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90 Statement of Directors’ responsibilities
91 Independent auditor’s report to the members of J Sainsbury plc
Consolidated Financial Statements 96 Consolidated income statement 97 Consolidated statement of comprehensive income 98 Consolidated balance sheet 99 Consolidated cash flow statement 100 Consolidated statement of changes in equity
Notes to the Consolidated Financial Statements 101 Note 1 Basis of preparation 104 Note 2 Significant accounting judgements, estimates and assumptions
Income Statement Notes 106 Note 3 Non-GAAP performance measures 108 Note 4 Segment reporting 112 Note 5 Supplier arrangements 113 Note 6 Operating profit 114 Note 7 Finance income and finance costs 114 Note 8 Taxation 117 Note 9 Earnings per share 118 Note 10 Dividends
Financial Position Notes 118 Note 11 Property, plant and equipment 120 Note 12 Intangible assets 122 Note 13 Investments in joint ventures and associates 123 Note 14 Financial assets at fair value through other comprehensive income (previously available-for-sale financial assets) 124 Note 15 Inventories 124 Note 16 Receivables 125 Note 17 Assets and liabilities held for sale 125 Note 18 Payables 126 Note 19 Provisions 127 Note 20 Called up share capital, share premium and merger reserve 128 Note 21 Capital redemption and other reserves 128 Note 22 Perpetual securities 129 Note 23 Retained earnings 130 Note 24 Financial risk management 141 Note 25 Financial instruments
Cash Flow Notes 150 Note 26 Cash and cash equivalents 150 Note 27 Analysis of net debt 151 Note 28 Borrowings
Employee Remuneration Notes 153 Note 29 Employee costs 154 Note 30 Retirement benefit obligations 160 Note 31 Share-based payments
Financial Statements
Additional Disclosures 163 Note 32 Acquisition of subsidiaries 164 Note 33 Operating lease commitments 165 Note 34 Capital commitments 165 Note 35 Financial commitments 165 Note 36 Contingent liabilities 166 Note 37 Related party transactions 166 Note 38 Post balance sheet events 167 Note 39 Details of related undertakings 172 Five year financial record
Company Financial Statements 173 Company balance sheet 174 Company statement of changes in equity
Notes to the Company Financial Statements 175 Note 1 Basis of preparation 176 Note 2 Property, plant and equipment 177 Note 3 Investments in subsidiaries 177 Note 4 Investments in joint ventures and associates 177 Note 5 Financial assets at fair value through other comprehensive income (previously available-for-sale financial assets) 177 Note 6 Other receivables 178 Note 7 Trade and other payables 178 Note 8 Borrowings 178 Note 9 Provisions 179 Note 10 Taxation 179 Note 11 Share capital and reserves 180 Note 12 Retained earnings 180 Note 13 Contingent liabilities
181 Additional shareholder information
185 Alternative performance measures (APMs)
188 Glossary
Governance Report
Strategic Report
Financial Statements
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the Group and the Company as at the end of the financial year, and of the profit or loss of the Group for the financial year. Under that law, the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and have elected to prepare the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 101 ‘Reduced Disclosure Framework’ (UK Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to:
— select suitable accounting policies and then apply them consistently;
— make judgements and accounting estimates that are reasonable and prudent;
— state whether IFRSs as adopted by the European Union and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and Company financial statements respectively; and
— prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Having taken all the matters considered by the Board and brought to the attention of the Board during the year into account, we are satisfied that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable.
The Board believes that the disclosures set out in this Annual Report provide the information necessary for shareholders to assess the Group’s performance, business model and strategy.
The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed on pages 44 to 45, confirms that, to the best of their knowledge: — the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and — the Strategic Report and Directors’ Report contained in the Annual Report and Financial Statements include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
By order of the Board
Tim Fallowfield Company Secretary and Corporate Services Director 30 April 2019
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
Changes from the prior year In the prior year, we included the Nectar acquisition as a key audit matter. In the current year, this risk is no longer assessed as a key audit matter on the basis that there were no significant adjustments in the finalisation of the purchase price allocation of the Nectar entities.
Due to the complexities involved in assessing the impact of transition to the new leasing standard (IFRS 16), we have included this as a key audit matter in the current year.
Risk
Supplier arrangements Refer to the Audit Committee Report (page 60); Accounting policies (page 105); and note 5 of the Consolidated Financial Statements (page 112)
The Group receives material discounts from suppliers, referred to as supplier arrangements. The accounting for some of these supplier arrangements is complex since management applies judgement, processing is either manual or more complex and the quantum of agreements is high. We focused our audit procedures on these complex supplier arrangements.
Complex supplier arrangements recognised in the income statement for the financial year are £457 million (2017/18: £450 million).
Our response to the risk — We walked through the controls in place within the supplier arrangements process. We were able to take a controls-reliance approach over certain aspects of the process, testing the key controls, although there are areas where we cannot, as the process for recording deals is manual.
— We selected a sample of suppliers to whom we sent confirmations across all “deal” types to confirm key deal input terms. Where we did not receive a response from the supplier, we performed alternative procedures, including obtaining evidence of initiation and if settled, settlement of the arrangement.
— We tested the existence and valuation of balance sheet amounts recognised in accounts receivable and as a contra-asset in accounts payable by reviewing post-period end settlement. We also performed a ‘look-back’ analysis of prior period balance sheet amounts to check that these amounts were appropriately recovered.
— We tested the settlement of a sample of supplier arrangements recognised in the income statement, which included settlement in cash or by off-set to accounts payable.
— Using data extracted from the accounting system, we tested the appropriateness of journal entries and other adjustments to supplier arrangements to corroborating evidence.
— We tested deals recorded post period end and obtained the supplier agreement to validate that the deal was correctly recorded post period end.
