REG - Sainsbury(J) PLC - Interim results <Origin Href="QuoteRef">SBRY.L</Origin> - Part 5
09/11/2016 07:06
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1 Home Retail Group plc acquired on 2 September 2016 (refer to note 3)
The retirement benefit obligations and the associated deferred income tax balance are shown within different line items on
the face of the balance sheet.
The principal actuarial assumptions used at the balance sheet date are as follows:
24 September 26 September 12 March
2016 2015 2016
% % %
Discount rate 2.20 3.80 3.65
Inflation rate - RPI 2.95 3.20 3.15
Inflation rate - CPI 1.95 2.20 2.15
Future pension increases 1.80 - 2.85 2.00 - 3.05 1.90 - 3.00
The amounts recognised in the income statement in respect of the IAS 19 charges for the defined benefit schemes are as
follows:
24 September 26 September 12 March
2016 2015 2016
£m £m £m
Excluded from underlying profit before tax:
Interest cost on pension scheme liabilities (150) (142) (266)
Interest income on plan assets 142 130 244
IAS 19 pension financing charge (note 6) (8) (12) (22)
Defined benefit pension scheme expenses (2) (3) (6)
Total IAS 19 income statement expense (excluded from underlying profit before tax (note 4)) (10) (15) (28)
The movement in the Group's defined benefit obligations are as follows:
£m
Pension deficit at 12 March 2016 (408)
Acquisition of Home Retail Group plc (note 3) (454)
Remeasurement losses (869)
Net interest cost (8)
Pension scheme expenses (2)
Contributions by employer 213
Pension deficit at 24 September 2016 (1,528)
Cash contributions
Cash contributions in the period include a £125 million special contribution to the Sainsbury's defined benefit scheme, a
£24 million special contribution to the Home Retail Group defined benefit scheme in relation to the capital return (see
note 3) and a £50 million special contribution paid to the Home Retail Group defined benefit scheme as a result of the
acquisition.
Following agreement of the triennial valuations, the Group's committed contributions into the Sainsbury's defined benefit
scheme (including distributions from the Sainsbury's Property Scottish Partnership) have increased by £6 million to £84
million per year until March 2021. The committed contributions into the Home Retail Group defined benefit scheme have been
agreed at £40 million per annum until October 2021.
14 Capital expenditure and commitments1
In the financial period, there were additions to property, plant and equipment of £376 million (26 September 2015: £345
million) and additions to intangible assets of £41 million (26 September 2015: £37 million).
In the financial period, there were disposals of property, plant and equipment with a net book value of £20 million (26
September 2015: £25 million), disposals of assets held for sale with a net book value of £25 million (26 September 2015: £1
million) and disposals of intangible assets with a net book value of £nil (26 September 2015: £nil).
At 24 September 2016, capital commitments contracted, but not provided for by the Group, amounted to £181 million (26
September 2015: £195 million).
1 Property, plant and equipment and intangible assets acquired as part of the acquisition of Home Retail Group plc are
excluded.
15 Related party transactions
The Group's related parties are its joint ventures as disclosed in its Annual Report and Financial Statements 2016.
Transactions with joint ventures and associates
For the 28 weeks to 24 September 2016, the Group entered into various transactions with joint ventures and associates as
set out below:
28 weeks to 28 weeks to 52 weeks to
24 September 26 September 12 March
2016 2015 2016
£m £m £m
Management services received - - (1)
Management services provided 3 1 4
Revenue received from joint ventures 16 16 33
Dividend income received 22 7 46
Investment in joint ventures and associates (16) (6) (18)
Rental expenses paid (28) (32) (65)
Balances arising from transactions with joint ventures and associates
24 September 26 September 12 March
2016 2015 2016
£m £m £m
Receivables
Other receivables 20 29 28
Loans due from joint ventures 3 2 3
Payables
Other payables - - (1)
Loans due to joint ventures (5) (5) (5)
16 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 is not considered probable. It is not possible to quantify the impact
of this liability with any certainty.
Along with other retailers, the Group is subject to claims in respect of pay rates across supermarket and distribution
centre workers. There is also a potential obligation in respect of holiday pay on voluntary overtime. The Group is keeping
these matters under close review but considers the likelihood of payout to be remote.
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. The Board has identified the following principal potential risks to
the successful operation of the business. These risks, along with the events in the financial markets and their potential
impacts on the wider economy, remain those most likely to 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
• Environment and sustainability
• Financial and treasury risk
• Health and safety - people and product
• Trading environment and competitive landscape
The Principal Risks and Uncertainties have been reviewed with consideration given to the acquisition of the Home Retail
Group plc in September 2016. The above Principal Risks remain unchanged from those reported in the Group's Annual Report
and Financial Statements 2016. For detail of these risks, please refer to pages 36 to 38 of the J Sainsbury plc Annual
Report and Financial Statements 2016, a copy of which is available on the Group's corporate website www.j-sainsbury.co.uk.
