Company Announcements

Half-year Report

Source: RNS
RNS Number : 2860R
Sainsbury(J) PLC
04 November 2021
 

4 November 2021

 

J Sainsbury plc

 

  

Interim Results for the 28 weeks ended 18 September 2021

Strong performance with market share gains as we put food back at the heart of Sainsbury's

 

Financial Highlights

·     Grocery sales grew by 0.8 per cent versus H1 20/21 and 9.1 per cent versus H1 19/20 and we gained market share, driven by improved value, innovation and service, supported by customers continuing to eat at home more

·     General Merchandise sales reduced by 5.8 per cent versus H1 20/21, as expected against strong lockdown and seasonal sales comparatives, but grew 1.1 per cent versus H1 19/20

·     Strong digital sales of £5.8 billion, consistent with H1 20/21 at 39 per cent of retail sales

·     Statutory Group sales (excluding VAT) up 5.3 per cent, with fuel sales up 62.7 per cent

·     Underlying profit before tax of £371 million, up 23 per cent versus H1 20/211. Up 56 per cent versus H1 19/20, reflecting higher grocery sales and effective cost reduction programmes, particularly at Argos

·     Statutory profit before tax of £541 million reflects significantly lower restructuring and impairment costs versus H1 20/21 and £181 million of exceptional income from settling legal disputes

·     Strong retail free cash flow of £554 million1. On track to meet free cash flow and net debt reduction targets

·     Interim dividend of 3.2 pence

·     We continue to expect to report underlying profit before tax of at least £660 million in the financial year to March 2022

 

Strategic highlights

·     Food First: Good progress against the plan we set out last November to put food back at the heart of Sainsbury's

Value: Significantly improved versus competitors, driving sales, market share and switching gains

Innovation: On track to triple the number of new products this year; new lines very popular with customers 

Customer Service: Maintained strong customer satisfaction scores with supermarket scores ahead of key competitors2. Investing to improve our Groceries Online customer offer and improve productivity, attracting more customers and gaining market share; sales are up 13 per cent this year and 128 per cent over the past two years

·     Brands that Deliver: Nectar, Argos, Habitat, Tu and Sainsbury's Bank are clearly focused on supporting the core food business and delivering for customers and shareholders

Continuing to transform Argos, significantly reducing the cost base and improving the customer offer

Relaunched the iconic Habitat brand and introduced Habitat Kids

Tu clothing sales grew strongly, helped by increased full price sales. Clothing online sales remain strong

Grown digital Nectar to over 8 million customers and launched My Nectar Prices, currently offering customers approximately 95 million personalised discounts and promotions every week

Financial Services returned to profit; strong capital position

·     Save to invest: Three-year structural cost reduction programme on track to reduce retail operating costs to sales ratio of at least 200 basis points

·     Plan for Better: Ahead of our trajectory to become net zero in our own operations no later than 2040 and accelerated this commitment to 2035 ahead of the COP26 summit in Glasgow, where we are a Principal Partner

 

H1 Financial summary

2021/22

2020/21

2019/20

% change v 20/21

% change v 19/20

Statutory performance

 

 

 

 

 

Group revenue (excl. VAT, inc. fuel)

£15,724m

£14,934m

£15,097m

5.3%

4.2%

Profit / (Loss) before tax

£541m

£(137)m

£9m

N/A

N/A

Profit / (Loss) after tax

£389m

£(179)m

£(38)m

N/A

N/A

Basic earnings / (loss) per share

17.3p

(8.3)p

(2.2)p

N/A

N/A

 

 

 

 

 

 

Business performance1

 

 

Group sales (inc. VAT)

£17,528m

£16,557m

£16,856m

5.9%

4.0%

Retail sales (inc. VAT, excl. fuel)

£14,871m

£14,836m

£13,857m

0.2%

7.3%

Digital sales

£5.8bn

£5.8bn

£2.7bn

0%

108%

Underlying profit before tax

£371m

£301m

£238m

23%

56%

Underlying basic earnings per share

12.2p

10.1p

7.9p

21%

54%

Interim dividend per share

3.2p

3.2p

3.3p

0%

(3.0)%

Net debt (including lease liabilities)

£(6,345)m

£(6,168)m

£(6,778)m

Up £177m

Down £433m

Non-lease net debt

£(27)m

£(267)m

£(1,008)m

Down £240m

Down £981m

Return on capital employed

6.3%

7.9%

7.1%

(160)bps

(80)bps

 

Simon Roberts, Chief Executive of J Sainsbury plc, said

"We are making good progress delivering our plan to put food back at the heart of Sainsbury's. We have grown market share through improving value for customers, tripling our rate of food innovation and delivering customer satisfaction ahead of our key competitors.

 

"Whilst customers are returning to many pre-pandemic shopping habits, online sales have remained very strong and we continue to grow market share. At the same time, our plan to transform Argos is on track, delivering significantly improved profitability.

 

"I'm really proud of my colleagues for the outstanding job they continue to do for our customers in such exceptional circumstances. Our teams have worked tirelessly over the past eighteen months and to say thank you we are closing all Sainsbury's and Argos stores on Boxing Day this year to give colleagues an extra day to spend with friends and family.

 

"We are proud to be the Principal Supermarket Partner of COP26 and are accelerating our carbon reduction ambitions and will now reach net zero in our own operations by 2035.

 

"Our industry faces labour and supply chain challenges. However our scale, advanced cost saving programme, logistics operations and strong supplier relationships put us in a good position as we head into Christmas. I would like to thank all my colleagues and all our suppliers for their hard work, commitment and dedication in the weeks ahead to ensure we deliver the best possible Christmas for our customers." 

  

Outlook

 

The business performed well through the first half, benefiting from higher in-home grocery consumption and outperforming grocery competitors, while general merchandise sales declined, as expected, against an exceptionally strong period last year. Against further strong comparatives in the second half of the year we continue to expect customer behaviour to normalise and grocery growth to moderate and we will continue to invest to further improve our value position. We are well placed to deal with a backdrop of global supply challenges and a tight labour market, with scale, strong supplier relationships and a well-developed and accelerating cost saving programme. We continue to expect to report underlying profit before tax of at least £660 million in the financial year to March 2022 and reduce non-lease net debt by at least £950 million3 by March 2023, generating average retail free cash flow of at least £500 million per year over the three years to March 2025.

 

Like-for-like sales performance1

 

 

2020/21

2021/22

 

 

Q1

Q2

Q3

Q4

Q1

Q2

H1

 

Like-for-like sales (exc. fuel)

8.2%

5.1%

8.6%

11.3%

1.6%

(1.4)%

0.3%

 

Like-for-like sales (inc. fuel)

(2.3)%

(0.5)%

3.2%

3.2%

8.4%

3.0%

6.1%

 

 

 

 

 

 

 

 

 

 

Total sales performance

 

 

 

 

 

 

 

 

 

2020/21

2021/22

YoY

2021/22

Yo2Y

 

Q1

Q2

Q3

Q4

Q1

Q2

H1

Q1

Q2

H1

Grocery

10.5%

5.1%

7.4%

7.1%

0.8%

0.8%

0.8%

11.3%

6.0%

9.1%

General Merchandise

7.2%

7.6%

6.0%

17.6%

(1.4)%

(11.4)%

(5.8)%

5.6%

(4.7)%

1.1%

GM (Argos)

10.7%

10.9%

8.4%

18.1%

(3.7)%

(12.0)%

(7.3)%

6.7%

(2.4)%

2.7%

GM (Sainsbury's Supermarkets)

(9.3)%

(6.9)%

(5.4)%

14.8%

11.2%

(8.0)%

2.4%

0.9%

(14.4)%

(5.9)%

Clothing

(26.7)%

(7.5)%

0.4%

4.2%

57.6%

9.2%

33.6%

15.5%

1.0%

9.1%

Total Retail (excl. fuel)

8.5%

5.2%

6.8%

9.2%

1.6%

(1.7)%

0.2%

10.3%

3.4%

7.3%

Fuel

(56.1)%

(29.3)%

(29.0)%

(38.5)%

95.1%

36.1%

62.7%

(14.4)%

(3.8)%

(9.9)%

Total Retail (inc. fuel)

(2.1)%

(0.4)%

1.7%

1.6%

8.5%

2.7%

6.0%

6.2%

2.2%

4.5%

                                     

 

 

 

 

Notes

Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward-looking statements. They appear in a number of places throughout this announcement and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. Unless otherwise required by applicable law, regulation or accounting standard, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

 

A webcast presentation will be available to view on our website at 7:30 (GMT). The webcast can be accessed at the following link: https://webcasts.sainsburys.co.uk/sainsbury165

Following the release of the webcast, a Q&A conference call will be held at 9:30 (GMT). This will be available to listen to on our website at the following link: https://webcasts.sainsburys.co.uk/sainsbury164

A recorded copy of the webcast and Q&A call, alongside slides and a transcript of the presentation will be available at www.about.sainsburys.co.uk/investors/results-reports-and-presentations following the event

Sainsbury's will issue its 2021/22 Third Quarter Trading Statement at 07:00 (GMT) on 12 January 2022. 

 

ENDS

 

Enquiries

 

Investor Relations

 

Media

James Collins

Rebecca Reilly

 +44 (0) 7801 813 074

+44 (0) 20 7695 7295

 

Food First

We are putting food back at the heart of Sainsbury's. We have accelerated our cost saving programme and simplified our operations to invest in lowering prices, speeding up innovation and improving service. This is delivering results - customers are buying more with us more often, switching to us from our competitors and we are increasing sales and market share, enabling us to invest further in our food offer.

 

Market share gains and improving customer satisfaction

·     We grew grocery sales by 0.8 per cent and increased volume market share4

·     We maintained strong customer satisfaction scores despite supply chain challenges and our supermarket customer service scores are ahead of our key competitors2

·     We were named the safest retailer during the pandemic by the UK's leading consumer champion

 

Improving real and perceived value for money

·     We are matching Sainsbury's quality with Aldi prices on nearly 300 of our most popular products and this is driving a halo benefit, with customers doing more of their shopping at Sainsbury's

·     We have invested most in key fresh food areas such as meat, fish, poultry, fruit and vegetables, focusing on the products customers buy most often and delivering market outperformance5

·     Our value index versus Aldi has improved by 400 basis points6

·     The growth in the number of secondary customers choosing to shop at Sainsbury's is ahead of our key competitors7

·     Our core Price Lock commitment continues to deliver great value and our Autumn campaign is one of our biggest ever, with over 2,500 products held in price for at least eight weeks

 

Increasing the speed of innovation

·     We launched almost 650 new products this half and are on track to triple the number of new food products by the end of the year

·     To help make Christmas special for our customers, this year we will launch around 300 innovative new Christmas products including Taste the Difference Maple & Marmalade Gammon and by Sainsbury's Pigs in Snowy Blanket Dragon Sushi Rolls

·     Our Summer Editions range, including new barbecue and salad ranges, proved to be particularly popular. Building on this success, we are offering customers almost 50 new products in our first ever Autumn Editions range, featuring on-trend flavours such as truffle and pumpkin

·     To Help Everyone Eat Better we are launching a number of delicious, healthy and sustainable ranges as well as introducing new lines in our own-brand Plant Pioneers range including innovative plant-based alternatives to fish and our first SO Organic British veg box

·     We are working with new partners such as Carluccio's and Coco di Mama to offer customers a wider range of food to go products and we will continue to explore new partnerships that bring new products and services to our customers

 

Growing Groceries Online capacity and extending routes to market

·     With more customers returning to shopping in our stores, online grocery demand has reduced from peak levels. However, demand remains around double pre-pandemic levels and we are the biggest online market share winner, becoming the second largest online grocery retailer8

·     Investment in online has driven a strong performance relative to our competitors. Sales are up 13 per cent year-on-year and 128 per cent on a two-year basis. Groceries Online accounted for 17 per cent of grocery sales this half versus 15 per cent this time a year ago and 8 per cent two years ago

·     We are improving online fulfilment productivity, with picking rates and basket size higher than two years ago

·     We successfully relaunched same day Click & Collect and home delivery, giving customers more options and greater convenience for shopping online

·     We are growing our On Demand grocery offer, delivering over 70,000 average weekly orders from around 440 stores in as little as 30 minutes through Chop Chop, Deliveroo and Uber Eats

 

Expanding physical points of distribution and adapting supermarket formats

·     Our Convenience business grew 4.9 per cent with a strong recovery of our most urban stores although sales remain below pre-pandemic levels

·     This year we aim to open around 25 convenience stores

·     We plan to open four supermarkets in this financial year and are adapting our existing estate by offering new food services in our food counter spaces. Introducing self-serve patisserie has increased sales and reduced costs

 

Brands that Deliver

Nectar, Argos, Habitat, Tu and Sainsbury's Bank support our core food business, delivering for our customers and contributing strong, sustainable and profitable growth.

