Sainsbury(J) PLC (SBRY) - Half Yearly Report RNS Number : 0520R Sainsbury(J) PLC 14 November 2012 14 November 2012 Interim results for the 28 weeks to 29 September 2012 Good sales and profit performance; outperforming the market Financial summary · Total sales (inc VAT, inc fuel) up 4.0 per cent to £13,365 million (2011/12: £12,848 million) · Total sales (inc VAT, ex fuel) up 4.1 per cent · Like-for-like sales (inc VAT, ex fuel) up 1.7 per cent · Underlying profit before tax^(1) up 5.4 per cent to £373 million (2011/12: £354 million) · Underlying basic earnings per share^(2) up 9.4 per cent to 15.2 pence (2011/12: 13.9 pence) · Return on capital employed^(3) of 10.9 per cent (2011/12: 10.9 per cent) · Interim dividend of 4.8 pence per share, up 6.7 per cent (2011/12: 4.5 pence per share) Statutory · Revenue (ex VAT, inc fuel) up 4.0 per cent to £12,160 million (2011/12: £11,693 million) · Profit before tax up 2.5 per cent to £405 million (2011/12: £395 million) · Basic earnings per share up 4.9 per cent to 17.0 pence (2011/12: 16.2 pence) Operating highlights · Outperformed the market, increasing market share to 16.7 per cent^(4), the highest for nearly a decade, completing 31 consecutive quarters of like-for-like sales growth · Nearly 250 million Brand Match coupons printed since its launch a year ago, with 'Cheaper Here Today' coupons issued over 50 per cent of the time · Celebrated ten year partnership with Nectar, a continuing source of customer insight and loyalty · Operational cost savings of around £60 million, on track for around £100 million for the full-year · Underlying operating margin unchanged (up 1 basis point at constant fuel prices) · Five awards at the Retail Industry Awards 2012 including Supermarket of the Year for the fifth time in seven years and Convenience Chain of the Year for the third year in a row · World sector leader for food retailers for the sixth consecutive year in the Dow Jones Sustainability Index Strategy highlights · Great food: Continued investment and growth in own-brand, with penetration increasing at a faster rate than any other major supermarket. We are 85 per cent of the way through the re-launch of our core by Sainsbury's range which will see 6,500 new or improved products introduced by April 2013 · Compelling general merchandise and clothing: Goes from strength to strength, currently growing three times faster than our food business and gaining market share · Complementary channels and services: Online continues to perform strongly, growing at over 20 per cent, with grocery orders regularly exceeding 165,000 a week. Our convenience business is expanding by one to two stores each week and is enjoying almost 20 per cent year-on-year growth. Sainsbury's Bank continues to make strong progress, with our share of joint venture post-tax profit up from £7 million to £12 million · Developing new business: Announced I^2C, a joint venture company with Aimia, owners of Nectar. Launched our MP3 music download service; acquired a majority stake in Anobii e-book platform; announced a video on demand service powered by Rovi · Growing space and creating property value: During the half-year we opened 351,000 sq ft of space, comprising five supermarkets, 49 convenience stores and three extensions. Property profits from sale and leaseback activity were £48 million David Tyler, Chairman, said: "Sainsbury's has made a strong start to the year, delivering continued outperformance in what has remained a challenging market. We have grown our underlying basic earnings per share to 15.2 pence, return on capital employed remains unchanged at 10.9 per cent and our interim dividend is 4.8 pence per share, up 6.7 per cent." Justin King, Chief Executive said: "Our share of the grocery market is the highest for almost a decade at 16.7 per cent, with 31 consecutive quarters of like-for-like sales growth. We continue to succeed by remaining focused on delivering quality products, best-in-class service and value for our customers, without compromise. Brand Match, Nectar and our highly targeted coupon-at-till all reinforce our price competiveness. Whilst the wider economic situation remains challenging, we are well positioned to help our customers Live Well For Less. Our long-standing consistent strategy, combined with our customer insight and strong value-driven culture, will continue to deliver for customers, colleagues and shareholders." Notes: 1. Underlying profit before tax: Profit before tax before any profit or loss on the disposal of properties, investment property fair value movements, financing fair value movements, IAS 19 pension financing element and one-off items that are material and infrequent in nature. 2. Underlying basic earnings per share: Underlying profit, net of attributable taxation, 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. 3. Return on capital employed: Underlying profit before interest and tax, divided by the average of opening and closing capital employed (net assets before net debt). 4. Sainsbury's market share grew to 16.7 per cent from 16.6 per cent (source: Kantar for the 52 weeks ended 30 September 2012). 5. 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 events or results to differ materially from any expected future events or results referred to in these forward-looking statements. They appear in a number of places throughout this announcement and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. Unless otherwise required by applicable law, regulation or accounting standard, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. 6. Sainsbury's will report its 2012/13 Third Quarter Trading Statement at 07:00 (GMT) on 9 January 2013. A results presentation for analysts and investors will be held at 09:45 on 14 November 2012. 