REG - Sainsbury(J) PLC - Final Results <Origin Href="QuoteRef">SBRY.L</Origin> - Part 3
03/05/2017 07:06
- Part 3: For the preceding part double click ID:nRSC9748Db
- (8) - 8 - - - -
Share-based payment (net of tax) - - - - 32 32 - - 32
Purchase of own shares - - - - (9) (9) - - (9)
Allotted in respect of share option schemes - 6 - - - 6 - - 6
At 11 March 2017 625 1,120 873 568 3,190 6,376 248 248 6,872
At 15 March 2015 548 1,108 826 - 3,057 5,539 - - 5,539
Profit for the year - - - - 452 452 13 6 471
Other comprehensive income - - 16 - 85 101 - - 101
Total comprehensive income for the year ended 12 March 2016 - - 16 - 537 553 13 6 572
Transactions with owners:
Dividends - - - - (234) (234) - - (234)
Issue of perpetual subordinated capital securities and perpetual subordinated convertible bonds (net of tax) - - - - - - 248 248 496
Distributions to holders of perpetual subordinated convertible bonds (net of tax) - - - - - - (13) (6) (19)
Amortisation of convertible bond equity component - - (7) - 7 - - - -
Share-based payment (net of tax) - - - - 23 23 - - 23
Purchase of own shares - - - - (20) (20) - - (20)
Allotted in respect of share option schemes 2 6 - - - 8 - - 8
At 12 March 2016 550 1,114 835 - 3,370 5,869 248 248 6,365
1 Status of financial information
The financial information, which comprises the Group income statement, Group statement of comprehensive income, Group
balance sheet, Group cash flow statement, Group statement of changes in equity and related notes, is derived from the full
Group financial statements for the 52 weeks to 11 March 2017 and does not constitute full accounts within the meaning of
section 435 (1) and (2) of the Companies Act 2006.
The Group Annual Report and Financial Statements 2017 on which the auditors have given an unqualified report and which does
not contain a statement under section 498(2) or (3) of the Companies Act 2006, will be delivered to the Registrar of
Companies in due course, and made available to shareholders in June 2017.
The financial year represents the 52 weeks to 11 March 2017 (prior financial year 52 weeks to 12 March 2016). The
consolidated financial statements for the 52 weeks to 11 March 2017 comprise the financial statements of the Company and
its subsidiaries (the 'Group') and the Group's share of the post-tax results of its joint ventures and associates.
2 Basis of preparation
The Group's financial statements have been prepared in accordance with International Financial Reporting Standards
('IFRSs') as adopted by the European Union and International Financial Reporting Interpretations Committee ('IFRICs') and
with those parts of the Companies Act 2006 applicable to companies reporting under IFRSs.
The financial statements are presented in sterling, rounded to the nearest million ('£m') unless otherwise stated. They
have been prepared on a going concern basis under the historical cost convention, except for derivative financial
instruments, defined benefit scheme assets and liabilities, investment properties and available-for-sale financial assets
that have been measured at fair value.
The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in preparing the financial statements.
The Group has considered the following amendments to published standards that are effective for the Group for the financial
year beginning 13 March 2016 and concluded that they are either not relevant to the Group or that they do not have a
significant impact on the Group's financial statements. These standards and interpretations have been endorsed by the
European Union.
· Annual Improvements to IFRSs 2012-2014 Cycle
· Amendments to IAS 16, 'Property, plant and equipment' and IAS 38, 'Intangible assets' which clarifies acceptable
methods of depreciation and amortisation
· Amendments to IFRS 11, 'Joint arrangements' on the accounting for acquisitions of interests in joint operations
· Amendments to IAS 16 and IAS 41: Bearer Plants
· Amendments to IAS 1, 'Presentation of financial statements' which clarifies existing IAS 1 requirements
· Amendments to IAS 27, 'Consolidated and separate financial statements' which allow an entity to use the equity
method as described in IAS 28 to account for its investments in subsidiaries
· Amendments to IFRS 10, 'Consolidated financial statements', IFRS 12, 'Disclosure of interests in other entities' and
IAS 28, 'Investments in associates and joint ventures' on applying the consolidation exception
3 Non-GAAP performance measures
In order to provide shareholders with additional insight in to 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.
