REG - Sainsbury(J) PLC - Half-year Report <Origin Href="QuoteRef">SBRY.L</Origin> - Part 3
09/11/2017 07:07
- Part 3: For the preceding part double click ID:nRSI9865Vb
· The Homebase separation and restructuring costs for the period of £(2) million were part of the revised anticipated
total exceptional costs of £45 million.
Sainsbury's Bank transition
· Sainsbury's Bank transition costs of £(20) million were part of the previously announced costs incurred in
transitioning to a new, more flexible banking platform.
Focus
· Divestments in the prior year include £98 million profit on disposal of the Pharmacy business (included within other
income), offset by 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 the second half of the prior year in relation to the cessation of non-core IT
projects. This included £(36) million in property, plant and equipment, £(19) million in intangibles and £(2) million other
directly attributable costs.
Restructuring costs
· Internal restructuring costs in the prior year 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 £(1) million for the Group (24 September 2016: £13
million; 11 March 2017: £12 million) and £(1) million for the joint ventures (24 September 2016: £(1) million; 11 March
2017: £(2) million).
· Acquisition adjustments of £20 million (24 September 2016: £1 million; 11 March 2017: £8 million) reflect the unwind
of fair value adjustments arising from the Sainsbury's Bank and Home Retail Group acquisitions.
· IAS 19 pension expenses comprise pension financing charge of £(14) million (24 September 2016: £(8) million; 11 March
2017: £(16) million) and defined benefit scheme expenses of £(4) million (24 September 2016: £(2) million; 11 March 2017:
£(8) million) (see note 13).
Cash flow statement
The table below shows the impact of non-underlying items on the Group cash flow statement:
28 weeks to 28 weeks to 52 weeks to
23 September 24 September 11 March
2017 2016 2017
£m £m £m
Cash flows from operating activities
IAS 19 pension expenses (4) (2) (8)
Sainsbury's Bank transition (20) (13) (47)
Divestments - (8) (5)
Argos integration costs (10) (6) (12)
Homebase separation (10) (2) (2)
Restructuring costs (9) (7) (19)
Transaction costs relating to acquisition of HRG - (22) (22)
Cash used in operating activities (53) (60) (115)
Cash flows from investing activities
Proceeds on disposal of properties 44 15 55
Divestments (sale of Pharmacy business) - (4) (4)
Cash generated from investing activities 44 11 51
Net cash flows (9) (49) (64)
4 Segment reporting
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 Investment (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 period ended 24 September 2016 includes 3 weeks of Home Retail Group results, and
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.
a. Income statement and balance sheet
Retail Financial Property Group
Services Investment
28 weeks to 23 September 2017 £m £m £m £m
Segment revenue
Retail sales to external customers 14,391 - - 14,391
Financial services to external customers - 255 - 255
Underlying revenue 14,391 255 - 14,646
Acquisition adjustment fair value unwind1 - (2) - (2)
Revenue 14,391 253 - 14,644
Underlying operating profit 272 34 - 306
Underlying finance income 8 - - 8
Underlying finance costs2 (70) - - (70)
Underlying share of post-tax profit from joint ventures and associates 3 - 4 7
Underlying profit before tax 213 34 4 251
Non-underlying expense (31)
Profit before tax 220
Income tax expense (54)
Profit for the financial period 166
Assets 13,783 6,663 - 20,446
Investment in joint ventures and associates 5 - 228 233
Segment assets 13,788 6,663 228 20,679
Segment liabilities (7,963) (5,779) - (13,742)
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.
28 weeks to 24 September 2016 Retail£m Financial Services£m Property Investment£m Group£m
Segment revenue
Retail sales to external customers 12,469 - - 12,469
Inter-segmental elimination1 (3) - - (3)
Financial services sales to external customers - 173 - 173
Underlying revenue 12,466 173 - 12,639
Acquisition adjustment fair value unwind2 - 3 - 3
Revenue 12,466 176 - 12,642
Underlying operating profit 308 29 - 337
Underlying finance income 9 - - 9
Underlying finance costs3 (74) - - (74)
Underlying share of post-tax loss from joint ventures and associates (2) - 7 5
Underlying profit before tax 241 29 7 277
Non-underlying income 95
Profit before tax 372
Income tax expense (73)
Profit for the financial period 299
Assets 14,221 5,433 - 19,654
Investment in joint ventures and associates 6 - 278 284
Segment assets 14,227 5,433 278 19,938
Segment liabilities (8,775) (4,669) - (13,444)
52 weeks to 11 March 2017 Retail£m Financial Services£m Property Investment£m Group£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 unwind2 - (7) - (7)
Revenue 25,824 400 - 26,224
Underlying operating profit 626 62 - 688
Underlying finance income 18 - - 18
Underlying finance costs3 (137) - - (137)
Underlying share of post-tax loss from joint ventures and associates - - 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 year 377
Assets 13,637 5,924 - 19,561
Investment in joint ventures and associates 4 - 233 237
Segment assets 13,641 5,924 233 19,798
Segment liabilities (7,762) (5,164) - (12,926)
1 The inter-segmental elimination relates to commissions received from Financial Services, the other side of
which is cost of sales in the Financial Services segment, not shown in the above.