 

Nectar

·     8.2 million customers are now registered with the Nectar digital app and we are on track to reach 10 million next year

·     We launched My Nectar Prices, becoming the first UK grocer to offer customers personalised digital rewards

·     We continue to grow our Nectar360 business and invested to strengthen the platform. 170 of our Nectar360 customers have signed up to our insights platform to understand shoppers better

·     We expect Nectar group profit contribution to increase by £60-70 million by FY 25/26, driven by growth in digital media

 

Argos

·     Argos sales were down 7.3 per cent year-on-year but were up 2.7 per cent on two years. In line with the market, recent performance has been impacted by supply challenges, unseasonal weather and lower demand for home office equipment and technology in the second quarter. Our consumer electronics and home and furniture categories performed well

·     83 per cent of sales are generated online, up from 61 per cent two years ago

·     We opened 37 Argos stores within Sainsbury's and more than half of Argos stores are in Sainsbury's supermarkets, making it easier for customers to shop for general merchandise

 

Habitat

·     Habitat is now our main home and furniture brand and is available in 610 Sainsbury's stores and online via the Argos and Habitat websites. This has helped us grow our overall furniture market share over the past two years9

·     We launched a new Habitat brand commitment - 'make your home a happy habitat' to help reposition the brand as affordable and accessible for all. In September we launched Habitat's first furniture range for kids

 

Tu

·     Our clothing business remains strong, with sales up year-on-year and year-on-two years, despite competitors reopening. We have reduced promotions and grown full-price sales

·     Online sales are up 70 per cent on a two-year basis

·     With COVID-19 restrictions lifting, customers have been updating their wardrobes, with Womenswear and Seasonal performing particularly strongly

 

Financial Services

·     We continue to make progress strengthening and simplifying our Financial Services business in line with our strategy and we remain comfortable with consensus profit forecasts for the division10

·     Sainsbury's Bank offers rewards to loyal Sainsbury's and Argos customers and over 77 per cent of Bank customers have a Nectar card

·     We are focused on offering digital-led services. 66 per cent of Car and Home insurance customers now use our online servicing capability and 96 per cent of Argos Storecard sales are through digital channels

·     Following the re-launch of our Credit Card app in 2020, the number of active customers using it has increased by 39 per cent to 64 per cent, with the app becoming our primary credit card payment channel

 

Save to Invest

·     We have made good progress on the cost saving programme we outlined last November and remain on track to deliver a reduction in our retail operating costs to sales ratio of at least 200 basis points

·     Savings during the half were predominantly driven by key structural changes to the in-store operating model, online operating model and supporting customers to shop digitally in store

·     We are making significant progress with our Argos Transformation Programme and are on track to lower our costs by £105 million. We closed 36 standalone Argos stores during the half and opened 37 Argos stores in Sainsbury's

·     We opened our second Argos Local Fulfilment Centre in Leeds which will help give customers quicker access to more products

·     Integrating Argos and Habitat logistics and supply chains with Sainsbury's will reduce costs by £250-300 million and improve overall efficiency. We closed one distribution centre in the half and will close another by the Spring of 2022

·     We are making progress with the rollout of our new Integrated Transport Planning System which is designed to maximise vehicle usage, reduce CO2 emissions and ensure our drivers work as safely and efficiently as possible

·     We are rationalising our property estate and closed one underperforming supermarket and 10 convenience stores

·     Closing our food counters is generating cost savings and reducing food waste. A good proportion of counter sales have transferred to the aisles and we have converted the space in 312 of 477 stores to offer customers products tailored to their local area

 

Plan for Better

Better for You

 

Healthy and sustainable diets

·     We announced a new brand commitment, Helping Everyone Eat Better, to raise awareness and drive behaviour change

·     Over 97,000 colleagues engaged in the launch and took part in a campaign to cook a healthy, sustainable meal

·     We aim to achieve 83 per cent of Healthy and Better for You sales by tonnage by 2025.  We continue to reformulate our own-brand products to reduce sugar and salt, as well as increasing the number of healthier and plant-based choices

·     Over 500,000 customers took part in Nectar's 'The Great Big Fruit And Veg Challenge'. The challenge incentivises shoppers to increase the amount of fruit and vegetables they eat, one plate at a time

 

Better for the Planet

 

·     We are proud to be the Principal Supermarket Partner of COP26, the United Nations Climate Change Conference, currently taking place in Glasgow

Carbon

·     We are ahead of trajectory on our Net Zero target and have accelerated our target for Scopes 1 and 2 greenhouse gas emission reduction from 2040 to Net Zero by 2035

·     We have committed to reducing our Scope 3 emissions by 30 per cent by 2030

·     We are working with our suppliers to understand how they are delivering against their own Scope 1 and 2 targets. We expect them to set their own net zero ambitions and work towards science based targets. We asked 400 of our key suppliers, who are significant contributors to our highest emission hotspot areas, to disclose their carbon reduction targets through industry disclosures, CDP and Higg

·     By the end of 2021 we will be sourcing 100 per cent electricity from renewable sources and all of our supermarkets will have 100 per cent LED lighting installed

Plastic

·     To encourage our customers to recycle, we have rolled out a flexible plastic recycling scheme to all supermarkets

·     To support meeting our target to reduce plastic packaging by 50 per cent by 2025, we have: replaced plastic with pulp trays for all our own-brand eggs, removing 237 tonnes; removed 17 tonnes of plastic wrap from tea boxes and are continuing to reduce the weight of our own-brand water packaging

·     Together with the support of Prevented Ocean Plastic, we are turning plastic collected from the coast into packaging for our strawberry and fresh fish range, preventing 297 tonnes of plastic from entering the ocean each year

 

Food waste

·     We have partnered with Neighbourly to manage our back of store food donation programme. This will help to connect our stores with local partners who will redistribute food to those in need. This half we have seen a 157 per cent increase in the redistribution of food for human consumption

·     We will complete the roll-out of Neighbourly into all supermarkets by the end of 2021, supporting our target to reduce food waste by 50 per cent by 2030 target

 

Better for Everyone

 

·     We want to treat people fairly throughout our business and supply chains and we remain committed to championing human rights. This year we published our fifth Modern Slavery Statement, which can be found on our corporate website

·     In September we launched our new £1 million Helping Everyone Eat Better Community Grant Scheme. Our colleagues will nominate partner organisations who are tackling food insecurity for grants of £500 - part of our commitment to leave a measurable positive impact on the communities we serve and source from

·     94 per cent of colleagues on an apprenticeship scheme successfully completed their programme over the past half year, ahead of the national rate

·     We are committed to diverse representation in leadership positions, with stretching targets taking us to 2024

·     We partnered with Show Racism the Red Card, supporting them through a donation which will provide new educational resources to every school in England, Scotland and Wales for the first time in its 25-year history

·     We announced our enhanced Family Leave policy to support those taking maternity, paternity or adoption leave

 

1 The Group's alternative performance measures are defined and reconciled on pages 54-60. These APMs should be considered in addition to, and are not intended to be a substitute for, IFRS measurements. As they are not defined by International Financial Reporting Standards, they may not be directly comparable with other companies' APMs

2 Service Management Group Competitor Benchmark Survey, Q2 2021/22

3 Excluding the £242m beneficial impact to net debt of the July 2021 conversion of Perpetual Securities

4 NielsenIQ Panel YoY volume growth, 28 weeks to 18 September 2021.Total FMCG (excluding Kiosk & Tobacco), Market Universe: Total Outlets

5 NielsenIQ Panel volume growth Yo2Y. Meat, Fish and Poultry and Produce categories. 28 weeks to 18 September 2021 vs 28 weeks to 21 September 2019. Market Universe: Total Outlets

6 Value Reality. Mar-Sep 2021 vs Mar 2020-Mar 2021; Edge by Ascential; internal modelling. Price index data vs Aldi unavailable in weeks 4-26 of 20/21

7 Secondary Shoppers - Contribution to Volume Growth. Nielsen Panel, Total FMCG (excluding Kiosk & Tobacco), 12wks to September 2021. Market Universe: Total Outlets

8 Nielsen panel data, value share of top 5 competitors between FY 18/19 and H1 21/22

9 GfK Homewares Total Category Report

10 Current analyst consensus for Financial Services Underlying Operating Profit: FY21/22 £26m, FY22/23 £43m, FY23/24 £49m

 

Financial Review for the 28 weeks to 18 September 2021
 

In the 28 weeks to 18 September 2021, the Group generated profit before tax of £541 million (HY 2020/21: loss before tax of £137 million; HY 2019/20: profit before tax of £9 million) and an underlying profit before tax of £371 million (HY 2020/21: £301 million; HY 2019/20: £238 million). COVID-19 caused significant distortions to trading, operating costs and business rates assumptions in HY 2020/21. Therefore in some cases commentary has been provided versus the pre-COVID-19 HY 2019/20.

 

A number of Alternative Performance Measures ('APMs') have been adopted by the Directors to provide additional information on the underlying performance of the Group. These measures are intended to supplement, rather than replace the measures provided under IFRS. Please see pages 54 to 60 for further information.

 

Summary income statement

28 weeks to

28 weeks to

 

52 weeks to

 

18 September

19 September

Change

6 March

 

2021

2020

 

2021

 

£m

£m

%

£m

 

 

 

 

 

Group sales (including VAT)

17,528

16,557

5.9

32,285

Retail sales (including VAT)

17,315

16,338

6.0

31,854

Retail sales (excluding fuel, including VAT)

14,871

14,836

0.2

28,837

 

 

 

 

 

Group sales (excluding VAT)

15,724

14,934

5.3

29,048

Retail sales (excluding VAT)

15,511

14,715

5.4

28,617

 

 

 

 

 

 

 

 

 

 

Underlying operating profit

 

 

 

 

Retail

523

555

(6)

730

Financial services

19

(55)

N/A

(21)

Total underlying operating profit

542

500

8

709

 

 

 

 

 

Underlying net finance costs1

(171)

(199)

14

(353)

Underlying profit before tax

371

301

23

356

Items excluded from underlying results2

170

(438)

N/A

(617)

Profit/(Loss) before tax

541

(137)

N/A

(261)

Income tax expense

(152)

(42)

(265)

(19)

Profit/(Loss) for the financial period

389

(179)

N/A

(280)

 

 

 

 

 

Underlying basic earnings per share

12.2p

10.1p

21

11.7p

Underlying diluted earnings per share

11.6p

9.8p

18

11.4p

Basic earnings/(loss) per share

17.3p

(8.3)p

N/A

(13.0)p

Diluted earnings/(loss) per share

16.6p

(8.3)p

N/A

(13.0)p

Dividend per share

3.2p

3.2p

-

10.6p

 

1      Refer to APMs and note 7 of the financial statements

2      Refer to APMs and note 3 of the financial statements

 

Through the first half grocery sales remained elevated in line with last year reflecting the ongoing impact of COVID-19 on in-home consumption.

COVID-19 costs have been significantly lower this year despite the continued elevated sales, which together with ongoing delivery of our cost programme has resulted in strong profit delivery. The prior year results were published before the decision to forgo business rates relief in Sainsbury's. Had this decision been taken prior to publication, the impact of additional business rates on the prior half year would have been to reduce retail operating profits by £204m.

 

 

Group sales

 

Group sales including VAT increased by 5.9 per cent year-on-year whilst Retail sales (including VAT, including fuel) increased by 6.0 per cent year-on-year, driven by a significant recovery in Fuel sales. Retail sales (including VAT, excluding fuel) increased by 0.2 per cent.

 

Total sales performance by category

28 weeks to

28 weeks to

28 weeks to

YoY

Yo2Y

18 September

19 September

21 September

Change

Change

2021

2020

2019

 

 

£bn

£bn

£bn

%

%

Grocery

11.3

11.2

10.3

0.8%

9.1%

General Merchandise

3.1

3.2

3.0

(5.8)%

1.1%

Clothing

0.5

0.4

0.5

33.6%

9.1%

Retail (exc. fuel)

14.9

14.8

13.9

0.2%

7.3%

Fuel sales

2.4

1.5

2.7

62.7%

(9.9)%

Retail (inc. fuel)

17.3

16.3

16.6

6.0%

4.5%

 

Grocery sales remained high with the COVID-19 pandemic continuing to move eating occasions in-home. In line with the reduction of government restrictions during the period, this trend was more pronounced in Q1, with sales moderating in Q2 across the Summer. Sales were supported by our Sainsbury's Quality, Aldi Price Match programme and we saw improved base prices against all tracked competitors in the half.

 

General Merchandise sales declined, reflecting annualisation of very high demand for home office and home entertainment products during the first COVID-19 lockdown when many competitor stores were closed. Clothing recovered strongly from a year of suppressed demand with no full range promotions run in the half and growth driven by full price sales.

 

Fuel sales increased by 62.7 per cent, driven by increased demand as traffic volumes recovered although they remained 9.9 per cent below pre-COVID-19 levels.

 

Total sales performance by channel

 

28 weeks to

28 weeks to

 

 

18 September 2021

19 September 2020

Total Sales fulfilled by Supermarket stores

 

(0.5)%

11.8%

Supermarkets (inc Argos stores in Sainsbury's)

 

(3.0)%

3.2%

Groceries Online

 

12.8%

102.2%

Convenience

 

4.9%

(8.0)%

 

 

 

 

Overall sales served from our Supermarkets fell by 0.5 per cent after rising 11.8 per cent in the prior year. Within this, Supermarket sales including Argos stores in Sainsbury's fell by 3.0 per cent. Groceries Online sales increased by 12.8 per cent, with sales moderating during the half as we began to annualise large increases in the prior year.  Convenience sales grew by 4.9 per cent, driven by the recovery of sales in urban sites most impacted by reduced footfall in the previous year.