These adjusted items are as follows:
2017 2016
£m £m
Underlying profit before tax 581 587
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
Defined benefit scheme financing charge and scheme expenses (24) (28)
Total adjustments (78) (39)
Profit before tax 503 548
Property related
· Profit on disposal of properties for the financial year comprised £101 million for the Group (2016: £100 milion) and
£(3) million for the property joint ventures (2016: £1 million), included within other income.
· Net impairment and onerous contract charge comprises £(19) million within property, plant and equipment and onerous
lease provisions of £(18) million.
Argos
· 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
· Sainsbury's Bank transition costs of £(60) million (2016: £(59) million) were part of the previously announced costs
incurred in transitioning to a new, more flexible banking platform as part of the previously announced New Bank Programme.
Focus
· Business rationalisation includes £98 million profit on disposal of the Pharmacy business (included within other
income), offset by £(26) million of costs incurred closing non-core businesses to enable the Group to focus on its
strategy. This included the closure of Netto, Sainsbury's Entertainment and Phoneshops.
· The Group incurred £(57)million in relation to the cessation of non-core IT projects. This includes £(36) million in
property, plant and equipment, £(19) million in intangibles and £(2) million other directly attributable costs.
Restructuring costs
· Internal restructuring costs of £(33) million relate to changes in store colleague structures and working practices.
Other
· The coupons on the perpetual subordinated capital securities and the perpetual subordinated convertible bonds are
accounted for as equity in line with IAS 32 'Financial Instruments: Presentation', however are accrued on a straight-line
basis and included as an expense within underlying profit before tax.
· Non-underlying finance movements for the financial year comprised £12 million for the Group (2016: £(20) million) and
£(2) million for the joint ventures (2016: £(2) million).
· Acquisition adjustments of £8 million (2016: £3 million) reflect the unwind of fair value adjustments arising from
the Sainsbury's Bank and Home Retail Group acquisitions.
· Comprises pension financing charge of £(16) million (2016: £(22) million) and defined benefit scheme expenses of £(8)
million (2016: £(6) million).
Cash flow statement
The table below shows the impact of non-underlying items on the Group cash flow statement:
2017 2016
£m £m
Cash flows from operating activities
Defined benefit pension financing charge and scheme expenses (8) (6)
Sainsbury's Bank transition (47) (53)
Business rationalisation (5) -
Argos integration costs (12) -
Homebase separation (2) -
Restructuring costs (19) (19)
Transaction costs relating to acquisition of Home Retail Group (22) (12)
Cash used in operating activities (115) (90)
Cash flows from investing activities
Profit on disposal of properties 55 109
Business rationalisation (sale of Pharmacy business) (4) 125
Cash generated from investing activities 51 234
Net cash flows (64) 144
4 Segment reporting
Background
The Group's businesses are organised into four operating segments:
· Retail - Food;
· Retail - General Merchandise & Clothing;
· Financial Services (Sainsbury's Bank plc and Argos Financial Services entities);
· Property Investments (The British Land Company PLC joint venture and Land Securities Group PLC joint venture).
Management has considered the economic characteristics, similarity of products, production processes, customers, sales
methods and regulatory environment of its two Retail segments. In doing so it has been concluded that they be aggregated
into one "Retail" segment in the financial statements. This aggregated information provides users the financial information
needed to evaluate the business and the environment in which it operates.
