3 (254) (376) (669) Other income - 1 17 Operating profit 259 216 520 Finance income 4 46 34 64 Finance costs 4 (71) (56) (107) Share of post-tax loss from joint ventures (2) - - Profit before taxation 232 194 477 Analysed as: Underlying profit before tax (1) 240 189 380 Profit on sale of properties - 1 7 Financing fair value movements 4 (1) 4 8 One-off items 5 (7) - 82 232 194 477 Income tax expense 6 (71) (68) (153) Profit for the financial period 161 126 324 Attributable to: Equity holders of the parent 161 127 325 Minority interests - (1) (1) 161 126 324 Earnings per share 7 pence pence pence Basic 9.4 7.5 19.2 Diluted 9.1 7.5 18.9 (1) Profit before tax from continuing operations before any gain or loss onthe sale of properties, impairment of goodwill, financing fair value movementsand one-off items that are material and infrequent in nature. For the 28 weeksto 6 October 2007, these one-off items were the costs relating to approach fromDelta Two. For the 52 weeks to 24 March 2007, these one-off items were theprofit on part disposal of Sainsbury's Bank and past service gains on definedbenefit schemes. (2) Sainsbury's Bank has been fully consolidated until the Group sold fiveper cent of its shareholding in February 2007; thereafter it has been equityaccounted as a joint venture. An interim dividend of 3.0 pence per share (October 2006: 2.4 pence per share)has been approved by the Board of Directors for the 28 weeks to 6 October 2007,resulting in a total interim dividend of £52 million (October 2006: £41million). Group statement of recognised income and expense (unaudited)for the 28 weeks to 6 October 2007 28 weeks to 28 weeks to 52 weeks to 6 October 7 October 24 March 2007 2006 2007 Note £m £m £m Actuarial gains/(losses) on defined benefit pension schemes 374 (90) 179Available-for-sale financial assetsfair value movements - 12 24Cash flow hedgeseffective portion of fair value movements - (2) -Share-based payment tax deductions recognised directly in equity 6 (1) - 17Deferred tax on items recognised directly in equity 6 (105) 23 (59) Net income/(loss) recognised directly in equity 268 (57) 161Profit for the financial period 161 126 324 Total recognised income for the financial period 429 69 485 Attributable to:Equity holders of the parent 429 70 486Minority interests - (1) (1) 429 69 485 Group balance sheet (unaudited)at 6 October 2007 6 October 7 October 24 March 2007 2006 2007 Note £m £m £mNon-current assetsProperty, plant and equipment 7,349 7,119 7,176Intangible assets 173 184 175Investments in joint ventures 8 106 10 98Available-for-sale financial assets 137 125 137Amounts due from Sainsbury's Bank customers - 1,374 -Other receivables 50 - 50Deferred income tax asset - 9 -Retirement benefit asset 10 299 - - 8,114 8,821 7,636Current assetsInventories 631 574 590Trade and other receivables 212 383 197Amounts due from Sainsbury's Bank customers and other banks - 1,807 -Available-for-sale financial assets - 101 -Derivative financial instruments 1 - -Cash and cash equivalents 14b 800 910 1,128 1,644 3,775 1,915Non-current assets held for sale 95 15 25 1,739 3,790 1,940 Total assets 9,853 12,611 9,576 Current liabilitiesTrade and other payables (2,150) (2,178) (2,267)Amounts due to Sainsbury's Bank customers and other banks - (2,344) -Short-term borrowings 11 (240) (347) (373)Derivative financial instruments (4) (8) (2)Taxes payable (200) (113) (65)Provisions (12) (36) (14) (2,606) (5,026) (2,721) Net current liabilities (867) (1,236) (781) Non-current liabilitiesOther payables (77) (32) (33)Amounts due to Sainsbury's Bank customers and other banks - (843) -Long-term borrowings (2,076) (2,178) (2,090)Derivative financial instruments (52) (21) (43)Deferred income tax liability (269) - (168)Provisions (65) (64) (69)Retirement benefit obligations 10 - (483) (103) (2,539) (3,621) (2,506) Net assets 4,708 3,964 4,349 EquityCalled up share capital 12 498 490 495Share premium account 12 885 789 857Capital redemption reserve 680 670 670Other reserves 412 (58) 143Retained earnings 2,233 1,995 2,184 Equity shareholders' funds 4,708 3,886 4,349Minority interests - 78 - Total equity 13 4,708 3,964 4,349 Group cash flow statement (unaudited)for the 28 weeks to 6 October 2007 28 weeks to 28 weeks to 52 weeks to 6 October 7 October 24 March 2007 2006 2007 Note £m £m £mCash flows from operating activitiesCash generated from operations 14a 445 276 830Interest paid (58) (33) (95)Corporation tax received 16 9 9 Net cash from operating activities 