REG - Sainsbury(J) PLC - Final Results <Origin Href="QuoteRef">SBRY.L</Origin> - Part 2
03/05/2017 07:06
- Part 2: For the preceding part double click ID:nRSC9748Da
annualisation of 2016/17 price investment and the second half
2016/17 step-up in cost inflation due to the effect of the four per cent wage increase for store colleagues effective from
28 August 2016.
We expect depreciation and amortisation of around £700 million, an increase of around £70 million as a result of the
consolidation of a full-year of Argos.
Argos acquisition impact on retail underlying profit
On 2 September 2016, Sainsbury's completed the acquisition of HRG. Argos contributed £3,110 million of sales (including
VAT) and £77 million of underlying profit before tax to retail performance since the point of acquisition (which includes
£5 million of EBITDA synergies).
Previously HRG analysed their business as Argos, Homebase, financial services, central activities and interest income.
Homebase has now been sold. The financial services element of HRG is now included within the Group's financial services
segment, and guidance on the effect of this is now included within the Sainsbury's Bank guidance. The remaining Argos and
central activities segments of HRG will be combined into the Group's Retailing segment.
The consolidation of Argos has added an underlying profit contribution of £72 million in 2016/17 before synergies and
Homebase transaction, separation and restructuring impact. The pre-acquisition loss of £27 million is not consolidated.
Indicatively, a full-year profit contribution from Argos would have been £45 million.
Sainsbury's announced as part of the transaction to acquire HRG, that the Group expected to achieve £160 million of EBITDA
synergies by the end of the first half of 2019/20. Due to the acceleration of some of the activity, we now expect to
deliver these in 2018/19. The synergies are derived from three areas:
Synergies from Argos stores in Sainsbury's - £75 million. We will relocate some existing Argos stores into nearby
Sainsbury's supermarkets, as well as opening Argos stores in supermarkets where there is no Argos presence nearby. This
also gives cross-selling opportunities within Sainsbury's stores to the current food offer and a wider range of general
merchandise products in Argos to Sainsbury's customers. At the same time we will benefit from lower operating costs,
particularly rent and rates.
Cost synergies from central and support - £70 million. We will remove duplication and overlap from both central and
support functions at Sainsbury's and HRG. We will be able to realise product purchasing benefits from best practice and the
combined Group's scale.
Other revenue synergies - £15 million. We will sell Sainsbury's clothing, homewares, seasonal and leisure ranges through
the existing Argos network.
In order to achieve these synergies, £130 million of exceptional integration cost and £140 million of exceptional
integration capital expenditure will be required. Exceptional costs will include the relocation of property, dilapidations,
lease break costs and redundancy costs. Exceptional capital expenditure is required to reformat supermarket space and for
fitting out the new Argos stores. The updated expected phasing of the synergies, exceptional costs and exceptional capital
expenditure is shown below:
£m
2016/17 2017/18e 2018/19e Total
Synergies (incremental year-on-year) 7 58 95 160
Exceptional costs (27) (60) (43) (130)
Exceptional capex (18) (90) (32) (140)
In 2017/18, we expect incremental EBITDA synergies of £58 million, resulting in total EBITDA synergies of £65 million since
acquisition. EBITDA synergies of £160 million will be realised in 2018/19 (six months early). Argos integration costs are
expected to be around £60 million, integration capital expenditure is expected to be around £90 million.
Homebase separation
HRG announced on 18 January 2016 that the sale of Homebase would give rise to £75 million of additional exceptional costs
in relation to transaction, separation and restructuring. Up to the date of the acquisition, HRG had incurred £30 million
of these costs and incurred a further £4 million in the period to 11 March 2017. It is currently anticipated that the total
exceptional costs will now only be £60 million, a reduction of £15 million from the original estimate, with £15 million of
the cost to be incurred in 2017/18.
