PROFITS at J Sainsbury have overtaken those of rival Wm Morrison it emerged yesterday as the supermarket chain revealed it has spent £17 million so far on arrangements for buying Lloyds Banking Group out of their Edinburgh-based banking joint venture.

After 35 consecutive quarters of underlying sales growth, with a 1.4% rise in the six months to September 28, Sainsbury's market share stands at a decade-high of 16.8%. It still trails struggling market leader Tesco by some way in annual sales but is level pegging with Asda, owned by US giant Walmart, in the battle to be the UK's number two grocer. In Scotland it is in fourth place behind Morrison's but is growing quickly.

Sainsbury's reach in Scotland has been boosted by the opening of its extension at Cameron Toll, Edinburgh yesterday as well as the building of a new supermarket at Longstone in the capital recently. The opening of two convenience stores in Edinburgh and another in Blairgowrie in the past few months has taken its Scottish estate to 74 stores.

Chief executive Justin King said: "In this changing world that we are in, our offer remains strong and remains competitive."

He said as Sainsbury's grows market share, the rise of discounters and of John Lewis's Waitrose was challenging its main rivals.

Sainsbury's profit before tax of £433m for the six months was at the top end of analysts' forecasts and up 9.1% on last year. Tesco last month posted a 1.5% fall in first-half UK profit.

Mr King put its success down to the popularity of its own label ranges and of 20% sales growth at its rapidly expanding convenience store estate.

He added that it had been aided by data from Nectar cards, which has been used to target customers with relevant vouchers. The same information will also be used to target products at customers of Sainsbury's Bank, which it confirmed it was on track to take full ownership of by the end of January.

Sainsbury's spent £17m on the bank over the period as it built loans, savings and credit card platforms It now expects the takeover to cost it £42m, down from its original £50m estimate from a total bill likely to reach close to £290m.

Finance director John Rogers said Sainsbury's could accelerate the expansion of its convenience store estate. "The rate of opening we see at two a week and may even tick up a bit in future years," he said.

But the company took a £92m write-down on 15 to 20 sites in its property pipeline where it will no longer build stores, as planning changes made it easier for rivals to open close by.

Mr Rogers said: "It is a one-off."

Mr King was cautious about the state of the economy. He said: "We are planning our business on the basis we will not get any help from consumers suddenly feeling much richer."

The chain is overhauling its bottom-end Basics range with a roll-out likely in January when customers typically become more budget-conscious.

The company is guiding investors that like-for-like sales growth for the year would amount to 1% to 1.5% and it will also expand operating margins.

Graham Jones, analyst at Panmure Gordon said: "Sainsbury's is the only big four grocer that is taking market share, and that comes from being the only one, in our view, that isn't in the process of rectifying previous strategic mistakes, whether it be lack of exposure to growth channels (convenience stores and online) in the case of Morrisons or a portfolio of overly large stores in the case of Tesco."

Sainsbury's will pay an interim dividend of 5p on January 3. Its shares closed up 11.9p or 3% at 410.7p, a near five-year high.