REG - Sainsbury(J) PLC - Interim Results <Origin Href="QuoteRef">SBRY.L</Origin> - Part 4
12/11/2014 08:01
- Part 4: For the preceding part double click ID:nRSL7745Wc
660 416
Current liabilities
Bank overdrafts (16) (6) (13)
Borrowings (328) (447) (494)
Finance leases (30) (28) (27)
Derivative financial instruments (54) (65) (65)
(428) (546) (599)
Non-current liabilities
Borrowings (2,440) (2,185) (2,089)
Finance leases (175) (169) (161)
Derivative financial instruments3 (21) (15) (15)
(2,636) (2,369) (2,265)
Total net debt (2,382) (2,187) (2,384)
1 Net debt includes the cost of acquiring Sainsbury's Bank, but excludes Sainsbury's Bank's own net debt balances.
2 Cash and cash equivalents exclude £840 million Sainsbury's Bank balances (15 March 2014: £1,225 million).
3 Derivative financial instruments exclude £1 million Sainsbury's Bank non-current asset balances (15 March 2014: £1
million) and £(6) million non-current liabilities (15 March 2014: £(6) million).
10 Analysis of net debt (continued)
Reconciliation of net cash flow to movement in net debt
28 weeks to 28 weeks to 52 weeks to
27 September 28 September 15 March
2014 2013 2014
£m £m £m
Net debt at beginning of the period (2,384) (2,162) (2,162)
Net (decrease)/increase in net cash and cash equivalents (178) 93 1,075
Elimination of net decrease/(increase) in Sainsbury's Bank cash and cash equivalents 385 - (1,225)
Net (increase)/decrease in borrowings1 (197) (41) 1
Net decrease in derivatives1 - 1 -
Net increase in obligations under finance leases2 (16) (37) (28)
Fair value movements 9 (41) (45)
Other non-cash movements (1) - -
Net debt at the end of the period (2,382) (2,187) (2,384)
1 Excluding fair value and Sainsbury's Bank derivative movements.
2 Excluding additions of property, plant and equipment under finance leases.
The Group maintains a syndicated committed revolving credit facility for £1,150 million. The £1,150 million facility is
split into two tranches, a £500 million Facility (A) maturing in March 2017 and a £650 million Facility (B) maturing in
March 2019. As at 27 September 2014, £500 million had been drawn under Facility (A) (28 September 2013: £nil; 16 March
2014: £200 million).
In April 2014, the Group prepaid a £25 million loan due July 2014 without penalty.
In May 2014, the Group entered into a £30 million five year hire purchase facility with respect to moveable in-store assets
due 2019. The Group also prepaid a £40 million loan due May 2015 at fair value.
In July 2014, the £190 million convertible bond matured and was repaid.
In August 2014, the Group entered into a £200 million five year bilateral loan due August 2019 at floating rates of
interest, £100 million of which was swapped into fixed rate liabilities. The £100 million portion of the loan and
associated interest rate swap have been designated as a cash flow hedge. The £200 million loan was fully drawn as at 27
September 2014.
Sainsbury's Bank
As at 27 September 2014, Sainsbury's Bank had pledged the rights to a pool of Bank issued customer loans in exchange for
£190 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.
As at 27 September 2014, UK wholesale counterparties had deposited £17 million with Sainsbury's Bank, disclosed within
other deposits in current liabilities and excluded from the Group's net debt.
11 Financial instruments
Carrying amount versus fair values
Set out below is a comparison of the carrying amount and the fair value of financial instruments that are carried in the
financial statements at a value other than fair value. The fair value of financial assets and liabilities are based on
prices available from the market on which the instruments are traded. Where market values are not available, the fair
values of financial assets and liabilities have been calculated by discounting expected future cash flows at prevailing
interest rates. The fair values of short-term deposits, trade receivables, overdrafts and payables are assumed to
approximate to their book values.