Financial services
Financial Services results1
12 months to 28 February 12 months to 29 February Change%
2017 2016
Revenue (£m)2 407 327 24.5
Interest payable (£m) (60) (53) (13.2)
Total income (£m)3 347 274 26.6
Underlying operating profit (£m) 62 65 (4.6)
Cost/Income ratio (%)4 72 71 (100)bps
Active customers - Bank (m) 1.77 1.71 3.5
Active customers - AFS (m) 1.84 n/a n/a
Net interest margin (%)5 4.4 4.1 30bps
Bad debt as a percentage of lending (%)6 0.8 0.4 (40)bps
Tier 1 capital ratio (%)7 13.3 15.8 (250)bps
Loan balances (£m)8 4,713 3,389 39
1 Including AFS except where stated.
2 Revenue growth excluding AFS was 5.8 per cent.
3 Total income excluding AFS was £286 million, an increase of 4.4 per cent.
4 Excluding AFS.
5 Net interest receivable divided by average interest-bearing assets. Excluding AFS, 2016/17 was 3.9 per cent, a
decrease of 20 basis points year-on-year.
6 Bad debt expense divided by gross lending. Excluding AFS, 2016/17 was 0.6 per cent, an increase of 20 basis points
year-on-year.
7 Tier 1 capital divided by risk-weighted assets.
8 Loan balances excluding AFS was £4,003 million, an increase of 18 per cent year-on-year.
Financial services total income increased to £347 million following the consolidation of AFS on 2 September 2016.
Financial services delivered an underlying operating profit of £62 million, a 4.6 per cent decrease year-on-year. This
decrease was mainly a result of the investment required to enter the mortgage market and the impact of reduced interchange
fees.
Sainsbury's Bank cost/income ratio has increased by 100 basis points as a result of the strategic costs incurred on
products and infrastructure which are expected to drive improved performance in future years.
Sainsbury's Bank active customers increased 3.5 per cent year-on-year to 1.77 million (2015/16: 1.71 million). The
acquisition of AFS added a further 1.84 million customers in 2016/17.
Net interest margin increased by 30 basis points year-on-year to 4.4 per cent (2015/16: 4.1 per cent) driven by the
acquisition of AFS that operates a higher risk and return operating model (excluding AFS, net interest margin was 3.9 per
cent, a 20 basis point decrease year-on-year). Bad debt levels as a percentage of lending increased to 0.8 per cent
(2015/16: 0.4 per cent), also as a result of the AFS operating model. The Tier 1 capital ratio decreased by 250 basis
points year-on-year to 13.3 per cent (2015/16: 15.8 per cent), the primary drivers were increases to intangible assets and
growth in customer lending. This growth in lending has led to an increase in the savings balance of 28 per cent to £4,105
million (2015/16: £3,209 million). Loan balances including AFS increased by 39 per cent to £4,713 million, due to an
increase in Sainsbury's Bank loan and credit card balances (13.4 per cent and 32.7 per cent respectively), as well as the
addition of AFS store card balances of £710 million.
We have made good progress with our Bank transition programme. We have now delivered our flexible core platform, a new
website, a new contact centre and migration of our savings customers took place successfully in September 2016, along with
the migration of all our ATM's. We launched our new insurance offer in early 2017 and our new mortgage offer in April 2017,
and our loans platform build is complete and now in test - we expect it to be operational by the end of 2017/18. Following
the acquisition of HRG, we will now take the opportunity to create a common cards operating platform which we expect to
launch by summer 2018. Spend to date totals £352 million, and we expect to spend a further £125 million to complete the
transition - but with a significantly increased scope including the integration of AFS, insurance and mortgages. As a
result of the growth opportunities Sainsbury's Bank now offers, we are well set to deliver strong profit growth.
At the end of the first half, AFS was transferred to Sainsbury's Bank and refinanced with the following key steps:
· £100 million capital injection from J Sainsbury plc to Sainsbury's Bank
· New customer deposits and a wholesale loan were raised by Sainsbury's Bank
· Sainsbury's Bank lent AFS circa £600 million by way of an intercompany loan
· AFS repaid its current circa £600 million intercompany loan with HRG subsidiaries which have previously funded the
business
· HRG subsidiaries paid a dividend to J Sainsbury plc of circa £600 million
· The £448 million draw down on the Revolving Credit Facility used as consideration for the HRG acquisition was repaid
in full
AFS holds a loan book with gross receivables of £699 million, offset by a provision of £63 million resulting in a 9.1 per
cent provision as a percentage of receivables.
