Triennial Funding Agreement A

RNS Number : 8275L

Sainsbury(J) PLC

13 May 2010

J Sainsbury plc announces triennial funding agreement with Pension Trustees

Highlights

· March 2009 actuarial deficit agreed at £1,227 million (2006: £443 million)¹

· Increase from 2006 deficit driven by asset values struck at low point in cycle

· £600 million of deficit to be addressed by establishment of property partnership

· Annual deficit payments to increase by £11 million to £49 million for ten years

· Annual payments from property partnership of up to £35 million for 20 years

· Cashflow neutral for the Company over next five years on a post tax basis²

· The two defined benefit Schemes will be merged

J Sainsbury plc is pleased to announce that it has reached agreement with the Company's Pension Scheme Trustees on the terms of the triennial actuarial valuation as at 21 March 2009 and related funding plan. This represents a comprehensive package of measures to address the deficit whilst ensuring efficient cash management for the Company.

On the basis of the assumptions agreed, the actuarial deficit as at 21 March 2009 was £1,227 million. This deficit has increased from £443 million in March 2006 primarily due to the valuation date coinciding with a low point in asset values.

Under the revised funding plan, Sainsbury's annual payments will increase from £38 million to £49 million for the next ten years. In addition, Sainsbury's will establish a new property partnership with the Pension Scheme (the 'Partnership'), which will address £600m of the deficit. Properties to a value of £750 million will be transferred to the Partnership, which will provide the Pension Scheme with increased security and an annual income of £35 million for 20 years. These will be released back to Sainsbury's in 2030 in return for a cash payment equal to the amount of any remaining deficit at that time, up to a maximum of £600 million, thereby allowing the Company potentially to benefit from a reduction in the deficit over the funding plan.

The Partnership enables the Company to benefit from lower annual cash contributions compared to conventional cash recovery plans and to avoid locking in higher annual cash payments based on depressed March 2009 asset values. The Pension Scheme benefits from an immediate injection of ring-fenced security comprising substantial property assets, which covers just under half the deficit, whilst the balance of the deficit is addressed over the next ten years.

The revised cashflows under the funding plan will be cash neutral for the Company over the next five years on a post tax basis². Should the Scheme have a funding surplus in the future, the £35 million annual Partnership income can be used to satisfy the Company's future service contributions.

The Partnership will be fully consolidated within Sainsbury's Group accounts. The Group's balance sheet, IAS19 deficit and income statement will therefore remain unchanged by the transaction. In addition, the Company will retain full operational flexibility to extend, develop and substitute the properties within the Partnership.

The agreement reached covers the J Sainsbury Pension and Death Benefit Scheme and the J Sainsbury Executive Pension Scheme, and as part of the new agreement these Schemes will be merged into one single Scheme.

The actuarial valuation as at 21 March 2009 and the related funding plan will now be finalised and submitted to the Pension Regulator. The Company and the Trustees believe that the agreement represents a combination of prudent assumptions underpinned by a strong and improving corporate covenant and additional security through the provision of a substantial property-backed asset.

Justin King, chief executive of Sainsbury's, said: "Today's announcement is a further positive step that balances our commitment to ensuring our Pension Scheme is funded appropriately with the need to continue investing in our business. Markets have already recovered significantly from the lows of last year when our deficit was struck, and the establishment of our new property partnership helps us to address the deficit in a manner that reflects this. The funding arrangements announced today are positive both for members of the Pension Scheme and Sainsbury's, and will allow us to benefit from further improvement in markets over time"

John Adshead, chairman of the Trustees, said: "We are pleased to have reached agreement with the Company on the funding valuation and the recovery package, which provides substantially increased security to the Scheme whilst also supporting the continued growth in the covenant strength of its sponsor."

Enquiries:
Investor Relations	Media
Anna Tee	Mark Rigby
+44 (0) 20 7695 7144	+44 (0) 20 7695 6417

Notes:

1. Actuarial Funding Deficit

£ million	March 2009	March 2006
Assets	3,298	3,717
Liabilities	(4,525)	(4,160)
Deficit	(1,227)	(443)

2. Post tax additional cashflows

The Company currently pays deficit contributions of £38 million per annum for eight years ending March 2014 under the 2006 funding agreement. These will increase to £49 million per annum for 10 years ending March 2020 under the new agreement. The new property partnership will provide an annual income that will grow to approximately £35m per annum until March 2030. Tax relief will be provided up front in respect of the contributions made to establish the property partnership and on an annual basis in respect of the partnership and standard deficit payments.

£ million	10/11	11/12	12/13	13/14	14/15	5 year total
Incremental deficit payments	(11)	(11)	(11)	(11)	(11)	(55)
Payments from Property Partnership	(9)	(33)	(35)	(35)	(35)	(147)
Tax relief (at 28%)	7	71	77	27	20	202