Notes to the financial statements
4 Operating profit
| 2007 £m |
2006 £m |
|
|---|---|---|
| Operating profit is stated after charging/(crediting) the following items: | ||
| Employee costs (note 6) | 1,785 | 1,793 |
| Depreciation expense | 479 | 449 |
| Amortisation expense (included within cost of sales) | 21 | 21 |
| Profit on sale of properties | (7) | (1) |
| Profit on part disposal of Sainsbury’s Bank (note 7) | (10) | — |
| Impairment of amounts due from Sainsbury’s Bank customers (included within administrative expenses) | 89 | 106 |
| Operating lease rentals – land and buildings | 287 | 262 |
| – other leases | 45 | 31 |
| – sublease payments received | (30) | (24) |
| Foreign exchange differences | 6 | — |
Operating profit for the prior financial year included £51 million of Business Review costs and £63 million of IT insourcing costs, of which £50 million is included in costs of sales and £64 million included in administrative expenses.
| Group | 2007 £m |
2006 £m |
|---|---|---|
| Auditors’ remuneration | ||
| Audit services | ||
| Fees payable to the Company auditor for the audit of the Group and the Company financial statements | 0.4 | 0.3 |
| Non-audit services | ||
| Fees payable to the Company auditor and its associates for other services as detailed below: | ||
| Audit of the Company’s subsidiaries pursuant to legislation | 0.4 | 0.4 |
| Other services pursuant to legislation | 0.1 | 0.1 |
| Tax services | 0.3 | 0.3 |
| All other services | 0.2 | 0.4 |
| 1.4 | 1.5 |
The Company audit fee was £0.1 million (2006: £0.1 million).
5 Finance income and finance costs
| 2007 £m |
2006 £m |
|
|---|---|---|
| Interest on bank deposits | 15 | 7 |
| Net return on pension schemes (note 31) | 41 | 23 |
| Financing fair value gains1 – Retailing | 8 | — |
| Finance income | 64 | 30 |
| Financing fair value losses1 – Financial services | — | (4) |
| – Retailing | — | (8) |
| — | (12) | |
| Debt restructuring costs | — | (38) |
| Borrowing costs | ||
| Bank loans and overdrafts | (2) | (3) |
| Other loans | (111) | (107) |
| B share preference dividends (note 20) | — | (1) |
| Obligations under finance leases | (3) | (3) |
| Provisions – amortisation of discount (note 22) | (1) | (1) |
| (117) | (115) | |
| Interest capitalised – qualifying assets | 10 | 10 |
| Finance costs | (107) | (155) |
- Fair value gains/(losses) relate to fair value adjustments on derivatives relating to financing activities and hedged items in fair value hedges.
Total interest income amounted to £213 million (2006: £217 million), including interest income attributable to Sainsbury’s Bank of £198 million (2006: £210 million) included in revenue. Total interest costs amounted to £233 million (2006: £230 million) including interest costs attributable to Sainsbury’s Bank of £116 million (2006: £115 million) included in cost of sales.
6 Employee costs
| 2007 £m |
2006 £m |
|
|---|---|---|
| Employee costs for the Group during the year amounted to: | ||
| Wages and salaries, including bonus and termination benefits | 1,583 | 1,565 |
| Social security costs | 122 | 101 |
| Pension costs – defined contribution schemes | 27 | 23 |
| Pension costs – defined benefit schemes (note 31) | 87 | 81 |
| Pension costs – past service gains on defined benefit schemes (notes 7 and 31) | (72) | — |
| Share-based payments expense (note 32) | 38 | 23 |
| 1,785 | 1,793 | |
| Number 000’s |
Number 000’s |
|
| The average number of employees, including directors, during the year were: | ||
| Full-time | 48.8 | 49.2 |
| Part-time | 98.1 | 104.1 |
| 146.9 | 153.3 | |
| Full-time equivalent | 95.5 | 96.2 |
All employees were employed in the United Kingdom for the periods presented.
7 One-off items
| 2007 £m |
2006 £m |
|
|---|---|---|
| One-off items for the financial year comprised: | ||
|
Business Review operating costs |
— | (51) |
| IT insourcing costs |
— | (63) |
| Debt restructuring costs (note 5) |
— | (38) |
| Profit on part disposal of Sainsbury’s Bank |
10 | — |
| Past service gains on defined benefit schemes (note 31) | 72 | — |
| 82 | (152) |
Profit on part disposal of Sainsbury’s Bank
On 8 February 2007, the Company sold a five per cent shareholding in Sainsbury’s Bank plc (the ‘Bank’) to the Bank of Scotland (a wholly owned subsidiary of HBOS plc) for a cash consideration of £21 million, resulting in a profit on disposal for the Group of £10 million. This profit on disposal has been recognised as other income in the Group income statement. Consequently, the Bank became a 50:50 joint venture between the Company and HBOS plc.
The results of the Bank have been fully consolidated into the Group results until 8 February 2007, with a corresponding minority interest shown for the minority share of these results. Following the sale on 8 February 2007, the Bank is treated as a joint venture and equity accounted in the Group financial statements.
At 24 March 2007, the assets and liabilities of the Bank have not been consolidated in the Group balance sheet but instead a joint venture investment of £88 million representing the Group’s 50 per cent share of the Bank’s net assets at that date (note 14) has been included. The Group has accounted for its equity share of the results of the Bank for the period from 8 February 2007 to 24 March 2007.
Past service gains on defined benefit schemes
Following changes introduced by the Finance Act effective from 6 April 2006, the defined benefit schemes have implemented revised terms to provide members with the option to surrender a greater proportion of their pension for a tax-free cash lump sum payment. Accordingly, the Group revised its assumptions used in calculating the retirement benefit obligations in respect of this and certain minor changes in scheme rules and has recognised £72 million of past service gains in the Group income statement.