At 27 September 2014 Carrying amount Fair value
£m £m
Financial assets
Other receivables 339 339
Amounts due from Sainsbury's Bank customers3 2,795 2,826
Financial liabilities
Loans due 20181 (915) (995)
Loans due 2031 (846) (1,021)
Bank overdrafts (16) (16)
Revolving credit facility due 2017 (501) (501)
Bank loans due 2015 (183) (183)
Bank loans due 2016 (39) (39)
Bank loans due 2017 (61) (61)
Bank loans due 2019 (201) (201)
Other loans due 20152 (22) (22)
Finance lease obligations (205) (205)
Amounts due to Sainsbury's Bank customers (3,371) (3,375)
(3,375)
1 Includes £211 million accounted for as a fair value hedge.
2 Includes £22 million accounted for as a fair value hedge.
3 Includes £1,458 million accounted for as a fair value hedge.
At 28 September 2013 Carrying amount Fair value
£m £m
Financial assets
Other receivables 48 35
Financial liabilities
Loans due 20181 (998) (1,111)
Loans due 2031 (864) (1,082)
Bank overdrafts (6) (6)
Bank loans due 2014 (125) (125)
Bank loans due 2015 (266) (275)
Bank loans due 2016 (42) (42)
Bank loans due 2017 (107) (107)
Bank loans due 2018 (19) (19)
Convertible bond due 2014 (187) (206)
Other loans due 20152 (24) (24)
Finance lease obligations (197) (197)
(197)
1 Includes £211 million accounted for as a fair value hedge.
2 Includes £23 million accounted for as a fair value hedge.
11 Financial instruments (continued)
At 16 March 2014 Carrying amount Fair value
£m £m
Financial assets
Other receivables 273 273
Amounts due from Sainsbury's Bank customers3 2,575 2,582
Financial liabilities
Loans due 20181 (956) (1,053)
Loans due 2031 (855) (1,013)
Bank overdrafts (13) (13)
Revolving credit facility due 2017 (200) (200)
Bank loans due 2014 (69) (75)
Bank loans due 2015 (188) (188)
Bank loans due 2016 (42) (42)
Bank loans due 2017 (60) (60)
Convertible bond due 2014 (189) (193)
Other loans due 20152 (24) (24)
Finance lease obligations (188) (188)
Amounts due to Sainsbury's Bank customers (3,547) (3,543)
(3,543)
1 Includes £211 million accounted for as a fair value hedge.
2 Includes £23 million accounted for as a fair value hedge.
3 Includes £1,232 million accounted for as a fair value hedge.
Fair value measurements recognised in the balance sheet
The following table provides an analysis of financial instruments that are recognised at fair value, grouped into Levels 1
to 3 based on the degree to which the fair value is observable:
· Level 1 fair value measurements are derived from quoted market prices (unadjusted) in active markets for identical
assets or liabilities at the balance sheet date. This level includes listed equity securities and debt instrument on public
exchanges;
· Level 2 fair value measurements are derived from inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). The fair
value of financial instruments is determined by discounting expected cash flows at prevailing interest rates; and
· Level 3 fair value measurements are derived from valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable inputs).
At 27 September 2014 Level 1 Level 2 Level 3 Total
£m £m £m £m
Available-for-sale financial assets1
Investment securities - 32 - 32
Interest bearing financial assets - 37 - 37
Other financial assets - - 196 196
Financial assets at FVTPL
Derivative financial assets - 68 1 69
Financial liabilities at FVTPL
Derivative financial liabilities - (79) (2) (81)
1 Available-for-sale financial assets also includes £2 million in relation to unlisted equity investments which are
carried at cost as the fair value cannot be reliably measured and has been excluded from the fair value hierarchy table
above.
11 Financial instruments (continued)
At 28 September 2013 Level 1 Level 2 Level 3 Total
£m £m £m £m
Available-for-sale financial assets1
Interest bearing financial assets - 35 - 35
Other financial assets - - 175 175
Financial assets at FVTPL
Derivative financial assets - 84 6 90
Financial liabilities at FVTPL
Derivative financial liabilities - (80) - (80)
1 Available-for-sale financial assets also includes £1 million in relation to unlisted equity investments which are
carried at cost as the fair value cannot be reliably measured and has been excluded from the fair value hierarchy table
above.