 

Retail like-for-like sales performance

 

28 weeks to

28 weeks to

 

 

18 September

19 September

 

 

2021

2020

Like-for-like sales (exc. fuel)

 

0.3%

6.9%

Like-for-like sales (inc. fuel)

 

6.1%

(1.6)%

 

 

 

 

 

Retail like-for-like ('LFL') sales excluding fuel were broadly flat, with groceries growth offset by General Merchandise declines.


Space

In the first half of 2021/22, Sainsbury's opened one new Supermarket and closed one (2020/21 no openings or closures). We opened eight new Convenience stores and 10 were closed (2020/21 opened five convenience stores and closed two). During the period we opened 37 new Argos stores in Sainsbury's and closed 36 standalone Argos stores (2020/21 opened four and closed 14). This now brings the total number of Argos stores in Sainsbury's to 373, over half the store estate. In total Argos had 738 stores and 280 collection points at the end of the period.

 

Store numbers and retailing space

 

 

 

 

 

As at

New stores

Disposals / closures

Extensions / refurbishments / downsizes

As at

 

6 March

18 September

 

2021

2021

 

 

 

 

 

 

Supermarkets

598

1

(1)

39

598

Supermarkets area '000 sq. ft.

20,822

17

(6)

(33)

20,800

 

 

 

 

 

 

Convenience

813

8

(10)

-

811

Convenience area '000 sq. ft.

1,929

18

(24)

-

1,923

Sainsbury's total store numbers

1,411

9

(11)

39

1,409

 

 

 

 

 

 

Argos stores

401

-

(36)

-

365

Argos stores in Sainsbury's

336

37

-

-

373

Argos total store numbers

737

37

(36)

-

738

Argos collection points

306

-

(26)

-

280

Habitat

3

-

-

-

3


In 2021/22, we expect to open four supermarkets and around 25 new convenience stores, and to close around 5 supermarkets and around 25 convenience stores.

In 2021/22, we expect to open around 70 Argos stores inside Sainsbury's, and close around 70 Argos standalone stores.

In the UK, the standalone Argos store estate will reduce to around 100 stores by March 2024, while we expect to have 430-460 Argos stores inside Sainsbury's supermarkets as well as 450-500 collection points leveraging our nationwide Sainsbury's store estate.

Retail underlying operating profit

 

Retail underlying operating profit decreased by 5.7 per cent to £523 million (HY 2020/21: £555 million) and retail underlying operating margin decreased by 40 basis points year-on-year to 3.37 per cent (HY 2020/21: 3.77 per cent). The reduction from last year was driven by business rates relief which was reflected in the half year accounts before we subsequently decided to forgo this relief. Had this decision been taken prior to publication, the prior year's profits would have been £204 million lower, worth 139 basis points to retail underlying operating margin. The year-on-year impact of this was largely offset by a reduction in COVID-19 costs, the recovery of fuel sales, and benefits from the cost saving programme.

 

Retail underlying operating profit was up 19.7% vs two years ago (HY 2019/20: £437 million), reflecting both sales growth and retail underlying operating margin expansion of 42bps. This margin growth reflects the early success of our Save to Invest programme, having been achieved despite further investment in lower prices.

 

The Argos Transformation programme continued to deliver savings as we integrate the two businesses and reduce occupancy and store operational costs. Within the Sainsbury's business, savings were generated from further expansion of self check-out as well as efficiencies in the Online operating model following last year's focus on rapidly expanding capacity.

 

Retail underlying operating profit

 

 

 

 

 

 

28 weeks to

28 weeks to

28 weeks to

YoY

Yo2Y

 

18 September

19 September

21 September

 

 

 

2021

2020

2019

Change

Change

Retail underlying operating profit (£m)1

523

555

437

(5.7)%

19.7%

Retail underlying operating margin (%)2

3.37

3.77

2.95

(40)bps

42bps

 

 

 

 

 

 

Retail underlying EBITDA (£m)3

1,141

1,190

1,073

(4.1)%

6.3%

Retail underlying EBITDA margin (%)4

7.36

8.08

7.25

(72)bps

11bps

 

 

 

 

 

 

1      Retail underlying earnings before interest, tax and Sainsbury's underlying share of post-tax profit from joint ventures.                                                             

2      Retail underlying operating profit divided by retail sales excluding VAT.

3      Retail underlying operating profit before underlying depreciation and amortisation of £618 million.

4      Retail underlying EBITDA divided by retail sales excluding VAT.

 

In 2021/22, we expect a depreciation and amortisation charge of around £1.2 billion, including around £500 million right of use asset depreciation.

Financial Services

 

Financial Services results

 

 

 

6 months to 31 August 2021

 

 

 

 

2021

2020

Change

 

 

 

 

Underlying revenue (£m)

213

219

(3)%

Interest and fees payable (£m)

(30)

(54)

(44)%

Total income (£m)

183

165

11%

Underlying operating profit/(loss) (£m)

19

(55)

N/A

 

 

 

 

Active customers (m) - Bank

1.8

2.0

(10)%

Active customers (m) - AFS

2.1

2.3

(9)%

Cost:income ratio (%)

72.0

77.0

(500) bps

Net interest margin (%)1

4.3

3.1

120 bps

Bad debt as a percentage of lending (%)2

1.3

2.7

140 bps

Tier 1 capital ratio (%)3

17.4

14.9

250 bps

Total capital ratio (%)4

20.1

17.8

230 bps

Customer lending (£bn)5

5.0

6.2

(19)%

Customer deposits (£bn)

(4.6)

(5.4)

(15)%

 

1      Net interest receivable divided by average interest-bearing assets.

2      Bad debt expense divided by average net lending.

3      Common equity Tier 1 capital divided by risk-weighted assets.

4      Total capital divided by risk-weighted assets.

5      Amounts due from customers at the Balance Sheet date in respect of loans, mortgages, credit cards and store cards net of provisions.

 

Underlying operating profit of £19 million has returned to pre-COVID-19 levels (HY 2019/20: £20 million) which has been aided by management action on funding and operating costs. We have seen an increase in consumer spending, but unsecured balances remain subdued as a result of higher levels of customer repayments and lower credit demand. We have also seen increased trading in our fee-based products as lockdown restrictions were removed, but these remain below pre-COVID-19 levels.

 

Financial Services total income of £183 million has improved year-on-year (HY 2020/21: £165 million) but remains below pre-COVID-19 levels (HY 2019/20: £227 million). Net Interest Income recovery is reflective of action to reduce interest payable through reduced savings rates, but remains down on two years ago due to the significant reduction in customer balances. Fee income has increased due to the increase in activity post lockdown, with ATMs and Card fees both recovering. Travel Money remains subdued but is higher than last year.

 

The number of Bank active customers reduced by 10 per cent year-on-year to 1.8 million as new business demand has not recovered enough to offset the normal levels of attrition in the book. Argos Financial Services customers decreased 9 per cent to 2.1 million, largely due to lower new account volumes from lower Retail sales.

 

The Financial Services cost:income ratio decreased 500 basis points to 72.0 per cent (HY 2020/21: 77.0 per cent) and is reflective of the material rise in income and ongoing cost management.

 

Net interest margin increased by 120 basis points year-on-year to 4.3 per cent (HY 2020/21: 3.1 per cent) driven by the continued reduction in savings rates, improvements in unsecured asset margins and a lower mix of secured lending (following our decision to cease new mortgage lending in 2019).

 

Bad debt expense as a percentage of lending decreased 140 basis points year-on-year to 1.3 per cent (HY 2020/21: 2.7 per cent), reflecting the significant COVID-19 provision posted last year with underlying trends stable.

 

The capital position is strong with CET1 capital ratio increasing by 250 basis points since August 2020 to 17.4 per cent (HY 2020/21: 14.9 per cent) as a result of the contraction in balances and improved profit performance.

 

We expect financial services to continue to deliver profit in the second half of 2021/22 as more normal levels of consumer demand return.

 

Underlying net finance costs

 

Underlying net finance costs reduced by 14 per cent to £171 million (HY 2020/21: £199 million). These costs include £22 million of net non-lease interest (HY 2020/21: £37 million). The reduction of net non-lease interest is driven by the repayment of the £250 million bilateral loan and redemption of the £250 million perpetual subordinated capital securities, both in July 2020, and the redemption of the perpetual convertible bonds in July 2021. In addition, the net underlying interest costs on lease liabilities have reduced to £149 million (HY 2020/21: £162 million), mainly due to lower interest rates on new leases.

 

We now expect underlying net finance costs in 2021/22 of £320 million - £330 million, including around £280 million of lease interest.

 

Items excluded from underlying results

In order to provide shareholders with additional insight into the underlying performance of the business, an adjusted measure of profit (underlying profit before tax) is provided to supplement the reported IFRS numbers, reflecting how the business measures performance internally. Underlying results exclude items recognised in reported profit or loss before tax which, if included, could distort comparability between periods. In determining which items to exclude from underlying profit, the Group considers items which are significant either by virtue of their size and/or nature, or that are non-recurring. The adjusted items are below.

 

 

 Items excluded from underlying results

28 weeks to

28 weeks to

 

18 September

19 September

 

2021

2020

 

£m

£m

Restructuring and integration programmes

(32)

(266)

Impairment charges

-

(214)

Restructuring, impairment and integration

(32)

(480)

 

 

 

Income recognised in relation to legal disputes

181

42

IAS 19 pension income

6

8

Property, finance and acquisition adjustments

15

(8)

Items excluded from underlying results

170

(438)

 

-     Restructuring, impairment and integrations costs of £32 million (2020/21: £480 million) includes £22 million (2020/21: £473 million) relating to the programme announced in November 2020 for the structural integration of Sainsbury's and Argos. We still expect that we will incur one off costs from these infrastructure, operating model and structure changes of £900 million to £1 billion in the period to March 2024 with £75 million to £100 million in the current year. We expect cash costs from this programme of around £300 million in total, with around £125 million in the current year.

-     Income recognised in relation to legal disputes of £181 million (2020/21: £42 million) primarily relates to two settlements for overcharges from payment card processing fees. £75 million of cash was received in prior financial years and held as deferred income, £27 million was received during the half, £67 million is a current receivable and £13 million relates to a provision release. The prior year relates to ATM business rates reimbursement.

-     IAS 19 Pension income of £6 million (2020/21: £8 million) comprises pension finance income of £8 million and scheme expenses of £2 million.

-     Other movements of £15 million income (2020/21: cost of £8 million) relate to property profits, acquisition adjustments and non-underlying financing costs. The positive movement year on year is driven by a gain on energy derivatives driven by higher energy prices.

 

 

Taxation

 

The tax charge was £152 million (HY 2020/21: £42 million). The underlying tax rate was 26.4 per cent (HY 2020/21: 27.6 per cent) and the effective tax rate was 28.1 per cent (HY 2020/21: negative 30.7 per cent).

 

The underlying tax rate is lower than the prior year. The tax charge is adversely impacted by a similar value of tax adjusting items as for 2020/21, however due to the increased 2021/22 half year profit, these adjustments have a smaller impact on the rate than in the prior year.

 

The effective tax rate is higher than the prior year but this is distorted by the fact there was an accounting loss before tax for HY 2020/21 which also resulted in a tax charge, rather than an expected tax credit.  This was largely a result of the amount of non-deductible expenses, particularly in respect of non-underlying items, the de-recognition of previously recognised deferred tax assets on capital losses and prior year adjustments.  

 

The 2021/22 effective tax rate of 28.1 per cent is higher than the standard rate of corporation tax in the UK of 19 per cent. This is largely a result of the impact of the future tax rate change, combined with the impact of non-deductible expenses, particularly in respect of non-deductible capital expenditure, the de-recognition of previously recognised deferred tax assets on capital losses, and prior year adjustments.

 

We expect an underlying tax rate in 2021/22 of around 25 per cent.

 

Earnings per share

Underlying basic earnings per share increased to 12.2 pence (HY 2020/21: 10.1 pence) driven by an increase in underlying earnings. Basic earnings per share increased to 17.3 pence (HY 2020/21: negative 8.3 pence). Underlying diluted earnings per share increased to 11.6 pence (HY 2020/21: 9.8 pence) and diluted earnings per share increased to 16.6 pence (HY 2020/21: negative 8.3 pence).

 

During the half the remaining £248 million of perpetual convertible bonds matured. Of these, £242 million were redeemed by conversion to shares, resulting in the creation of 91 million new shares, an increase of 4.1 per cent on the opening balance of shares.

 

Dividends

The Board has recommended an interim dividend of 3.2 pence per share (2020/21: 3.2 pence) reflecting 30 per cent of the 2020/21 full year dividend per share. This will be paid on 17 December 2021 to shareholders on the Register of Members at the close of business on 12 November 2021. Sainsbury's has a Dividend Reinvestment Plan (DRIP), which allows shareholders to reinvest their cash dividends in our shares. The last date that shareholders can elect for the DRIP is 26 November 2021.