2 Represents fair value unwind on loans and advances to customers resulting from the Sainsbury's Bank and Home
Retail Group Financial Services acquisitions.
3 The coupons on the perpetual securities 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.
b. Segmented cash flow statement
28 weeks to 23 September 2017 28 weeks to 24 September 2016
APM Retail Financial Services Group Retail Financial Services Group
reference
£m £m £m £m £m £m
Profit before tax1 208 12 220 359 13 372
Net finance costs 64 - 64 49 - 49
Share of post-tax (profit)/loss from joint ventures and associates1 (1) - (1) 36 - 36
Operating profit 271 12 283 444 13 457
Adjustments for:
Depreciation and amortisation expense 352 10 362 320 7 327
Non-cash adjustments arising from acquisitions2 (1) 2 1 1 (3) (2)
Financial Services impairment losses on loans and advances - 35 35 - 9 9
Profit on sale of properties (10) - (10) (116) - (116)
Loss on disposal of intangibles - 2 2 - - -
Profit on disposal of Pharmacy business - - - (98) - (98)
Impairment charge of property, plant and equipment - - - 11 - 11
Share-based payments expense 17 2 19 20 1 21
Retirement benefit obligations (26) - (26) (12) - (12)
Exceptional pension contributions - - - (199) - (199)
Operating cash flows before changes in working capital 603 63 666 371 27 398
Decrease/(increase) in working capital 269 (59) 210 222 226 448
Cash generated from operations 872 4 876 593 253 846
Interest paid a (45) - (45) (49) - (49)
Corporation tax paid (40) - (40) (51) - (51)
Net cash generated from operating activities 787 4 791 493 253 746
Cash flows from investing activities
Purchase of property, plant and equipment excluding strategic capital expenditure (245) (2) (247) (229) (4) (233)
Strategic capital expenditure b (35) - (35) (74) - (74)
Purchase of property, plant and equipment (280) (2) (282) (303) (4) (307)
Purchase of intangible assets (32) (24) (56) (28) (19) (47)
Proceeds from disposal of property, plant and equipment b 44 - 44 15 - 15
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 and associates e (8) - (8) (16) - (16)
Interest received a 8 - 8 9 - 9
Dividends and distributions received3 b 16 - 16 23 - 23
Net cash used in investing activities (252) (26) (278) (428) (23) (451)
Cash flows from financing activities
Proceeds from issuance of ordinary shares e 3 - 3 3 - 3
Drawdown of short-term borrowings d - - - 448 - 448
Repayment of short-term borrowings d - - - (448) - (448)
Repayment of long-term borrowings d (67) - (67) (64) - (64)
Purchase of own shares e (12) - (12) - - -
Repayment of capital element of obligations under finance lease payments d (14) - (14) (17) - (17)
Interest elements of obligations under finance lease payments a (4) - (4) (4) - (4)
Dividends paid on ordinary shares (144) - (144) (151) - (151)
Dividends paid on perpetual securities a (20) - (20) (20) - (20)
Net cash used in financing activities (258) - (258) (253) - (253)
Intra-group funding
Bank capital injections (110) 110 - (100) 100 -
HRG acquisition and AFS loan book refinancing c - - - 585 (585) -
Net cash (used in)/generated from intra-group funding (110) 110 - 485 (485) -
Net increase/(decrease) in cash and cash equivalents 167 88 255 297 (255) 42
1 Includes £(2) million relating to the Property Investment segment (24 September 2016: £(12) million).
2 The total Group balance excludes £21 million acquisition adjustment unwind income included in depreciation and
amortisation in this note (24 September 2016: £(1) million charge).
3 Included within dividends and distributions received of £16 million (24 September 2016: £23 million) is £14
million of dividends received from property investment joint ventures (24 September 2016: £16 million).