— We read management’s disclosure in respect of supplier arrangement amounts recorded in the income statement and balance sheet to confirm completeness and accuracy of amounts disclosed.
Key observations communicated to the Audit Committee Supplier arrangement amounts are appropriately recognised in the income statement and balance sheet and the disclosure in the financial statements is appropriate.
Risk
Aspects of revenue recognition Refer to the Audit Committee Report (page 60); Accounting policies (page 108); and Note 4 of the Consolidated Financial Statements (page 108)
Our assessment is that the vast majority of the Group’s revenue transactions are non-complex, with no judgement applied over the amount recorded. We focused our work on the manual adjustments that are made to revenue where the amount of the revenue recorded can be different than the amount of cash received.
Our procedures were designed to address the risk of manipulation of accounting records and the ability to override controls.
Our response to the risk — We obtained a detailed understanding of these manual adjustments. Due to the manual nature of these adjustments, we performed substantive audit procedures. — We used our computer-aided data analytics tools to identify those revenue journals for which the corresponding entry was not cash. These entries include Nectar points, coupons, vouchers and commission arrangements. — We obtained corroborating evidence for such corresponding entries. For the Nectar points adjustment we obtained evidence that revenue is deferred appropriately based on the number of points issued and redeemed and the breakage assumption. For third party coupons and vouchers we obtained evidence of collection and settlement. — Using data extracted from the accounting system, we tested the appropriateness of journal entries impacting revenue, as well as other adjustments made in the preparation of the financial statements. We considered unusual journals such as those posted outside of expected hours, or by unexpected individuals and for large or unusual amounts.
Key observations communicated to the Audit Committee Adjustments to revenue have been appropriately recognised.
Risk
Financial Services customer receivables impairment Refer to the Audit Committee Report (page 60); Accounting policies (page 102); and Note 1 of the Consolidated Financial Statements (page 102)
Financial Services customer receivables relate to Sainsbury’s Bank credit cards, loans and mortgages; and Argos store cards. Total amounts recognised at year-end are £7,234 million (2017/2018: £5,844 million). The provision for impairment is £281 million (2017/2018: £153 million).
The risk of collectability of Financial Services customer receivables, through either credit cards, loans, mortgages or Argos store cards, is significant. There is judgement in the assumptions applied to calculate the loan provisions against outstanding balances. Additionally, for the current year, management’s provisioning methodology changed from an “incurred loss” model to an “expected loss” model following the adoption of IFRS 9 (Financial Instruments).
Our response to the risk — The loan impairment methodology was reviewed, to confirm it was consistent with IFRS 9. — We verified the completeness and accuracy of the data utilised from underlying systems that were used in the impairment models. — We challenged the key assumptions used by management with reference to industry/peer benchmarks and our financial services risk management specialists. — We tested that the key assumptions had been accurately reflected in the impairment models. — We independently calculated a reasonable range of outcomes to assess the provision for high risk segments. — We challenged the macro-economic scenarios, including Brexit scenarios, with the support of our economic modelling experts.
Independent auditor’s report to the members of J Sainsbury plc continued
Key observations communicated to the Audit Committee The provision for impairment of Financial Services receivables due from customers is appropriately recognised.
Risk
Transition impact on adoption of IFRS 16 Refer to the Audit Committee Report (page 60); Accounting policies (page 104); and Note 1 of the Consolidated Financial Statements (page 104)
The calculation of the impact of IFRS 16 is complex. The accounting is complex and requires a number of significant judgements. Further, the Group has a high volume of leases, some of which have been in place for a number of years.
Although the standard is being implemented in 2019/2020, disclosures on the impact are included in these financial statements.
Our response to the risk — We assessed the completeness of the population of leases and validated that all leases had been appropriately uploaded onto the lease accounting IT application.
— We assessed the appropriateness of the incremental borrowing rates, with the support of our Corporate Treasury specialists.
— We challenged the key judgements and assumptions used by management, including those made in relation to the property portfolio.
— On a sample basis, we performed testing of lease data input into the lease accounting IT application.
— For a sample of leases, we independently modelled the impact of IFRS 16 using our own internally designed tool and compared the results to the Group’s accounting IT application.
— We audited management’s impairment assessment in relation to the right of use asset.
— We audited the disclosures provided in the financial statements on the impact of IFRS 16.
Key observations communicated to the Audit Committee The right of use asset and lease liability as at 10 March 2018 have been appropriately calculated, with the disclosures correctly reflecting the balance sheet impact of adopting IFRS 16 as at 10 March 2018.
Risk
The IT environment The IT systems across the Group are complex and there are varying levels of integration between them. The systems are vital to the ongoing operations of the business and to the integrity of the financial reporting process.
Our response to the risk — We held discussions with management to understand the IT environment and walked through the key financial processes to understand where IT systems were integral to the Group’s controls over financial reporting. From this we identified which IT systems to include in the scope for our detailed IT testing.
— We assessed the IT general controls environment for the key systems impacting the accurate recording of transactions and the presentation of the financial statements.
— We designed our IT audit procedures to assess the IT environment, including an assessment of controls over changes made to the system and controls over appropriate access to the systems.
— Where we found that adequate IT general controls were not in place, we performed additional substantive testing to mitigate the risk of material misstatement.
Key observations communicated to the Audit Committee We have not identified any misstatements in the financial statements due to the limitations of the IT environment.
An overview of the scope of our audit
Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile, the organisation of the Group and effectiveness of Group-wide controls, changes in the business environment and other factors such as recent internal audit results when assessing the level of work to be performed at each entity.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of significant accounts in the financial statements, of the 76 reporting components of the Group, we selected 33 reporting components, which represent the principal business units within the Group.
Of the 33 components selected, we performed an audit of the complete financial information of eight components (“full scope components”) which were selected based on their size or risk characteristics. For the remaining 25 components (“specific scope components”), we performed audit procedures on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their risk profile.