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 09:30 on the day of the announcement, where there will be further instructions. An archive of the webcast will be available from 12:00. To listen to the results presentation: You may dial in to listen to the results on +44 (0) 208 996 3900, pass code 264663. A transcript of the presentation and an archive recording of this event will be available from 15:00 on the day of the event at www.j-sainsbury.co.uk. Enquiries: Investor Relations Media Adam Wilson Katsibas / Kellie Herman Alex Cole / Tara Hicks / Tom Parker +44 (0) 20 7695 0080 +44 (0) 20 7695 7295 Business Review Trading and market overview We have made a good start to the year, continuing to outperform the market, in what has remained a challenging environment. Our share of the grocery market is its highest for almost a decade at 16.7 per cent and we have achieved 31 consecutive quarters of like-for-like sales growth. Total sales (including VAT, excluding fuel) were up 4.1 per cent, with like-for-like sales up 1.7 per cent. Careful control of costs enabled us to grow underlying profit before tax by 5.4 per cent to £373 million. We continue to succeed by understanding what our customers want. Delivering universal appeal to help them Live Well For Less. Our performance demonstrates that delivering quality and value, with values, is a compelling offer for customers. Despite the unseasonal weather in the half-year, with six bank holidays, the Queen's Diamond Jubilee and the Olympic and Paralympic Games, we had many opportunities to help our customers celebrate. We saw a continuation of savvy shopping, with customers putting on average one fewer item in their basket, although the impact of this trend is now annualising. Through our Brand Match initiative, which has just celebrated its first anniversary, we have the most comprehensive tool in the market to help people appreciate our great value. Similarly our longstanding ten year partnership with Nectar enables us to understand our customers better and provide them with relevant offers. Our non-food, convenience and online businesses continue to enjoy market-beating growth and gain market share, while investment in these areas is increasing customer loyalty. We are well positioned to continue to grow and to achieve our vision of being the most trusted retailer where people love to work and shop. Greatfood Great food remains at the heart of what we do, with our leadership in fresh produce and our strong own-brand key differentiators. Our customers have high expectations about the quality, integrity and provenance of the fresh food they buy, with one in every five pounds spent on fruit and vegetables, spent at Sainsbury's. In addition, our fresh food counters, now in 513 of our 576 supermarkets, are growing market share faster than at any other major retailer. Our colleagues' expertise and customer service is key to driving sales and over 20,000 have received City & Guilds accredited training in our seven food colleges, covering bakery, butchery, fishmonger and deli counter skills. Own-brand investment goes from strength to strength and we are seeing tangible results. Our own-brand penetration is increasing at a faster rate than any other major supermarket and we continue to invest in the breadth and quality of our ranges. We are now 85 per cent of the way through the re-launch of our core by Sainsbury's range, which will see 6,500 new or improved products introduced by April 2013. Sales of by Sainsbury's products are increasing at the strongest rate in recent years and it is the fastest growing core own-brand range in the UK. It was named Own Label Range of the Year at the Grocer Gold Awards in June. Our Taste the Difference range grew by nearly ten per cent and continues to outperform the premium tier market. Over half our customers buy Taste the Difference, with over 60 per cent of them also buying into our basics range, which is the second biggest selling supermarket value brand. In September, we introduced a new breed of free range, slow grown Norfolk Black Chicken as part of our Taste the Difference range. Bred from two heritage breeds, the birds are free to roam outdoors amongst trees and hedges. In development for over three years, it has been heralded as one of the most exciting innovations in poultry farming for decades. We have always worked closely with British farmers to give our customers high quality, seasonal and fresh British food. It is our aim to double the amount of British food we sell by 2020 as part of our stretching 20 x 20 Sustainability Plan. Our Farmer Development Groups bring together 2,500 British farmers in ten producer groups - dairy, beef, pork, lamb, veal, eggs, chicken, cheese, wheat, and produce - and through these groups we have invested over £40 million in British farming over the last five years. In October, we launched a £1 million agriculture research and development fund to kick start the next wave of improvements to UK farming. This money will help farmers and suppliers to adopt leading technologies, as well as drive innovation. Compelling general merchandise and clothing Our general merchandise and clothing businesses go from strength to strength, growing faster than our food business and gaining market share. However, fewer than one in five of our supermarkets have a full non-food offer of over 15,000 sq ft, which presents opportunities for future growth. We have a clear strategy centred on delivering high street style and quality at supermarket prices in a way which leverages the footfall and brand positioning of our great food offer. We also see that our non-food offer builds customer loyalty, with those who buy clothing, general merchandise and entertainment shopping more frequently than those who do not. At the end of the half-year, our Tu clothing range achieved its best ever sales on Saturday 29 September. We recently celebrated the one year anniversary of our collaboration with Gok Wan and also confirmed five more exclusive Gok for Tu womenswear collections for the coming year. Our new 'Denim Shop', introduced into most of our clothing stores, nearly doubled denim sales in the period. Additionally, we enjoyed our biggest ever 'Back to School' season in the second quarter and remain the fourth largest player in the school uniform market. The trend in home baking continues to drive strong sales of bakeware and baking accessories. We successfully launched our exclusive Great British Bake Off range of products in 90 stores. Our Home range continues to enjoy strong growth and in the build up to the Jubilee we saw excellent sales on lines such as bunting, tea towels, aprons, cake tins, dinnerware and mugs. In the second quarter, we had a strong response to our 'Great Student Value' event, driving sales volumes on home essential lines including 500,000 towels and 160,000 saucepans. In entertainment, we are the only supermarket to grow market share, up 200 basis points to 6.6 per cent in the 12 weeks to 30 September. We secured exclusive versions of some of the biggest DVD releases in the past few months including Avengers Assemble, The Hunger Games and War Horse, which all performed well. Our investment in own-brand educational books saw sales value increase in this area by a third. Increased direct sourcing via offices in Shanghai, Hong Kong and Bangladesh has also enabled us to forge better relationships with our suppliers and deliver better value for our customers. Complementary channels and services People have more choice than ever before of where, how and when to do their shopping. To enable our customers to shop with us in the way