The Operating Board assesses the performance of all segments on the basis of underlying profit before tax. All material
operations and assets are in the UK. The year ended 11 March 2017 includes 27 weeks of Home Retail Group results.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be
allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire
segment assets that are expected to be used for more than one period.
a. Income statement and balance sheet
Retail Financial Property Group
Services investments
52 weeks to 11 March 2017 £m £m £m £m
Segment revenue
Retail sales to external customers 25,824 - - 25,824
Financial Services to external customers - 407 - 407
Underlying revenue 25,824 407 - 26,231
Acquisition adjustment fair value unwind1 - (7) - (7)
Revenue 25,824 400 - 26,224
Underlying operating profit 626 62 - 688
Underlying finance income 18 - - 18
Underlying finance costs2 (137) - - (137)
Underlying share of post-tax loss from joint ventures - - 12 12
Underlying profit before tax 507 62 12 581
Non-underlying expense (78)
Profit before tax 503
Income tax expense (126)
Profit for the financial period 377
Assets 13,650 5,850 - 19,500
Investment in Joint Ventures 4 - 233 237
Segment assets 13,654 5,850 233 19,737
Segment liabilities (7,762) (5,103) - (12,865)
Other segment items
Capital expenditure3 741 58 - 799
Depreciation expense4 593 7 - 600
Amortisation expense5 18 10 - 28
Net impairment and onerous contract charge 37 - - 37
Share based payments 30 2 - 32
1 Represents fair value unwind on loans and advances to customers resulting from the Sainsbury's Bank and Home Retail
Group Financial Services acquisitions.
2 The coupons on the perpetual capital securities and the perpetual convertible bonds are accounted for as equity in
line with IAS 32 'Financial Instruments: Presentation', however are accrued on a straight-line basis and included as an
expense within underlying finance costs, as detailed in note 3.
3 Retail capital expenditure consists of property, plant and equipment additions of £683 million and intangible asset
additions of £58 million. Financial services capital expenditure consists of property, plant and equipment additions of £12
million and intangible asset additions of £46 million.
4 Depreciation within the Retail segment includes a £6 million charge in relation to the unwind of fair value
adjustments recognised on acquisition of HRG.
5 Amortisation expense within the retail segment includes £32 million income in relation to the unwind of fair value
adjustments recognised on acquisition of HRG. Amortisation expense within the Financial Services segment includes £6
million charge in relation to the unwind of fair value adjustments recognised on acquisition of Sainsbury's Bank.
Retail Financial Property Group
Services investments
52 weeks to 12 March 2016 £m £m £m £m
Segment revenue
Retail sales to external customers 23,168 - - 23,168
Financial Services to external customers - 327 - 327
Underlying revenue 23,168 327 - 23,495
Acquisition adjustment fair value unwind1 - 11 - 11
Revenue 23,168 338 - 23,506
Underlying operating profit 635 65 - 700
Underlying finance income 19 - - 19
Underlying finance costs2 (140) - - (140)
Underlying share of post-tax (loss)/profit from joint ventures (7) - 15 8
Underlying profit before tax 507 65 15 587
Non-underlying expense (39)
Profit before tax 548
Income tax expense (77)
Profit for the financial period 471
Assets 12,115 4,531 - 16,646
Investment in Joint Ventures 16 - 311 327
Segment assets 12,131 4,531 311 16,973
Segment liabilities (6,727) (3,881) - (10,608)
Other segment items
Capital expenditure3 654 35 - 689
Depreciation expense 552 7 - 559
Amortisation expense4 14 11 - 25
Net impairment and onerous contract charge5 1 - - 1
Share based payments 22 1 - 23
1 Represents fair value unwind on loans and advances to customers resulting from the Sainsbury's Bank acquisition.
2 The coupons on the perpetual capital securities and the perpetual convertible bonds are accounted for as equity in
line with IAS 32 'Financial Instruments: Presentation', however are accrued on a straight-line basis and included as an
expense within underlying finance costs, as detailed in note 3.