Of the remaining balances, none are individually greater than five per cent of the Group’s profit before tax excluding one-off items. For these accounts, we performed other procedures, including analytical review, testing of consolidation journals and intercompany eliminations to respond to any potential risks of material misstatement to the Group financial statements.
The table below illustrates the coverage obtained from the work performed by our audit teams.
% Group Profit before tax
% Group Profit before tax
% Group Revenue
% Total assets Number 2019 2018 2019 2018 2019 2018 Full scope 8 42% 46% 99% 99% 75% 74% Specific scope 25 56% 46% 0% 0% 25% 22% Full and specific scope coverage
Remaining components 43 2% 8% 1% 1% 0% 4% Total reporting components 76 100% 100% 100% 100% 100% 100%
Involvement with component teams In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components by us, as the primary audit engagement team, or by component auditors from other EY network firms operating under our instruction. Of the full scope components, audit procedures were performed on the head office company, J Sainsbury plc, Sainsbury’s Supermarkets Ltd and Argos Limited and consolidation of the Group by the primary team. The work at the specific scope locations was performed by EY components in Edinburgh, the Isle of Man and the primary team.
For Sainsbury’s Bank plc and Argos Financial Services, the Senior Statutory Auditor visited these locations and held discussions with management. The team discussed the audit approach with the component team and significant issues arising from their work, reviewing key audit working papers on risk areas. The closing discussion was attended by the primary team. This, together with the additional procedures performed at Group level, gave us appropriate evidence for our opinion on the Group financial statements. For the insurance company, the team discussed the audit approach with the component team and interacted regularly with the component team where appropriate during various stages of the audit in order to understand the key audit findings.
Governance Report
Strategic Report
Financial Statements
Matters on which we are required to report
by exception
In the light of the knowledge and understanding of the Group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
— adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
— the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or
— certain disclosures of Directors’ remuneration specified by law are not made; or
— we have not received all the information and explanations we require for our audit.
Responsibilities of Directors As explained more fully in the Directors’ responsibilities statement set out on page 90, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud The objectives of our audit, in respect to fraud, are: to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management.
Our approach was as follows:
We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant are:
— those that relate to the form and content of the financial statements, such as the Group accounting policy, International Financial Reporting Standards (IFRS), the UK Companies Act 2006 and the UK Corporate Governance Code;
— those that relate to the payment of employees; and
— industry related such as compliance with the requirements of the Grocery Supply Code of Practice.
We understood how J Sainsbury plc is complying with those frameworks by observing the oversight of those charged with governance, the culture of honesty and ethical behaviour and a strong emphasis placed on fraud prevention, which may reduce opportunities for fraud to take place, and fraud deterrence, which could persuade individuals not to commit fraud because of the likelihood of detection and punishment.
We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by making an assessment of the key fraud risks to the Group and the manner in which such risks may manifest themselves in practice, based on our previous knowledge of the Group as well as an assessment of the current business environment.
Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk. These procedures included testing manual journals and were designed to provide reasonable assurance that the financial statements were free of fraud or error. We evaluated the design and operational effectiveness of controls put in place to address the risks identified, or that otherwise prevent, deter and detect fraud. We also considered performance targets and their influence on efforts made by management to manage earnings.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters we are required to address
— Following the recommendation of the Audit Committee we were appointed by the Company at its Annual General Meeting on 8 July 2015. We have been the statutory auditor since that date. — The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent company and we remain independent of the Group and the parent company in conducting the audit. — The audit opinion is consistent with the additional report to the Audit Committee.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
John Flaherty (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor London 30 April 2019
Notes: 1 The maintenance and integrity of the J Sainsbury plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. 2 Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Governance Report
Strategic Report
Financial Statements
Note
2019 £m
2018 £m
Revenue 4 29,007 28,
Cost of sales (27,000) (26,574)
Gross profit 2,007 1,
Administrative expenses 6 (1,733) (1,415)
Other income 6 38 51
Operating profit 312 518
Finance income 7 22 19
Finance costs 7 (99) (140)
Share of post-tax profit from joint ventures and associates 13 4 12
Profit before tax 239 409
Analysed as: Underlying profit before tax 3 635 589 Non-underlying items 3 (396) (180) 239 409
Income tax expense 8 (20) (100)
Profit for the financial year 219 309
Note Pence Pence
Earnings per share 9
Basic earnings 9.1 13.
Diluted earnings 8.9 12.
Underlying basic earnings 22.0 20.
Underlying diluted earnings 20.3 19.
The notes on pages 101 to 172 form an integral part of these financial statements.
Consolidated income statement
for the 52 weeks to 9 March 2019
Note
2019 £m
2018 £m
Non-current assets
Property, plant and equipment 11 9,708 9, Intangible assets 12 1,044 1, Investments in joint ventures and associates 13 205 232 Financial assets at fair value through other comprehensive income 14 645 540 Other receivables 16a 33 44 Amounts due from Financial Services customers 16b 3,349 2, Derivative financial instruments 25 9 17 Net retirement benefit surplus 30 959 –
15,952 14,
Current assets Inventories 15 1,929 1, Trade and other receivables 16a 661 744 Amounts due from Financial Services customers 16b 3,638 3, Financial assets at fair value through other comprehensive income 14 211 203 Derivative financial instruments 25 21 10 Cash and cash equivalents 26 1,121 1,
7,581 7, Assets held for sale 17 8 9
7,589 7,
Total assets 23,541 22,
Current liabilities Trade and other payables 18a (4,444) (4,322) Amounts due to Financial Services customers and other deposits 18b (5,797) (4,841) Borrowings 28 (832) (638) Derivative financial instruments 25 (17) (53) Taxes payable (204) (247) Provisions 19 (123) (201)
(11,417) (10,302)
Net current liabilities (3,828) (2,436)
Non-current liabilities Other payables 18a (340) (313) Amounts due to Financial Services customers and other deposits 18b (1,804) (1,683) Borrowings 28 (950) (1,602) Derivative financial instruments 25 (17) (26) Deferred income tax liability 8 (397) (241) Provisions 19 (160) (166) Net retirement benefit obligations 30 – (257)
(3,668) (4,288)
Net assets 8,456 7,
Equity Called up share capital 20 630 627 Share premium account 20 1,147 1, Merger reserve 20 568 568 Capital redemption reserve 21 680 680 Other reserves 21 172 121 Retained earnings 23 4,763 3,
Total equity before perpetual securities 7,960 6, Perpetual capital securities 22 248 248 Perpetual convertible bonds 22 248 248
Total equity 8,456 7,
The notes on pages 101 to 172 form an integral part of these financial statements.
