The interim results have now been published so I will have a look at those in closer detail, starting with the income statement for the first half of the year:

Although the total income is up on last year, this is only because of a favourable swing in the pension valuation.  The actual profit for the period is £45M down to £302M.  This is partly due to a reduction in the profit share of joint ventures but by far the main cause of this reduction is the fact that profit from the sale and leaseback programme is down by £68M to £38M.  The actual gross profit from normal operations is, in fact, up slightly from last year as it the revenue which due mainly to new stores is continuing to grow apace.  The borrowing costs increased slightly, mainly due to the increase in RPI, which is used to calculate the interest on some of the borrowings.  I believe the lower profits from joint ventures are down to a smaller surplus on the revaluation of the properties held in the property JV, as Sainsbury’s bank seems to be performing well.

Moving on to the balance sheet:

So, we see that net assets, and net tangible assets continue to increase.  Liabilities are up, almost across the board but so are assets. Sadly we see a further reduction in cash levels – down £137M to £364M but there is a higher value of property, plant and equipment suggesting further investment in buildings.  It can also be seen that inventories are up, due to increased selling space and continued increase in non food items sold.  Also we see Trade & Receivables up quite substantially to £415M.  I would not have thought a supermarket would have many trade receivables so I might guess this is to do with the joint venture, or increased sales of high value, non food items purchased on credit.  The pension deficit is, however, going in the right direction as it reduced £227M to leave it at a relatively modest £113M.

Now, let’s look at the cash flow:

We see here that Sainsbury’s is still losing cash – £163M over the first part of the year, they did however, lose less cash than in the same period of last year.  The increase in inventories was due to the inflationary increase of cost prices, the need to hold more inventory for promotions and an increase in goods in transit due to more direct sourcing.  More non food inventory was also held due to challenging market conditions leading to less sales than expected.  Cash from operations is actually up £116M on last year, mainly due to an increase in payables (so this money will still have to be paid out).  We see tat there are two items that indicate less cash inflow than last year – the first being an increase in the money spent on tangible assets – up £111M to a rather substantial £675M for the half year.  This indicates that the expansion plans are gaining momentum.  The second is a reduction in the cash received from the sale and leaseback operations.   These reductions have caused the group to take on more debt, with a net increase of £84M of long term borrowings.  As mentioned in the full year analysis, in the very long term this is unsustainable.

Although profit was down slightly on last year, the main cause of this was the reduction in the amount made in the sale and leaseback programme and the profit from other operations was up on last year.  We do still see a negative cash flow, however, due mainly to more capital expenditure.  The result is an increase in borrowing and debt.

We see here than the non supermarket areas are increasing earnings much quicker than the traditional fare (which is to be expected really) and the like for like sales from convenience stores are up by about twice the growth of the supermarket sales.  Sainsbury is continuing to expand in this area, opening two stores a week and have the increased prestige of earning the convenience retailer of the year.  Profits from the bank joint venture are up slightly and the company is expanding the offering with more credit card, insurance and travel money products.  They have recently started taking orders for travel money online.  The property JV is flat, with actual profits down due to a reduction in the increase of property values.   Another market being expanded is the pharmacy market and Sainsbury now have 200 pharmacists and have even started opening GP clinics in some stores – the total now is 3.

The direct sourcing of non food items has increased, with offices being opened in Hong Kong, China and Bangladesh to help with this.  After the opening of the Bangladesh office, the clothing shipments doubled.

Sainsbury continues to trade on its integrity and fairness, with sustainable fish being promoted and a new brand match service being introduced whereby the tills identify if the branded products cost more than in Tesco or Asda and refund the difference in the form of a coupon.  This is an interesting idea and will do a lot to redress the perception that these two competitors are substantially cheaper than Sainsbury.   In my last shop I was refunded 6p.  I should mention, however, that it was not lost on me that they are stating how many trees have been saved by printing their receipts on double sides and then issuing a paper coupon for my 6p refund!

Sainsbury also mentioned that they outperformed their rivals over Easter and the Royal Wedding bank holiday and id does seem to be the case that Sainsbury comparatively makes more money over holiday periods.

In conclusion then, this is another set of steady results, profits not including the property sales are up slightly but the worry for me continues to be the negative cash flow and the worry over consumer spending.  I am tempted to top up if the shares dip on macro economic news so for this reason I consider them GOOD VALUE.

Sainsbury have now released a trading statement for their Q3, including Christmas, and announced like for like sales up 4.8% on last year, and they gained market share from rivals.  As usual, non food items and convenience increased quicker but the board expect consumer spending after Christmas to reduce.  However, with the Diamond Jubilee coming up, not to mention the Olympics and European football championships, I believe the year looks fairly bright for Sainsbury.

In their Q4 trading statement, Sainsbury announced that total sales were up 4.6%.  Within this, the online vusiness grew by over 20% and the convenience business also grew by more than 20%, with sales increases being fuelled both by new store openings and increased like for like sales.  In the quarter, they also announced an investment in Tamar Energy who produce energy from organic waste – I can see how a supermarket may find this useful.  As before, with the events comming up this summer I am tempted to buy a few more of these.