Due to the acquisition of Home Retail Group plc, there is an additional risk that relates to the integration activities
required. The combined Group's success will be dependent upon its ability to integrate the two businesses. There will be
challenges associated with the integration and there is a risk that the synergies expected from the acquisition may not be
fully achieved. Through the integration programme, the required activities to mitigate this risk are being taken.
The risk associated with the political and regulatory environment was reviewed following the result of the EU referendum
and decision for the UK to leave the EU. The level of risk remains the same due to the ongoing political and economic
uncertainty.
Statement of Directors' responsibilities
The Directors confirm that this set of Condensed Consolidated Interim Financial Statements has been prepared in accordance
with IAS 34 'Interim Financial Reporting' 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 2016.
By order of the Board
Mike Coupe
Chief Executive
8 November 2016
Ed Barker
Interim Chief Financial Officer
8 November 2016
Independent review report to J Sainsbury plc
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for
the 28 weeks ended 24 September 2016 which comprises the Group income statement, Group statement of comprehensive income,
the Group balance sheet, the Group cash flow statement, and the Group statement of changes in equity and the related
explanatory notes. We have read the other information contained in the interim financial report and considered whether it
contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial
statements.
This report is made solely to the Company in accordance with guidance contained in International Standard on Review
Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The interim financial report is the responsibility of, and has been approved by, the Directors. The Directors are
responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by
the European Union. The condensed set of financial statements included in this interim financial report has been prepared
in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim
financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board
for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland)
and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial
statements in the interim financial report for the 28 weeks ended 24 September 2016 is 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.
Ernst & Young LLP
London
8 November 2016
Alternative performance measures
In response to the Guidelines on Alternative Performance Measures ("APMs") issued by the European Securities and Markets
Authority ("ESMA"), we have provided additional information on the APMs used by Sainsbury's. The Directors use the below
APMs as they are critical to understanding the financial performance and financial health of the Group. As they are not
defined by International Financial Reporting Standards, they may not be directly comparable with other companies who use
similar measures. All APMs relate the current period's results and comparative periods where provided.
APM Definition Reconciliation
Underlying Group sales Total sales less acquisition adjustment fair value unwind on Sainsbury's Bank. A reconciliation of this measure can be found in note 5 of the accounts.
Like for like sales Year-on-year growth in sales including VAT, excluding fuel, excluding Sainsbury's Bank, for stores that have been open for more than one year. A reconciliation of like-for-like sales is provided on page 14 of the Financial Review.
Underlying profit before tax Profit before tax from continuing operations before any profit or loss on the disposal of properties, investment property fair value movements, non-underlying finance movements, the financing element of IAS 19 and defined benefit pension scheme expenses, acquisition adjustments and one-off items that are material and infrequent in nature, but after the A reconciliation of underlying profit before tax is provided in note 4 to the accounts.
coupons on perpetual securities.
Retail underlying operating profit Underlying earnings before interest, tax, Sainsbury's Bank operating profit and Sainsbury's underlying share of post-tax profit from JVs. A reconciliation of these measures can be found in note 5 of the accounts.
Underlying basic earnings per share Earnings per share using underlying profit as described above. A reconciliation of underlying earnings per share is included in note 8 to the accounts.
Operating cash flow Cash generated from operations after changes in working capital. A reconciliation is provided in note 10 to the accounts.
Net debt Net debt excludes the net debt of Financial Services and is calculated as: current available for sale assets + current net derivatives + net cash and cash equivalents + loans + non-current finance lease obligations + non-current net derivatives. A reconciliation of net debt is provided in note 11 of the accounts. Net assets as per the Group balance sheet.
Gearing Net debt divided by net assets.
EBITDAR and underlying EBITDAR Earnings before interest, tax, depreciation, amortisation and rent. Underlying EBITDAR uses underlying earnings. A reconciliation is provided on page 14 of the Financial Review.
Core retail capital expenditure Capital expenditure excludes Sainsbury's Bank, Argos exceptional capital expenditure, proceeds from sale and leasebacks and capital relating to the acquisition of freehold and trading properties A calculation of this is provided in the financial review on page 24.
Lease adjusted net debt / underlying EBITDAR Net debt plus capitalised lease obligations (5.5% discount rate) divided by Group underlying EBITDAR A reconciliation of this is provided in the financial review on page 26.
Retail operating cash flow Retail cash generated from operations after changes in working capital A reconciliation of retail operating cash flow is provided on page 23 of the Financial Review.
Return on capital employed Return on Capital Employed is calculated as Return divided by average Capital Employed.Return is defined as Underlying Profit before interest and tax.Capital Employed is defined as Net assets excluding Net debt. The average is calculated on a 14 point basis. A calculation of this is provided on page 25 of the Financial Review.
This information is provided by RNS
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