Sainsbury's plans to maintain a full-year dividend covered 1.9 times by our full-year underlying earnings.

Net debt and retail cash flows

As at 18 September 2021, net debt was £6,345 million (19 September 2020: £6,168 million), an increase of £177 million (2020/21: £610 million reduction). Excluding the impact of lease liabilities on net debt, Sainsbury's reduced non-lease net debt by £240 million.

 

Net debt includes lease liabilities under IFRS 16 which grew to £6,318 million (HY 2020/21: £5,901 million) as we served notice to purchase 13 stores when their leases end in 2023/24. In the half, £248 million of perpetual convertible bonds were redeemed leaving no remaining balance (HY 2020/21: £248 million). Of these, £242 million were converted to shares as noted above, and are included in the summary cash flow statement within other non-cash and interest movements. Group net debt includes the impact of capital injections to Sainsbury's Bank, but excludes the net debt of Financial Services. Financial Services' net debt balances are excluded because they are required as part of the business as usual operations of the bank, as opposed to specific forms of financing for the Group.

 

We remain on track to meet our target of at least £950 million non-lease net debt reduction in the four years to March 2023, before the beneficial impact of the perpetual convertible bond, and to generate average retail free cash flow of at least £500 million per year over the three years to March 2025.

 

Summary cash flow statement1

Retail

Retail

Retail

 

28 weeks to

28 weeks to

52 weeks to

 

18 September

19 September

6 March

 

2021

2020

2021

 

£m

£m

£m

Retail underlying operating profit

523

555

730

Adjustments for:

 

 

 

Retail underlying depreciation and amortisation2

618

635

1,179

Share based payments and other

26

15

26

 Retail exceptional operating cash flows (excluding pensions)2

(30)

3

(12)

Adjusted retail operating cash flow before changes in working capital3

1,137

1,208

1,922

Decrease in underlying working capital2

135

571

453

Net interest paid2

(177)

(213)

(372)

Pension cash contributions

(39)

(60)

(101)

Corporation tax paid

-

(88)

(94)

Adjusted net cash generated from/(used in) operating activities2

1,056

1,418

1,809

Cash capital expenditure2

(298)

(290)

(568)

Repayments of lease liabilities

(242)

(223)

(499)

Initial direct costs on right-of-use assets

(1)

(3)

(7)

Proceeds from disposal of property, plant and equipment

39

19

27

Dividends and distributions received

-

22

22

Retail free cash flow

554

943

784

Dividends paid on ordinary shares

(165)

-

(232)

Repayment of borrowings2

(231)

(519)

(539)

Other2

(30)

(26)

(13)

Net increase/(decrease) in cash and cash equivalents

128

398

0

Decrease in Debt

473

742

1,038

Other non-cash and net interest movements4

(477)

(361)

(560)

Movement in net debt

124

779

478

 

 

 

 

Opening net debt

(6,469)

(6,947)

(6,947)

Closing net debt

(6,345)

(6,168)

(6,469)

       of which

 

 

 

                     Lease Liabilities

(6,318)

(5,901)

(5,829)

                     Net Debt Excluding Lease Liabilities

(27)

(267)

(640)

 

1      See note 5b for a reconciliation between Retail and Group cash flow, and Alternative Performance Measures on page 57 for reconciliations of specific line items as indicated.

2      Refer to the Alternative Performance Measures on pages 57 to 59 for reconciliation.

3      Excludes working capital and pension contributions.

4      Other non-cash includes new leases and lease modifications, fair value movements on derivatives used for hedging long term borrowings and the impact of the perpetual security conversion.

 

Adjusted retail operating cash flow before changes in working capital was £1,137 million (HY 2020/21: £1,208 million) and underlying working capital decreased by £135 million since the year end (HY 2020/21: £571 million). Working capital typically decreases between year end and half year, driven by seasonality and the phasing of payables. HY 2020/21 saw a more pronounced effect due to the initial impact of COVID-19 trading patterns, whilst this year has seen a lower than usual decrease due to a partial reversal of this as guided at year end.

 

No corporation tax was paid in the half (HY 2020/21: £88 million). This reflects payments made in the prior year before the decision to forgo business rates relief which subsequently impacted taxable profits. Pensions contributions of £39 million (HY 2020/21: £60 million) were down on the prior year in line with the asset backed contribution structure established in July 2019 as previously guided. Proceeds from disposals of £39 million (HY 2020/21: £19 million) represents disposal of non-trading sites and we do not expect any material further proceeds in the second half of the year.

 

Retail free cash flow decreased by £389 million year-on-year to £554 million (HY 2020/21: £943 million) reflecting the material change in working capital pattern noted above, as well as timings of business rates payments in the prior year.

 

Sainsbury's paid dividends of £165 million in the half, after having not paid a final dividend in the prior year due to COVID-19 uncertainty (HY 2020/21: £0 million). This was subsequently paid as a special dividend in December 2020.

 

As at 18 September 2021 Sainsbury's has drawn debt facilities of £0.59 billion (HY 2020/21 £1.08 billion including the Perpetual securities). The Group holds undrawn committed credit facilities of £1.45 billion and undrawn uncommitted facilities of £195 million.

 

Capital expenditure

 

Core retail cash capital expenditure was £298 million (HY 2020/21: £290 million).

 

We expect annual core retail cash capital expenditure (excluding Financial Services) to be around £700 million to £750 million in the 3 years to March 2024.

 

Financial ratios

 

Key financial ratios

52 weeks to

52 weeks to

52 weeks to

 

18 September

19 September

6 March

 

2021

2020

2021

Return on capital employed (%)1

6.3

7.9

5.5

Net debt to EBITDA2

3.3 times

2.7 times

3.4 times

Fixed charge cover3

2.3 times

2.8 times

2.2 times

 

 

 

 

1      ROCE: Return is defined as a 52 week rolling underlying profit before interest and tax. Capital employed is defined as group net assets excluding the pension deficit/surplus and excluding net debt. The average is calculated on a 14 point basis.

2      Net debt of £6,345 million includes lease obligations under IFRS 16, divided by Group underlying EBITDA of £1,932 million, calculated for a 52-week period to 18 September 2021.

3      Group underlying EBITDA divided by rent (both capital and interest) and net underlying finance costs, where interest on perpetual securities is treated as an underlying finance cost.

 

Return on capital employed (ROCE) is a 52 week measure and so is still impacted by the H2 2020/21 decision to forgo Business rates relief. Adjusted for the phasing impact of £204 million relating to business rates, ROCE would have been 8.0 per cent. Our medium term net debt to EBITDA leverage target remains less than 3.0 times.

 

Defined benefit pensions

 

The Pension Scheme is valued on different bases for different purposes. For the corporate annual accounts, the value of the retirement benefit is calculated under IAS19 while the funding of the Scheme is determined by the Trustee's triennial valuation. The Trustee has started the next triennial valuation which is due as at 30 September 2021;  the Company will share the outcome when discussions have completed in 2022.

 

At 18 September 2021, the net defined benefit surplus under IAS19 for the Group was £1,087 million (excluding deferred tax). The £343 million increase from 6 March 2021 was primarily driven by higher than expected asset returns, partially offset by a decrease in yields and increased future inflation expectations.

 

For 2021/22, total pension scheme cash contributions are expected to be £76 million.

Retirement benefit obligations

 

 

 

 

 

Sainsbury's

Argos

Group

Group

 

as at

as at

as at

as at

 

18 September

18 September

18 September

6 March

 

2021

2021

2021

2021

 

£m

£m

£m

£m

Present value of funded obligations

(9,352)

(1,488)

(10,840)

(10,218)

Fair value of plan assets

10,394

1,574

11,968

11,000

Pension surplus/(deficit)

1,042

86

1,128

782

Present value of unfunded obligations

(23)

(18)

(41)

(38)

Retirement benefit obligations

1,019

68

1,087

744

Deferred income tax liability

(311)

(56)

(367)

(192)

Net retirement benefit obligations

708

12

720

552

 

 

Group income statement (unaudited)

for the 28 weeks to 18 September 2021

 

 

 

28 weeks to 18 September 2021

28 weeks to 19 September 2020

 

 

Before non-underlying items

Non-underlying items
(Note 3)

Total

Before non-underlying items

Non-underlying items
(Note 3)

Total

 

Note

£m

£m

£m

£m

£m

£m

Revenue

4

15,724

-

15,724

14,934

-

14,934

Cost of sales

 

(14,476)

(14)

(14,490)

(13,644)

(298)

(13,942)

Gross profit/(loss)

 

1,248

(14)

1,234

1,290

(298)

992

Administrative expenses

 

(725)

(31)

(756)

(801)

(154)

(955)

Other income

 

19

184

203

11

(5)

6

Operating profit/(loss)

 

542

139

681

500

(457)

43

Finance income

7

-

36

36

2

14

16

Finance costs

7

(171)

(5)

(176)

(201)

5

(196)

Profit/(loss) before tax

 

371

170

541

301

(438)

(137)

Income tax (expense)/credit

8

(98)

(54)

(152)

(83)

41

(42)

Profit/(loss) for the financial period

 

273

116

389

218

(397)

(179)

 

 

 

 

 

 

 

 

Earnings/(loss) per share

9

 

 

pence

 

 

pence

Basic earnings/(loss)

 

 

 

17.3

 

 

(8.3)

Diluted earnings/(loss)

 

 

 

16.6

 

 

(8.3)

 

 

 

 

 

52 weeks to 6 March 2021

 

 

 

 

 

Before non-underlying items

Non-underlying items
(Note 3)

Total

 

Note

 

 

 

£m

£m

£m

Revenue

4

 

 

 

29,048

-

29,048

Cost of sales

 

 

 

 

(26,871)

(412)

(27,283)

Gross profit/(loss)

 

 

 

 

2,177

(412)

1,765

Administrative expenses

 

 

 

 

(1,480)

(238)

(1,718)

Other income

 

 

 

 

12

1

13

Operating profit/(loss)

 

 

 

 

709

(649)

60

Finance income

7

 

 

 

3

29

32

Finance costs

7

 

 

 

(356)

3

(353)

Profit/(loss) before tax

 

 

 

 

356

(617)

(261)

Income tax (expense)/credit

8

 

 

 

(105)

86

(19)

Profit/(loss) for the financial period

 

 

 

 

251

(531)

(280)

 

 

 

 

 

 

 

 

Loss per share

9

 

 

 

 

 

pence

Basic loss

 

 

 

 

 

 

(13.0)

Diluted loss

 

 

 

 

 

 

(13.0)

 

 

The notes on pages 22 to 50 form an integral part of these Condensed Consolidated Interim Financial Statements.
 

Group statement of comprehensive income/(loss) (unaudited)

for the 28 weeks to 18 September 2021

 

 

 

28 weeks to 18 September 2021

28 weeks to 19 September 2020

52 weeks to 6 March 2021

 

Note

£m

£m

£m

Profit/(loss) for the financial period

 

389

(179)

(280)

 

 

 

 

 

Items that will not be reclassified subsequently to the income statement

 

 

 

 

Remeasurement on defined benefit pension schemes

18

298

(175)

(482)

Movements on financial assets at fair value through other comprehensive income

 

40

28

55

Cash flow hedges fair value movements - inventory hedges

 

53

-

(60)

Current tax relating to items not reclassified

 

-

23

44

Deferred tax relating to items not reclassified

 

(165)

(24)

9

 

 

226

(148)

(434)

Items that may be reclassified subsequently to the income statement

 

 

 

 

Currency translation differences

 

2

-

(5)

Movements on financial assets at fair value through other comprehensive income

 

(2)

1

2

Cash flow hedges fair value movements - non-inventory hedges

 

14

6

(1)

Items reclassified from cash flow hedge reserve

 

4

-

13

Deferred tax on items that may be reclassified

 

(18)

(2)

10

 

 

-

5

19

Total other comprehensive income/(loss) for the financial period (net of tax)

 

226

(143)

(415)

Total comprehensive income/(loss) for the financial period

 

615

(322)

(695)

 

The notes on pages 22 to 50 form an integral part of these Condensed Consolidated Interim Financial Statements.