52 weeks to 11 March 2017
APM reference Retail Financial Services Group
£m £m £m
Profit/(loss) before tax1 516 (13) 503
Net finance costs 102 - 102
Share of post-tax loss from joint ventures and associates1 37 - 37
Operating profit/(loss) 655 (13) 642
Adjusted for:
Depreciation and amortisation expense 611 17 628
Non-cash adjustments arising from acquisitions 5 7 12
Financial Services impairment losses on loans and advances - 33 33
Profit on disposal of properties (101) - (101)
Loss on disposal of intangibles 22 14 36
Profit on disposal of Pharmacy business (98) - (98)
Impairment charge of property, plant and equipment 55 - 55
Share-based payments expense 30 2 32
Retirement benefit obligations (112) - (112)
Exceptional pension contributions (199) - (199)
Operating cash flows before changes in working capital 868 60 928
Decrease in working capital 61 334 395
Cash generated from operations 929 394 1,323
Interest paid a (95) - (95)
Corporation tax (paid)/received (87) 12 (75)
Net cash generated from operating activities 747 406 1,153
Cash flows from investing activities
Purchase of property, plant and equipment excluding strategic capital expenditure (530) (12) (542)
Strategic capital expenditure b (92) - (92)
Purchase of property, plant and equipment (622) (12) (634)
Purchase of intangible assets (58) (52) (110)
Proceeds from disposal of property, plant and equipment b 55 - 55
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 and associates e (16) - (16)
Interest received a 18 - 18
Dividends and distributions received2 b 65 - 65
Net cash used in investing activities (686) (64) (750)
Cash flows from financing activities
Proceeds from issuance of ordinary shares e 6 - 6
Drawdown of short-term borrowings d 448 - 448
Repayment of short-term borrowings d (492) - (492)
Repayment of long-term borrowings d (130) - (130)
Repayment of capital element of obligations under finance lease payments d (37) - (37)
Interest elements of obligations under finance lease payments a (8) - (8)
Dividends paid on ordinary shares (230) - (230)
Dividends paid on perpetual securities a (23) - (23)
Net cash used in financing activities (466) - (466)
Intra-group funding
Bank capital injections (130) 130 -
HRG acquisition and AFS loan book refinancing c 585 (585) -
Net cash generated from/(used in) intra-group funding 455 (455) -
Net increase/(decrease) in cash and cash equivalents 50 (113) (63)
1 Includes £(18) million relating to the Property Investment segment.
2 The total Group balance excludes £26 million acquisition adjustment unwind income included in depreciation and
amortisation in this note.
3 Included within dividends and distributions received of £65 million is £55 million of dividends received from
property investment joint ventures.
5 Analysis of net debt
The Group's definition of net debt includes the capital injections to Sainsbury's Bank, but excludes the net debt of
Sainsbury's Bank and its subsidiaries. Sainsbury's Bank's net debt balances are excluded because they are required for
business as usual activities.
A reconciliation of opening to closing net debt is included below. Balances and movements for the total Group and Financial
Services are shown in addition to Retail to enable reconciliation between the Group balance sheet and Group cash flow
statement.
Cash changes Non-cash changes
12 March Cash flows excluding interest Net interest (received) / paid Acquisition movements Other non-cash movements Changes in fair value 23 September
2017 2017
£m £m £m £m £m £m £m
Retail
Available-for-sale assets1 39 - - - - 1 40
Derivative financial instruments 65 - (1) - 2 (148) (82)
Cash and cash equivalents 630 164 - - - - 794
Bank overdrafts (6) 3 - - - - (3)
Borrowings2 (2,067) 67 38 - (47) 3 (2,006)
Finance leases (138) 14 4 - (10) - (130)
Retail net debt (1,477) 248 41 - (55) (144) (1,387)
Financial Services
Available-for-sale assets1 333 58 - - - - 391
Derivative financial instruments (21) - - - - 5 (16)
Cash and cash equivalents 453 88 - - - - 541
Financial Services net debt 765 146 - - - 5 916
Group
Available-for-sale assets1 372 58 - - - 1 431
Derivative financial instruments 44 - (1) - 2 (143) (98)
Cash and cash equivalents 1,083 252 - - - - 1,335
Bank overdrafts (6) 3 - - - - (3)
Borrowings2 (2,067) 67 38 - (47) 3 (2,006)
Finance leases (138) 14 4 - (10) - (130)
Group net debt (712) 394 41 - (55) (139) (471)
Cash changes Non-cash changes
13 March 2016 Cash flows excluding interest Net interest paid Acquisition movements Other non-cash movements Changes in fair value 24 September 2016
£m £m £m £m £m £m £m
Retail
Available-for-sale assets1 35 - - - - 3 38
Derivative financial instruments (25) - - 39 - 73 87
Cash and cash equivalents 577 297 - - - - 874
Bank overdrafts (3) - - - - - (3)
Borrowings2 (2,235) 64 40 - (46) (2) (2,179)
Finance leases (175) 17 4 - (4) - (158)
Retail net debt (1,826) 378 44 39 (50) 74 (1,341)
Financial Services
Available-for-sale assets1 204 111 - - - 1 316
Derivative financial instruments (19) - - - - (3) (22)
Cash and cash equivalents 566 (255) - - - - 311
Financial Services net debt 751 (144) - - - (2) 605
Group
Available-for-sale assets1 239 111 - - - 4 354
Derivative financial instruments (44) - - 39 - 70 65
Cash and cash equivalents 1,143 42 - - - - 1,185
Bank overdrafts (3) - - - - - (3)
Borrowings2 (2,235) 64 40 - (46) (2) (2,179)
Finance leases (175) 17 4 - (4) - (158)
Group net debt (1,075) 234 44 39 (50) 72 (736)
1 Available-for-sale assets exclude other financial assets (see note 12b) which predominantly relate to the Group's
beneficial interest in a commercial property investment pool.