they choose, we offer a winning mix of supermarkets, convenience stores and a full online grocery and general merchandise offer. Where customers shop all three of these channels their total spend is more than double that of the average supermarket only shopper. Our convenience business continues to perform strongly, with almost 20per cent year-on-year growth, and we were named Convenience Chain of the Year for the third year running in the Retail Industry Awards. We are meeting our target of opening one or two convenience stores each week, and in the first half of this year we opened 49 new stores taking our convenience store total to 487. We now have a programme to upgrade existing stores with an improved fresh food offer. In the half-year, 12 convenience stores were refurbished, resulting in a good sales uplift. Our online grocery business continues to grow in popularity, with sales up over 20 per cent in the half, driven primarily by new customers. Our online grocery orders now regularly exceed 165,000 a week and we deliver to 96 per cent of UK postcodes. Customer feedback shows that quality of service, quality of food and ease of shop are key to this success. Our general merchandise website offers thousands of products across home, garden, appliances, technology, toys, sports and leisure. More than half our customers opt to collect their orders via our Click & Collect service, which is available in 946 of our 1,063 stores. Our goal is to make our customers' lives easier and deliver the best shopping experience - whether in store, at home or on the go. With the launch of mobile friendly versions of our grocery and general merchandise websites, we are giving customers access to our products wherever they are. We are also looking at making the in-store experience even more convenient by trialling Mobile Scan & Go, a new technology that lets customers scan items as they shop using their iPhone or Android phone and pay without unloading their trolley or basket at the till. Sainsbury's Bank continues to make strong progress, with our share of post-tax profit at £12 million, up from £7 million this time last year. Lending and insurance new business volumes are up around 30 per cent. The Bank's strategy remains to offer shoppers consistently great deals and rewards, enabling them to benefit from quality financial products, saving money every time they spend in store, fill up their car or shop online. Customers who have a Sainsbury's Bank product increase their spend in-store, driven by our ability to offer them targeted offers and promotions using Nectar loyalty data. Nectar remains a strong driver for customers to choose Sainsbury's for their banking as well as their grocery and general merchandise requirements. Over 1.75 billion Nectar points have been awarded to over one million collectors since the start of the Bank's double point initiative in October 2009. The Bank recently launched its most rewarding Nectar based credit card to date, further deepening its relationship with Nectar and the commitment to reward customers. Its new cashback credit card, which has seen customer applications well above target, makes Sainsbury's the only supermarket bank to offer a choice of reward or cashback cards. Developing new business We are also investing beyond our core and developing new businesses and services. We have over 270 in-store pharmacies and in October we announced a partnership with Guy's and St Thomas' NHS Trust to take over the management of the outpatient pharmacies at the two hospitals. We also manage the outpatient pharmacy at James Cook University Hospital in Middlesbrough. Alongside our pharmacies, Sainsbury's customers also benefit from ten NHS GP or nurse-led surgeries and ten stores also have private dental surgeries. Our stores at Leeds White Rose and Ely have concessions operated by MEE Worldwide Healthcare, offering hearing and ophthalmological services, and plans are in place to open a further five MEE concessions in stores across Britain. In the last quarter, we announced the formation of a joint venture company - Insight 2 Communication ('I^2C') - with Aimia, owners of the Nectar programme. I^2C will plan and deliver fully integrated campaigns that can benefit our 22 million customers, providing them with relevant, targeted offers based on the products and categories they want to buy. Our commitment to multi-channel retailing and our understanding of digital service businesses can be seen in our online entertainment offer, with the announcement of a number of initiatives to further our progress in this area. In May, we launched our MP3 music download service, giving customers access to over 2.3 million tracks and albums. In June, we acquired a majority stake in Anobii, a social network and online retailer of e-books. More recently, in August, we announced we will be launching a video on demand service powered by Rovi. Growing space and creating property value In line with our plans we opened 351,000 sq ft of space during the half-year, comprising five supermarkets, 49 convenience stores and three extensions. Some of this additional space has enabled us to bring our increasingly popular non-food ranges to a wider audience, as well as expanding our coverage to areas of the country where we do not yet have a strong presence. Around 22 per cent of the UK population do not live within a 15 minute drive of a Sainsbury's store, and we have less than five per cent market share in 42 per cent of UK postcodes. We have a steady pipeline of space ready for development, including planning consents for around 60 supermarket extensions, as well as a number of opportunities for new supermarkets and convenience stores. We work with joint venture partners to add property value and trading space to our estate. In April, as part of our British Land joint venture we opened our newly extended store at Purley Way, Croydon, providing an uplift of 10,200 sq ft. We also received planning permission to extend our Weedon Road store in Northampton by 23,600 sq ft, with the improved offer set to open in November. A deal was signed with Barratt London in July to bring forward our Fulham Wharf project. Work on site started this summer and will deliver a replacement 76,000 sq ft supermarket and 267 of 463 residential apartments by mid 2015. Our partnership with Land Securities has seen work move forward at our Wandsworth Garratt Lane store where the building of our 34,700 sq ft extension is progressing well. The market value of our property remains at an estimated £11.2 billion. In the half, sale and leaseback activity was worth £128 million, generating a property profit of £48 million, up 23 per cent on the same period last year. Our