The financial statements on pages 96 to 172 were approved by the Board of Directors on 30 April 2019, and are signed on its behalf by:
Mike Coupe Kevin O’Byrne Chief Executive Chief Financial Officer
Consolidated balance sheet
At 9 March 2019 and 10 March 2018
Note
2019 £m
2018 £m Cash flows from operating activities Profit before tax 239 409 Net finance costs 7 77 121 Share of post-tax profit from joint ventures and associates 13 (4) (12) Operating profit 312 518 Adjustments for: Depreciation expense 11 649 659 Amortisation expense 12 143 72 Non-cash adjustments arising from acquisitions (excluding depreciation and amortisation) 3 (2) 1 Financial Services impairment losses on loans and advances 16c 98 68 Loss/(profit) on sale of properties 3 17 (11) Loss on disposal of intangibles – 2 Profit on disposal of joint ventures – (4) Impairment charge of property, plant and equipment 11 3 – Share-based payments expense 31 39 33 Non-cash defined benefit scheme expenses 30 108 (21) Cash contributions to defined benefit scheme 30 (63) (130)
Operating cash flows before changes in working capital 1,304 1,
Changes in working capital
Increase in inventories (118) (36) Increase in current financial assets at fair value through other comprehensive income (97) (192)
Decrease/(increase) in trade and other receivables 74 (44) Increase in amounts due from Financial Services customers and other deposits (1,480) (1,161)
Increase in trade and other payables 94 142
Increase in amounts due to Financial Services customers and other deposits 1,077 1, (Decrease)/increase in provisions and other liabilities (105) 28
Cash generated from operations 749 1, Interest paid (63) (89)
Corporation tax paid (68) (72)
Net cash generated from operating activities 618 1,
Cash flows from investing activities Purchase of property, plant and equipment (478) (561)
Purchase of intangible assets (116) (140)
Proceeds from disposal of property, plant and equipment 64 54 Proceeds from financial assets at fair value through other comprehensive income 39 –
Acquisition of subsidiaries, net of cash acquired 32 – 135
Investment in joint ventures 13 (5) (9) Interest received 4 14
Dividends and distributions received 13 18 37
Net cash used in investing activities (474) (470)
Cash flows from financing activities Proceeds from issuance of ordinary shares 20,23 22 12
Repayment of borrowings (593) (148) Proceeds from borrowings 135 174
Purchase of own shares 23 (30) (14)
Repayment of capital element of obligations under finance lease borrowings (32) (26) Interest elements of obligations under finance lease payments (7) (7)
Dividends paid on ordinary shares 10 (224) (212)
Dividends paid on perpetual securities 22 (23) (23)
Net cash used in financing activities (752) (244)
Net (decrease)/increase in cash and cash equivalents (608) 651
Opening cash and cash equivalents 1,728 1,
Closing cash and cash equivalents 26 1,120 1,
The notes on pages 101 to 172 form an integral part of these financial statements.
Governance Report
Strategic Report
Financial Statements
Consolidated cash flow statement
for the 52 weeks to 9 March 2019
1 Basis of preparation
J Sainsbury plc is a public limited company (the ‘Company’) incorporated in the United Kingdom, whose shares are publicly traded on the London Stock Exchange. The Company is domiciled in the United Kingdom and its registered address is 33 Holborn, London EC1N 2HT, United Kingdom.
The financial year represents the 52 weeks to 9 March 2019 (prior financial year: 52 weeks to 10 March 2018). The consolidated financial statements for the 52 weeks to 9 March 2019 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.
Sainsbury’s Bank plc and its subsidiaries have been consolidated for the 12 months to 28 February 2019 being the Bank’s year-end date (prior financial year: 28 February 2018). Adjustments have been made for the effects of significant transactions or events that occurred between this date and the Group’s balance sheet date.
Nectar Loyalty Holding Limited and its subsidiaries have been consolidated from 1 March 2018 to 9 March 2019 (prior financial year: four weeks to 28 February 2018). Nectar’s year-end date is now aligned with the Group.
The Group’s principal activities are Food, General Merchandise and Clothing retailing and Financial Services.
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 (IFRIC) 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 pension scheme assets, investment properties and financial assets at fair value through other comprehensive income that have been measured at fair value.
Significant accounting policies have been included in the relevant notes to which the policies relate, and those relating to the financial statements as a whole can be read further below. Significant accounting policies have been applied consistently to all periods presented in the financial statements.
Basis of consolidation The consolidated financial statements of the Group consist of the financial statements of the ultimate parent company J Sainsbury plc, all entities controlled by the Company and the Group’s share of its interests in joint ventures and associates.
a) Subsidiaries Subsidiaries are all entities (including structured entities) over which the Group has control. This is when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The results of subsidiaries are included in the income statement from the date of acquisition or, in the case of disposals, up to the effective date of disposal. Intercompany transactions and balances between Group companies are eliminated upon consolidation.