In 2017/18, underlying operating profit growth is expected to be ten per cent.
Capital injections into the Bank are expected to be £160 million to £190 million in 2017/18. This is to cover card and loan
platforms, regulatory capital and growth in loans, cards and mortgages.
Sainsbury's Bank transition cost is expected to be around £55 million (2016/17: £60 million) and transition capital costs
are expected to be around £30 million (2016/17: £16 million).
Underlying net finance costs
Underlying net finance costs decreased by £2 million year-on-year to £119 million (2015/16: £121 million), due to lower
interest costs as a result of lower net debt, offset by the full-year effect of the perpetual securities coupons.
Underlying net finance costs 52 weeks to 11 March2017£m 52 weeks to 12 March2016£m
Underlying finance income 18 19
Interest costs (121) (132)
Perpetual securities coupons (23) (15)
Capitalised interest 7 7
Underlying finance costs (137) (140)
Underlying net finance costs (119) (121)
Sainsbury's expects net finance costs in 2017/18 to be similar year-on-year.
Items excluded from underlying results
In order to provide shareholders with additional insight into the underlying performance of the business, items recognised
in reported profit or loss before tax which, by virtue of their size and or nature, do not reflect the Group's underlying
performance are excluded from the Group's underlying results and shown as items excluded from underlying results.
Items excluded from underlying results 52 weeks to 11 March2017 52 weeks to 12 March2016
£m £m
Property related
Profit on disposal of properties 98 101
Investment property fair value movements (25) (18)
Net impairment and onerous contract charge (37) (1)
Argos
Transaction costs relating to the acquisition of Home Retail Group (22) (12)
Argos integration costs (27) -
Homebase separation (4) -
Sainsbury's Bank transition (60) (59)
Focus
Business rationalisation 72 (3)
IT write-offs (57) -
Restructuring costs (33) (15)
Other
Perpetual securities coupons 23 15
Non-underlying finance movements 10 (22)
Acquisition adjustments 8 3
IAS 19 pension financing charge and scheme expenses (24) (28)
Items excluded from underlying results (78) (39)
· Profit on disposal of properties includes the profit on the completion of the Nine Elms store which is a mixed use
development opened in August 2016. Investment property fair value movements reflect the difference between the current and
previous market values. The net impairment and onerous contract charge relates to lease exit and break costs and movements
in the market value of land.
· The Group incurred £22 million of costs relating to the one-off legal and advisory fees in relation to the acquisition
of HRG. Argos integration costs for the year of £27 million were part of the previously announced £130 million required
over the three years in order to achieve the synergies of £160 million. The Homebase separation and restructuring costs for
the year of £4 million were part of the previously announced £75 million upon the sale of Homebase.
· Sainsbury's Bank transition costs of £60 million (2015/16: £59 million) relate to the costs incurred in transitioning
to a new, more flexible banking platform.
· Business rationalisation includes £98 million profit on disposal of the Pharmacy business, offset by £26 million costs
incurred closing non key businesses to enable the Group to focus on its core strategy. This included the closure of Netto,
Sainsbury's Entertainment and Phoneshops. £57 million was incurred on cessation of non core IT projects.
· Internal restructuring costs of £33 million relate to changes to our store colleague structures and working
practices.
· The coupons on the perpetual securities are added back as accounting standards determine that for statutory reporting
purposes they are treated as dividends. The increase year-on-year reflects a full-year charge compared to a part-year
charge in the previous year. Non-underlying finance movements mainly relate to a gain recognised in fixed power purchase
agreements due to an increase in the forecast forward energy prices. Acquisition adjustments of £8 million (2015/16: £3
million) reflect the unwind of fair value adjustments arising from the Sainsbury's Bank and Home Retail Group acquisitions.
Pension financing charge was £16 million (2015/16: £22 million) and defined benefit scheme expenses were £8 million
(2015/16: £6 million).