values make us different Our values are part of what differentiates us from our competitors. Our 20 x 20 Sustainability Plan, published in October 2011, ensures we continue to lead in this aspect of business, and derive long-term, sustainable advantage. Highlights in the last six months include: ·Best for food and health: We continue to lead the food industry on nutritional labelling. We called for a move to consistent front of pack labelling, combining multiple traffic lights and daily guideline amounts. By committing to make changes, we are working to bring about industry consensus to help customers make healthier eating choices. ·Sourcing with integrity: In May, following an overwhelming majority vote from Sainsbury's Dairy Development Group farmers, we introduced a unique Cost of Production payment model, designed to rewardfarmers for outstanding animal welfare and environmental standards. In August, Sainsbury's again led the way in paying a premium to our dedicated pork producers to reflect rising feed costs. Also, in recognition of the work we are doing on pig welfare, our Pig Concept Farm won Compassion in World Farming's Leadership and Innovation in Retailaward. ·Respect for our environment: Our significant investment in renewable energy continued and we now have the largest multi-roof solar array in Europe. This will reduce our total CO[2 ]emissions by an estimated 6,800 tonnes this year and ongoing, while also delivering energy cost savings. We were the first company to use geothermal technology as an alternative energy source for our store in Crayford, and we are now developing the technology with E.ON for use in up to 100 of our stores. ·A positive difference to our community: As the first ever Paralympic-only sponsor, we were proud to play a full part in the Games. 18,000 Sainsbury's customers and colleagues were given the opportunity to attend the Games with Sainsbury's support. 150 Sainsbury's colleagues were seconded to LOCOG or acted as Games Makers. 145 customers and colleagues took part in the Paralympic Torch Relay and the Torch has also toured our supermarkets, generating high levels of customer and colleague engagement. After the Games we announced that we will build on our Million Kids Challenge with our new 'Active Kids for All' Paralympic legacy plan. This is a £1 million commitment to fund teacher training to ensure that half a million children with a disability in mainstream education are included in school sports lessons. We also announced that we are extending our sponsorship of the British Paralympic Association to support them through the Sochi Winter Paralympic Games in 2014, and all the way through to Rio in 2016. In October, we ran our second FareShare Million Meals Appeal with a record-breaking number of donations from customers - each matched by Sainsbury's - making it the UK's biggest ever single-charity food drive and helping disadvantaged people across the country. ·Great place to work: We have created over 2,500 new jobs this half-year and are recruiting an additional 20,000 seasonal jobs to meet increased customer demand and provide an even better service over the busy Christmas and New Year period. We anticipate around 2,000 of these jobs will be made permanent. This year we recruited 150 young people on our trainee manager scheme, more than double that in 2011. Trainees spend a year learning every aspect of how to run a Sainsbury's department and are mentored by an experienced store manager. Our values are being recognised by customers and stakeholders. Our research shows our customers increasingly trust us on the issues they care about, whilst sustainability experts have endorsed our leadership. In September, we were named the world's leading food retailer for sustainability, topping the Dow Jones Sustainability Index for the sixth year running, reinforcing our leadership position in the FTSE4Good Index. During the half-year, we were the first food retailer to be awarded 'Platinum Plus' in Business in the Community's Corporate Responsibility Index and were namedSustainable Retailer of the Yearby the Retail Industry Awards. Financial Review Sainsbury's continues to grow sales, maintaining its outperformance versus the market, despite the tough competitive environment and challenging economic climate. The business continues to invest in the quality of its own-brand range, with strong growth in both by Sainsbury's andTaste the Difference. Targeted vouchering activity and an ongoing investment in Brand Match helped reinforce the competitiveness of Sainsbury's price position. Combined with proud sponsorship of the Paralympics, and continued progress toward our 20 x 20 targets meant the business delivered a good overall performance. The balance sheet remains strong, backed by £11.2 billion of property value. Sales (including VAT) increased by 4.0 per cent, to £13,365 million (2011/12: £12,848 million). Underlying operating profit increased in line with sales to £412 million (2011/12: £396 million), with operating margin remaining unchanged year-on-year, but with an improvement of 1 basis point at constant fuel prices. Underlying profit before tax ('UPBT') improved by 5.4 per cent to £373 million (2011/12: £354 million). This growth was ahead of operating profit growth due to strong performance in Joint Venture ('JV') profits. Profit before tax was up 2.5 per cent, at £405 million (2011/12: £395 million), with higher property profits of £48 million (2011/12: £39 million) partially offset by a pension financing charge of £1 million (2011/12: £9 million credit). Underlying basic earnings per share increased to 15.2 pence (2011/12: 13.9 pence), up 9.4 per cent. This was higher than the growth in underlying profit due to a reduced underlying tax rate of 23.6 per cent (2011/12: 26.6 per cent), principally due to the impact of the reduction in the statutory corporation tax rate. Basic earnings per share increased by 4.9 per cent to 17.0 pence (2011/12: 16.2 pence). An interim dividend of 4.8 pence per share has been proposed by the Board (2011/12: 4.5 pence per share), up 6.7 per cent year-on-year. This is in line with Sainsbury's policy of paying 30 per cent of the prior year's full-year dividend as an interim dividend. Summary income statement 28 weeks to 28 weeks to 52 weeks to 29 September 1 October 17 March 2012 2011 Change 2012 £m £m % £m Sales (including VAT) 13,365 12,848 4.0 24,511 Sales (excluding VAT) 12,160 11,693 4.0 22,294 Underlying operating profit 412 396 4.0 789 Underlying net finance costs ^(1) (59) (57) (3.5) (109) Underlying share of post-tax 20 15 33.3 32 profit from JVs ^(2) Underlying profit before tax 373 354 5.4 712 Profit on disposal of properties 48 