GROCERY chain Sainsbury's has taken the first steps towards reviving its fortunes after seeing an improvement in sales.

Britain's second largest grocery chain saw sales in its supermarket operation grow by 4.7 per cent in the year to March 31.

Profits before tax and one-off items were £549m, compared with £580m a year earlier, after a period of restructuring within the group.

Sir Peter Davis, chief executive, said results for the second half of the financial year showed that changes to the business were taking effect.

He said: "As we only announced a three-year recovery plan in October we have only just begun. There is a great deal of work yet to do."

Sainsbury's said it had concentrated on improving quality, more customer promotion, and a series of store refits and extensions.

The group said it was encouraged by figures for the first three months of the calendar year, when sales grew by 4.8 per cent on a like-for-like basis.

Sainsbury's launched its recovery plan after losing ground to market leader Tesco during a difficult 18 months.

Sir Peter added: "We have been cleaning up stores, improving customer service by cutting queues, and trying to raise company morale so people smile at customers again.

"We have made a lot of effort to improve quality of fresh foods, and we have been increasing the promotional programme."

Sainsbury's added that it was on track to make £600m worth of cost savings by April 2004, which involved outsourcing its payroll operation and moving from the company's London headquarters.

Sir Peter, who took the helm last year, was confident that the group had found the right formula in tough market conditions.

"You've got strong performances from all the major retailers. It is certainly very competitive at the moment. I am confident we have got a model that is working," he said.

Operating profit for the supermarkets division fell 5.2 per cent to £510m during the year, although the figure for the second half was ahead 21 per cent on a year earlier at £254m.

Like-for-like sales grew 2.3 per cent during the year, compared with a 0.2 per cent fall a year earlier.

Initiatives to boost sales have included the launch of the Taste the Difference range and the Blue Parrot Cafe, a series of healthier foods for children.

Results from recently refurbished stores have also been encouraging, with sales from those outlets rising by up to 15 per cent.

In March, the group completed the sale of its Homebase stores for a combined £975m, while it also withdrew its operations from Egypt.

Sainsbury's said sales from the Homebase outlets deteriorated markedly in the second half of the year because of poor weather, higher development costs and uncertainty during the sale process.

Shareholders will receive a total dividend of 14.32p, unchanged on last year.