Taxation
The income tax charge was £126 million (2015/16: £77 million), with an underlying tax rate of 23.2 per cent (2015/16: 20.8
per cent) and an effective tax rate of 25.0 per cent (2015/16: 14.1 per cent). The underlying rate was higher than last
year, mainly driven by the comparatively smaller benefit of a one per cent revaluation of underlying deferred tax balances
in 2016/17 (2015/16: two per cent). The effective tax rate was higher than last year due to the comparatively smaller
benefit of a one per cent revaluation of non-underlying deferred tax balances (2015/16: two per cent), and was also
increased by non-tax deductible exceptional costs and the tax impact of transactions in 2016/17, including the recognition
of a deferred tax liability on the Nine Elms replacement store.
Underlying tax rate
52 weeks to 11 March 2017 Profit Tax Rate%
£m £m
Underlying profit before tax, and tax thereon 581 (135) 23.2
Adjustments (and tax thereon) for:
Items excluded from underlying results and revaluation of deferred tax balances (78) 9
Profit before tax, and tax thereon 503 (126) 25.0
In 2017/18, Sainsbury's expects the full year underlying tax rate to be between 23 and 24 per cent.
Earnings per share
Underlying basic earnings per share decreased by 9.9 per cent to 21.8 pence (2015/16: 24.2 pence) reflecting the fall in
underlying profits and the effect of additional shares issued during the year, as a result of the HRG acquisition and a
higher year-on-year effective tax rate.
The weighted average number of shares in issue was 2,049.0 million (2015/16: 1,920.8 million), an increase of 128.2 million
shares or 6.7 per cent primarily driven by the additional shares issued on acquisition of HRG. In total, 261.1 million
shares were issued as part of the HRG acquisition. These shares increased the full year weighted average number of shares
by 130.3 million. In 2017/18, the full effect of the shares issued on the weighted average number of shares will be 261.1
million.
Basic earnings per share was 17.5 pence (2015/16: 23.9 pence). The basic earnings per share was lower than the underlying
basic earnings per share due to the items excluded from underlying results.
Underlying earnings per share
52 weeks to 11 March 2017 2017pence per share 2016pence per share
Basic earnings per share attributable to ordinary shareholders 17.5 23.9
Adjustments (net of tax) for:
Items excluded from underlying results and revaluation of deferred tax balances 4.3 0.3
Underlying basic earnings per share attributable to ordinary shareholders 21.8 24.2
Dividends
The Board has recommended a final dividend of 6.6 pence per share (2015/16: 8.1 pence). This will be paid on 7 July 2017 to
shareholders on the Register of Members at the close of business on 12 May 2017, subject to approval by shareholders at the
AGM. In line with the Group's policy to keep the dividend covered two times by underlying earnings, this will result in a
decrease to the full-year dividend of 15.7 per cent to 10.2 pence per share (2015/16: 12.1 pence).
The proposed dividend will be, subject to approval, recommended by the Board on 2 May 2017 and, as such, has not been
included as a liability as at 11 March 2017.
Sainsbury's plans to maintain a full-year dividend covered two times by our full-year underlying earnings.
Acquisition of Home Retail Group plc
On 2 September 2016, Sainsbury's completed the acquisition of HRG for a total consideration of £1,093 million, primarily
through a cash and shares offer, comprising 55 pence per share (£447 million) and 0.321 shares in J Sainsbury plc for each
share held of HRG (261 million new shares at a share price of £2.461).
The fair value of assets acquired at that date was £1,035 million. This included net £615 million customer loan book, £322
million of cash (after the capital return to HRG shareholders of £226 million, mainly in relation to the sale of Homebase
by HRG) and £98 million of other net assets. The fair value of assets acquired was less than the fair value of the
consideration by £58 million, which has been treated as goodwill. Putting aside the cash acquired and the customer loan
book (which can be converted to cash), Sainsbury's effectively purchased the business for £156 million (£1,093 million
consideration, less £615 million customer loan book and £322 million of net cash).
Financing
The Group's key financing objectives are to diversify funding sources, to minimise refinancing risk and maintain
appropriate contingent liquidity. As at 11 March 2017, Sainsbury's has drawn debt facilities of £2,700 million (including
the perpetual securities) and undrawn committed credit facilities of £1,150 million. The Group also holds £85 million of
uncommitted facilities which were undrawn as at 11 March 2017.
