• Chairman's statement
• Business review
  • Our business and its markets
  • Corporate objectives
  • Operating review
  • Financial review
  • Principal risks and uncertainties
• Board of Directors
• Operating Board
• Governance
  • Statement of corporate governance
  • Remuneration report
  • Statement of Directors' responsiblities
• Financial statements
  • Group income statement
  • Statements of recognised income and expense
  • Balance sheets
  • Cash flow statements
  • Notes to the financial statements
  • Five year financial record
• Additional shareholder information
• Financial calendar

Retailing underlying operating profit

Increased by 24.7 per cent to £535 million (2007: £429 million) reflecting the positive sales performance and operational gearing driven from higher sales volumes and achievement of the final year of the MSGA cost savings programme. This helped to mitigate the impact of continued investment in price and product quality and higher energy prices. Retailing operating margin (ex VAT) increased by 46 basis points to 3.00 per cent for the year (2007: 2.54 per cent).

Financial services - Sainsbury’s Bank

The accounting for Sainsbury’s Bank in the full year reflects the sale of five per cent of the Group’s shareholding in Sainsbury’s Bank to HBOS plc on 8 February 2007. Following this date the Group’s equity share (i.e. 50 per cent) of the Bank’s post-tax loss has been reported through ‘Share of post-tax loss from joint ventures’. This amounted to a £3 million loss for the full year primarily driven by investment in new products and lower profit on insurance sales. In addition during the year, the Group invested £15 million in the ordinary share capital of Sainsbury’s Bank, which reflects the growth of the savings balances. The Group expects the Bank to achieve a small profit in 2009.

Active property management

During the year the Group continued its active property strategy of increasing its control over key trading assets with significant development potential whilst disposing of fully developed mature assets. On 14 November 2007, the Group entered a 50:50 joint venture (“JV”) with Land Securities. This involved the Group transferring two properties and Land Securities transferring one property into the new entity. Subsequent to this date the Group contributed a further £15 million for the JV to purchase an additional property.

The results of the JV have been equity accounted since inception and the Group’s share of the post-tax profit of the entity is £1 million. The Group expects a similar small profit in 2009.

In addition, the Group announced on 26 March 2008 an investment of £273 million to create a 50:50 JV with British Land. This securitised property JV holds 39 stores, including many of Sainsbury’s most important stores, with a valuation of £1.2 billion, representing a net equivalent yield of 5.1 per cent. British Land’s existing £722 million of outstanding securitised third party debt, at a fixed interest rate of 4.96 per cent and average life of 12 years, has been retained by the joint venture. Due to timing, this transaction has had no impact on the results of the business for the 2008 financial year. As previously disclosed, the Group expects the British Land joint venture to be EPS neutral in 2009, although the underlying profit measure will be reduced by £5 million given that the incremental interest charge of around £15 million is recognised before tax and the expected JV profit of £10 million is included on a post-tax basis.

Underlying net finance costs

Underlying net finance costs decreased by £6 million to £45 million (2007: £51 million), which comprised a £27 million increase in finance income and a £21 million increase in underlying finance costs. The key movements relate to a £13 million increase in the net return on pension scheme assets reflecting the full year effect of the one-off contributions announced in 2006 and a benefit relating to cash flow improvements, which have been partially offset by the impact of higher interest rates on the Group’s variable rate and inflation-linked borrowings.

The Group expects interest costs to increase by £20 million in 2009 due to the impact of the British Land JV and a higher average net debt position.

Furthermore, due to the significant movement in the pension balance sheet position there are a number of changes to the pension charges in 2009 compared to 2008. This will result in an increase of £30 million in net finance charges of which £19 million is due to an increase in interest on pension liabilities and £11 million is due to a lower rate of return on pension assets. At an underlying profit before tax (“UPBT”) level the impact of the increased pension charges of £30 million will be reduced by £24 million due to lower service charges, which are credited to operating profit. Hence the net impact of these changes is a £6 million reduction to UPBT.

Underlying net finance costs for the 52 weeks to 22 March 2008	2008 £m	2007 £m
Interest income	29	15
Net return on pension scheme assets	54	41
Underlying finance income 1	83	56
Interest costs	(136)	(117)
Capitalised interest	8	10
Underlying finance costs 1	(128)	(107)
Underlying net finance costs	(45)	(51)

1. Finance income/costs pre financing fair value movements.