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Sainsbury's buys back £550m IT operations
But analysts say the move is creating profit by "wizardry of accounting"...

By Andy McCue

Published: Friday 30 January 2004

Sainsbury's is to buy the intermediary unit set up to handle its £1.8bn IT outsourcing deal with Accenture in an accounting manoeuvre that the supermarket says will save it at least £25m a year.

The supermarket chain outsourced its IT to Accenture in 2000 for seven years through intermediary unit Swan Infrastructure, which resulted in its IT assets being moved off the books.

That deal was renegotiated at a reduced price and extended for three years back in November 2003.

Now Sainsbury's will buy Swan's IT assets worth £553m by paying £6m in cash, taking on Swan's debt of £234m and exchanging bonds worth £313m.

The result, on Sainsbury's balance sheet, will be a net reduction in cost of £25m for this year and more in following years.

Sainsbury's said the move will simply the financials around its IT operations but one financial analyst in a newspaper report this morning described the move as "creation of profit by accounting". Ovum Holway analyst Anthony Miller said he was surprised by the accounting change.

"This just seems weird," he said. "It sounds like it [Swan] was a special vehicle set up to handle the Sainsbury’s operation and get the assets off Sainsbury’s books. Now, it seems, by the wizardry of accounting, Sainsbury’s can make another significant saving by bringing the assets back on its books."

Peter Davis, group CEO of Sainsbury's, said in a statement: "The net reduction in costs will provide Sainsbury’s with additional resources to develop our customer proposition, by investing in quality and innovation and improving further our competitive offer, as we move towards trading our business harder from summer of 2004."