403 252 744 Cash flows from investing activitiesPurchase of property, plant and equipment (510) (388) (778)Purchase of intangible assets (4) (1) (7)Proceeds from disposal of property, plant and equipment 26 21 106Acquisition of subsidiaries, net of cash acquired (4) (3) (3)Investment in joint ventures 8 (10) - -Proceeds from part disposal of Sainsbury's Bank - - 21Cash disposed on part disposal of Sainsbury's Bank - - (33)Costs of disposal of operations - - (1)Interest received 16 6 15 Net cash from investing activities (486) (365) (680) Cash flows from financing activitiesProceeds from issuance of ordinary shares 31 8 81Capital redemption 11 (10) (2) (2)Repayment of short-term borrowings - (4) (53)Repayment of long-term borrowings (15) (6) (22)Debt restructuring costs - - (2)Interest elements of obligations under finance lease payments (2) (2) (3)Dividends paid 9 (126) (99) (140) Net cash from financing activities (122) (105) (141) Net decrease in cash and cash equivalents (205) (218) (77) Opening cash and cash equivalents 765 842 842 Closing cash and cash equivalents 14b 560 624 765 Notes to the Interim Results (unaudited) 1 General information The Interim Results are unaudited but have been reviewed by the auditors whosereport is set out on page 28. The financial information presented herein doesnot amount to full statutory accounts within the meaning of Section 240 of theCompanies Act 1985 (as amended). The Annual Report and Financial Statements2007 have been filed with the Registrar of Companies. The Independent Auditors'report on the Annual Report and Financial Statements 2007 was unqualified anddid not contain a statement under Section 237(2) or 237(3) of the Companies Act1985. The financial period represents the 28 weeks to 6 October 2007 (prior financialperiod 28 weeks to 7 October 2006; prior financial year 52 weeks to 24 March2007). The financial information comprises the results of J Sainsbury plc andits subsidiaries ('Group') and the Group's interests in associates and jointventures. 2 Basis of preparation The Interim Results have been prepared in accordance with the Disclosure andTransparency Rules of the Financial Services Authority and with IAS 34 'InterimFinancial Reporting' as adopted by the European Union. The financial information contained in the Interim Results has been prepared onthe basis of the Group's IFRS accounting policies as set out in the AnnualReport and Financial Statements 2007. The financial information contained in the Interim Results is presented insterling, rounded to the nearest million (£m) unless otherwise stated. The following new standards, interpretations and amendments to publishedstandards are effective for the Group for the financial year beginning 25 March2007. • Amendments to IAS 1 'Presentation of Financial Statements - Capital Disclosures'• IFRS 7 'Financial Instruments: Disclosure'• IFRIC 8 'Scope of IFRS 2'• IFRIC 9 'Re-assessment of embedded derivatives'• IFRIC 10 'Interim Financial Reporting and Impairment'• IFRIC 11 'IFRS 2 - Group and Treasury Share Transactions' The above new standards, interpretations and amendments to published standardshave had no material impact on the results or the financial position of theGroup for the 28 weeks to 6 October 2007. 3 Segment reporting The Group's businesses are organised into two operating divisions: • Retailing (Supermarkets and Convenience); and• Financial services (Sainsbury's Bank). All material operations are carried out in the UK. The business of the Group isnot subject to highly seasonal fluctuations although there is an increase intrading at Christmas. Retailing Financial Group £m services £m £m 28 weeks to 6 October 2007 Segment revenue 9,250 - 9,250 Underlying operating profit (1) 266 - 266 Costs relating to approach from Delta Two (7) - (7) Segment result 259 - 259 Finance income 46 Finance costs (71) Share of post-tax loss from joint ventures - (2) (2) Income tax expense (71) Profit for the financial period 161 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 52 weeks to 24 March 2007 Segment revenue 16,860 291 17,151 Underlying operating profit (1) 429 2 431 Profit on sale of properties 7 - 7 Profit on part disposal of Sainsbury's Bank - 10 10 Past service gains on defined benefit schemes 72 - 72 Segment result 508 12 520 Finance income 64 Finance costs (107) Income tax expense (153) Profit for the financial period 324 (1) Underlying profit before tax from continuing operations before financeincome, finance