Sainsbury’s Property Scottish Partnership, Sainsbury’s Property Scottish Limited Partnership and Insight 2 Communication LLP, are partnerships which are fully consolidated into these Group accounts. The Group has taken advantage of the exemption conferred by Regulation 7 of the Partnerships (‘Accounts’) Regulations 2008 and has therefore not appended the accounts of these qualifying partnerships to these accounts.
b) Joint ventures and associates The Group applies IFRS 11 to all joint arrangements. Under IFRS 11, investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangements and determined them to be joint ventures. The Group’s share of the post- tax results of its joint ventures and associates is included in the income statement using the equity method of accounting. Where the Group transacts with a joint venture or associate, profits and losses are eliminated to the extent of the Group’s interest in the joint venture or associate.
Investments in joint ventures and associates are carried in the Group balance sheet at historical cost plus post-acquisition changes in the Group’s share of net assets of the entity, less any provision for impairment.
Associates are entities over which the Group has significant influence but not control.
Investment properties held by the Group are those contained within its joint ventures with Land Securities Group PLC and The British Land Company PLC. These are properties held for capital appreciation and/or to earn rental income. They are initially measured at cost, including related transaction costs. After initial recognition at cost, they are carried at their fair values based on market value determined by professional valuers at each reporting date. The difference between the fair value of an investment property at the reporting date and its carrying amount prior to re-measurement is included within the income statement (within the profit from joint ventures line item) but is excluded from underlying profit in order to provide a clear and consistent presentation of the underlying performance of the Group’s ongoing business for shareholders.
Foreign currencies The consolidated financial statements are presented in sterling, which is the ultimate parent company’s functional currency.
a) Foreign operations On consolidation, assets and liabilities of foreign operations are translated into sterling at year-end exchange rates. The results of foreign operations are translated into sterling at average rates of exchange for the year.
b) Foreign currency transactions Transactions denominated in foreign currencies are translated at the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement.
Amendments to published standards Effective for the Group and Company in these financial statements:
The Group considered the following amendments to published standards that are effective for the Group for the financial year beginning 11 March 2018 and concluded that, with the exception of IFRS 9 ‘Financial Instruments’ and IFRS 15 ‘Revenue from Contracts with Customers’, they are either not relevant to the Group or they do not have a significant impact on the Group’s financial statements other than disclosures. These standards and interpretations have been endorsed by the European Union. — Amendments to IFRS 2 ‘Share-based Payment’ on the classification and measurement of share-based payment transactions — Amendments to IAS 40 ‘Investment Property’ on the transfers of investment property — IFRIC Interpretation 22 ‘Foreign Currency Transactions and Advance Consideration’ — Annual Improvements Cycle 2014-2016 (issued in December 2016) — IFRS 4 ‘Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts’ — IFRS 9 ‘Financial Instruments’ — IFRS 15 ‘Revenue from Contracts with Customers’
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Notes to the consolidated financial statements
1 Basis of preparation continued
Further information on the impact of IFRS 9 and IFRS 15 is included below.
Standards and revisions effective for future periods: The following standards and revisions will be effective for future periods:
— IFRS 16 ‘Leases’
— IFRIC Interpretation 23 ‘Uncertainty over Income Tax Treatments’
— Amendments to IFRS 9 ‘Financial Instruments’ on prepayment features with negative compensation
— Amendments to IAS 1 ‘Presentation of Financial Statements’ and IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’ on the definition of material
— Amendments to IAS 19 ‘Employee Benefits’ on plan amendments, curtailments or settlements
— Amendments to IAS 28 ‘Investments in Associates and Joint Ventures’ on long-term interests in associates and joint ventures
— Annual Improvements Cycle 2015-2017 (issued in December 2017)
The Group has considered the impact of the remaining above standards and revisions and have concluded that, with the exception of IFRS 16, they will not have a significant impact on the Group’s financial statements. Further information on IFRS 16 is included below.
Transitional disclosures on adoption of new accounting standards IFRS 9 ‘Financial Instruments’
IFRS 9 replaces IAS 39 for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement, impairment and hedge accounting.
The main changes the new standard introduces are: — new requirements for the classification and measurement of financial assets and financial liabilities; — a new model for recognising impairments of financial assets; and — changes to hedge accounting by aligning hedge accounting more closely to an entity’s risk management objectives.
The changes have been applied by adjusting the Consolidated Balance Sheet at 11 March 2018, the date of initial application, with no restatement of comparative information. In accordance with IFRS 9 transition guidance, comparative financial information in the primary financial statements remains compliant with the classification and measurement requirements of IAS 39.
a) Classification and measurement IFRS 9 introduced a principles-based approach to the classification of financial assets. Financial assets are measured at fair value through profit or loss (FVPL), fair value through other comprehensive income (FVOCI) or amortised cost. Classification is determined by the nature of the cash flows of the assets and the business model in which they are held. These categories replace the existing IAS 39 classifications. For financial liabilities, most of the pre-existing requirements for classification and measurement previously included in IAS 39 were carried forward unchanged into IFRS 9.