 

Group balance sheet (unaudited)

at 18 September 2021

 

 

 

18 September 2021

6 March 2021*

19 September 2020*

 

Note

£m

£m

£m

Non-current assets

 

 

 

 

Property, plant and equipment

11

8,417

8,587

8,759

Right-of-use assets

12

5,222

4,747

4,796

Intangible assets

13

1,001

914

858

Investments in joint ventures and associates

 

5

5

5

Financial assets at fair value through other comprehensive income

14a

640

754

863

Trade and other receivables

 

39

50

52

Amounts due from Financial Services customers and banks

14d

2,049

2,280

2,812

Derivative financial assets

14c

44

8

4

Net retirement benefit surplus

18

1,087

744

1,012

 

 

18,504

18,089

19,161

Current assets

 

 

 

 

Inventories

 

1,682

1,625

1,635

Trade and other receivables

 

740

725

748

Amounts due from Financial Services customers and banks

14d

2,973

3,127

3,380

Financial assets at fair value through other comprehensive income

14a

112

90

61

Derivative financial assets

14c

20

5

28

Cash and cash equivalents

17

1,636

1,575

2,068

 

 

7,163

7,147

7,920

Assets held for sale

 

9

24

2

 

 

7,172

7,171

7,922

Total assets

 

25,676

25,260

27,083

Current liabilities

 

 

 

 

Trade and other payables

 

(4,563)

(4,488)

(4,702)

Amounts due to Financial Services customers and banks

14a

(4,970)

(6,086)

(5,906)

Borrowings

16

(261)

(356)

(872)

Lease liabilities

12

(558)

(524)

(538)

Derivative financial liabilities

14c

(33)

(93)

(38)

Taxes payable

 

(174)

(59)

(29)

Provisions

 

(113)

(209)

(136)

 

 

(10,672)

(11,815)

(12,221)

Net current liabilities

 

(3,500)

(4,644)

(4,299)

Non-current liabilities

 

 

 

 

Other payables

 

(21)

(20)

(1)

Amounts due to Financial Services customers and banks

14a

(644)

(203)

(904)

Borrowings

16

(722)

(748)

(772)

Lease liabilities

12

(5,764)

(5,310)

(5,369)

Derivative financial liabilities

14c

(18)

(44)

(60)

Deferred income tax liability

 

(490)

(255)

(328)

Provisions

 

(269)

(261)

(241)

 

 

(7,928)

(6,841)

(7,675)

Total liabilities

 

(18,600)

(18,656)

(19,896)

Net assets

 

7,076

6,604

7,187

Equity

 

 

 

 

Called up share capital

 

666

637

635

Share premium

 

1,398

1,173

1,163

Merger reserve

 

568

568

568

Capital redemption reserve

 

680

680

680

Other reserves

 

276

167

194

Retained earnings

 

3,488

3,131

3,699

Total equity before perpetual securities

 

7,076

6,356

6,939

Perpetual convertible bonds

 

-

248

248

Total equity

 

7,076

6,604

7,187

* The comparative balance sheets have been restated. Refer to note 2 for further information.

 

The notes on pages 22 to 50 form an integral part of these Condensed Consolidated Interim Financial Statements.

 

 

Group cash flow statement (unaudited)

for the 28 weeks to 18 September 2021

 

 

 

28 weeks to

28 weeks to

52 weeks to

 

 

18 September

19 September

6 March

 

 

2021

2020

2021

 

Note

£m

£m

£m

Cash flows from operating activities

 

 

 

 

Profit/(Loss) before tax

 

             541

            (137)

            (261)

Net finance costs

 

             140

             180

             321

Operating profit

 

             681

               43

               60

Adjustments for:

 

 

 

 

Depreciation expense

11,12

             581

             596

           1,113

Amortisation expense

13

               78

               65

             136

Net impairment loss on property, plant and equipment, right-of-use assets, intangible assets

11,12,13

                 1

             292

             321

Non-cash adjustments arising from acquisitions

 

                 -

                (1)

                (1)

Financial Services impairment losses on loans and advances

 

               35

               39

               85

(Profit)/loss on sale of properties and early termination of leases

17

              (22)

                 7

              (17)

Share-based payments expense

 

               28

               16

               29

Defined benefit scheme expenses

18

                 2

                 3

               13

Cash contributions to benefit schemes

18

              (39)

              (60)

            (101)

Operating cash flows before changes in working capital

 

          1,345

           1,000

           1,638

Changes in working capital

 

 

 

 

(Increase)/decrease in inventories

17

              (57)

               97

             117

Decrease in financial assets at fair value through other comprehensive income

17

             130

             159

             267

(Increase)/decrease in trade and other receivables

17

                (6)

               58

               62

Decrease in amounts due from Financial Services customers and other deposits

17

             350

           1,173

           1,912

Increase in trade and other payables

17

               95

             409

             321

(Decrease) in amounts due to Financial Services customers and other deposits

17

            (675)

          (1,284)

          (1,805)

(Decrease)/increase in provisions and other liabilities

17

              (91)

             180

             273

Cash generated from operations

 

          1,091

           1,792

           2,785

Interest paid

 

            (178)

            (193)

            (349)

Corporation tax paid

 

                 -

              (88)

              (93)

Net cash generated from operating activities

 

             913

           1,511

           2,343

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Purchase of property, plant and equipment

 

            (154)

            (257)

            (423)

Initial direct costs on new leases

 

                (1)

                (3)

                (7)

Purchase of intangible assets

 

            (165)

              (44)

            (172)

Proceeds from disposal of property, plant and equipment

 

               39

               19

               27

Dividends and distributions received

 

                 -

               22

               22

Net cash used in investing activities

 

            (281)

            (263)

            (553)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Proceeds from issuance of ordinary shares

 

               11

                 4

               17

Proceeds from short term borrowings

 

                 -

             660

             660

Repayment of borrowings

 

            (223)

            (269)

            (289)

Repayment of short term borrowings

 

                 -

            (660)

            (660)

Repayment of perpetual capital securities

 

                (8)

            (250)

            (250)

Purchase of own shares

 

              (41)

              (30)

              (30)

Repayment of capital element of lease obligations

 

            (243)

            (224)

            (501)

Dividends paid on ordinary shares

10

            (165)

                  -

            (232)

Dividends paid on perpetual securities

 

                (4)

              (20)

              (23)

Net cash used in financing activities

 

            (673)

            (789)

          (1,308)

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

              (41)

             459

             482

 

 

 

 

 

Opening cash and cash equivalents

 

          1,476

             994

             994

Closing cash and cash equivalents

17

          1,435

           1,453

           1,476

 

The notes on pages 22 to 50 form an integral part of these Condensed Consolidated Interim Financial Statements.

 

Group statement of changes in equity (unaudited)

for the 28 weeks to 18 September 2021

 

 

Called up share capital

Share premium account

Merger reserve

Capital redemption and other reserves

Retained earnings

Total equity before perpetual securities

Perpetual capital securities

Perpetual convertible bonds

Total equity

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

At 7 March 2021

637

1,173

568

847

3,131

6,356

-

248

6,604

Profit for the period

-

-

-

-

389

389

-

-

389

Other comprehensive income

-

-

-

111

298

409

-

-

409

Tax relating to other comprehensive income

-

-

-

(42)

(141)

(183)

-

-

(183)

Total comprehensive income for the period ended 18 September 2021

-

-

-

69

546

615

-

-

615

 

 

 

 

 

 

 

 

 

 

Cash flow hedges gains and losses transferred to inventory

-

-

-

24

-

24

-

-

24

 

 

 

 

 

 

 

 

 

 

Transactions with owners:

 

 

 

 

 

 

 

 

 

Dividends

-

-

-

-

(165)

(165)

-

-

(165)

Conversion of perpetual convertible bonds

26

216

-

-

(2)

240

-

(240)

-

Repayment of perpetual convertible bonds

-

-

-

-

-

-

-

(8)

(8)

Share-based payment

-

-

-

-

28

28

-

-

28

Purchase of own shares

-

-

-

-

(41)

(41)

-

-

(41)

Allotted in respect of share option schemes

3

9

-

-

(1)

11

-

-

11

Other adjustments

-

-

-

16

(16)

-

-

-

-

Tax on items charged to equity

-

-

-

-

8

8

-

-

8

At 18 September 2021

666

1,398

568

956

3,488

7,076

-

-

7,076

 

 

Called up share capital

Share premium account

Merger reserve

Capital redemption and other reserves

Retained earnings

Total equity before perpetual securities

Perpetual capital securities

Perpetual convertible bonds

Total equity

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

At 8 March 2020

634

1,159

568

848

4,068

7,277

248

248

7,773

(Loss)/profit for the period

-

-

-

-

(183)

(183)

-

4

(179)

Other comprehensive income/(loss)

-

-

-

35

(175)

(140)

-

-

(140)

Tax relating to other comprehensive income/(loss)

-

-

-

(9)

6

(3)

-

-

(3)

Total comprehensive income/(loss) for the period ended 19 September 2020

-

-

-

26

(352)

(326)

-

4

(322)

 

 

 

 

 

 

 

 

 

 

Transactions with owners:

 

 

 

 

 

 

 

 

 

Distribution to holders of perpetual securities

-

-

-

-

-

-

-

(4)

(4)

Share-based payment

-

-

-

-

16

16

-

-

16

Purchase of own shares

-

-

-

-

(30)

(30)

-

-

(30)

Allotted in respect of share option schemes

1

4

-

-

(1)

4

-

-

4

Redemption of perpetual capital securities

-

-

-

-

(2)

(2)

(248)

-

(250)

Tax on items charged to equity

-

-

-

-

-

-

-

-

-

At 19 September 2020

635

1,163

568

874

3,699

6,939

-

248

7,187

 

 

 

 

Called up share capital

Share premium account

Merger reserve

Capital redemption and other reserves

Retained earnings

Total equity before perpetual securities

Perpetual capital securities

Perpetual convertible bonds

Total equity

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

At 8 March 2020

634

1,159

568

848

4,068

7,277

248

248

7,773

(Loss)/profit for the period

-

-

-

-

(287)

(287)

-

7

(280)

Other comprehensive income/(loss)

-

-

-

4

(482)

(478)

-

-

(478)

Tax relating to other comprehensive income/(loss)

-

-

-

(4)

67

63

-

-

63

Total comprehensive loss for the period ended 6 March 2021

-

-

-

-

(702)

(702)

-

7

(695)

 

 

 

 

 

 

 

 

 

 

Cash flow hedges gains and losses transferred to inventory

-

-

-

(1)

-

(1)

-

-

(1)

 

 

 

 

 

 

 

 

 

 

Transactions with owners:

 

 

 

 

 

 

 

 

 

Dividends

-

-

-

-

(232)

(232)

-

-

(232)

Distribution to holders of perpetual securities

-

-

-

-

-

-

-

(7)

(7)

Share-based payment

-

-

-

-

29

29

-

-

29

Purchase of own shares

-

-

-

-

(30)

(30)

-

-

(30)

Allotted in respect of share option schemes

3

14

-

-

-

17

-

-

17

Redemption of perpetual capital securities

-

-

-

-

(2)

(2)

(248)

-

(250)

Tax on items charged to equity

-

-

-

-

-

-

-

-

-

At 6 March 2021

637

1,173

568

847

3,131

6,356

-

248

6,604

 

The notes on pages 22 to 50 form an integral part of these Condensed Consolidated Interim Financial Statements.

 

 

Notes to the Condensed Consolidated Interim Financial Statements (unaudited)

 

1.            General information

 

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 Condensed Consolidated Interim Financial Statements are unaudited but have been reviewed by the auditors whose report is set out on page 53. The financial information presented herein does not amount to statutory accounts within the meaning of Section 434 of the Companies Act 2006. The Annual Report and Financial Statements 2021 have been filed with the Registrar of Companies. The Independent Auditors' report on the Annual Report and Financial Statements 2021 was unqualified and did not contain a statement under Section 498 of the Companies Act 2006.

 

The financial period represents the 28 weeks to 18 September 2021 (comparative financial period 28 weeks to 19 September 2020; prior financial year 52 weeks to 6 March 2021). The financial information comprises the results of the Company and its subsidiaries (the 'Group') and the Group's interests in joint ventures and associates.

 

The Group's principal activities are Food, General Merchandise & Clothing Retailing and Financial Services.

 

2.            Basis of preparation and accounting policies

 

2.1          Basis of preparation

 

The Interim Results, comprising the Condensed Consolidated Interim Financial Statements and the Interim Management Report, have been prepared in accordance with the Disclosure and Transparency Rules of the UK's Financial Conduct Authority and with the requirements of UK adopted IAS 34 'Interim Financial Reporting'.

 

The financial information contained in the Interim Results is presented in sterling, rounded to the nearest million (£m) unless otherwise stated.

 

The financial information contained in the Condensed Consolidated Interim Financial Statements should be read in conjunction with the Annual Report and Financial Statements 2021, which were prepared in accordance with International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union, and also in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

 

The annual financial statements of the Group for the period to 5 March 2022 will be prepared in accordance with UK adopted international accounting standards. This change in basis of preparation is required by UK Company Law for the purposes of financial reporting as a result of the UK's exit from the EU on 31 January 2020 and the cessation of the transition period on 31 December 2020. This change does not constitute a change in accounting policy but rather a change in framework which is required to ground the use of IFRS in Company Law. There is no impact on recognition, measurement or disclosure between the two frameworks in the period reported.

 

Sainsbury's Bank plc and its subsidiaries have been consolidated for the six months to 31 August 2021 (19 September 2020: six months to 31 August 2020; 6 March 2021: twelve months to 28 February 2021). Adjustments have been made for the effects of significant transactions or events that occurred between this date and the Group's balance sheet date. 