3 Retail capital expenditure consists of property, plant and equipment additions of £635 million and intangible asset
additions of £19 million. Financial Services capital expenditure consists of property, plant and equipment additions of £20
million and intangible asset additions of £15 million.
4 Amortisation expense within the Financial Services segment includes £10 million of intangible asset amortisation
arising from Sainsbury's Bank acquisition fair value adjustments.
5 Net impairment and onerous contract charge includes a £9 million impairment reversal recognised against property,
plant and equipment.
b. Segmented cash flow statement
APM reference Retail Financial Services Group Retail Financial Services Group
2017 2017 2017 2016 2016 2016
£m £m £m £m £m £m
Cash flows from operating activities
Cash generated from/(used in) operations 929 394 1,323 1,024 (400) 624
Interest paid A (95) - (95) (108) - (108)
Corporation tax (paid)/received (87) 12 (75) (124) - (124)
Net cash generated from/(used in) operating activities 747 406 1,153 792 (400) 392
Cash flows from investing activities
Purchase of property, plant and equipment excluding strategic capital expenditure (530) (12) (542) (593) (53) (646)
Strategic capital expenditure B (92) (92) - - -
Purchase of property, plant and equipment (622) (12) (634) (593) (53) (646)
Purchase of intangible assets (58) (52) (110) (34) - (34)
Proceeds from disposal of property, plant and equipment B 55 - 55 109 - 109
Receipt of advance disposal proceeds - - - 125 - 125
Acquisition of subsidiaries C (447) - (447) - - -
Cash acquired upon acquisition of subsidiaries C 548 - 548 - - -
Capital return to Home Retail Group plc shareholders C (226) - (226) - - -
Share issuance costs on acquisition of Home Retail Group plc C (3) - (3) - - -
Investment in joint ventures E (16) - (16) (18) - (18)
Disposal of subsidiaries E - - - (1) - (1)
Interest received A 18 - 18 19 - 19
Dividends and distributions received1 B 65 - 65 46 - 46
Net cash used in investing activities (686) (64) (750) (347) (53) (400)
Cash flows from financing activities
Proceeds from issuance of ordinary shares E 6 - 6 8 - 8
Drawdown of short-term borrowings D 448 - 448 - - -
Repayment of short-term borrowings D (492) - (492) (95) - (95)
Repayment of long-term borrowings D (130) - (130) (238) - (238)
Proceeds from the issue of perpetual capital securities and bonds - - - 494 - 494
Purchase of own shares E - - - (20) - (20)
Repayment of capital element of obligations under finance lease payments D (37) - (37) (30) - (30)
Interest elements of obligations under finance lease payments A (8) - (8) (9) - (9)
Dividends paid on ordinary shares (230) - (230) (234) - (234)
Dividends paid on perpetual securities A (23) - (23) (4) - (4)
Net cash used in financing activities (466) - (466) (128) - (128)
Intra group funding
Bank capital injections (130) 130 - (137) 137 -
HRG acquisition and AFS loan book refinancing C 585 (585) - - - -
Net cash generated from/(used in) intra group funding 455 (455) - (137) 137 -
Net increase/(decrease) in cash and cash equivalents 50 (113) (63) 180 (316) (136)
Elimination of net decrease in Financial Services cash and cash equivalents 113 316
Decrease in debt 211 363
Fair value and other non-cash movements 88 (26)
Movement in net debt 349 517
Opening net debt (1,826) (2,343)
Closing net debt (1,477) (1,826)
1 Included within dividends and distributions received of £65 million is £55 million of dividends received from
property investment Joint Ventures.