At 16 March 2014 Level 1 Level 2 Level 3 Total
£m £m £m £m
Available-for-sale financial assets
Investment securities - 32 - 32
Interest bearing financial assets - 37 - 37
Other financial assets - - 184 184
Financial assets at FVTPL
Derivative financial assets - 74 3 77
Financial liabilities at FVTPL
Derivative financial liabilities - (86) - (86)
1 Available-for-sale financial assets also includes £2 million in relation to unlisted equity investments which are
carried at cost as the fair value cannot be reliably measured and has been excluded from the fair value hierarchy table
above.
Reconciliation of Level 3 fair value measurements of financial assets:
Details of the determination of Level 3 fair value measurements are set out below:
28 weeks to 27 September 2014 Available-for-sale financial assets Derivative financial assets / (liabilities) Total
£m £m £m
Opening balance 184 3 187
Included in finance cost in the Group income statement - (4) (4)
Included in other comprehensive income 12 - 12
Total Level 3 financial assets 196 (1) 195
28 weeks to 28 September 2013 Available-for-sale financial assets Derivative financial assets Total
£m £m £m
Opening balance 154 4 158
Included in finance cost in the Group income statement - 2 2
Included in other comprehensive income 21 - 21
Total Level 3 financial assets 175 6 181
11 Financial instruments (continued)
52 weeks to 16 March 2014 Available-for-sale financial assets Derivative financial assets Total
£m £m £m
Opening balance 154 4 158
Included in finance cost in the Group income statement - (1) (1)
Included in other comprehensive income 30 - 30
Total Level 3 financial assets 184 3 187
Available-for-sale other financial assets
The available-for-sale financial assets relate to the Group's beneficial interest in a property investment pool. The net
present value of the Group's interest in the various freehold reversions owned by the property investment pool has been
derived by assuming a property growth rate of three per cent per annum (2013/14: three per cent) and a discount rate of
nine per cent (2013/14: nine per cent). The sensitivity of this balance to changes of 0.5 per cent in the assumed rate of
property rental growth and one per cent in the discount rate holding other assumptions constant is shown below:
27 September 2014 28 September 2013
Change in discount rate +/- 1.0% Change in growth rate +/- 0.5% Change in discount rate +/- 1.0% Change in growth rate +/- 0.5%
£m £m £m £m
Available-for-sale assets (15)/17 11/(10) (16)/16 10/(11)
15 March 2014
Change in discount rate +/- 1.0% Change in growth rate +/- 0.5%
£m £m
Available-for-sale assets (17)/15 10/(11)
Derivative financial assets - power purchase agreement
The Group has entered into several long-term fixed price Power Purchase agreements with independent producers. Included
within derivative financial instruments is a net liability of £(1) million relating to these agreements at 27 September
2014 (within derivative financial assets at 28 September 2013: £6 million; at 15 March 2014: £3 million). The Group values
its Power Purchase agreements as the net present value of the estimated future usage at the contracted fixed price less the
market implied forward energy price discounted back at the prevailing swap rate. The Group also makes an assumption
regarding expected energy output based on the historical performance and the producer's estimate of expected electricity
output. The sensitivity of this balance to changes of 20 per cent in the assumed rate of energy output and ten per cent in
the implied forward energy prices holding other assumptions constant is shown below:
27 September 2014 28 September 2013
Change in volume +/- 20.0% Change in electricity forward price +/- 10.0% Change in volume +/- 20.0% Change in electricity forward price +/- 10.0%
£m £m £m £m
Derivative financial assets -/(-) 9/(9) 1/(1) 11/(11)
11 Financial instruments (continued)
16 March 2014
Change in volume +/- 20.0% Change in electricity forward price +/- 10.0%
£m £m
Derivative financial assets 1/(1) 10/(10)
12 Retirement benefit obligations
Retirement benefit obligations relate to a defined benefit scheme, the Sainsbury's Pension Scheme (the 'Scheme'), and an
unfunded pension liability relating to certain employees. The Scheme was closed to new employees on 31 January 2002 and
closed to future accrual on 28 September 2013. A one-off past service credit was recognised in the comparative period as a
result as disclosed within Note 3. The assets of this Scheme are held separately from the Group's assets.