The principal element of Sainsbury's core funding comprises two long-term loans of £670 million due 2018 and £743 million
due 2031 both secured on two ring-fenced portfolios of the Group's property assets. The Group has other secured facilities,
namely a £200 million 'Green' loan due 2019 and a five year £450 million Convertible Bond was entered into in November
2014. Further the Group has borrowed £138 million via six hire purchase facilities in respect of in-store moveable assets
and finance leases. The Group maintains a syndicated committed revolving credit facility of £1,150 million. The facility is
split into two tranches, a £500 million Facility (A) maturing in May 2019 and a £650 million Facility (B) maturing in May
2020. As at 11 March 2017, £nil had been drawn from Facility (A) (March 2015/16: £nil) and £nil from Facility (B) (March
2015/16: £nil).
Net debt and retail cash flows
Group net debt includes the capital injections in to Sainsbury's Bank, but excludes Sainsbury's Bank's own net debt
balances. Sainsbury's Bank balances are excluded because they are required for business as usual activities. As at 11 March
2017, net debt was £1,477 million (12 March 2016: £1,826 million), a decrease of £349 million since the 2015/16 year-end.
If the perpetual securities were treated as debt, net debt would increase from £1,477 million to £1,971 million (12 March
2016: £2,320 million).
Summary cash flow statement1 Retail Retail
52 weeks 52 weeks to 12 March
to 11 March 2016
2017
£m £m
Retail operating cash flow before changes in working capital2 1,172 1,202
Decrease in working capital 68 23
Cash generated from retail operations3 1,240 1,225
Pension contribution (112) (76)
Net interest paid4 (108) (102)
Corporation tax paid (87) (124)
Net cash generated from retail operating activities5 933 923
Cash capital expenditure before strategic capital expenditure6 (588) (627)
Retail free cash flow 345 296
Dividends paid on Ordinary Shares (230) (234)
Exceptional pension contributions (199) (125)
Property related including strategic capital expenditure4 28 155
Proceeds from sale of Pharmacy - 125
Bank capital injections (130) (137)
HRG acquisition and AFS loan book refinancing4 457 -
Proceeds from issue of perpetual securities & convertible bonds - 494
Repayment of borrowings including finance leases4 (211) (363)
Other4 (10) (31)
Net increase in cash and cash equivalents 50 180
Decrease in debt 211 363
Acquisition movements 39 -
Fair value and other non-cash movements 49 (26)
Movement in net debt 349 517
Opening net debt (1,826) (2,343)
Closing net debt (1,477) (1,826)
Closing net debt (including hybrid securities as debt) (1,971) (2,230)
1 See note 4 for a reconciliation between the Retail and Group cash flows.
2 Excludes working capital, pension contributions and exceptional pension contributions.
3 Excludes pension contributions and exceptional pension contributions.
4 Refer to the Alternative Performance Measures for definition.
5 Excludes exceptional pension contributions.
6 Excludes purchase of Chiswick freehold and Argos integration capital expenditure.
Operating cash flow before changes in working capital declined in the year to £1,172 million due to the fall in Group
operating profit. However, due to continued focus on working capital and a reduction in capital expenditure, free cash flow
increased in the year to £345 million (2016/17: £296 million).
Cash generated by operations were used to fund dividends and exceptional pension contributions. Dividends of £230 million
were paid in year, which are covered 1.5 times by free cash flow. Exceptional pension contributions of £199 million were
made in the year which included the £125 million announced in August 2016, to the Sainsbury's defined benefit pension
scheme, and £74 million to the HRG defined benefit pension scheme which included £24 million in relation to the sale of
Homebase and £50 million which was agreed as part of the acquisition of HRG.
Property related items generated £28 million in the year which is net of £92 million spent on the acquisition of the
Chiswick freehold and Argos integration capital expenditure. In the prior year £155 million was generated from property
related items and £125 million was received in advance of completion of the sale of Pharmacy which completed in the current
year.
The HRG acquisition and AFS loan book reduced net debt by £457 million.
· Cash paid on acquisition of HRG (including £3 million on share issuance) totalled £450 million.
· HRG held £548 million in cash at the point of acquisition of which £226 million was immediately paid as a capital
return to the HRG shareholders.
· Following the acquisition the Group was reorganised with the AFS business being transferred to the Financial Services
division. This refinancing of the Argos Financial Services loan book generated £585 million.