c. Operating cash flows
Cash flows from operating activities are reconciled as follows:
2017 2017 2017 2016 2016 2016
Retail Financial Services Group Retail Financial Services Group
£m £m £m £m £m £m
Profit/(loss) before tax1 516 (13) 503 539 9 548
Net finance costs 102 - 102 148 - 148
Share of post-tax loss from joint ventures1 37 - 37 11 - 11
Operating profit/(loss) 655 (13) 642 698 9 707
Adjusted for:
Depreciation/amortisation expense 611 17 628 566 18 584
Non-cash adjustments arising from acquisitions (note 3) 5 7 12 - (13) (13)
Financial Services impairment losses on loans and advances - 33 33 - 15 15
Profit on disposal of properties (101) - (101) (100) - (100)
Loss on disposal of intangibles 22 14 36 - - -
Profit on disposal of Pharmacy business (98) - (98) - - -
Impairment charge/(reversal) of property, plant & equipment 55 - 55 (9) - (9)
Foreign exchange differences (7) - (7) 24 - 24
Share-based payments expense 30 2 32 23 - 23
Retirement benefit obligations (112) - (112) (76) - (76)
Exceptional pension contributions (199) - (199) (125) (125)
Operating cash flows before changes in working capital 861 60 921 1,001 29 1,030
Decrease/(increase) in working capital 68 334 402 23 (429) (406)
Cash generated from/(used in) operations 929 394 1,323 1,024 (400) 624
1 Includes £(18) million relating to the Property Investments segment.
5 Finance income and finance costs
2017 2016
£m £m
Interest on bank deposits and other financial assets 18 19
Finance fair value movements1 16 -
Finance income 34 19
Borrowing costs:
Secured borrowings (81) (88)
Unsecured borrowings (30) (30)
Obligations under finance leases (8) (9)
Provisions - amortisation of discount (6) (5)
(125) (132)
Other finance costs:
Interest capitalised - qualifying assets 7 7
Finance fair value movements1 - (20)
IAS 19 pension financing charge (16) (22)
Interest expense on Pharmacy sale advance proceeds (2) -
(11) (35)
Finance costs (136) (167)
1 Finance fair value movements relate to net fair value movements on derivative financial instruments not designated
in a hedging relationship.
6 Income tax expense
2017 2016
£m £m
Current tax expense 113 88
Deferred tax charge/(credit) 13 (11)
Total income tax expense in income statement 126 77
Analysed as:
Underlying tax 135 122
Non-underlying tax (9) (45)
Total income tax expense in income statement 126 77
Underlying tax rate 23.2% 20.8%
Effective tax rate 25.0% 14.1%
7 Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted
average number of ordinary shares in issue during the year, excluding those held by the Employee Share Ownership Plan
trusts, which are treated as cancelled. For diluted earnings per share, the earnings attributable to the ordinary
shareholders are adjusted by the interest on the senior convertible bonds (net of tax) and by the coupons on the perpetual
subordinated convertible bonds (net of tax).
The weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive
ordinary shares. These represent share options granted to employees where the exercise price is less than the average
market price of the Company's ordinary shares during the year and the number of shares that would be issued if all senior
convertible bonds and perpetual subordinated convertible bonds are assumed to be converted.
Underlying earnings per share is provided by excluding the effect of any non-underlying items as defined in note 3. This
alternative measure of earnings per share is presented to reflect the Group's underlying trading performance.
All operations are continuing for the periods presented.