An assessment of the Group’s business models was made as at the date of initial application on 11 March 2018 and applied prospectively. The changes in classification resulted in no change in measurement as at 11 March 2018 and are not expected to result in a material impact going forward. A summary of the respective classifications under IAS 39 and IFRS 9 is presented below:
Balance sheet line Periodicity IAS 39 IFRS 9
11 March 2018 £m
Financial assets
Financial assets at fair value through other comprehensive income
Non-current Available for sale Fair value through other comprehensive income
Financial assets at fair value through other comprehensive income
Current Available for sale Fair value through other comprehensive income
Other receivables Non-current Loans & receivables Amortised cost 44
Trade and other receivables Current Loans & receivables Amortised cost 553
Trade and other receivables Current Loans & receivables Fair value through profit and loss^1 191
Cash and cash equivalents Current Loans & receivables Amortised cost 1,
Cash and cash equivalents Current Loans & receivables Fair value through profit and loss^1 150
Amounts due from Financial Services customers Non-current Loans & receivables Amortised cost 2 2,
Amounts due from Financial Services customers Current Loans & receivables Amortised cost 2 3,
Derivative financial instruments Non-current Fair value through profit and loss Fair value through profit and loss 17
Derivative financial instruments Current Fair value through profit and loss Fair value through profit and loss 10
1 Travel money and cash in ATMs (including cash on order for ATMs) are considered separately from cash held in banks. With regard to travel money, the business model is ‘held to sell foreign currency to customers’ and the contractual cash flows are ‘margin on foreign exchange rates’. With regard to cash in ATMs, the business model is ‘held to sell ATM services’ and the contractual cash flows are ‘ATM fees’. Therefore, both assets are measured at FVPL. 2 The balances presented are consistent with those presented as at 10 March 2018. There is a day 1 adjustment to amounts due from Financial Services customers relating to the recognition of expected credit loss (ECL) provisions under IFRS 9. Further details presented below.
Balance sheet line Periodicity IAS 39 IFRS 9
11 March 2018 £m
Financial liabilities
Trade and other payables Current Loans & receivables Amortised cost (4,322)
Other payables Non-current Loans & receivables Amortised cost (313)
Amounts due to Financial Services customers Non-current Loans & receivables Amortised cost (1,683)
Amounts due to Financial Services customers Current Loans & receivables Amortised cost (4,841)
Borrowings Non-current Loans & receivables Amortised cost (1,602)
Borrowings Current Loans & receivables Amortised cost (638)
Derivative financial instruments Non-current Fair value through profit and loss Fair value through profit and loss (26)
Derivative financial instruments Current Fair value through profit and loss Fair value through profit and loss (53)
Notes to the consolidated financial statements continued
1 Basis of preparation continued
Under IAS 18 ‘Revenue’, programme support fees (PSF) for Nectar were deferred and recognised in line with the issuances and redemption profile of Nectar points. However on application of IFRS 15, revenue is disaggregated against individual performance obligations. These fees are now recognised on a straight-line basis over the term of the agreement with the relevant party. Applying IFRS 15 retrospectively, the brought forward deferred revenue balance includes £10 million of PSF relating to prior periods. This balance has accumulated over many years, with the year-on-year impact considered immaterial to the Group. This restatement has been represented as a day 1 adjustment within the statement of changes in equity.
c) Agent vs principal From time to time the Group enters into contracts with suppliers for which an assessment must be made to determine whether the Group is acting as principal or agent when selling the related goods to customers. In performing its analysis, the Group identified arrangements where there is a change in the agent/principal classification. The impact to revenue and cost of sales for the 52 weeks to 10 March 2018 is a £7 million reduction. This is immaterial to the Group results and has not been restated within the comparatives within the profit and loss statement.
IFRS 16 ‘Leases’ IFRS 16 ‘Leases’ was issued in January 2016 and introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees and will supersede the current lease guidance including IAS 17 ‘Leases’ and the related interpretations. The standard is effective for annual periods beginning on or after 1 January 2019 and will be adopted by Sainsbury’s for the financial year commencing 10 March 2019.
IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. The current distinction of operating leases (off balance sheet) and finance leases (on balance sheet) is removed for lessee accounting and is replaced by a model where a right-of- use asset and a corresponding liability have to be recognised for all leases by lessees (i.e. all on balance sheet) except for short-term leases and leases of low value assets.
The standard represents a significant change in the accounting and reporting of leases, impacting the income statement and balance sheet as well as statutory and Alternative Performance Measures used by the Group.
The Group has chosen to adopt the fully retrospective approach to transition. The comparatives in the consolidated financial statements for the 52 weeks ending 7 March 2020 will be restated as if IFRS 16 had always applied. The first reporting under IFRS 16 (with restated comparatives) will be for the Group’s interim results as at 21 September 2019.
The Group has performed an extensive review of all the Group’s leasing arrangements in light of the new accounting standard. The work is nearing completion and the Group estimates that, had IFRS 16 been applied in the 52 weeks ended 10 March 2018, the impact on the consolidated balance sheet as at 10 March 2018 would have been:
— Recognition of a right-of-use asset in the region of £5.1 billion disclosed within non-current assets
— The recognition of a corresponding lease liability in the region of £5.9 billion
— Derecognition of other balance sheet items, including onerous leases, rent free accruals and fair value adjustments relating to acquired leases of around £0.1 billion
— The above results in an adjustment to opening retained earnings in the region of £0.9 billion (before adjusting for associated tax impacts)
The above adjustment to retained earnings causes no hindrance on the Group’s ability to pay dividends to shareholders.
The right-of-use asset is initially measured at cost (being the initial lease liability plus any associated direct costs) and subsequently measured at cost less accumulated depreciation and impairment losses, adjusted for any re-measurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others.
As a result, the profile of costs recognised in the consolidated income statement will materially change in comparison to IAS 17 as follows: — Depreciation will increase due to the recognition of right-of-use assets — Existing rental costs will reduce – the only rental costs that remain will relate to low value assets or short-term leases — Finance costs will increase due to the unwinding of the discount on the discounted lease liability
Whilst the total cash outflow for leases will not change, the classification of cash flows will be affected as operating lease payments under IAS 17 are presented as operating cash flows, whereas under the IFRS 16 model, the lease payments will be split into a principal and an interest portion which will be presented as financing cash flows.
In preparing for the transition to IFRS 16, the Group has been developing new controls, policies and governance procedures in several areas that contribute to the calculation of the overall lease liability and right-of-use asset. These include the identification of any embedded leases, accounting for lease modifications, as well as electing to not apply IFRS 16 to short- term leases (less than a year) and low value assets in line with the practical expedients offered under IFRS 16.