The unfunded pension liability is 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.
The Consumer Price Index ('CPI') rather than the Retail Price Index ('RPI') has been used as the basis for inflationary
increases to pensions in cases where this is permitted by the Scheme rules.
The amounts recognised in the balance sheet, based on valuations performed by KPMG, are as follows:
27 September 28 September 15 March
2014 2013 2014
£m £m £m
Present value of funded obligations (7,174) (6,580) (6,855)
Fair value of plan assets 6,500 5,884 6,131
(674) (696) (724)
Present value of unfunded obligations (13) (13) (13)
Retirement benefit obligations (687) (709) (737)
Deferred income tax asset 53 51 58
Net retirement benefit obligations (634) (658) (679)
27 September 28 September 15 March
2014 2013 2014
% % %
Discount rate 3.95 4.40 4.25
Inflation rate - RPI 3.20 3.35 3.40
Real discount rate 0.75 1.05 0.85
The retirement benefit obligations and the associated deferred income tax asset are shown within different line items on
the balance sheet. The deferred income tax asset includes the impact of the Sainsbury's Property Scottish Limited
Partnership.
The amounts recognised in the income statement in respect of the IAS 19 Revised charges for the defined benefit scheme are
as follows:
12 Retirement benefit obligations (continued)
27 September 28 September 15 March
2014 2013 2014
£m £m £m
Included in underlying profit before tax:
IAS 19 Revised defined benefit service cost - (34) (34)
Excluded from underlying profit before tax:
Interest cost on pension scheme liabilities (155) (157) (290)
Interest income on plan assets 139 143 267
IAS 19 Revised pension financing charge (Note 5) (16) (14) (23)
Defined benefit pension scheme expenses (2) (5) (7)
Past service credit1 - 158 158
Total excluded from underlying profit before tax (Note 3) (18) 139 128
Total IAS 19 Revised income statement (expense)/credit (18) 105 94
1 One-off items presented within note 3 also include compensation payments to defined contribution schemes of £12
million (28 September 2013: £nil; 16 March 2014: £10 million).
13 Capital expenditure and commitments
In the financial period, there were additions to property, plant and equipment of £561 million (28 September 2013: £467
million) and additions to intangible assets of £45 million (28 September 2013: £12 million).
In the financial period, there were disposals of property, plant and equipment with a net book value of £5 million (28
September 2013: £111 million), disposals of assets held for sale with a net book value of £5 million (28 September 2013:
£13 million) and disposals of intangible assets with a net book value of £nil (28 September 2013: £1 million).
At 27 September 2014, capital commitments contracted, but not provided for by the Group, amounted to £266 million (28
September 2013: £334 million).
14 Related party transactions
The Group's significant related parties are its joint ventures as disclosed in its Annual Report and Financial Statements
2014.
Transactions with joint ventures and associates
For the 28 weeks to 27 September 2014, the Group entered into various transactions with joint ventures and associates as
set out below.
28 weeks to 28 weeks to 52 weeks to
27 September 28 September 15 March
2014 2013 2014
£m £m £m
Management services provided - 10 16
Remeasurement of previously held equity interest in Sainsbury's Bank - - 15
Revenue share received from joint ventures 3 - 4
Interest income received in respect of interest bearing loans - - 1
Dividend income received 14 - 1
Repayment of loan to joint ventures 4 - 4
Investment in joint ventures and associates - (4) (13)
Loan to joint venture - (2) (7)
Rental expenses paid (36) (39) (72)
Purchase of assets - - (24)
14 Related party transactions (continued)
Balances arising from transactions with joint ventures and associates
27 September 28 September 15 March
2014 2013 2014
£m £m £m
Receivables
Other receivables 27 20 21
Loans due from joint ventures:
Floating rate subordinated undated loan capital1 - 25 -
Floating rate subordinated dated loan capital1 - 30 -
Other 15 15 18
Payables
Loans due to joint ventures (5) (5) (5)
1 Balances due from Sainsbury's Bank which following full ownership from 31 January 2014 now eliminate on consolidation.
15 Contingent liabilities
The Group has a contingent liability for indemnities arising from the disposal of subsidiaries. No provision has been
recognised on the basis that any potential liability arising is not considered probable. It is not possible to quantify the
impact of this liability with any certainty.