costs and share of post-tax profit or loss from joint ventures For the 28 weeks to 7 October 2006, the impact of Sainsbury's Bank on the Groupresults was as follows: Retailing Financial Group £m services £m £m Revenue 8,841 175 9,016Cost of sales (8,356) (69) (8,425) Gross profit 485 106 591Administrative expenses (270) (106) (376)Other income 1 - 1 Operating profit 216 - 216 4 Finance income and finance costs 28 weeks to 28 weeks to 52 weeks to 6 October 7 October 24 March 2007 2006 2007 £m £m £m Interest on bank deposits 17 7 15Net return on pension schemes 29 23 41Financing fair value gains (1) - 4 8 Finance income 46 34 64 Financing fair value losses (1) (1) - - Borrowing costsBank loans and overdrafts - (2) (2)Other loans (71) (57) (111)Obligations under finance leases (2) (2) (3)Provisions - amortisation of discount - - (1) (74) (61) (117)Interest capitalised - qualifying assets 3 5 10 Finance costs (71) (56) (107) (1) Fair value gains or losses relate to fair value adjustments onderivatives relating to financing activities and hedged items in fair valuehedges. 5 One-off items 28 weeks to 28 weeks to 52 weeks to 6 October 7 October 24 March 2007 2006 2007 £m £m £m Costs relating to approach from Delta Two (7) - -Profit on part disposal of Sainsbury's Bank - - 10Past service gains on defined benefit schemes - - 72 (7) - 82 The Group has incurred £7 million of costs in relation to the approach fromDelta Two. On 8 February 2007, J Sainsbury plc ('Company') sold a five per centshareholding in Sainsbury's Bank plc ('the Bank') to the Bank of Scotland (awholly owned subsidiary of HBOS plc) for a cash consideration of £21 million,resulting in a profit on disposal for the Group of £10 million. Consequentlythe Bank became a 50:50 joint venture between the Company and HBOS plc. The results of the Bank have been fully consolidated into the Group resultsuntil 8 February 2007, with a corresponding minority interest shown for theminority share of these results. Following the sale on 8 February 2007, theBank is treated as a joint venture and equity accounted in the Group financialstatements. 6 Income tax expense 28 weeks to 28 weeks to 52 weeks to 6 October 7 October 24 March 2007 2006 2007 £m £m £m Current tax expense/(credit) 76 (1) (23)Deferred tax (credit)/expense (5) 69 176 Total income tax expense in income statement 71 68 153 Income tax expense on underlying profit (1) 73 67 132Tax on items below:Sale of properties - - (3)Financing fair value movements - 1 2Costs relating to approach from Delta Two (2) - -Past service gains on defined benefit schemes - - 22 71 68 153 Share-based payment tax deductions recognised directly in equity 1 - (17) Deferred tax on items recognised directly in equityActuarial gains and losses on defined benefit pension schemes 107 (26) 52Available-for-sale financial assets - fair value movements (2) 4 7Cash flow hedge reserve - fair value movements - (1) - 105 (23) 59 106 (23) 42 (1) Tax charge attributable to underlying profit before tax. The income tax charge was £71 million (October 2006: £68 million), with anunderlying rate of 30.4 per cent (October 2006: 35.4 per cent) and an effectiverate of 30.4 per cent (October 2006: 35.1 per cent). These rates are lower thanin the prior financial period, primarily due to the expected decrease in the UKdeferred tax liabilities following the reduction in Corporation tax rates from 1April 2008 and higher profits which have diluted the impact of disallowabledepreciation. 7 Earnings per share Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares in issueduring the period, excluding those held by the Employee Share Ownership Plantrusts (note 13), which are treated as cancelled. For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all potential dilutive ordinaryshares. These represent share options granted to employees where the exerciseprice is less than the average market price of the Company's ordinary sharesduring the period. Underlying earnings per share is provided by excluding the effect of any gain orloss on the sale of properties, impairment of goodwill, financing fair valuemovements and one-off items that are material and infrequent in nature. Thisalternative measure of earnings per share is presented to reflect the Group'sunderlying trading performance. All operations are continuing for the periods presented. 