39 23.1 83 Investment property fair value (1) 3 (133.3) - movements Financing fair value movements (11) (10) (10.0) (16) IAS 19 pension financing (1) 9 (111.1) 17 (charge)/credit One-off items (3) - n/a 3 Profit before tax 405 395 2.5 799 Income tax expense (85) (93) 8.6 (201) Profit for the financial period 320 302 6.0 598 Underlying basic earnings per 15.2p 13.9p 9.4 28.1p share Basic earnings per share 17.0p 16.2p 4.9 32.0p Dividend per share 4.8p 4.5p 6.7 16.1p (1) Net finance costs before financing fair value movements and the IAS 19 pension financing element. (2) The underlying share of post-tax profit from joint ventures is stated before investment property fair value movements, financing fair value movements and profit on disposal of properties. Sales (including VAT) and space Sales (including fuel) increased by 4.0 per cent to £13,365 million (2011/12: £12,848 million). This includes a 2.3 per cent contribution from new space (excluding extensions and replacements) and like-for-like ('LFL') sales growth of 1.7 per cent. Sales growth (including VAT, including fuel) 28 weeks to 29 52 weeks September 2012 to 17 28 weeks to March % 1 October 2011 2012 % % Like-for-like sales 1.7 5.1 4.5 Net new space (excluding extensions and 2.3 2.5 2.3 replacements) Total sales growth 4.0 7.6 6.8 Sales (excluding fuel) grew by 4.1 per cent, with LFL growth of 1.7 per cent. Sainsbury's grew market share for the 52 weeks to 30 September 2012 by 14 basis points to 16.7 per cent (as measured by Kantar). LFL sales growth was 1.4 per cent in the first quarter where, just as in 2011, the quarter was characterised by five bank holidays, a royal event and periods of unseasonal weather. The second quarter, which contained the Olympics, Paralympics and continued periods of unseasonal weather, had LFL growth of 1.9 per cent. The contribution from net new space (excluding extensions and replacements) of 2.4 per cent was slightly ahead of Sainsbury's expectations. Both convenience and online saw growth of around 20 per cent, delivering Sainsbury's strategy of multi channel growth, and non-food continued to grow at more than twice the rate of food. Sales growth (including VAT, excluding fuel) 28 weeks to 29 28 weeks to 52 weeks September 2012 to 17 1 October March % 2011 2012 % % Like-for-like sales ^(1) 1.7 1.9 2.1 Net new space (excluding extensions and 2.4 2.4 2.4 replacements) Total sales growth 4.1 4.3 4.5 (1) This includes a 0.8 per cent contribution from stores extended in the first half of 2012/13 and the second half of 2011/12, net of disruptions. Sainsbury's has added a gross 351,000 sq ft of selling space (including replacements and extensions) since the start of the year, an increase of 1.7 per cent (2011/12: 596,000 sq ft and 3.1 per cent). Including the impact of closures, this translated into net space growth of 321,000 sq ft, an increase of 1.6 per cent since the start of the year (2011/12: 2.8 per cent). The first half opening programme included five new supermarkets, of which one was a replacement store (2011/12: seven new supermarkets, of which two were replacements). These generated an additional 178,000 sq ft of gross selling space (a net 152,000 sq ft). In line with our guidance at the Preliminary Announcement, we have stepped up the number of refurbishments to 14 stores and consequently reduced the number of extensions to three, adding 68,000 sq ft of selling space (2011/12: 15 extensions and three refurbishments added 269,000 sq ft). Convenience continues to be a key area of growth, with 49 stores added during the first half of the year (2011/12: 37 stores). Two stores were closed (2011/12: no stores closed) and 12 refurbished (2011/12: 15 stores), with net convenience space growth of 101,000 sq ft during the first half of the year, an increase of 9.8 per cent since the start of the year (2011/12: 8.8 per cent), and on track to meet our target of opening one to two new stores per week. Net of replacements, closures and disposals, closing space of 20,668,000 sq ft was 5.2 per cent higher than last year (1 October 2011: 19,638,000 sq ft). Store numbers and retailing space at 29 Supermarkets Convenience Total September 2012 Number Area Number Number Area Area 000 sq 000 sq ft 000 sq ft ft At 17 March 572 19,320 440 1,027 1,012 20,347 2012 New stores 5 178 49 105 54 283 Disposals/closures (1) (26) (2) (4) (3) (30) Extensions/ - 68 - - 68 refurbishments/downsizes - At 29 September 2012 576 19,540 487 1,128 1,063 20,668 Memorandum: 3 56 Extensions - - 3 56 Refurbishments/downsizes 14 12 12 - 26 12 Total projects 17 68 12 - 29 68 Sainsbury's expects the market to remain challenging with forecast LFLs in the second half similar to those in the first half and a contribution from new space to total sales growth (excluding extensions and replacements) of just above two per cent for the full-year. Underlying operating profit Underlying operating profit increased by 4.0 per cent to £412 million (2011/12: £396 million), reflecting a good sales performance and continued cost efficiencies helping to offset most of the impact of cost inflation. Underlying operating margin was unchanged year-on-year at 3.39 per cent (2011/12: 3.39 per cent), but showed an improvement of 1 basis point at constant fuel prices. Underlying EBITDAR margin reduced by 1 basis point to 7.65 per cent, but was 1 basis point higher year-on-year at constant fuel prices. Underlying operating profit 52 weeks 28 weeks to 29 Change at to 17 September 2012 28 weeks to 1 constant fuel March October 2011 Change prices 2012 Underlying operating profit 412 396 4.0% 789 (£m) ^(1) Underlying operating margin 3.39 3.39 - 1 bp 3.54 (%) ^(2) Underlying EBITDAR 930 896 3.8% 1,740 (£m) ^ (3) Underlying EBITDAR 7.65 7.66 (1) bp 1 bp 7.80 margin (%) ^ ^(4) (1) Underlying earnings before interest, tax, and before Sainsbury's share of post-tax profit from joint ventures. (2) Underlying operating profit divided by sales excluding VAT. (3) Underlying operating profit before rent, depreciation and amortisation. (4) Underlying EBITDAR divided by sales excluding VAT. Sainsbury's expects cost inflation in 2012/13 at the upper end of its two to three per cent range. The Group expects cost savings of around £100 million in 2012/13. Sainsbury's Bank joint venture ('JV') Sainsbury's share of Sainsbury's Bank post-tax profit increased by £5 million to £12 million for the half-year (2011/12: £7 million). The profit growth has been driven through the Bank increasing total income, particularly in car and home insurance, whilst continuing to deliver lower bad debt levels. The Sainsbury's Bank JV is expected to contribute a similar run rate of profit in the second half, to that of the first