Sainsbury's expects 2017/18 year-end net debt to remain around £1.5 billion. We expect net debt to reduce over the medium
term.
Group capital expenditure
Group capital expenditure was £703 million; made up of £639 million net retail capital expenditure and £64 million
Financial Services capital expenditure.
Core retail expenditure of £547 million was up 0.9 per cent (2015/16: £542 million), driven by the addition of Argos core
retail capital expenditure of £38 million.
Net retail capital expenditure was £639 million (2015/16: £543 million), which includes the purchase of a freehold at
Chiswick, where there may be future potential for a mixed use development, and £18 million Argos integration capital
expenditure.
Group capital expenditure
52 weeks to 11 March 2017 52 weeks to 12 March 2016
£m £m1
Sainsbury's new store development 120 222
Sainsbury's extensions and refurbishments 133 168
Sainsbury's other - including supply chain and digital & technology 256 152
Sainsbury's core retail capital expenditure 509 542
Argos core retail capital expenditure 38 -
Total core retail capital expenditure 547 542
Acquisition of freehold and trading properties2 74 -
Debtor/creditor movements - 1
Argos integration capital expenditure 18 -
Net retail capital expenditure 639 543
Financial Services capital expenditure 64 29
Group net capital expenditure 703 572
Capex/sales ratio3 1.9% 2.1%
1 Comparative figures within core retail capital expenditure have been restated to reflect reclassification of certain
types of capital expenditure.
2 2015/16 balance includes income from Harvest, our JV with Land Securities, relating to the repayment of a loan.
3 Core retail capital expenditure divided by retail sales (including fuel, including VAT).
In 2017/18, Sainsbury's expects core retail capital expenditure including business as usual Argos capital expenditure
(excluding Sainsbury's Bank and Argos integration capital expenditure) to be around £600 million. Core retail capital
expenditure is expected to be around £600 million per annum over the medium term.
Argos integration capital expenditure expected to be around £90 million.
Return on capital employed ('ROCE')
The ROCE on the 14 point average basis over the 52 weeks to 11 March 2017 was 8.8 per cent (2015/16: 8.8 per cent), a
year-on-year decrease of four basis points. Excluding the retirement benefit obligation (net of deferred tax) from capital
employed, ROCE over the 52 weeks to 11 March 2017 was 8.0 per cent (2015/16: 8.3 per cent), 29 basis points lower than for
the 52 weeks to 12 March 2016. ROCE decline was mainly due to the fall in underlying operating profit and the additional
capital employed following the HRG acquisition.
Return on capital employed (14 point average)1
52 weeks to 52 weeks to
11 March 2017 12 March 2016
Total underlying operating profit (£m) 688 700
Underlying share of post-tax profit from JVs (£m) 12 8
Underlying profit before interest and tax (£m) 700 708
Average capital employed (£m) 7,964 8,021
Return on capital employed (%) 8.8 8.8
Return on capital employed (exc. pension fund deficit) (%) 8.0 8.3
52 week ROCE movement (4)bps
52 week ROCE movement (exc. pension fund deficit) (29)bps
1 The 14 point period average includes the opening capital employed as at 12 March 2016 and the closing capital
employed for each of the 13 individual four week periods to 11 March 2017.
Financial ratios
Key financial ratios As at 11 March 2017 As at 12 March 2016
(with perpetual securities accounted for as equity)
Adjusted net debt to EBITDAR1 3.7 times 4.0 times
Interest cover2 7.3 times 6.7 times
Fixed charge cover3 2.7 times 2.8 times
Gearing4 21.5% 28.7%
Gearing (excluding pension deficit) 5 19.1% 27.0%
Key financial ratios
(with perpetual securities treated as debt)6
Adjusted net debt to EBITDAR 4.0 times 4.3 times
Interest cover 5.9 times 5.9 times
Fixed charge cover 2.6 times 2.7 times
Gearing 30.9% 39.5%
Gearing (excluding pension deficit) 27.3% 37.1%
1 Net debt of £1,477 million plus capitalised lease obligations of £5,938 million, divided by Group underlying EBITDAR
of £2,000 million, calculated for a 52 week period to 11 March 2017.