 

Balance sheet restatements

 

Notional cash pooling

The consolidated financial statements include a prior year restatement in relation to notional cash pooling arrangements where the intention to net settle cannot be clearly demonstrated, and therefore do not meet the requirements for offsetting in accordance with IAS 32: 'Financial Instruments: Presentation'. Prior period comparatives have been restated in accordance with IAS 8: 'Accounting Policies, Changes in Accounting Policies and Errors' by grossing up cash and overdrafts (reported within current borrowings) as follows:

 

Balance sheet at

Increase in cash

Increase in current borrowings

 

£m

£m

6 March 2021

98

(98)

19 September 2020

615

(615)

7 March 2020

59

(59)

 

 

There is no impact on net assets, net debt, profit, basic and diluted earnings per share, the cash flow statement nor any other financial ratios and KPIs. Furthermore, as the adjustment affects two financial statement line items by equal and opposite amounts with no change in net assets, it is not considered to have a material affect on the overall balance sheet position reported as at 7 March 2020. As a result the Group has concluded that the presentation of a full restated balance sheet as at 7 March 2020 is not required.

 

Fixed assets and intangible assets presentation

Consistent with the Annual Report and Financial Statements 2021, the prior year has been restated to reflect reclassifications between property, plant and equipment and intangible assets of £38 million. These related to work in progress originally capitalised into intangibles that should have been recognised within property, plant & equipment. The impact on comparatives is an increase in property, plant and equipment of £38 million and a decrease in intangible assets of £38 million, with no change in net assets, profit, cash flow nor basic and diluted earnings per share.

 

2.2          Going concern   

 

The Directors are satisfied that the Group has sufficient resources to continue in operation for a period of at least 12 months from the date of approval. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. The assessment period for the purposes of considering going concern is the 16 months to 4 March 2023.

 

In assessing the Group's ability to continue as a going concern, the Directors have considered the Group's most recent corporate planning process. This includes an annual review which considers profitability, the Group's cash flows, committed funding and liquidity positions and forecasted future funding requirements over three years, with a further two years of indicative movements. The most recent corporate plan was prepared in October 2021 and was reviewed by the Operating Board and ultimately by the PLC Board with involvement throughout from both the Chief Financial Officer and Chief Executive.

 

The Group manages its financing by diversifying funding sources, structuring core borrowings with long-term maturities and maintaining sufficient levels of standby liquidity via the Revolving Credit Facility. This seeks to minimise liquidity risk by maintaining a suitable level of undrawn additional funding capacity.

 

The Revolving Credit Facility is split into two Facilities, a £300 million Facility (A) and a £1,150 million Facility (B). Facility A has a final maturity of April 2025 and Facility B has a final maturity of October 2024. As at 18 September 2021, the Revolving Credit Facility (both Facility A and Facility B) was undrawn. In addition, the Group maintains uncommitted facilities of £195 million to provide additional capacity to fund short term working capital requirements. The uncommitted facilities were undrawn at 18 September 2021.

 

In assessing going concern, scenarios in relation to the Group's principal risks have been considered in line with those disclosed at year-end by overlaying them into the corporate plan and assessing the impact on cash flows, net debt and funding headroom. These severe but plausible scenarios include modelling the ongoing impact of COVID-19, recognising the degree of uncertainty that continues to exist, the impact of any regulatory fines, failure to deliver planned cost savings and the impact of the UK's withdrawal from the EU on the Group's Northern Ireland operations where trade flows have proved more difficult.

 

In performing the above analysis, the Directors have made certain assumptions around the availability and effectiveness of the mitigating actions available to the Group. These include reducing any non-essential capital expenditure and operating expenditure on bonuses and dividend payments.

 

As a consequence of the work performed, the Directors considered it appropriate to adopt the going concern basis in preparing the Financial Statements with no material uncertainties to disclose.

 

2.3          Accounting judgements and estimates

 

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

In preparing these Condensed Consolidated Interim Financial Statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements for the year ended 6 March 2021 unless otherwise stated.

 

2.4          New standards, interpretations and amendments adopted by the Group

 

The Group has considered the following amendments to published standards that are effective for the Group for the financial year beginning 7 March 2021 and concluded that they are either not relevant to the Group or that they do not have a significant impact on the Group's financial statements other than disclosures.

 

-   Amendments to IFRS 9 'Financial Instruments', IAS 39 'Financial Instruments: Recognition and Measurement' and IFRS 7 'Financial Instruments: Disclosures' on the Interest Rate Benchmark Reform - Phase 2.

-   Amendment to IFRS 16 'Leases' with regards to the exemption granted in the 'COVID-19-related rent concessions'.

 

The Group early adopted the Interest Rate Benchmark Reform Phase 2 amendments in the financial year ended 6 March 2021. The Group has elected not to apply the exemption granted in the 'COVID-19-related rent concessions' as the Group has not received material COVID-19-related rent concessions as a lessee.

 

The accounting policies have remained unchanged from those disclosed in the Annual Report for the year ended 6 March 2021.

 

2.5        Alternative performance measures (APMs)

 

In the reporting of financial information, the Directors use various APMs. These APMs are defined and reconciled on pages 54 to 60, and should be considered in addition to, and are not intended to be a substitute for, IFRS measurements. As they are not defined by International Financial Reporting Standards, they may not be directly comparable with other companies' APMs.

 

3.         Profit before non-underlying items

In order to provide shareholders with additional insight into the underlying performance of the business, an adjusted measure of profit (underlying profit before tax) is provided to supplement the reported IFRS numbers, and reflects how the business measures performance internally. Underlying results exclude items recognised in reported profit or loss before tax which, if included, could distort comparability between periods.

 

In determining which items to exclude from underlying profit, the Group considers items which are significant either by virtue of their size and/or nature, or that are non-recurring.

 

Underlying profit is not an IFRS measure and therefore not directly comparable to other companies.

 

The most significant non-underlying items in the current year relate to income received in relation to the settlement of legal disputes over interchange fees, and costs associated with restructuring programmes. More details on each are included further below.

 

The Group has also chosen to exclude the following items from underlying profit:

 

·     Financial Services transition - multi-year costs incurred in transitioning to a new, more flexible banking platform as part of the previously announced New Bank Programme. These costs of integration do not reflect the business's trading performance and so are adjusted to ensure consistency between periods. The programme is expected to end this financial year.

·     Profit or loss on disposal of non-trading properties - these are excluded from underlying profit as such profit is not related to the ongoing operating activities of the Group.

·     Perpetual securities coupons - these 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 as they are included by management when assessing Group borrowings. These are now £nil following the redemption of the perpetual convertible bond during the year.

·     Non-underlying finance movements - these include fair value remeasurements on derivatives not in a hedging relationship and lease interest on impaired non-trading sites, including site closures. The fair value movements are driven by external market factors and can significantly fluctuate year-on-year. They are therefore excluded to ensure consistency between periods. Lease interest on impaired, non-trading sites is excluded as they do not contribute to the operating activities of the Group.

·     IAS 19 pension interest and expenses include the financing element and scheme expenses of the Group's defined benefit scheme. Although a recurring item, the Group has chosen to exclude net retirement benefit income and costs from underlying profit as, following closure of the defined benefit scheme to future accrual, it is not part of the ongoing operating activities of the Group and its exclusion is consistent with how the Directors assess the performance of the business.

 

·     Acquisition adjustments - these reflect the adjustments arising from acquisitions, predominantly the fair value unwind of acquired intangibles, such as brands and customer relationships. The Group would not normally recognise these as assets outside of a business combination. Therefore the unwind is classified as non-underlying.

 

The Group has not included any additional costs incurred, or credits received, directly in relation to the impacts of COVID-19, within non-underlying items. Whilst some items (such as additional expenses incurred protecting colleagues and customers) are discrete and can be separately quantified, others, such as incremental food sales, cannot be reliably disaggregated from the Group's underlying performance. The Group has therefore concluded that presenting some movements as underlying and others as non-underlying would give an imbalanced view that is not easily comparable to past and subsequent periods.

 

28 weeks to 18 September 2021

 

 

 

 

 

 

 

 

Cost of sales

Administrative expenses

Other income

Net finance income/(costs)

Total adjustments before tax

Tax

Total adjustments

 

£m

£m

£m

£m

£m

£m

£m

Income recognised in relation to legal disputes

-

13

168

-

181

(34)

147

 

 

 

 

 

 

 

 

Restructuring and integration

 

 

 

 

 

 

 

Restructuring programmes

(14)

(21)

13

-

(22)

2

(20)

Financial Services transition and other

-

(10)

-

-

(10)

2

(8)

Total restructuring and integration

(14)

(31)

13

-

(32)

4

(28)

 

 

 

 

 

 

 

 

Property, finance, pension and acquisition adjustments

 

 

 

 

 

 

 

Profit on disposal of properties

-

-

3

-

3

-

3

Non-underlying finance movements

-

-

-

23

23

(4)

19

IAS 19 pension (expenses) / income

-

(2)

-

8

6

(1)

5

Acquisition adjustments

-

(11)

-

-

(11)

2

(9)

Total property, finance, pension and acquisition adjustments

-

(13)

3

31

21

(3)

18

 

 

 

 

 

 

 

 

Tax adjustments

 

 

 

 

 

 

 

Under provision in prior years

-

-

-

-

-

(5)

(5)

Revaluation of deferred tax balances and changes in law

-

-

-

-

-

(20)

(20)

Capital loss recognition

-

-

-

-

-

4

4

 

 

 

 

 

 

 

 

Total adjustments

(14)

(31)

184

31

170

(54)

116

 

Income recognised in relation to legal disputes

The Group has a number of ongoing legal cases in relation to overcharges from payment card processing fees, which largely reflect inter-bank "interchange fees". Agreements have been reached for two of these during the year, leading to net income of £168 million to be recognised during the current period.

 

Of the £168 million, cash of £75 million was received in a prior year and held as deferred income. Net cash of £27 million was received during the current financial period, with the remainder expected to be received later this financial year.

 

In addition, a provision for a legal claim totalling £13 million has been released as it was assessed during the financial period that a pay-out is no longer considered probable.

 

Restructuring programmes

Costs have been recognised during the period in relation to the restructuring programmes announced in the prior year as follows:

 

 

 

28 weeks to 18 September 2021

28 weeks to 19 September 2020

52 weeks to 6 March 2021

 

 

£m

£m

£m

Write downs of property, plant and equipment

 

-

9

26

Write downs of leased assets

 

1

66

72

Write downs of intangible assets

 

-

3

3

Closure provisions (a)

 

(10)

151

240

Accelerated depreciation of assets (b)

 

20

-

27

Redundancy provisions (c)

 

21

30

61

Consultancy costs

 

8

-

10

Gain on lease terminations (d)

 

(5)

-

(16)

Profit on disposal of properties (e)

 

(13)

-

-

Restructuring programmes

 

22

259

423

Impairment of non-financial assets (f)

 

-

214

220

Total restructuring and impairment costs

 

22

473

643

 

 

a)   Closure provisions relate to onerous contract costs, dilapidations and strip out costs on leased sites. These provisions have been re-assessed in the current period based on revised closure dates and settlement of lease exits.

b)   The remaining useful economic lives of corresponding sites have been reassessed to align with closure dates, resulting in an acceleration in depreciation of these assets. The existing depreciation of these assets (depreciation that would have been recognised absent of a closure decision) is recognised within underlying expenses, whereas accelerated depreciation above this is recognised within non-underlying expenses.

c)   Redundancy costs are recognised as the plan has been announced and a valid expectation raised with the affected colleagues.

d)   Gains on lease terminations relate to sites impaired in the prior year for which it has been negotiated to exit the leases before the contractual end date.

e)   Profit on disposal of properties relates to profits recognised in the period as sites previously impaired as part of the restructuring programmes have been sold.

f)    Impairments recognised as part of the prior year full impairment review undertaken as a result of store rationalisation, changes in channel mix, and changes in customer borrowing and cash usage behaviour.

 

As the costs incurred facilitate future underlying cost savings, it was considered whether it was appropriate to report these costs within underlying profit. Whilst they arise from changes in the Group's underlying operations, they can be separately identified, are material in size and do not relate to ordinary in-year trading activity. In addition, the areas being closed or restructured no longer relate to the Group's remaining underlying operations and their exclusion provides meaningful comparison between financial years.

 

The restructuring programme is a multi-year activity which began in the financial period ended 6 March 2021. Total cumulative costs to 18 September 2021 are £(665) million split between £(643) million in the prior year and £(22) million in the current period as per the above table. Total expected costs are still in the range of £900 million to £1 billion to March 2024, with total expected cash outflows of around £300 million.

 

Financial Services transition and other

These comprise Financial Services transition costs of £(10) million and were incurred in transitioning to new banking platforms as part of the previously announced New Bank Programme. These principally comprise contractor and service provider costs relating to the migration of data and other services to the Bank's new infrastructure and operating model. The programme is expected to end this financial year.

 

Property, finance, pension and acquisition adjustments

·          Profit on disposal of properties for the financial period comprised £(3) million for the Group.

·          Non-underlying finance movements for the financial period comprised £23 million income for the Group. These are presented separately in note 7.

·          Defined benefit pension interest and expenses comprises pension finance income of £8 million and scheme expenses of £(2) million (see note 18).