2017 2016
million million
Weighted average number of shares in issue 2,049.0 1,920.8
Weighted average number of dilutive share options 18.2 14.6
Weighted average number of dilutive senior convertible bonds 137.7 131.4
Weighted average number of dilutive subordinated perpetual convertible bonds 75.1 41.4
Total number of shares for calculating diluted earnings per share 2,280.0 2,108.2
£m £m
Profit for the financial period (net of tax) 377 471
Less profit attributable to:
Holders of perpetual capital securities (12) (8)
Holders of perpetual convertible bonds (6) (4)
Profit for the financial year attributable to ordinary shareholders 359 459
£m £m
Profit for the financial period attributable to ordinary shareholders 359 459
Add interest on senior convertible bonds (net of tax) 12 11
Add coupon on subordinated perpetual convertible bonds (net of tax) 6 4
Diluted earnings for calculating diluted earnings per share 377 474
£m £m
Profit for the financial year attributable to ordinary shareholders of the parent 359 459
Adjusted for non-underlying items (note 3) 78 39
Tax on non-underlying items (9) (45)
Add back coupons on perpetual securities (net of tax)1 18 12
Underlying profit after tax attributable to ordinary shareholders of the parent 446 465
Add interest on convertible bonds (net of tax) 12 11
Add coupon on subordinated perpetual convertible bonds (net of tax) 6 4
Diluted underlying profit after tax attributable to ordinary shareholders of the parent 464 480
Pence Pence
per share per share
Basic earnings 17.5 23.9
Diluted earnings 16.5 22.5
Underlying basic earnings 21.8 24.2
Underlying diluted earnings 20.4 22.8
1 Underlying earnings per share calculation is based on underlying profit after tax attributable to ordinary
shareholders. Therefore the coupons on the perpetual securities are added back.
8 Dividend
2017 2016 2017 2016
Pence per share Pence per share £m £m
Amounts recognised as distributions to ordinary shareholders in the year:
Final dividend of prior financial year 8.1 8.2 155 157
Interim dividend of current financial year 3.6 4.0 77 77
11.7 12.2 232 234
After the balance sheet date, on 2 May 2017, a final dividend of 6.6 pence per share (2016: 8.1 pence per share) was
proposed by the Directors in respect of the 52 weeks to 11 March 2017. This results in a total final proposed dividend of
£144 million (2016: £155 million), a decrease of 7.1 per cent on the previous year. Subject to shareholders' approval at
the Annual General Meeting, the dividend will be paid on 7 July 2017 to the shareholders on the register at 12 May 2017.
The proposed final dividend has not been included as a liability at 11 March 2017.
Of the above dividend of £232 million, £2 million remained unpaid at the year-end.
9 Cash and cash equivalents
Cash and cash equivalents comprise the following:
2017 2016
£m £m
Cash in hand and bank balances 439 374
Money market funds and deposits 403 480
Treasury bills - 20
Deposits at central banks 241 269
Cash and bank balances 1,083 1,143
Bank overdrafts (6) (3)
Net cash and cash equivalents 1,077 1,140
10 Analysis of net debt
Retail Financial Services Group1 Retail Financial Services Group1
2017 2017 2017 2016 2016 2016
£m £m £m £m £m £m
Non-current assets
Interest bearing available-for-sale financial assets 39 - 39 35 - 35
Available-for-sale investment securities - 233 233 - 156 156
Derivative financial instruments 9 1 10 13 4 17
48 234 282 48 160 208
Current assets
Cash and cash equivalents 630 453 1,083 577 566 1,143
Available-for-sale investment securities - 100 100 - 48 48
Derivative financial instruments 94 - 94 51 - 51
724 553 1,277 628 614 1,242
Current liabilities
Bank overdrafts (6) - (6) (3) - (3)
Borrowings (143) - (143) (182) - (182)
Finance leases (23) - (23) (38) - (38)
Derivative financial instruments (19) (3) (22) (41) (2) (43)
(191) (3) (194) (264) (2) (266)
Non-current liabilities
Borrowings (1,924) - (1,924) (2,053) - (2,053)
Finance leases (115) - (115) (137) - (137)
Derivative financial instruments (19) (19) (38) (48) (21) (69)
(2,058) (19) (2,077) (2,238) (21) (2,259)
Total net debt (1,477) 765 (712) (1,826) 751 (1,075)
1 The perpetual capital securities and perpetual convertible bonds are accounted for as equity in accordance with IAS
32 'Financial instruments: Presentation' and therefore are not included within net debt.