2 Borrowings exclude bank overdrafts and finance leases as they are disclosed separately.
Cash changes Non-cash changes
13 March Cash flows excluding interest Net interest (received) / paid Acquisition movements Other non-cash movements Changes in fair value 11 March 2017
2016
£m £m £m £m £m £m £m
Retail
Available-for-sale assets1 35 - (1) - - 5 39
Derivative financial instruments (25) - - 39 - 51 65
Cash and cash equivalents 577 53 - - - - 630
Bank overdrafts (3) (3) - - - - (6)
Borrowings2 (2,235) 174 78 - (84) - (2,067)
Finance leases (175) 37 8 - (8) - (138)
Retail net debt (1,826) 261 85 39 (92) 56 (1,477)
Financial Services
Available-for-sale assets1 204 126 - - 1 2 333
Derivative financial instruments (19) - - - - (2) (21)
Cash and cash equivalents 566 (113) - - - - 453
Financial Services net debt 751 13 - - 1 - 765
Group
Available-for-sale assets1 239 126 (1) - 1 7 372
Derivative financial instruments (44) - - 39 - 49 44
Cash and cash equivalents 1,143 (60) - - - - 1,083
Bank overdrafts (3) (3) - - - - (6)
Borrowings2 (2,235) 174 78 - (84) - (2,067)
Finance leases (175) 37 8 - (8) - (138)
Group net debt (1,075) 274 85 39 (91) 56 (712)
1 Available-for-sale assets exclude other financial assets (see note 12b) which predominantly relate to the Group's
beneficial interest in a commercial property investment pool.
2 Borrowings exclude bank overdrafts and finance leases as they are disclosed separately.
Borrowings
The Group maintains a contingent committed revolving credit facility of £1,150 million ('RCF'). The £1,150 million facility
is split into two tranches: £500 million Facility (A) maturing in May 2019, and a £650 million facility (B) maturing in May
2020.
As at 23 September 2017, £nil had been drawn under the RCF (26 September 2016: £nil; 11 March 2017: £nil).
On 17 October 2017 the Group refinanced its syndicated committed revolving credit facility. The revised facility of £1.45
billion has three, four and five year tranches with an initial final maturity for the longer dated tranche of April 2023.
Sainsbury's Bank
As at 23 September 2017, Sainsbury's Bank had pledged the rights to a pool of Bank issued customer loans in exchange for
£250 million (24 September 2016: £nil; 11 March 2017: £nil) of drawings under the Bank of England Term Funding Scheme.
As at 23 September 2017, Sainsbury's Bank had £nil (24 September 2016: £15 million; 11 March 2017: £165 million) of drawing
under Bank of England Indexed Long-Term Repo facility ('ILTR').
As at 23 September 2017, Sainsbury's Bank had pledged the rights to a pool of Bank issued customer loans in exchange for
£260 million (24 September 2016: £260 million; 11 March 2017: £260 million) of Treasury Bills (under the Bank of England
Funding for Lending Scheme). These Treasury Bills can then be converted to cash as a source of future funding to the Bank.
Sainsbury's Bank has assigned the beneficial interest in a portion of its personal loans book to a Special Purpose Entity
for use as collateral in securitisation transactions.
6 Supplier arrangements
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