Key judgements have also been addressed, including the assessment of how reasonably certain it is considered to be that a lease option (extension, termination or purchase) will be exercised, and the determination of an appropriate discount rate used to present value the lease liability and to initially measure the right-of-use asset. With regards to these, the Group has determined that the lease term will correspond to the duration of the contracts except in cases where the Group is reasonably certain that it will exercise contractual extension or break options. The historical discount rates applied have been based on the incremental borrowing rate where the implicit rate in the lease is not readily determinable.
All relevant accounting policies will be updated to reflect the changes under IFRS 16 in the consolidated financial statements for the 52 weeks ending 7 March 2020.
2 Significant accounting judgements,
estimates and assumptions
The preparation of financial statements in conformity with IFRSs requires the use of judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Those which are significant to the Group are discussed separately below:
Judgements In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements:
a) Non-current assets and liabilities held for sale At each balance sheet date management assesses whether any assets, whose carrying amount will be recovered through a sale transaction rather than continued use, meet the definition of held for sale. Where there is an active plan in place to locate a buyer, management considers such assets to meet the criteria to be classified as held for sale if they are available for immediate sale and the sale is highly probable.
For more information on the assets and liabilities held for sale, refer to note 17.
b) Operating lease commitments The Group is party to commercial property leases on a number of its stores. At inception of each lease, the terms and conditions of the arrangements are evaluated to assess whether the lease terms constitute a major part of the economic life of the assets and whether the present value of the minimum lease payments amount to substantially all of the fair value of the commercial property. Where there is no evidence of this, management concludes that all the significant risks and rewards of ownership do not transfer to the Group and these leases are accounted for as operating leases. Further information about committed operating lease payments is included in note 33.
Notes to the consolidated financial statements continued
2 Significant accounting judgements,
estimates and assumptions continued
c) Consolidation of structured entities A structured entity is one in which the Group does not hold the majority interest but for which management has concluded that voting rights are not the dominant factor in deciding who controls the entity. In making such an assessment, management considers the terms of the arrangement to assess who has responsibility for the management of the entity and its assets. Where the Group has this responsibility, it is deemed that the Group controls the entity and it is fully consolidated into the Group accounts. The structured entities applicable to the Group are Sainsbury’s Property Scottish Partnership and Sainsbury’s Property Scottish Limited Partnership.
d) Aggregation of operating segments Management has determined the operating segments based on the information provided to the Operating Board (the Chief Operating Decision Maker for the Group) to make operational decisions on the management of the Group. Four operating segments were identified as follows:
— Retail – Food
— Retail – General Merchandise and Clothing
— Financial Services
— Property Investment
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 should be aggregated into one ‘Retail’ segment in the financial statements. This aggregated information provides users with the financial information needed to evaluate the business and the environment in which it operates.
Estimates and assumptions The areas where estimates and assumptions are significant to the financial statements are as described below. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
a) Impairment of non-financial assets The Group is required to assess whether goodwill has suffered any impairment loss, based on the recoverable amount of the cash-generating unit (CGU) or group of CGUs to which it is allocated. The recoverable amounts of the CGUs have been determined based on value in use calculations and these calculations require the use of estimates in relation to future cash flows and suitable discount rates, as disclosed in note 12. Actual outcomes could vary from these estimates.
Non-financial assets are subject to impairment reviews based on whether current or future events and circumstances suggest that their recoverable amount may be less than their carrying value. Recoverable amount is based on the higher of the value in use and fair value less costs to dispose. Value in use is calculated from expected future cash flows using suitable discount rates and includes management assumptions and estimates of future performance.
b) Impairment of loans and advances Impairment loss models involve the estimation of future cash flows of financial assets, based on observable data at the balance sheet date and historical loss experience for assets with similar credit risk characteristics. This will typically take into account the level of arrears, security, past loss experience and default levels. These calculations are undertaken on a portfolio basis using various statistical modelling techniques. Impairment models are continually reviewed to ensure data and assumptions are appropriate with the most material assumption being around expected loss rates.
c) Post-employment benefits The Group operates one defined benefit scheme for employees, segregated into two sections – the Sainsbury’s section and the Argos section. The present value of the scheme’s liabilities recognised at the balance sheet date and the net financing charge recognised in the income statement are dependent on the discount rate applied which is derived from the expected yields on high quality corporate bonds over the duration of the Group’s pension scheme. High quality corporate bonds are those which at least one of the main ratings agencies considers to be at least AA (or equivalent).
Other key assumptions within this calculation are based on market conditions or estimates of future events, including mortality rates, as set out in note 30. The carrying value of the retirement benefit obligations will be impacted by changes to any of the assumptions used, however is most sensitive to changes in the discount rate. Sensitivities to movements in the discount rate are included in note 30.
d) Provisions Provisions have been made for onerous leases, onerous contracts, dilapidations, restructuring, insurance and long service awards. These provisions are estimates and the actual costs and timing of future cash flows are dependent on future events and market conditions. Any difference between expectations and the actual future liability will be accounted for in the period when such determination is made. The carrying amount of provisions will be impacted by changes in the discount rate. Details of provisions are set out in note 19.
e) Determining fair values The fair values 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.
f) Revenue recognition – Fair value of Nectar points The Group estimates the fair value of points awarded under the Nectar programme by reference to the value per point to a customer, multiplied by expected breakage assumptions. Breakage represents management’s estimate of points issued that will never be redeemed. As points issued under the programme do not expire, such estimates are subject to uncertainty. Breakage is estimated by management based on the terms and conditions of membership and historical accumulation and redemption patterns, and adjusted for changes to any terms and conditions that may affect members’ redemption patterns.