28 weeks to 28 weeks to 52 weeks to 6 October 7 October 24 March 2007 2006 2007 million million million Weighted average number of shares in issue 1,716.8 1,687.4 1,691.3Weighted average number of dilutive share options 45.4 12.9 28.5 Total number of shares for calculating diluted earnings per share 1,762.2 1,700.3 1,719.8 £m £m £m Profit for the financial period attributable to equity holders of the 161 127 325parent(Less)/add: profit on sale of properties, net of tax - (1) (10)financing fair value movements, net of tax 1 (3) (6)costs relating to approach from Delta Two, net of tax 5 - -profit on part disposal of Sainsbury's Bank - - (10)past service gains on defined benefit schemes, net of tax - - (50) Underlying profit after tax 167 123 249 pence pence pence per share per share per share Basic earnings 9.4 7.5 19.2Diluted earnings 9.1 7.5 18.9Underlying basic earnings 9.7 7.3 14.7Underlying diluted earnings 9.5 7.2 14.5 8 Investments in joint ventures In the financial period a further £10 million was invested in the ordinary sharecapital of Sainsbury's Bank plc, a joint venture with the Bank of Scotland (awholly owned subsidiary of HBOS plc). 9 Dividend 28 weeks to 28 weeks to 52 weeks to 6 October 7 October 24 March 2007 2006 2007Amounts recognised as distributions to equity holders in the period:Dividend per share (pence) 7.35 5.85 8.25Total dividend paid (£m) 126 99 140 An interim dividend of 3.0 pence per share (October 2006: 2.4 pence per share)has been approved by the Board of Directors for the financial year ended 22March 2008, resulting in a total interim dividend of £52 million (October 2006:£41 million). The interim dividend was approved by the Board on 13 November2007 and as such has not been included as a liability at 6 October 2007. 10 Retirement benefits Retirement benefits relate to two funded defined benefit schemes, the JSainsbury Pension and Death Benefit Scheme and the J Sainsbury Executive PensionScheme and an unfunded pension liability relating to senior employees. Thedefined benefit schemes were closed to new employees on 31 January 2002. Theassets of these schemes are held separately from the Group's assets. The defined benefit schemes were subject to a triennial valuation carried out byWatson Wyatt, the schemes' independent actuaries, at March 2006 on the projectedunit basis. The unfunded pension liability is unwound when each employee reaches retirementand takes their pension from the Group payroll or is crystallised in the eventof an employee leaving or retiring and choosing to take the provision as aone-off cash payment. The amounts recognised in the balance sheet, based on valuations performed byWatson Wyatt, are as follows: 6 October 7 October 24 March 2007 2006 2007 £m £m £m Present value of funded obligations (4,202) (4,483) (4,395)Fair value of plan assets 4,507 4,006 4,298 305 (477) (97)Present value of unfunded obligations (6) (6) (6) Retirement benefit asset/(obligations) 299 (483) (103)Deferred income tax (liability)/asset (71) 207 48 Net retirement benefit asset/(obligations) 228 (276) (55) The retirement benefit asset or obligations and the associated deferred incometax balance are shown within different line items on the face of the balancesheet. 11 Short-term borrowings Preference B shares liability is included within short-term borrowings. Areconciliation of B shares liability is shown below: 28 weeks to 28 weeks to 52 weeks to 6 October 7 October 24 March 2007 2006 2007 shares shares shares million million million Beginning of period 27 34 34B shares redemption (27) (5) (7) End of period - 29 27 £m £m £mBeginning of period 10 12 12B shares redemption (10) (2) (2) End of period - 10 10 12 Called up share capital and share premium account Ordinary Ordinary Share premium shares shares million £m £m At 25 March 2007 1,734 495 857Allotted in respect of share option schemes 8 3 28 At 6 October 2007 1,742 498 885 At 26 March 2006 1,711 489 782Allotted in respect of share option schemes 2 1 7 At 7 October 2006 1,713 490 789 At 26 March 2006 1,711 489 782Allotted in respect of share option schemes 23 6 75 At 24 March 2007 1,734 495 857 13 Reconciliation of movements in equity The movements in the Group's equity for the 28 weeks to 6 October 2007 and thecomparative period of 28 weeks to 7 October 2006 are set out below. Called up Share Capital Retained Equity Minority Total share premium redemption earnings shareholders' interests equity capital account and other funds reserves £m £m £m £m £m £m £m At 25 March 2007 495 857 813 2,184 4,349 - 4,349Profit for the period - - - 161 161 - 161Dividends paid - - - (126) (126) - (126)Share-based