Chairman’s statement

Over the past year we delivered another strong performance and our recovery is ahead of plan. Since March 2005, we have grown sales by an additional £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.

The Board is recommending a final dividend of 7.35 pence per share, an increase of 25.6 per cent. This will take the full-year dividend to 9.75 pence per share, an increase of 21.9 per cent compared to last year, covered 1.5 times by underlying earnings which is in line with our previously stated minimum objective. Going forward we expect dividend cover to range between 1.5 and 1.75 times.

It is also encouraging that we can now look at expansion opportunities put on hold during the early stages of our recovery. 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 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.

Our 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 and which were outside the control of the Board. 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.

What was clear, however, was that the attention we received was due to our success. A resurgent Sainsbury’s, with a strong brand, a substantial freehold asset base, a high quality store portfolio with development potential and a highly regarded management team, is proving it can deliver the right results in one of the most competitive markets I have encountered. This is clearly an attractive proposition for investors.

Another event during the past year has been the Competition Commission investigation into the supply of groceries by retailers in the UK. We established a separate team to deal with the work involved in this inquiry to ensure it did not distract us from continuing to improve our operations and serve customers in the best possible way. We are co-operating fully with this inquiry and have made our case clear.

We welcomed Val Gooding to the Board in January. Val has a wide business background with particular recent experience focusing on consumers and health. She is a great addition to the Board. Jamie Dundas stepped down as a Non-Executive Director in February after two three-year terms. I would like to thank him for his hard work and excellent contribution to the Board during a period of significant change for the company.

Our strong performance is a credit to the management team and colleagues throughout the company. As always, I thank them for their hard work and support in delivering a fundamentally more robust business for our shareholders.

Philip Hampton
Chairman