half. ^(1) (1) Based on 28 weeks in the first half and 24 weeks in the second half. Property joint ventures Sainsbury's underlying share of post-tax profit from its JV with The British Land Company PLC was £7 million for the half-year (2011/12: £7 million). Its underlying share of post-tax profit from the JV with Land Securities Group PLC was £1 million for the half-year (2011/12: £1 million). A loss on revaluation of £1 million was recognised within the share of post-tax profit from the JVs in the income statement (2011/12: £3 million surplus), with property yields remaining unchanged from the year-end, at 5.0 per cent (2011/12: 4.9 per cent). Full-year profits from the Property JVs are expected to be similar to 2011/12. Underlying net finance costs Underlying net finance costs increased by £2 million to £59 million (2011/12: £57 million) mainly as a result of the increase in average net debt, partly offset by a reduction in the RPI rate on the Group's inflation linked debt. Underlying net finance costs ^(1) 28 weeks to 28 weeks to 52 weeks to 29 September 1 October 17 March 2012 2012 2011 £m £m £m Underlying finance income ^(1) 10 9 18 Interest costs (89) (85) (162) Capitalised interest 20 19 35 Underlying finance costs ^(1) (69) (66) (127) Net underlying finance costs ^(1) (59) (57) (109) (1) Finance income/costs before financing fair value movements and IAS 19 pension financing element. Underlying net finance costs for the full-year 2012/13 are expected to increase by £0 - £5 million versus the prior year. Taxation The income tax expense was £85 million (2011/12: £93 million), with an underlying tax rate of 23.6 per cent (2011/12: 26.6 per cent) and an effective tax rate of 21.0 per cent (2011/12: 23.5 per cent). The underlying rate was lower than last year, primarily as a result of the two per cent lower statutory corporation tax rate, and the impact of this on the revaluation of the deferred tax balances. The effective tax rate is lower than the underlying tax rate primarily due to the non-taxable profit on disposal of properties. Underlying tax rate 28 weeks to 29 September 2012 Rate Profit Tax £m £m % Profit before tax, and tax thereon 405 85 21.0 Adjustments (and tax thereon) for: Profit on disposal of properties (48) - Investment property fair value movements 1 - Financing fair value movements 11 1 IAS 19 pension financing element 1 - One off items 3 - Revaluation of deferred tax balances - 2 Underlying profit before tax, and tax thereon 373 88 23.6 Sainsbury's expects the underlying tax rate to be between 23 and 24 per cent in 2012/13, lower than the prior year, principally due to the impact of the reduction in the statutory corporation tax rate. Earnings per share Underlying basic earnings per share increased by 9.4 per cent to 15.2 pence in the first half of 2012/13 (2011/12: 13.9 pence), reflecting the improvement in underlying profit after tax and the lower underlying tax rate year-on-year, partially offset by the effect of the additional shares issued during the year. The weighted average number of shares in issue was 1,880.4 million (2011/12: 1,868.6 million), an increase of 11.8 million shares or 0.6 per cent. Basic earnings per share increased to 17.0 pence (2011/12: 16.2 pence). Basic earnings per share were higher than the underlying basic earnings per share due mainly to the profit on disposal of properties. Underlying earnings per share 28 weeks to 28 weeks to 29 September 1 October 2012 2011 pence pence Basic earnings per share 17.0 16.2 Adjustments (net of tax) for: Profit on disposal of properties (2.6) (2.1) Investment property fair value movements 0.1 (0.2) Financing fair value movements 0.5 0.5 IAS 19 pension financing element 0.1 (0.5) One off items 0.2 - Deferred tax rate change (0.1) - Underlying basic earnings per share 15.2 13.9 Dividends The Board has recommended an interim dividend of 4.8 pence per share (2011/12: 4.5 pence), equivalent to 30 per cent of the previous full-year dividend. This will be paid on 4 January 2013 to shareholders on the Register of Members at the close of business on 23 November 2012. The interim dividend was approved by the Board on 13 November 2012 and has not, therefore, been included as a liability as at 29 September 2012. As communicated at the Preliminary Announcement, Sainsbury's remains focused on delivering returns to shareholders. The Board plans to increase the dividend each year and intends to build cover to two times over the medium term. Return on capital employed The return on average capital employed ('ROCE') over the 52 weeks to 29 September 2012 was 10.9 per cent (2011/12: 10.9 per cent), an increase of three basis points. ROCE growth was held back by the cumulative effect of the acceleration in Sainsbury's investment in space growth since June 2009, as well as the more challenging economic environment and impact on industry profitability. This has reduced earnings growth, whilst the value of capital employed has increased. Return on capital employed 52 weeks to 29 52 weeks to 52 weeks September to 1 October 2012 2011 17 March 2012 Underlying operating profit (£m) 805 764 789 Underlying share of post-tax profit from 37 26 32 joint ventures (£m) Underlying profit before interest and 842 790 821 tax (£m) Average capital employed ^(^1) (£m) 7,721 7,262 7,424 Return on average capital employed (%) 10.9 10.9 11.1 Return on average capital employed (%) 10.3 10.4 10.6 (excluding pension fund deficit) 52 week ROCE movement to 29 September 3 bps 2012 ROCE movement since 52 weeks to 17 March (15) bps 2012 (1) Average of opening and closing net assets before net debt. Net debt and cash flows Sainsbury's net debt as at 29 September 2012 was £2,179 million (1 October 2011: £2,115 million), an increase of £64 million year-on-year and an increase of £199 million since 17 March 2012. The increase was driven primarily by investment in estate development, partially offset by cash generated from sale and leasebacks. Cash generated from operations improved by 15.2 per cent to £637 million (2011/12: £553 million, 17.7 per cent). Working capital increased by £47 million since 17 March 2012, driven by an increase in inventories of £78 million and trade and other receivables of £134 million, partly offset by an increase in trade and other payables and provisions of £165 million. Summary cash flow statement and movement in net debt 28 weeks to 28 weeks to 52 weeks to 29 September 2012 1 October 17 March £m 2011 2012 £m £m Operating cash flow before changes in working capital 684 657 1,238 (Increase)/decrease in working capital (47) (104) 53 Cash generated from operations 637 553 1,291 Interest paid (79) (73) (142) Corporation tax paid (28) (24) (82) Net cash from