2 Underlying profit before interest and tax divided by underlying net finance costs.
3 Group underlying EBITDAR divided by net rent and underlying net finance costs.
4 Net debt divided by net assets.
5 Net debt divided by net assets, excluding pension deficit.
6 Treating the perpetual securities, net of transaction fees, as debt increases net debt to £1,971 million, and
reduces net assets to £6,426 million.
Property value
As at 11 March 2017, Sainsbury's estimated market value of properties, including our 50 per cent share of properties held
within property JVs, was £10.3 billion (12 March 2016: £10.6 billion). The £0.3 billion decrease was mainly due to a
reduction in market rental values and a small yield movement.
Defined benefit pensions
At 11 March 2017, the net defined benefit obligation for the Group was £974 million (including HRG and the unfunded
obligation). The increase in the deficit from the prior year-end is primarily driven by the consolidation of the HRG
scheme, as well as a significant actuarial loss due to a fall in the discount rate from 3.65 per cent to 2.70 per cent.
Following agreement of the valuation of both schemes the Group is committed to make annual contributions of £124 million to
the scheme (Sainsbury's scheme: £84 million; HRG scheme: £40 million). The next triennial valuations are for the March 2018
year ends for both schemes.
Retirement benefit obligations
HRG Sainsbury's Group Group
As at As at As at As at
11 March 2017 11 March 2017 11 March 2017 12 March 2016
£m £m £m £m
Present value of funded obligations (1,413) (9,441) (10,854) (7,625)
Fair value of plan assets 1,212 8,708 9,920 7,235
Pension deficit (201) (733) (934) (390)
Present value of unfunded obligations (17) (23) (40) (18)
Retirement benefit obligations (218) (756) (974) (408)
Deferred income tax asset 47 77 124 19
Net retirement benefit obligations (171) (679) (850) (389)
Consolidated income statement
for the 52 weeks to 11 March 2017
2017 2016
Note £m £m
Revenue 4 26,224 23,506
Cost of sales (24,590) (22,050)
Gross profit 1,634 1,456
Administrative expenses (1,207) (850)
Other income 215 101
Operating profit 642 707
Finance income 5 34 19
Finance costs 5 (136) (167)
Share of post-tax loss from joint ventures and associates (37) (11)
Profit before tax 503 548
Analysed as:
Underlying profit before tax 3 581 587
Non-underlying items 3 (78) (39)
503 548
Income tax expense 6 (126) (77)
Profit for the financial year 377 471
Earnings per share 7 pence pence
Basic 17.5 23.9
Diluted 16.5 22.5
Underlying basic 21.8 24.2
Underlying diluted 20.4 22.8
Dividends per share 8 pence pence
Interim 3.6 4.0
Proposed final (not recognised as a liability at balance sheet date) 6.6 8.1
Consolidated statement of comprehensive income
for the 52 weeks to 11 March 2017
2017 2016
£m £m
Profit for the financial year 377 471
Items that will not be reclassified subsequently to the income statement
Remeasurement on defined benefit pension schemes (407) 121
Current tax relating to items not reclassified 41 -
Deferred tax relating to items not reclassified 28 (36)
(338) 85
Items that may be reclassified subsquently to the income statement
Currency translation differences 5 2
Available-for-sale financial assets fair value movements
Attributable to Group 10 (1)
Items reclassifed from available-for-sale assets reserve (1) -
Cash flow hedges effective portion of fair value movements
Attributable to Group 115 4
Attributable to joint ventures and associates - 1
Items reclassified from cash flow hedge reserve (87) 7
Current tax on items that may be reclassified (1) -
Deferred tax relating to items that may be reclassified 5 3
46 16
Total other comprehensive (expense)/income for the year (net of tax) (292) 101
Total comprehensive income for the year 85 572
Consolidated balance sheet
At 11 March 2017 and 12 March 2016
2017 2016
Note £m £m
Non-current assets
Property, plant and equipment 10,006 9,764
Intangible assets 742 329
Investments in joint ventures and associates 237 327
Available-for-sale financial assets 435 340
Other receivables 69 103
Amounts due from Financial Services customers 1,916 1,649