If the breakage estimate used in determining the deferred revenue for the Group had been 0.5 per cent lower, the deferred points liability would have been £19 million higher. If the breakage estimate had been 0.5 per cent higher, the deferred points liability would have been £19 million lower.
g) Supplier arrangements Supplier incentives, rebates and discounts, collectively known as ‘supplier arrangements’, represent a material deduction to cost of sales and directly affect the Group’s reported margin. The arrangements can be complex, with amounts spanning multiple products over different time periods, and there can be multiple triggers and discounts. The accrued value at the reporting date is included in trade receivables or trade payables, depending on the right of offset. A description of the different types of supplier arrangements, and their values for the year, are provided in note 5.
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3 Non-GAAP performance measures continued
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 £13 million for the Group (2018: £1 million) and £(2) million for the joint ventures (2018: £(3) million). — Acquisition adjustments of £(53) million (2018: £(2) million) reflect the unwind of non-cash fair value adjustments arising from the Sainsbury’s Bank, Home Retail Group and Nectar acquisitions and are split as follows:
2019 2018 Financial Services £m
Argos £m
Nectar £m
Total Group £m
Financial Services £m
Argos £m
Nectar £m
Total Group £m Revenue – – – – (3) – – (3)
Cost of sales – 2 – 2 – 2 – 2
Depreciation – (13) – (13) – (18) – (18)
Amortisation (1) (16) (25) (42) (3) 22 (2) 17
(1) (27) (25) (53) (6) 6 (2) (2)
— Defined benefit pension expenses comprise the pension financing charge of £(8) million (2018: £(26) million) and scheme expenses of £(10) million (2018: £(10) million) (see note 30). Also included are £(2) million of pension related expenses incurred directly by the Group.
— In addition there are £(98) million non-cash past service costs relating to Guaranteed Minimum Pension (GMP) equalisation. The prior year included a £31 million past service credit in relation to a Pension Increase Exchange (PIE) at retirement option introduced from 1 April 2018. See note 30 for more information.
Cash flow statement The table below shows the impact of non-underlying items on the Group cash flow statement, where not already separately presented in the cash flow statement:
2019 £m
2018 £m Defined benefit pension expenses (10) (10) Sainsbury’s Bank transition (66) (38) Business rationalisation – (1) Argos integration costs (52) (32) Homebase separation – (14) Restructuring costs (152) (28) Asda transaction costs (39) – Cash used in operating activities (319) (123)
Proceeds from property disposals 64 54 Cash generated from investing activities 64 54
Net cash flows (255) (69)
The tax impact of adjusted items is included within note 8.
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4 Segment reporting
Background The Group’s businesses are organised into four operating segments:
— Retail – Food;
— Retail – General Merchandising and Clothing;
— Financial Services (Sainsbury’s Bank plc and Argos Financial Services entities); and
— Property Investments (The British Land Company PLC joint venture and Land Securities Group PLC joint venture).
As discussed in note 2, the Food and General Merchandise and Clothing segments have been aggregated into a Retail segment in the financial statements.
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 financial year ended 9 March 2019 includes Nectar results from 1 March 2018 to 9 March 2019 (prior financial year: four weeks).
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.
Revenue consists of sales through retail outlets and online and, in the case of Financial Services, interest receivable, fees and commissions and excludes Value Added Tax. Revenue is recognised when the Group has a contract with a customer and a performance obligation has been satisfied, at the transaction price allocated to that performance obligation. Further information on the impact of adopting IFRS 15 is included in note 1.
Accounting policies
Revenue a) Retail – sale of goods For sales through retail outlets and online, the transaction price is the value of the goods, net of returns, colleague discounts, vouchers and sales made on an agency basis. Revenue is recognised when the customer obtains control of the goods, which is when the transaction is completed in-store or, for online orders, when goods have been delivered. Commission income is recognised in revenue based on the terms of the contract.
b) Nectar points Any points issued and redeemed in Sainsbury’s and Argos are accounted for in line with IFRS 15 ‘Revenue from Contracts with Customers’. On issuance of Nectar points within the Group, a portion of the transaction price is allocated to the loyalty programme using the fair value of points issued and corresponding deferred revenue recognised in relation to points issued but not yet redeemed. The deferral is treated as a deduction from revenue. The fair value of the points awarded is determined with reference to the fair value to the customer and considers factors such as breakage and the money off that each point entitles a customer to. Deferred revenue is subsequently recognised when Nectar points are redeemed.
c) Other income Other income generally consists of profits and losses on disposal of assets. Nectar revenue earned from non-Sainsbury’s redemption partners is included within other income and recognised once points have been redeemed.
d) Financial Services interest receivable Interest income is recognised in the income statement for all instruments measured at amortised cost using the effective interest method. This calculation takes into account all amounts that are integral to the yield as well as incremental transaction costs. The effective interest rate is the rate that discounts the expected future cash flows over the expected life of the financial instrument to the net carrying amount of the financial asset or liability at initial recognition.
e) Financial Services fees and commissions Fees and commissions that are not integral to the effective interest rate calculation relate primarily to certain credit card and storecard fees, ATM interchange fees, insurance introduction commission and warranty commission receivable. These are recognised in the income statement on an accruals basis as services are provided. Where in the case of insurance commissions the income comprises an initial commission and profit share, both are recognised on completion of the service to the extent reliably measurable. Where there is a risk of potential clawback, an appropriate element of the commission receivable is deferred and amortised over the clawback period. Where the relevant contract requires Financial Services to perform future services in respect of the income receivable, initial commission is recognised on completion of the service provided, with an element deferred to reflect services yet to be performed in future periods.
f) Financial Services other operating income Margin from the sale of travel money, representing the difference between the cost price and the selling price, is recognised when the sale to the customer takes place within other operating income.
Segment revenue presents a disaggregation of revenue from customers consistent with the Group’s primary revenue streams.
Notes to the consolidated financial statements continued
