Highlights

  • Underlying PBT in line with expectations
  • Total dividend per share unchanged at 14.32p
  • New management team accelerating pace of change
  • Clear leadership and focus on Sainbury's UK Supermarkets
  • Strong performance in Shaw's - including Star Markets
  • Strong like-for-like sales growth in Homebase
  • Acceleration of e-commerce strategy across the group.

J Sainsbury plc today announced underlying profit before tax, in line with the range indicated in the third quarter trading statement, at £580m, down 23.2% on the previous year. Group sales were £17.4 billion, up 6.3% on the previous year. Underlying basic earnings per share was 20.5p, down 24.1%. Total dividend per share remains at 14.32p.

Shaw's and Homebase both performed well. On a comparable basis Homebase's sales were up 13.2%, including like-for-like sales growth of 12.1%, and operating profit was up 9.1%. Shaw's sales, which include Star Markets acquired during the year, were up 25.7% with operating profit up 46%. Sainsbury's Supermarkets reported sales up 1.8% and operating profit, before e-commerce costs, down 27.2% on the previous year .

Sainsbury's Bank, in its 3rd year of operation, reported an operating profit of £2.9m and over one million customer accounts.

Sir Peter Davis, group chief executive said, "These results demonstrate that, while we have two very strong businesses in Homebase and Shaw's and have made good progress with Sainsbury's Bank, we need to focus our efforts on our core supermarket business.

"Since my appointment in March 2000 I have concentrated on arresting the decline in Sainsbury's Supermarkets. We are working hard to re-establish ourselves as the UK's favourite food retailer by making the Sainsbury's experience special again for customers and colleagues. We are now prioritising our tasks for the coming year and will invest for longer term growth.

"The Sainsbury's brand is a very strong asset; it stands for good quality and value for money. It also stands for high and consistent store standards as well as specialist advice. We excel in key areas within our business; we sell more organic food than any of our competitors, lead the market with our 'ready-meal' offering and our Be Good To Yourself range is now one of the best selling brands in our stores.

"We have reviewed and restructured the group and supermarket boards to clarify the role of both and help accelerate the pace of change. A new group executive committee has responsibility to develop long term strategy for the group and replaces a number of other committees to help us make decisions, move quickly and take 'best practice' across our operating companies.

"We are concentrating on improving store standards to bring all our stores up to the standards of the best. Our new London Colney store is a good example of how larger stores will operate in the future and our Central and Local formats designed with specific customer requirements in mind have also been successful. Last year we opened 20 stores (including four locals), extended 22 and refurbished 16.

"We are implementing a thorough and radical re-engineering of our processes and systems to achieve optimum performance. We were the first UK retailer to invest in the GlobalNetXchange which, through Oracle, already has the technology in place to help us reduce costs and will deliver streamlined systems and improved product availability.

"We will be accelerating our internet shopping service Sainsbury's To You; a new dedicated picking centre in west London opens this summer to service customers within the M25 and smaller centres and stores will now also be used to speed up this service in major connurbations outside London.

"Customers tell us that they look to us for advice and ideas. Our 'Taste for Life' website being launched in June provides exactly that and we believe will be the best in the UK for food and drink. This will provide a superb platform for the future as we work with Carlton to establish a leading presence in the new internet and interactive TV channels of communication and commerce with our customers.

"Homebase is now a substantial number two in the UK DIY market with many opportunities for growth. Its large store format trial has been successful at Greenwich and Dundee and there is now a major roll-out programme. The e-commerce strategy for Homebase is well advanced and will be launched later this year providing another significant growth opportunity.

"Shaw's has performed well during the past year and the integration of Star Markets has gone smoothly consolidating Shaw's as a strong regional player. Shaw's has dramatically improved its store formats and customer offer. A focus on a food and drug concept and a strong emphasis on perishables has helped it compete successfully in the US market. Growth prospects are encouraging with further benefits expected from the Star Markets acquisition.

"Recovery will take time, however, our venture with the GlobalNetXchange and other steps we are taking to re-engineer our processes will deliver cost savings in the longer term. We are managing our property portfolio aggressively both in releasing value through our sale and leaseback scheme and in reviewing development potential in our existing estate and our head office complex."

"As I said when I rejoined the company, I am determined to make Sainsburys somewhere special to shop again and somewhere special to work. I am now even more determined, but also confident that we can."

Outlook
The Board is committed to turning around the profit decline in the supermarkets business. This will require investment in the customer offer, existing estate, accelerating the home delivery service and, over a longer period, in information systems and the supply chain. These investments will take time to benefit profits. There are significant opportunities to restore profit growth in subsequent years and to deliver increasing returns to shareholders.