Derivative financial instruments 10 17
13,415 12,529
Current assets
Inventories 1,775 968
Trade and other receivables 574 508
Amounts due from Financial Services customers 2,686 1,695
Available-for-sale financial assets 100 48
Derivative financial instruments 94 51
Cash and cash equivalents 9 1,083 1,143
6,312 4,413
Assets held for sale 10 31
6,322 4,444
Total assets 19,737 16,973
Current liabilities
Trade and other payables (3,741) (3,077)
Amounts due to Financial Services customers and other deposits (4,284) (3,173)
Borrowings (172) (223)
Derivative financial instruments (22) (43)
Taxes payable (219) (158)
Provisions (135) (46)
(8,573) (6,720)
Liabilities held for sale - (4)
(8,573) (6,724)
Net current liabilities (2,251) (2,280)
Non-current liabilities
Other payables (304) (269)
Amounts due to Financial Services customers and other deposits (637) (582)
Borrowings (2,039) (2,190)
Derivative financial instruments (38) (69)
Deferred income tax liability (172) (237)
Provisions (128) (129)
Retirement benefit obligations 11 (974) (408)
(4,292) (3,884)
Net assets 6,872 6,365
Equity
Called up share capital 625 550
Share premium account 1,120 1,114
Capital redemption reserve 680 680
Merger reserve 568 -
Other reserves 193 155
Retained earnings 3,190 3,370
Total equity before perpetual securities 6,376 5,869
Perpetual capital securities 248 248
Perpetual convertible bonds 248 248
Total equity 6,872 6,365
Consolidated cash flow statement
for the 52 weeks to 11 March 2017
2017 2016
Note £m £m
Cash flows from operating activities
Cash generated from operations 1,323 624
Interest paid (95) (108)
Corporation tax paid (75) (124)
Net cash generated from operating activities 1,153 392
Cash flows from investing activities
Purchase of property, plant and equipment (634) (646)
Purchase of intangible assets (110) (34)
Proceeds from disposal of property, plant and equipment 55 109
Receipt of advance disposal proceeds - 125
Acquisition of subsidiaries, net of cash acquired 101 -
Capital return to Home Retail Group plc shareholders (226) -
Share issuance costs on acquisition of Home Retail Group plc (3) -
Investment in joint ventures (16) (18)
Disposal of subsidiaries - (1)
Interest received 18 19
Dividends and distributions received 65 46
Net cash used in investing activities (750) (400)
Cash flows from financing activities
Proceeds from issuance of ordinary shares 6 8
Drawdowns of short-term borrowings 448 -
Repayment of short-term borrowings (492) (95)
Repayment of long-term borrowings (130) (238)
Proceeds from the issue of perpetual capital securities - 247
Proceeds from the issue of perpetual convertible bonds - 247
Purchase of own shares - (20)
Repayment of capital element of obligations under finance lease payments (37) (30)
Interest elements of obligations under finance lease payments (8) (9)
Dividends paid on ordinary shares 8 (230) (234)
Dividends paid on perpetual securities (23) (4)
Net cash used in financing activities (466) (128)
Net decrease in cash and cash equivalents (63) (136)
Opening cash and cash equivalents 1,140 1,276
Closing cash and cash equivalents 9 1,077 1,140
Consolidated statement of changes in equity
for the 52 weeks to 11 March 2017
Called up share capital Share premium account Capital redemption and other reserves Merger reserve Retained earnings Total equity before perpetual securities Perpetual capital securities Perpetual convertible bonds Total equity
£m £m £m £m £m £m £m £m £m
At 13 March 2016 550 1,114 835 - 3,370 5,869 248 248 6,365
Profit for the year - - - - 359 359 12 6 377
Other comprehensive income/(expense) - - 46 - (338) (292) - - (292)
Total comprehensive income for the year ended 11 March 2017 - - 46 - 21 67 12 6 85
Transactions with owners:
Dividends - - - - (232) (232) - - (232)
Acquisition of subsidiaries 75 - - 568 (3) 640 - - 640
Adjustment to consideration in respect of share options - - - - 3 3 - - 3
Distribution to Holders of Perpetual Securities (net of tax) - - - - - - (12) (6) (18)
Amortisation of convertible bond equity component -
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