payment - - - 25 25 - 25Actuarial gains on defined benefit - - 267 - 267 - 267pension schemes, net of taxAvailable-for-sale financial assetsdeferred tax movement - - 2 - 2 - 2B shares redemption - - 10 (10) - - -Shares vested - - - 4 4 - 4Allotted in respect of share option 3 28 - (5) 26 - 26schemes At 6 October 2007 498 885 1,092 2,233 4,708 - 4,708 At 26 March 2006 489 782 667 1,948 3,886 79 3,965Profit for the period - - - 127 127 (1) 126Dividends paid - - - (99) (99) - (99)Share-based payment - - - 22 22 - 22Actuarial losses on defined benefit - - (64) - (64) - (64)pension schemes, net of taxAvailable-for-sale financial assetsfair value movements, net of tax - - 8 - 8 - 8Cash flow hedgeseffective portion of fair value - - (1) - (1) - (1)movements, net of taxB shares redemption - - 2 (2) - - -Shares vested - - - 1 1 - 1Allotted in respect of share option 1 7 - (2) 6 - 6schemes At 7 October 2006 490 789 612 1,995 3,886 78 3,964 Own shares held by Employee Share Ownership Plan ('ESOP') trusts Own shares are held on behalf of employees by ESOP trusts under the Group'sPerformance Share Plan and Executive Share Option Plan. The ESOP trusts waivethe rights to the dividends receivable in respect of the shares held under theseschemes. At 6 October 2007, £79 million (October 2006: £83 million) of ownshares is deducted from Group retained earnings. 14 Notes to the cash flow statement (a) Reconciliation of operating profit to cash generated fromoperations 28 weeks to 28 weeks to 52 weeks to 6 October 7 October 24 March 2007 2006 2007 £m £m £m Operating profit 259 216 520Adjustments forDepreciation expense 247 254 479Amortisation expense 10 11 21Profit on sale of properties - (1) (7)Profit on part disposal of Sainsbury's Bank - - (10)Foreign exchange differences - - 6Share-based payments expense 26 22 38Operating cash flows before changes in working capital 542 502 1,047Changes in working capital(Increase)/decrease in inventories (41) 2 (12)Increase in current available-for-sale financial assets - (49) (45)Increase in trade and other receivables (18) (109) (50)Decrease in amounts due from Sainsbury's Bank customers and other - 180 188banks(Decrease)/increase in trade and other payables (33) 177 314Decrease in amounts due to Sainsbury's Bank customers and other - (121) (198)banksDecrease in provisions and other liabilities (1) (5) (306) (414)Cash generated from operations 445 276 830 (1) Includes £nil (October 2006: £240 million, March 2007: £240 million) of cash paid into the defined benefit pension schemes. (b) Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprisethe following: 6 October 7 October 24 March 2007 2006 2007 £m £m £m Cash and cash equivalents 800 910 1,128Bank overdrafts (240) (286) (363) 560 624 765 15 Analysis of net debt 25 March Cash flow Other non-cash 6 October 2007 movements 2007 £m £m £m £mCurrent assetsCash and cash equivalents 1,128 (328) - 800Derivative financial instruments - - 1 1 1,128 (328) 1 801Current liabilitiesBank overdrafts (363) 123 - (240)Borrowings (10) 10 - -Derivative financial instruments (2) - (2) (4) (375) 133 (2) (244)Non-current liabilitiesBorrowings (2,039) 15 (1) (2,025)Finance leases (51) - - (51)Derivative financial instruments (43) - (9) (52) (2,133) 15 (10) (2,128) (2,508) 148 (12) (2,372) Total net debt (1,380) (180) (11) (1,571) Net debt incorporates the Group's borrowings (including accrued interest), bankoverdrafts, fair value of derivatives and obligations under finance leases, lesscash and cash equivalents. Reconciliation of net cash flow to movement in net debt 28 weeks to 28 weeks to 52 weeks to 6 October 7 October 24 March 2007 2006 2007 £m £m £m Decrease in cash and cash equivalents (205) (218) (77)Decrease in debt 25 43 79Loan disposed of with part disposal of Sainsbury's Bank - - 45Other non-cash movements (11) (54) (12) (Increase)/decrease in net debt in the period (191) (229) 35Opening net debt at the beginning of the period (1,380) (1,415) (1,415) Closing net debt at the end of the period (1,571) (1,644) (1,380) 16 Capital expenditure and commitments In the financial period, there were additions to property, plant and equipmentof £519 million (October 2006: £344 million) and additions to intangible assetsof £8 million (October 2006: £4 million). In the financial period there were disposals of property, plant and equipment of£70 million (October 2006: £77 million). Capital commitments contracted, but not provided for by the Group, amounted to£247 million (October 2006: £259 million). 