operating activities 530 456 1,067 Net cash used in investing activities (476) (498) (883) Proceeds from issue of shares 4 3 14 Receipt of new debt 75 119 391 Repayment of borrowings (105) (42) (65) Dividends paid (218) (201) (285) Decrease in cash and cash equivalents (190) (163) 239 Increase/(decrease) in debt 20 (129) (386) Fair value and other non-cash movements (29) (9) (19) Movement in net debt (199) (301) (166) Sainsbury's expects net debt to be around £2.2 billion at the end of 2012/13. Financing Sainsbury's seeks to manage its financing by diversifying funding sources, minimising refinancing risk and maintaining sufficient stand-by liquidity. Sainsbury's has drawn debt of £2.7 billion and an un-drawn credit facility of £0.7 billion at its disposal. The principal elements of Sainsbury's core funding comprise two long-term loans of £1,019 million due 2018 and £843 million due 2031 secured over property assets. In addition, Sainsbury's has unsecured loans totalling £510 million with maturities ranging from 2014 to 2018, £190 million of convertible bonds due July 2014, £104 million of hire purchase facilities in respect of movable in-store assets and £58 million of other finance leases. Sainsbury's maintains a £690 million syndicated revolving credit facility due October 2015 for standby purposes. Interest on drawings under this facility is charged at a margin over LIBOR. There were £nil drawings under the facility as at 29 September 2012 (1 October 2011: £nil drawings). Capital expenditure Core capital expenditure decreased to £576 million (2011/12: £682 million) in the half-year. Sainsbury's stepped up its convenience opening programme but reduced extension growth, opening 49 convenience stores but only three extensions (2011/12: 37 convenience stores and 15 extensions). During the year, Sainsbury's completed 26 refurbishments (2011/12: 18 refurbishments), reflecting the step up in refurbishment activity in the half. Core capital expenditure as a percentage of sales (including fuel, excluding VAT) was 4.7 per cent (2011/12: 5.8 per cent). Sainsbury's also took advantage of continued good property yields in the half-year to achieve £131 million in sale and leaseback proceeds (2011/12: £129 million), which contributed to a total property profit of £48 million (2011/12: £39 million). Net capital expenditure was £487 million (2011/12: £556 million). Capital expenditure 52 weeks to 28 weeks to 17 March 28 weeks to 29 September 2012 1 October 2011 2012 £m £m £m New store development 312 321 599 Extensions and refurbishments 202 274 478 Other - including supply chain and 62 87 163 IT Core retail capital expenditure 576 682 1,240 Acquisition of freehold and 42 3 25 trading properties Proceeds from property (131) (129) (303) transactions Net capital expenditure 487 556 962 Sainsbury's expects full-year 2012/13 core capital expenditure of around £1 billion. We expect core capital expenditure as a percentage of sales to be below five per cent for the full-year. Summary balance sheet Shareholders' funds as at 29 September 2012 were £5,502 million (17 March 2012: £5,629 million), a decrease of £127 million. This is mainly attributable to the increase in the net retirement benefit obligation of £242 million and increase in net debt of £199 million, partly offset by continued profitable growth of the underlying business and the additional space added. The book value of property, plant and equipment, including land and buildings, has grown by £301 million since the start of the year as a result of increased space growth. Net debt was £199 million higher than at 17 March 2012 (2011/12: £301 million higher than at 19 March 2011), driven primarily by space related growth in property, plant and equipment. Adjusted net debt to EBITDAR improved to 4.1 times (2011/12: 4.2 times), interest cover improved to 7.3 times (2011/12: 7.2 times), while fixed charge cover was in line with last year at 3.0 times (2011/12: 3.0 times). Gearing increased year-on-year to 39.6 per cent (2011/12: 37.5 per cent) mainly due to the increase in net debt and the increase in the pension fund deficit. Excluding the pension deficit, gearing reduces to 35.2 per cent (2011/12: 36.3 per cent). Summary balance sheet Movement since 29 September 17 March 1 October 2012 2012 2011 17 March 2012 £m £m £m £m Land and buildings (freehold and long leasehold) 7,121 319 6,682 6,802 Land and buildings (short leasehold) 651 3 687 648 Fixtures and fittings 1,858 (21) 1,707 1,879 Property, plant and equipment 9,630 301 9,076 9,329 Other non-current assets 909 (2) 877 911 Inventories 1,016 78 976 938 Trade and other receivables 421 135 415 286 Cash and cash equivalents 551 (188) 364 739 Debt (2,730) (11) (2,479) (2,719) Net debt (2,179) (199) (2,115) (1,980) Trade and other payables and provisions (3,598) (198) (3,395) (3,400) Retirement benefit obligations, net of deferred tax (697) (242) (188) (455) Net assets 5,502 (127) 5,646 5,629 Key financial ratios Adjusted net debt to EBITDAR ^(1) 4.1 times 4.2 times 4.1 times Interest cover ^(2) 7.3 times 7.2 times 7.5 times Fixed charge cover ^(3) 3.0 times 3.0 times 3.1 times Gearing ^(4) 39.6% 37.5% 35.2% Gearing (excluding pension deficit) ^(5) 35.2% 36.3% 32.5% (1) Net debt plus capitalised lease obligations (5.5% NPV) divided by underlying EBITDAR, calculated on a rolling 52 week basis. (2) Underlying profit before interest and tax divided by underlying net finance costs, calculated for a 28 week period at half-year, and 52 week period at year-end. (3) Underlying EBITDAR divided by net rent and underlying net finance costs, calculated for a 28 week period at half-year, and 52 week period at year-end. (4) Net debt divided by net assets. (5) Net debt divided by net assets, excluding pension deficit. As at 29 September 2012, Sainsbury's estimated market value of properties, including our 50 per cent share of properties held within property joint ventures, was £11.2 billion, in line with the year-end (17 March 2012: £11.2 billion). The yield remained constant at 4.9 per cent. Pensions As at 29 September 2012, the post-tax pension deficit was £242 million higher at £697 million (17 March 2012: £455 million) mainly due to a fall in the discount rate from 5.0 per cent to 4.4 per cent, partially offset by a fall in RPI inflation expectations from 3.3 per cent to 2.8 per cent and a 2.9 per cent increase in the value of plan assets. The IAS 19 pension service cost included within UPBT was £34 million, £2 million higher than in the first half of last year. Sainsbury's expects the full-year service charge to be around £60 million in 2012/13. Retirement benefit obligations 29 September 17 March 2012 1 October 2011 2012 £m £m £m Present