·          Acquisition adjustments of £(11) million reflect the unwind of non-cash fair value adjustments arising from Home Retail Group and Nectar UK acquisitions and are recognised as follows:

 

 

28 weeks to 18 September 2021

 

28 weeks to 19 September 2020

 

52 weeks to 6 March 2021

 

Argos

Nectar

Total Group

 

Argos

Nectar

Total Group

 

Argos

Nectar

Total Group

 

£m

£m

£m

 

£m

£m

£m

 

£m

£m

£m

Cost of sales

-

-

-

 

1

-

1

 

1

-

1

Depreciation

1

-

1

 

1

-

1

 

4

-

4

Amortisation

(10)

(2)

(12)

 

(10)

(3)

(13)

 

(18)

(6)

(24)

 

(9)

(2)

(11)

 

(8)

(3)

(11)

 

(13)

(6)

(19)

 

Comparative information

28 weeks to 19 September 2020

 

 

 

 

 

 

Cost of sales

Administrative expenses

Other income

Net finance income/

Total adjustments before tax

Tax

Total adjustments

 

 

(costs)

 

 

£m

£m

£m

£m

£m

£m

£m

 

Restructuring programmes

(244)

(15)

-

-

(259)

45

(214)

 

Impairment of non-financial assets

(96)

(118)

-

-

(214)

37

(177)

 

Financial Services transition

-

(7)

-

-

(7)

-

(7)

 

Total restructuring, impairment and integration

(340)

(140)

-

-

(480)

82

(398)

 

 

 

 

 

 

 

 

 

 

Property, finance, pension and acquisition adjustments

 

 

 

 

 

 

 

 

ATM business rates reimbursement

42

-

-

-

42

(8)

34

 

Loss on disposal of properties

-

-

(5)

-

(5)

1

(4)

 

Perpetual securities coupons

-

-

-

10

10

-

10

 

Non-underlying finance movements

-

-

-

(2)

(2)

-

(2)

 

IAS 19 pension interest and expenses

-

(3)

-

11

8

(2)

6

 

Acquisition adjustments

-

(11)

-

-

(11)

2

(9)

 

Total property, finance, pension and acquisition adjustments

42

(14)

(5)

19

42

(7)

35

 

 

 

 

 

 

 

 

 

 

Tax adjustments

 

 

 

 

 

 

 

 

Under provision in prior years

-

-

-

-

-

-

-

 

Revaluation of deferred tax balances

-

-

-

-

-

(34)

(34)

 

 

 

 

 

 

 

 

 

 

Total adjustments

(298)

(154)

(5)

19

(438)

41

(397)

 

                     

 

 

52 weeks to 6 March 2021

 

 

 

 

 

 

 

 

 

 

Cost of sales

Administrative expenses

Other income

Net finance income/

(costs)

Total adjustments before tax

Tax

Total adjustments

 

£m

£m

£m

£m

£m

£m

£m

Restructuring programmes

(342)

(81)

-

-

(423)

76

(347)

Impairment of non-financial assets

(112)

(108)

-

-

(220)

33

(187)

Financial Services transition and other

-

(17)

-

-

(17)

3

(14)

Total restructuring, impairment and integration

(454)

(206)

-

-

(660)

112

(548)

 

 

 

 

 

 

 

 

Property, finance, pension and acquisition adjustments

 

 

 

 

 

 

 

ATM business rates reimbursement

42

-

-

-

42

(8)

34

Profit on disposal of properties

-

-

1

-

1

7

8

Perpetual securities coupons

-

-

-

14

14

-

14

Non-underlying finance movements

-

-

-

(1)

(1)

-

(1)

IAS 19 pension (expenses)/income

-

(13)

-

19

6

(1)

5

Acquisition adjustments

-

(19)

-

-

(19)

4

(15)

Total property, finance, pension and acquisition adjustments

42

(32)

1

32

43

2

45

 

 

 

 

 

 

 

 

Tax adjustments

 

 

 

 

 

 

 

Derecognition of capital losses

-

-

-

-

-

(28)

(28)

 

 

 

 

 

 

 

 

Total adjustments

(412)

(238)

1

32

(617)

86

(531)

                     

 

Cash flow statement

The table below shows the impact of non-underlying items on the Group cash flow statement:

 

 

 

28 weeks to 18 September 2021

28 weeks to 19 September 2020

52 weeks to 6 March 2021

 

 

£m

£m

£m

Cash flows from operating activities

 

 

 

 

IAS 19 pension expenses

 

(2)

(3)

(7)

Financial Services transition and other

 

(11)

(7)

(15)

Restructuring programmes

 

(70)

(9)

(39)

ATM Rates reimbursement

 

13

12

27

Income recognised in relation to legal disputes

 

27

-

-

Cash used in operating activities

 

(43)

(7)

(34)

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Proceeds from property disposals1

 

39

19

27

Cash generated from investing activities

 

39

19

27

 

 

 

 

 

Net cash flows

 

(4)

12

(7)

1 £18 million of the current period proceeds from property disposals are a result of restructuring programmes.

 

ATM business rates reimbursement

£13 million of cash was received in the financial period from the Valuation Office in relation to income recognised in the prior year following the Supreme Court's ruling that ATMs outside stores should not be assessed for additional business rates on top of normal store rates.

 

4.         Revenue

 

 

28 weeks to 18 September 2021

28 weeks to 19 September 2020

52 weeks to 6 March 2021

 

£m

£m

£m

Grocery, General Merchandise and Clothing (GM&C)

13,475

13,464

26,103

Fuel

2,036

1,251

2,514

Total retail sales

15,511

14,715

28,617

 

 

 

 

Financial Services interest receivable (using effective interest rate method)

161

176

344

Financial Services fees and commission

52

43

87

Total Financial Services income

213

219

431

 

 

 

 

Total revenue

15,724

14,934

29,048

 

5.         Segment reporting

 

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. Three operating segments were identified as follows:

 

•     Retail - Food;

•     Retail - General Merchandise & Clothing;

•     Financial Services (Sainsbury's Bank plc and Argos Financial Services entities);

 

Management has considered the economic characteristics, in particular average gross margin, 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 the financial information needed to evaluate the business and the environment in which it operates.

 

The Operating Board assesses the performance of all segments on the basis of underlying profit before tax. Underlying profit before tax is an APM as described in note 2.5. All material operations and assets are in the UK.

 

a.         Income statement and balance sheet

 

 

Retail

Financial Services

Group

28 weeks to 18 September 2021

£m

£m

£m

Segment revenue

 

 

 

Retail sales to external customers

15,511

-

15,511

Financial Services to external customers

-

213

213

Revenue

15,511

213

15,724

 

 

 

 

Underlying operating profit

523

19

542

Underlying finance costs

(171)

-

(171)

Underlying profit before tax

352

19

371

Non-underlying income (note 3)

 

 

170

Profit before tax

 

 

541

Income tax expense (note 8)

 

 

(152)

Profit for the financial period

 

 

389

 

 

 

 

Assets

18,847

6,824

25,671

Investment in joint ventures and associates

5

-

5

Segment assets

18,852

6,824

25,676

Segment liabilities

(12,687)

(5,913)

(18,600)

 

 

Retail

Financial Services

Group

28 weeks to 19 September 2020

£m

£m

£m

Segment revenue

 

 

 

Retail sales to external customers

14,715

-

14,715

Financial Services to external customers

-

219

219

Revenue

14,715

219

14,934

 

 

 

 

Underlying operating profit/(loss)

555

(55)

500

Underlying finance income

2

-

2

Underlying finance costs

(201)

-

(201)

Underlying profit/(loss) before tax

356

(55)

301

Non-underlying expense (note 3)

 

 

(438)

Loss before tax

 

 

(137)

Income tax expense (note 8)

 

 

(42)

Loss for the financial period

 

 

(179)

 

 

 

 

Assets (restated)

19,027

8,051

27,078

Investment in joint ventures and associates

5

-

5

Segment assets (restated)

19,032

8,051

27,083

Segment liabilities (restated)

(12,748)

(7,148)

(19,896)

 

 

Retail

Financial Services

Group

52 weeks to 6 March 2021

£m

£m

£m

Segment revenue

 

 

 

Retail sales to external customers

28,617

-

28,617

Financial Services to external customers

-

431

431

Revenue

28,617

431

29,048

 

 

 

 

Underlying operating profit/(loss)

730

(21)

709

Underlying finance income

3

-

3

Underlying finance costs

(356)

-

(356)

Underlying profit/(loss) before tax

377

(21)

356

Non-underlying expense (note 3)

 

 

(617)

Loss before tax

 

 

(261)

Income tax expense (note 8)

 

 

(19)

Loss for the financial period

 

 

(280)

 

 

 

 

Assets (restated)

17,735

7,520

25,255

Investment in joint ventures and associates

5

-

5

Segment assets (restated)

17,740

7,520

25,260

Segment liabilities (restated)

(12,038)

(6,618)

(18,656)

 

Refer to note 2 for details of the prior year restatements.

 

b.         Segmented cash flow statement

 

 

 

28 weeks to 18 September 2021

28 weeks to 19 September 2020

 

 

APM

Retail

Financial Services

Group

Retail

Financial Services

Group

reference

 

 

 

 

 

 

 

 

 

 

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

Profit/(loss) before tax

 

            534

                7

             541

                        31

                    (168)

                    (137)

Net finance costs

 

             140

                 -

             140

                      180

                           -

                      180

Operating profit

 

            674

                7

             681

                       211

                    (168)

                       43

Adjustments for:

 

 

 

 

 

 

 

Depreciation and amortisation expense

 

            649

               10

            659

                     647

                        14

                      661

Net impairment charge on property, plant and equipment, right-of-use assets and intangible assets

 

                 1

                 -

                 1

                      187

                      105

                     292

Non-cash adjustments arising from acquisitions

 

                 -

                 -

                 -

                         (1)

 -

                         (1)

Financial Services impairment losses on loans and advances

 

                 -

              35

              35

 -

                       39

                       39

(Profit)/loss on sale of properties and early termination of leases 

            (22)

                 -

            (22)

                          5

                          2

                          7

Share-based payments expense

 

              27

                 1

              28

                        14

                          2

                        16

Non-cash defined benefit scheme expenses

 

                2

                 -

                2

                          3

 -

                          3

Cash contributions to defined benefit scheme

 

            (39)

                 -

            (39)

                     (60)

 -

                     (60)

Operating cash flows before changes in working capital

 

          1,292

              53

          1,345

                  1,006

                        (6)

                  1,000

Movements in working capital

 

            (59)

           (195)

          (254)

                      713

                       79

                     792

Cash generated from operations

 

          1,233

           (142)

          1,091

                   1,719

                       73

                  1,792

Interest paid

a

          (173)

              (5)

          (178)

                    (193)

                           -

                    (193)

Corporation tax paid

 

                 -

                 -

                 -

                     (88)

                           -

                     (88)

Net cash generated/(used) from operating activities

 

          1,060

           (147)

             913

                  1,438

                       73

                    1,511

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

          (154)

                 -

          (154)

                   (257)

                           -

                   (257)

Initial direct costs on new leases

 

              (1)

                 -

              (1)

                        (3)

 -

                        (3)

Purchase of intangible assets

 

          (144)

             (21)

          (165)

                     (33)

                      (11)

                     (44)

Proceeds from disposal of property, plant and equipment

 

              39

                 -

              39

                        19

 -

                        19

Dividends and distributions received

e

                 -

                 -

                 -

                       22

 -

                       22

Net cash used in investing activities

 

          (260)

             (21)

          (281)

                   (252)

                      (11)

                   (263)

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from issuance of ordinary shares

d

               11

                 -

               11

                          4

 -

                          4

Proceeds from short-term borrowings

c

                 -

                 -

                 -

                     660

                           -

                     660

Repayment of borrowings

c

          (223)

                 -

          (223)

                   (269)

 -

                   (269)

Repayment of short-term borrowings

c

                 -

                 -

                 -

                   (660)

 -

                   (660)

Repayment of perpetual capital securities

c

              (8)

                 -

              (8)

                   (250)

 -

                   (250)

Purchase of own shares

d

            (41)

                 -

            (41)

                     (30)

 -

                     (30)

Repayment of capital element of obligations under lease liabilities

b

          (242)

               (1)

          (243)

                   (223)

                        (1)

                   (224)

Dividends paid on ordinary shares

 

          (165)

                 -

          (165)

                           -

 -

                           -

Dividends paid on perpetual securities

a

              (4)

                 -

              (4)

                     (20)

 -

                     (20)

Net cash used in financing activities

 

          (672)

               (1)

          (673)

                   (788)

                        (1)

                   (789)

 

 

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

             128

           (169)

            (41)

                     398

                        61

                     459

                 

 

 

 

 

 

 

52 weeks to 6 March 2021

 

APM
reference

Retail

Financial Services

Group

 

 

£m

£m

£m

 

 

 

 

 

Loss before tax

 

(114)

(147)

(261)

Net finance costs

 

321

-

321

Share of post-tax loss/(profit) from joint ventures and associates

 

-

-

-

Operating profit

 

207

(147)

60

Adjustments for:

 

 

 

 

Depreciation and amortisation expense

 