17 Related party transactions The Group's significant related parties are its joint ventures as disclosed inthe Annual Report and Financial Statements 2007. There were no material changesto the related party transactions during the financial period. 18 Contingent liability On 20 September 2007 the Office of Fair Trading ('OFT') published a Statement ofObjections to producers and food retailers including Sainsbury's aroundprovisional findings in the dairy market. The Group is reviewing the findingsand will respond accordingly. As permitted by paragraph 92 of IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" the disclosurerequirements of IAS 37 have not been presented. Principal risks and uncertainties The principal risks and uncertainties which could impact the Group for theremainder of the financial year are those detailed on page 27 of the Group'sAnnual Report and Financial Statements 2007, a copy of which is available on theGroup's website www.j-sainsburys.co.uk. Statement of Directors' responsibilities The Directors confirm that this condensed set of financial statements has beenprepared in accordance with IAS 34 as adopted by the European Union, and thatthe interim management report herein includes a fair review of the informationrequired by DTR 4.2.7 and DTR 4.2.8. The Directors of J Sainsbury plc are listed in the J Sainsbury plc Annual Reportand Financial Statements 2007. There have been the following appointments tothe Board of Directors in the financial period: Mike Coupe 1 August 2007Mary Harris 1 August 2007 By order of the Board Justin KingChief Executive13 November 2007 Darren ShaplandChief Financial Officer13 November 2007 Independent review report to J Sainsbury plc Introduction We have been engaged by the Company to review the condensed set of financialstatements in the half-yearly financial report ('Interim Report') for the 28weeks to 6 October 2007, which comprises the Group income statement, Groupstatement of recognised income and expense, Group balance sheet, Group cash flowstatement and related notes. We have read the other information contained in theInterim Report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the information in the condensed set of financialstatements. Directors' responsibilities The Interim Report is the responsibility of, and has been approved by, theDirectors. The Directors are responsible for preparing the Interim Report inaccordance with the Disclosure and Transparency Rules of the United Kingdom'sFinancial Services Authority. As disclosed in note 2, the annual financial statements of the Group areprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of financial statements included in the Interim Report has beenprepared in accordance with International Accounting Standard 34, 'InterimFinancial Reporting', as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensedset of financial statements in the Interim Report based on our review. Thisreport, including the conclusion, has been prepared for and only for the Companyfor the purpose of the Disclosure and Transparency Rules of the FinancialServices Authority and for no other purpose. We do not, in producing thisreport, accept or assume responsibility for any other purpose or to any otherperson to whom this report is shown or into whose hands it may come save whereexpressly agreed by our prior consent in writing. Scope of review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, 'Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly, wedo not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the Interim Report for the 28weeks to 6 October 2007 is not prepared, in all material respects, in accordancewith International Accounting Standard 34 as adopted by the European Union andthe Disclosure and Transparency Rules of the United Kingdom's Financial ServicesAuthority. PricewaterhouseCoopers LLPChartered AccountantsLondon13 November 2007 Notes: (a) The maintenance and integrity of the JSainsbury plc website is the responsibility of the Directors; the work carriedout by the auditors does not involve consideration of these matters and,accordingly, the auditors accept no responsibility for any changes that may haveoccurred to the Interim Report since they were initially presented on thewebsite. (b) Legislation in the United Kingdom governingthe preparation and dissemination of financial information may differ fromlegislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Sainsbury's