value of funded obligations (6,106) (4,793) (5,654) Fair value of plan assets 5,343 4,689 5,192 Pension deficit (763) (104) (462) Present value of unfunded obligations (10) (9) (9) Retirement benefit obligations (773) (113) (471) Deferred income tax asset/(liability) 76 (75) 16 Net retirement benefit obligations (697) (188) (455) Group income statement (unaudited) for the 28 weeks to 29 September 2012 28 weeks to 28 weeks to 52 weeks to 29 September 1 October 17 March 2012 2011 2012 Note £m £m £m Revenue 4 12,160 11,693 22,294 Cost of sales (11,512) (11,074) (21,083) Gross profit 648 619 1,211 Administrative expenses (239) (223) (419) Other income 49 38 82 Operating profit 458 434 874 Finance income 5 10 18 35 Finance costs 5 (80) (73) (138) Share of post-tax profit from joint ventures 17 16 28 Profit before tax 4 405 395 799 Analysed as: Underlying profit before tax 4 373 354 712 Profit on disposal of properties 3 48 39 83 Investment property fair value movements 3 (1) 3 - Financing fair value movements 3 (11) (10) (16) IAS 19 pension financing (charge)/credit 3 (1) 9 17 One-off items 3 (3) - 3 405 395 799 Income tax expense 6 (85) (93) (201) Profit for the financial period 320 302 598 Attributable to: Owners of the parent 320 302 598 320 302 598 Earnings per share 7 pence pence pence Basic 17.0 16.2 32.0 Diluted 16.8 15.9 31.5 Underlying basic 15.2 13.9 28.1 Underlying diluted 15.0 13.8 27.8 The notes on pages 23 to 34 form an integral part of these Condensed Consolidated Interim Financial Statements. Group statement of comprehensive income (unaudited) for the 28 weeks to 29 September 2012 28 weeks to 28 weeks to 52 weeks to 29 September 1 October 17 March 2012 2011 2012 £m £m £m Profit for the period 320 302 598 Other comprehensive income/(expense): Actuarial (losses)/gains on defined benefit pension scheme (311) 209 (222) Available-for-sale financial assets fair value movements: Group 4 2 1 Joint ventures 2 (4) 2 Cash flow hedges effective portion of fair value movements: Group (14) 4 - Joint ventures - 2 2 Current tax on items recognised directly in other comprehensive income 13 - 59 Deferred tax on items recognised directly in other comprehensive income 57 (103) 11 Total other comprehensive (expense)/income for the period (net of tax) (249) 110 (147) Total comprehensive income for the period 71 412 451 Attributable to: Owners of the parent 71 412 451 71 412 451 The notes on pages 23 to 34 form an integral part of these Condensed Consolidated Interim Financial Statements. Group balance sheet (unaudited) at 29 September 2012 29 September 1 October 17 March 2012 2011 2012 Note £m £m £m Non-current assets Property, plant and equipment 9,630 9,076 9,329 Intangible assets 159 148 160 Investments in joint ventures 561 528 566 Available-for-sale financial assets 183 178 178 Other receivables 37 37 38 Derivative financial instruments 40 43 37 10,610 10,010 10,308 Current assets Inventories 1,016 976 938 Trade and other receivables 421 415 286 Derivative financial instruments 78 78 69 Cash and cash equivalents 9b 551 364 739 2,066 1,833 2,032 Non-current assets held for sale - 20 - 2,066 1,853 2,032 Total assets 12,676 11,863 12,340 Current liabilities Trade and other payables (2,842) (2,730) (2,740) Borrowings (132) (165) (150) Derivative financial instruments (91) (87) (88) Taxes payable (211) (202) (149) Provisions (13) (11) (9) (3,289) (3,195) (3,136) Net current liabilities (1,223) (1,342) (1,104) Non-current liabilities Other payables (171) (127) (137) Borrowings (2,644) (2,378) (2,617) Derivative financial instruments (12) (4) (1) Deferred income tax liability (226) (340) (286) Provisions (59) (60) (63) Retirement benefit obligations 11 (773) (113) (471) (3,885) (3,022) (3,575) Net assets 5,502 5,646 5,629 Equity Called up share capital 539 537 538 Share premium account 1,064 1,051 1,061 Capital redemption reserve 680 680 680 Other reserves (617) (105) (365) Retained earnings 3,835 3,483 3,715 Equity attributable to owners of the parent 5,501 5,646 5,629 Non-controlling interests 1 - - Total equity 5,502 5,646 5,629 The notes on pages 23 to 34 form an integral part of these Condensed Consolidated Interim Financial Statements. Group cash flow statement (unaudited) for the 28 weeks to 29 September 2012 28 weeks to 28 weeks to 52 weeks to 29 September 1 October 17 March 2012 2011 2012 Note £m £m £m Cash flows from operating activities Cash generated from operations 9a 637 553 1,291 Interest paid (79) (73) (142) Corporation tax paid (28) (24) (82) Net cash inflow from operating activities 530 456 1,067 Cash flows from investing activities Purchase of property, plant and equipment (609) (675) (1,227) Purchase of intangible assets (8) (7) (25) Proceeds from disposal of property, plant and equipment 132 137 314 Acquisition of and investment in subsidiaries and businesses, net of cash acquired (21) - (1) Increase in loans to joint ventures (4) (1) (1) Proceeds from disposal of financial assets - 40 40 Investment in financial assets - - (1) Interest received 10 8 18 Dividends received 24 - - Net cash outflow from investing activities (476) (498) (883) Cash flows from financing activities Proceeds from issuance of ordinary shares 4 3 14 Proceeds from long-term borrowings 75 119 391 Repayment of short-term borrowings (50) - - Repayment of long-term borrowings (40) (35) (51) Repayment of capital element of obligations under finance lease payments (11) (5) (9) Interest elements of obligations under finance lease payments (4) (2) (5) Dividends paid (218) (201) (285) Net cash (outflow)/inflow from financing activities (244) (121) 55 Net (decrease)/increase in cash and cash equivalents (190) (163) 239 Opening cash and cash equivalents 739 500 500 Closing cash and cash equivalents 9b 549 337 739 The notes on pages 23 to 34 form an integral part of these Condensed Consolidated Interim Financial Statements. Group statement of changes in equity (unaudited) for the 28 weeks to 29 September 2012 Non-controlling Called Capital interests up Share redemption share premium and other Retained Total capital account reserves earnings Total equity £m £m £m £m £m £m £m At 18 March 2012 538 1,061 315 3,715 5,629 - 5,629 Profit for the 320 period - - - 320 - 320 Other comprehensive income/(expense): Actuarial losses on defined benefit pension scheme (243) (net of tax) - - (243) - - (243) Available-for-sale financial assets fair value movements (net of tax): Group - - 6 - 6 - 6 Joint ventures - - 2 - 2 - 2 Cash flow hedges effective portion of changes in fair value (net of tax): Group - - (14) - (14) - (14) The story has been truncated, [TRUNCATED]
Sainsbury(J) PLC SBRY Half Yearly Report
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