In view of this confidence, and the Group's strong asset base, the Board felt it was not appropriate to cut the dividend but to maintain it at last year's level (on a comparable 52 week basis).

Financial Results

 
2000
1999*

Change
%

Turnover inc VAT (£m)
17,414
16,378
6.3
Underlying pre tax profit ** (£m)
580
755
-23.2
Underlying earnings per share **
20.5p
27.0p
-24.1
Dividend per share ***
14.32p
14.32p
-

* 52 weeks to 3 April 1999 (unaudited).
** Before amortisation of goodwill, exceptional costs and non-operating items.
*** On a 56 week basis, dividend per share was 15.32 pence in 1999.

Group sales grew 6.3% to £17,414 million in the 52 weeks ended 1 April 2000 with the acquisition of Star Markets in the US and a strong sales performance from Homebase being the main contributors to this growth.

Underlying Group pre tax profit (before amortisation of goodwill, exceptional costs and non-operating items) was 23.2% lower at £580 million, within the range indicated in our January trading statement. Underlying basic earnings per share decreased in line with this by 24.1% to 20.5 pence per share. These reductions were entirely due to the profits decline in Sainsbury's Supermarkets.

Net exceptional items for the year were £60 million, an increase of £5 million over the first half. The second half included additional severance and restructuring costs of £11 million and store closure costs amounting to £46 million. This was offset by net property profits of £52 million, including a property profit of £82 million generated from an innovative sale and leaseback of 16 UK supermarkets.

The Directors propose the payment of a final dividend of 10.30 pence per share payable on 28 July 2000 to shareholders on the register at the close of business on 16 June 2000. This results in a total dividend per share for the year of 14.32 pence - the same level as last year on a comparative 52 week basis.

UK Supermarkets

Sales in Sainsbury's Supermarkets increased by 1.8%. Adjusting for Easter, like-for-like sales growth in the second half of 1.4% showed an improvement over the first half decline of 0.9% with sales in the third quarter benefiting from strong Christmas and Millennium sales.

Sales growth was impacted by price competition and, during the second half, by food price deflation. During the year, price inflation was around 1% and in the fourth quarter was 0.6% primarily due to petrol price inflation, with underlying food inflation being negative.

The overall cost base increased largely due to inflation in labour and rents. This, combined with slightly lower sales volumes and low price inflation, resulted in a decrease in underlying operating profit to £542 million, before e-commerce costs of £19.7 million, a reduction of 27.2% over the previous year.

Homebase

  • A strong Homebase sales performance reflects the success of our value repositioning which was launched at the beginning of the year. Reported sales growth for the year was 10.0% with operating profit down 13.4% to £64.6 million before charging e-commerce costs of £7.6 million.

  • Given the importance of Easter trade to Homebase it is necessary to look at comparable trading periods. The most recent year that includes a full Easter trading period in both the current and comparative years is the 52 weeks to 4 March 2000 (i.e. four weeks earlier than the statutory reporting period end). Sales for this period show an increase of 13.2% on the previous year, including an increase in like-for like sales of 12.1%.

  • On the same basis, Homebase operating profit increased by 9.1%. The improvement from the reported figures is partly due to the timing of Easter and partly due to a particularly strong trading performance in the four weeks to 3 April 1999.

  • Like-for-like sales growth was strong throughout the year through pricing and promotional activity coupled with a strong advertising campaign.

Shaw's

  • Shaw's performed well with like-for-like sales growth of 3.1%. Including the acquisition of Star Markets, reported sales and operating profits were $3,857 million and $129 million representing improvements of 25.7% and 46.0% respectively.

  • The integration of Star Markets has been successful, contributing $7.6 million to operating profit before exceptional costs and amortisation of goodwill. Synergies in the year were $14 million, ahead of our initial expectations, and were realised from buying, distribution and back office support functions.

Sainsbury's Bank

Sainsbury's Bank reported its first operating profit of £2.9 million for the year, an improvement of £8.0 million on 1998/99. Turnover declined by 7.2%, affected by the fall in interest rates during the year; however, there was a compensating reduction in costs.

Cash flow

Operating cash flow generated by the business remained strong at £838 million. After dividends, net interest and tax, cash flow was £246 million. Payments for fixed assets during the year amounted to £761 million being offset by proceeds from the sale of fixed assets of £385 million including the sale and leaseback of sixteen stores. Total payments for acquisitions were £293 million, being primarily the Star Markets acquisition, resulting in net debt of £1,264 million as at 1 April 2000 with gearing of 27%.

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