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Preliminary Results for the 52 weeks ended 24 March 2007

Sainsbury

16 May 2007

Philip Hampton, chairman, said: “Over the past year we have delivered another strong performance and our recovery is ahead of plan. Since March 2005, we have grown sales by £1.8 billion with over £1 billion delivered in the 2006/07 financial year. This means we are ahead of our target to grow sales by £2.5 billion by March 2008. I’m especially pleased that we are now also demonstrating that this strong sales performance is flowing through and is reflected in improved profits. Our underlying profit before tax for the year was up 42.3 per cent to £380 million.
"This strong performance was delivered despite potential takeover speculation in the last quarter of the year. The Board received a number of proposals from a private equity consortium all of which were subject to a number of pre-conditions related to the consortium’s proposed financing structure.
"These conditions were outside the control of the Board and the consortium concluded they could not be satisfied and decided to withdraw. The Board did not receive a formal bid approach capable of being put to shareholders.
"Property has always been at the heart of our business and is closely aligned to our successful operation. Our estate still has considerable development potential which we believe will maximise both operational and freehold property value. As we move from recovery to growth we believe it is right to retain ownership of our properties.
"We continue to review our capital structure on a regular basis. A year ago we refinanced our debt book with lower-cost property-backed securities.  We have again looked at structural financing opportunities in the light of our revised plans being announced today and believe that now is not the time for material change. We will, however, continue to review funding on a regular basis as the business cash flows improve.
"The Board is recommending a final dividend of 7.35 pence per share, making the full year dividend 9.75 pence, an increase of 21.9 per cent compared to last year. This is covered 1.5 times by earnings which is in line with our previously stated minimum objective. Going forward we expect dividend cover to range between 1.5 times and 1.75 times."
Justin King, chief executive, said "Our vision is simple; we are here to serve customers well with a choice of great products at fair prices and by so doing, to provide shareholders with strong, sustainable financial returns. This has driven everything we have done since we outlined our Making Sainsbury’s Great Again ("MSGA") recovery plan in October 2004.
"Against clearly defined targets we made good progress this year. We’ve had a strong and sustained improvement in performance and this has added significant momentum to our recovery. Sales remain the purest measure of customer satisfaction in our business, so this year’s 7.3 per cent total sales growth (ex Sainsbury’s Bank inc VAT) is a particularly important sign of progress.
"Over the year we grew like-for-like sales excluding fuel by 5.9 per cent, despite limited maturing new space and extensions and the tougher comparatives of the previous year, delivering our ninth consecutive quarter of like-for-like sales growth in the last quarter of the year.  This result represented growth on growth and demonstrated continued improvement and momentum.
"This strong sales performance is ahead of our own expectations. It’s also our best for many years. It shows that our recovery is ahead of plan and that we’ve made substantial progress in addressing many of the challenges outlined in our recovery plan.
"These achievements give us a strong foundation on which to build.  We believe now is the right time to look to the next stage of our recovery and to expand the business to drive growth for the longer-term.
"A key priority remains to build on and stretch our lead in food.  It will always be the number one reason why customers visit our stores. We share our customers’ passion for healthy, safe, fresh and tasty food and will continue to innovate and provide leadership in delivering quality products, sourced with integrity. But we want to speed up the development of our complementary non-food offer to give our customers a broader shopping experience. We will bring the same principles of quality, value and innovation as we continue to build our capability and refine our customer offer.
"Today we are announcing new three-year targets which build on the strong progress we’ve made to date and move us from recovery to long-term growth. As we are tracking ahead of our original MSGA targets the new three-year targets overlap the final year of our MSGA recovery plan and run until March 2010. Our focus on driving sales continues with a target to deliver £3.5 billion of additional sales split two-thirds from grocery and one-third from non-food ranges from March 2007 to March 2010. Added to the £1.8 billion of sales growth already delivered, this new target, if achieved, would give a total sales growth of £5.3 billion over the five-year period March 2005 to March 2010.
"Delivering great product at fair prices will continue to be at the core of our business and the reinvestment of buying efficiencies (100-150 basis points per annum) in price and quality will be maintained and improved. We will also continue to improve our operational efficiency to deliver an ever-improving shopping experience for customers. We are on track to achieve our cost saving target of £155 million in 2007/08 and have targeted savings thereafter to offset half our operating cost inflation.
"Our current store estate provides substantial development opportunities and we intend to extend a further 75 stores by March 2010.  We’re also actively seeking and developing a pipeline of new stores. Our target is to grow our total sales area to over 19 million square feet as we increase our space by ten per cent over the next three years. The new space will be split equally across grocery and non-food ranges.  This goal enables us to continue to develop a great food offer while also growing total space for non-food ranges.
"We’re also extending the reach of the Sainsbury’s brand. We plan to open 30 new supermarkets and 100 convenience stores over the next three years. We also aim to extend our online home delivery service. This has been significantly improved over the past two years and we will be increasing capacity in areas of high demand, almost doubling the number of stores operating the service from just over 100 at the current time to 200. The performance of Sainsbury’s Bank has been stabilised and offers growth opportunities working with our partner HBOS plc.  We are targeting pre-tax profits of £40 million in the year ending March 2010 which, under our new joint venture arrangements, we would report half after tax.
"To support these ambitious expansion plans we expect our total capital expenditure over the next three years will be £2.5 billion, funded by operational cash flows as we invest now for long-term growth and the creation of ongoing value.  We expect to be broadly cash flow neutral over the three years.
"These are ambitious plans which bring together the improvements we are making in operational efficiency and in developing further our customer offer with ongoing sales growth and the addition of new space. We expect to continue to deliver operational gearing with our planned sales growth flowing through to profit at a percentage rate in the high single digits. As new space and our other investments mature there will be a further step up in profit conversion in future years.
"The company is significantly stronger than it was when we launched our MSGA plan in 2004 and this has provided a firm base for future growth. Customers have become increasingly concerned with eating better and more healthily as well as the social and ethical consequences of their supermarket shop. The Sainsbury’s brand is well positioned and at the forefront of addressing these concerns. We have today laid out plans for the next three years and we are confident that these provide Sainsbury’s with substantial opportunity for further development of our business and value creation for our shareholders."
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 (BST) 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 (BST) on the day in the form of a delayed webcast.
Download the full Results announcement in PDF format (277K)

To listen to the Results Presentation:To participate, dial +44 (0) 20 7138 0817 at least ten minutes prior to the start of the presentation. 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 BST on +44 (0) 20 7806 1970, pin number 4886432# until midnight BST on Friday 18 May 2007.
To view the transcript of the presentation: Go to www.j-sainsbury.co.uk from 18 May 2007.
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