Principal risks and uncertainties
Risk is an inherent part of doing business. The J Sainsbury plc Board has overall responsibility for the management of the
principal risks and internal control of the Company. As part of the strategic review process, the principal risks were
reviewed and updated in line with the Company's strategic objectives. The Board has identified the following principal
potential risks to the successful operation of the business. These risks, along with events in the financial markets and
their potential impacts on the wider economy, are those which will affect the Group in the second half of the year.
· Business continuity and major incidents response
· Business strategy and change
· Colleague engagement, retention and capability
· Data security
· Financial and treasury risk
· Health and safety - people and product
· Trading environment and competitive landscape
With the strategic review completed, the timing was deemed appropriate to re-align the principal risks to our principle
that business as usual risks (i.e. core operations) which are not material at the corporate level are primarily managed at
the Divisional level. This enables strategic, external and emerging risks to be managed at the corporate level by the
Board. This has resulted in a more streamlined set of principal risks from the prior year.
Of the remaining principal risks, the following changes have been made since the prior year:
· Business strategy and change - in the prior year, this risk was reported as 'Business Strategy'. The term 'change'
has been added to provide focus on the risk associated with change initiatives forming part of the business strategy.
· Trading environment and competitive landscape - in the prior year, this risk was described as 'Trading Environment'
and referenced the competitive landscape in the detailed risk description. 'Competitive landscape' has now been included in
the risk title reflecting the significance of the changes to the competitive landscape over the last year.
For more detail and description of the principal risks, please refer to pages 24 to 27 of the Group's Annual Report and
Financial Statements 2014, a copy of which is available on the Group's corporate website www.j-sainsbury.co.uk. Further
detail will also be provided in the Group's Annual Report and Financial Statements 2014/2015.
Statement of Directors' responsibilities
The Directors confirm that this set of Condensed Consolidated Interim Financial Statements has been prepared in accordance
with IAS 34 as adopted by the European Union, and that the Interim Management Report herein includes a fair review of the
information required by DTR 4.2.7R and DTR 4.2.8R.
The Directors of J Sainsbury plc are listed in the J Sainsbury plc Annual Report and Financial Statements 2014. On 9 July
2014 Mike Coupe was appointed as Chief Executive.
By order of the Board
Mike Coupe
Chief Executive
11 November 2014
John Rogers
Chief Financial Officer
11 November 2014
Independent review report to J Sainsbury plc
Report on the Condensed Consolidated Interim Financial Statements
Our conclusion
We have reviewed the Condensed Consolidated Interim Financial Statements, defined below, in the Interim Results of J
Sainsbury plc for the 28 weeks ended 27 September 2014. Based on our review, nothing has come to our attention that causes
us to believe that the Condensed Consolidated Interim Financial Statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
This conclusion is to be read in the context of what we say in the remainder of this report.
What we have reviewed
The Condensed Consolidated Interim Financial Statements, which are prepared by J Sainsbury plc, comprise:
· the Group balance sheet as at 27 September 2014;
· the Group income statement for the period then ended;
· the Group statement of comprehensive income for the period then ended;
· the Group cash flow statement for the period then ended;
· the Group statement of changes in equity for the period then ended; and
· the explanatory notes to the Condensed Consolidated Interim Financial Statements.
As disclosed in note 2, the financial reporting framework that has been applied in the preparation of the full annual
financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by
the European Union.
The Condensed Consolidated Interim Financial Statements included in the Interim Results have been prepared in accordance
with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the
Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
What a review of Condensed Consolidated Interim Financial Statements involves
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