11 Retirement benefit obligations
Background
At 11 March 2017, retirement benefit obligations relate to two defined benefit schemes, the Sainsbury's Pension Scheme and
from 2 September 2016, the Home Retail Group Pension Scheme (the 'Schemes') as well as two unfunded pension liabilities
relating to senior former employees of Sainsbury's and Home Retail Group. The Schemes are both closed to new entrants and
future accruals.
The retirement benefit obligations at the year-end have been calculated by KPMG, as actuarial advisers to the Group, using
the projected unit credit method and based on adjusting the position at the date of the previous triennial valuations for
known events and changes in market conditions as allowed under IAS 19, 'Employee benefits'.
Sainsbury's Pension Scheme
The Scheme was subject to a triennial actuarial valuation, carried out by Willis Towers Watson for the Trustee, as at 14
March 2015 on the projected unit basis. On the basis of the assumptions agreed, the actuarial deficit at 14 March 2015 was
£740 million, an increase of £148 million from the March 2012 deficit of £592 million.
A Recovery Plan was agreed in September 2016 which included:
· Two special contributions of £125 million paid in August 2015 and August 2016
· Deficit contributions increasing to £65 million a year until March 2021
· The interest in the property partnership to continue, of up to £600 million payable in 2030 if there is a deficit at
that time.
The Scheme continues to receive annual coupons from the property partnership which are based on the average weighted
discount rate used in the triennial valuation and so are effectively reset every three years. These coupons will reduce
from 2017/18 to £19 million a year.
Home Retail Group Pension Scheme
The Home Retail Group defined benefit pension scheme was subject to a Trustees' triennial valuation as at 31 March 2015.
This was carried out by Willis Towers Watson for the Trustee. On the basis of the assumptions agreed, the actuarial deficit
as at 31 March 2015 was £315 million, an increase of £157 million from the March 2012 deficit of £158 million.
A Recovery Plan was agreed and implemented on acquisition which included:
· An immediate payment on acquisition by Sainsbury's of £50 million
· Deficit contributions of £40 million a year, £10m payable each quarter, until October 2021
· Security over £80 million of freehold property (to be completed in the year ending 10 March 2018)
· A parent guarantee of £470 million which reduces over time in line with deficit contributions paid and will be reset
at following triennial valuations
As part of the sale of Homebase by Home Retail Group, it was agreed with the Trustee that a cash contribution of £50
million would be made to the Scheme. Of this total, £26 million was paid during Home Retail Group's year ending 28
February 2016. Following the capital return to shareholders associated with the Homebase sale, the final cash contribution
of £24 million was made to the Scheme in September following the acquisition of Home Retail Group by Sainsbury's.
Unfunded pension liabilities
The unfunded pension liabilities are unwound when each employee reaches retirement and takes their pension from the Group
payroll or is crystallised in the event of an employee leaving or retiring and choosing to take the provision as a one-off
cash payment.
Sainsbury's Home Retail Group Group Group
2017 2017 2017 2016
£m £m £m £m
Present value of funded obligations (9,441) (1,413) (10,854) (7,625)
Fair value of plan assets 8,708 1,212 9,920 7,235
(733) (201) (934) (390)
Present value of unfunded obligations (23) (17) (40) (18)
Retirement benefit obligations (756) (218) (974) (408)
Deferred income tax asset 77 47 124 19
Net retirement benefit obligations (679) (171) (850) (389)
The retirement benefit obligation and the associated deferred income tax balance are shown within different line items on
the face of the balance sheet.
The movements in the net defined benefit obligation are as follows:
2017 2016
£m £m
As at the beginning of the year (408) (708)
Acquisition of Home Retail Group plc (454) -
Interest cost (16) (22)
Remeasurement (losses)/gains (407) 121
Pension scheme expenses (8) (6)
Contributions by employer 319 207
As at the end of the year (974) (408)
The principal actuarial assumptions used at the balance sheet date are as follows:
2017 2016
% %
Discount rate 2.70 3.65
Inflation rate - RPI 3.30 3.15
Inflation rate - CPI
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