1,226

23

1,249

Net impairment charge on property, plant and equipment, right-of-use asset, investment property and intangible assets

 

216

105

321

Non-cash adjustments arising from acquisitions

 

(1)

-

(1)

Financial Services impairment losses on loans and advances

 

-

85

85

(Profit)/loss on sale of properties and early termination of leases

 

(19)

2

(17)

Share-based payments expense

 

26

3

29

Non-cash defined benefit scheme expenses

 

13

-

13

Cash contributions to defined benefit scheme

 

(101)

-

(101)

Operating cash flows before changes in working capital

 

1,567

71

1,638

Changes in working capital

 

 

 

 

Decrease/(increase) in working capital

 

708

439

1,147

Cash generated from operations

 

2,275

510

2,785

Interest paid

a

(349)

-

(349)

Corporation tax paid/(received)

 

(94)

1

(93)

Net cash generated/(used) from operating activities

 

1,832

511

2,343

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Purchase of property, plant and equipment excluding strategic capital expenditure

 

(423)

-

(423)

Initial direct costs on new leases

 

(7)

-

(7)

Purchase of intangible assets

 

(145)

(27)

(172)

Proceeds from disposal of property, plant and equipment

 

27

-

27

Interest received

a

-

-

-

Dividends and distributions received

e

22

-

22

Net cash used in investing activities

 

(526)

(27)

(553)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Proceeds from issuance of ordinary shares

d

17

-

17

Proceeds from short-term borrowings

c

660

-

660

Repayment of borrowings

c

(289)

-

(289)

Repayment of short-term borrowings

c

(660)

-

(660)

Repayment upon maturity of convertible bonds

c

-

-

-

Repayment of perpetual capital securities

c

(250)

-

(250)

Purchase of own shares

d

(30)

-

(30)

Repayment of capital element of obligations under lease liabilities

b

(499)

(2)

(501)

Dividends paid on ordinary shares

 

(232)

-

(232)

Dividends paid on perpetual securities

a

(23)

-

(23)

Net cash used in financing activities

 

(1,306)

(2)

(1,308)

 

 

 

 

 

Net increase in cash and cash equivalents

 

-

482

482

               

6.         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 types of supplier arrangements applicable to the Group are as follows:

 

·        Discounts and supplier incentives - these represent the majority of all supplier arrangements and are linked to individual unit sales. The incentive is typically based on an agreed sum per item sold on promotion for a period and therefore is considered part of the purchase price of that product.

·        Fixed amounts - these are agreed with suppliers primarily to support in-store activity including promotions, such as utilising specific space.

·        Supplier rebates - these are typically agreed on an annual basis, aligned with the Group's financial year. The rebate amount is linked to pre-agreed targets such as sales volumes.

·        Marketing and advertising income - advertising income from suppliers through the Group's subsidiary Nectar 360 Services LLP and online marketing and advertising campaigns within Argos.

 

Amounts recognised in the income statement during the year for fixed amounts, volume-based rebates and marketing and advertising income are shown below. Discounts and supplier incentives are not shown as they are deemed to be part of the cost price of inventory.

 

 

 

28 weeks to 18 September 2021

28 weeks to 19 September 2020

52 weeks to 6 March 2021

 

 

£m

£m

£m

 

 

 

 

 

Fixed amounts

 

103

                 89

               236

Supplier rebates

 

33

                 32

                  55

Marketing and advertising income

 

45

                 34

                  83

Total supplier arrangements

 

181

155

374

 

Of the above amounts, the following was outstanding and held on the balance sheet at the period-end:

 

 

 

28 weeks to 18 September 2021

28 weeks to 19 September 2020

52 weeks to 6 March 2021

 

 

£m

£m

£m

Within inventory

 

(5)

                 (7)

                  (5)

 

 

 

 

 

Within current trade receivables

 

 

 

 

Supplier arrangements due

 

30

                 32

                  49

Accrued supplier arrangements

 

49

                 45

                  37

 

 

 

 

 

Within current trade payables

 

 

 

 

Supplier arrangements due

 

23

                   8

                  32

Accrued supplier arrangements

 

2

                   3

                    5

Deferred income due

 

(1)

                 (1)

                  (2)

Total supplier arrangements

 

98

80

116

 

7.         Finance income and finance costs

 

 

28 weeks to 18 September 2021

28 weeks to 19 September 2020

52 weeks to 6 March 2021

 

Underlying

Non-Underlying

Total

Underlying

Non-Underlying

Total

Underlying

Non-Underlying

Total

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

Interest on bank deposits and other financial assets

-

-

-

1

-

1

1

-

1

Fair value measurements

-

28

28

-

3

3

-

10

10

IAS 19 pension financing income

-

8

8

-

11

11

-

19

19

Finance income on net investment in leases

-

-

-

1

-

1

2

-

2

Finance Income

-

36

36

2

14

16

3

29

32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured borrowings

(22)

-

(22)

(29)

-

(29)

(49)

-

(49)

Unsecured borrowings

(1)

-

(1)

(1)

-

(1)

(1)

-

(1)

Lease liabilities

(149)

(4)

(153)

(163)

(5)

(168)

(295)

(10)

(305)

Provisions - amortisation of discount

-

(1)

(1)

-

-

-

(1)

(1)

(2)

Interest capitalised - qualifying assets

1

-

1

2

-

2

4

-

4

Perpetual securities coupon

-

-

-

(10)

10

-

(14)

14

-

Finance costs

(171)

(5)

(176)

(201)

5

(196)

(356)

3

(353)

 

Fair value remeasurements relate to net fair value movements on derivative financial instruments not designated in a hedging relationship.

 

8.         Income tax expense

 

 

28 weeks to
18 September 2021

28 weeks to
19 September 2020

52 weeks to
6 March

 2021

 

£m

£m

£m

Current year UK tax

85

(5)

16

Current year overseas tax

3

2

6

Over-provision in prior years

4

8

(12)

Total current tax expense

92

5

10

 

 

 

 

Origination and reversal of temporary differences

30

(2)

(46)

Under provision in prior years

3

5

27

Adjustment from changes in tax rates

31

(1)

-

Derecognition of capital losses

(4)

35

28

Total deferred tax expense

60

37

9

 

 

 

 

Total income tax expense in income statement

152

42

19

 

 

 

 

Analysed as:

 

 

 

Underlying tax

98

83

105

Non-underlying tax

54

(41)

(86)

Total income tax expense in income statement

152

42

19

 

 

 

 

Underlying tax rate

26.4%

27.6%

29.5%

Effective tax rate

28.1%

(30.7)%

(7.3)%

 

Tax charged within the 28 weeks ended 18 September 2021 has been calculated by applying the effective rate of tax which is expected to apply to the Group for the period ending 5 March 2022 using rates substantively enacted by 18 September 2021 as required by IAS 34 'Interim Financial Reporting'.

 

The effective tax rate of 28.1 per cent (28 weeks to 19 September 2020: (30.7) per cent) is higher than the standard rate of corporation tax in the UK of 19 per cent. This is largely a result of the impact of the future tax rate change, combined with the impact of non-deductible expenses, particularly in respect of non-deductible capital expenditure, the de-recognition of previously recognised deferred tax assets on capital losses, and prior year adjustments.

 

A reduction in the main rate of corporation tax from 19 per cent to 17 per cent, intended to apply from 1 April 2020, was substantively enacted in a prior period and its effect was reflected in the Group's balance sheet as at 7 March 2020. A change to the corporation tax rate, so that it remained at 19 per cent rather than reducing to 17 per cent from 1 April 2020, was announced in the 2020 Budget and substantively enacted on 17 March 2020, and was reflected in the Group's balance sheet as at 6 March 2021. Furthermore, an increase in the UK corporation rate from 19 per cent to 25 per cent (effective 1 April 2023) was substantively enacted on 24 May 2021. This will increase the Group's future current tax charge accordingly. Deferred tax on temporary differences and tax losses as at the balance sheet date is calculated at the substantively enacted rates at which the temporary differences and tax losses are expected to reverse.

 

Finance Act 2020 included legislation restricting the amount of chargeable gains that a company can relieve with its carried-forward capital losses from previous accounting periods. Broadly, from 1 April 2020 a company is only able to offset up to 50 per cent of chargeable gains using carried forward capital losses. The Group has considered the expected impact of the tax law in respect of the utilisation of carried-forward tax losses. Accordingly, approximately £124 million of the Group's carried forward unrestricted capital losses (6 March 2021: £162 million) have not been recognised as at 18 September 2021.

 

9.         Earnings/(Loss) per share

 

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, excluding those held by the Employee Share Ownership Plan trusts, which are treated as cancelled.

 

The weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares. These represent share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year and the number of shares that would be issued if all senior convertible bonds and perpetual subordinated convertible bonds are assumed to be converted.

 

Underlying earnings per share is provided by excluding the effect of any non-underlying items as defined in note 3. This alternative measure of earnings per share is presented to reflect the Group's underlying trading performance. All operations are continuing for the periods presented.

 

 

 

18 September 2021

19 September 2020

6 March 2021

 

million

million

million

Weighted average number of shares in issue

2,245.4

2,211.7

2,210.0

Weighted average number of dilutive share options

34.8

18.7

21.7

Weighted average number of dilutive subordinated perpetual convertible bonds

69.3

86.7

88.4

Total number of shares for calculating diluted earnings per share

2,349.5

2,317.1

2,320.1

 

 

 

 

 

£m

£m

£m

Profit/(loss) for the financial period (net of tax)

389

(179)

(280)

Less profit attributable to:

 

 

 

Holders of perpetual convertible bonds

-

(4)

(7)

Profit/(loss) for the financial period attributable to ordinary shareholders

389

(183)

(287)

 

 

 

 

Diluted earnings/(loss) for calculating diluted earnings/(loss) per share

389

(183)

(287)

 

 

 

 

Profit/(loss) for the financial period attributable to ordinary shareholders of the parent

389

(183)

(287)

Adjusted for non-underlying items (note 3)

(170)

438

617

Tax on non-underlying items

54

(41)

(86)

Add back coupons on perpetual securities (net of tax)

-

10

14

Underlying profit after tax attributable to ordinary shareholders of the parent

273

224

258

Add coupon on subordinated perpetual convertible bonds (net of tax)

-

3

6

Diluted underlying profit after tax attributable to ordinary shareholders of the parent

273

227

264

 

 

 

 

 

Pence per share

Pence per share

Pence per share

Basic earnings/(loss)

17.3

(8.3)

(13.0)

Diluted earnings/(loss)1

16.6

(8.3)

(13.0)

Underlying basic earnings

12.2

10.1

11.7

Underlying diluted earnings

11.6

9.8

11.4

 

1        Basic and diluted loss per share are the same in the 28 weeks to 19 September 2020 and 52 weeks to 6 March 2021 as the dilutive share options and their respective earnings adjustments are anti-dilutive.

 

10.        Dividends

 

 

28 weeks to 18 September 2021

28 weeks to 19 September 2020

52 weeks to 6 March 2021

Amounts recognised as distributions to ordinary shareholders in the year:

 

 

 

     Dividend per share (pence)

7.4

-

                    10.5

     Total dividend charge (£m)

                     165

-

                     232

 

An interim dividend of 3.2 pence per share (19 September 2020: 3.2 pence per share), has been approved by the Board of Directors for the financial year ending 5 March 2022, resulting in an interim dividend of £74 million (19 September 2020: £71 million). The interim dividend was approved by the Board on 3 November 2021 and as such has not been included as a liability at 18 September 2021.

 

In the prior year the Board chose in April 2020, due to limited visibility at the time on the potential impact of COVID-19 on the business, to defer dividend payment decisions and did not pay a final dividend for the 2019/20 financial year. Subsequently, the Board chose to pay a special dividend in lieu of a final dividend for the 2019/20 financial year that was approved by the Board of Directors on 4 November 2020.

 

11.        Property, plant and equipment

 

 

28 weeks to
18 September 2021

52 weeks to
6 March 2021

28 weeks to
19 September 2020 (restated)

 

£m

£m

£m

Net book value

 

 

 

At the beginning of the period

8,587

8,949

8,949

Additions

151

419

230

Disposals

-

(40)

(20)

Depreciation charge

(321)

(629)

(331)

Impairment charge

-

(88)

(69)

Transfer to assets held for sale

-

(24)

-

At the end of the period

8,417

8,587

8,759

 

The net book value of property, plant and equipment comprises land & buildings of £6,831 million (6 March 2021: £6,862 million; 19 September 2020: £6,938 million); and fixtures & fittings of £1,586 million (6 March 2021: £1,725 million; 19 September 2020: £1,821 million).

 

At 18 September 2021, capital commitments contracted, but not provided for by the Group, amounted to £165 million (6 March 2021: £112 million; 19 September 2020: £113 million).

 

At each reporting date, the Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. The Group has considered whether there have been any indicators of impairment during the 28 weeks ended 18 September 2021 and concluded that there are none.

 

Refer to note 2 for details of the prior year restatement.

 

12.        Leases

 

Set out below are the carrying amounts of right-of-use assets and the movements during the period:

 

 

28 weeks to 18 September 2021

52 weeks to 6 March 2021

28 weeks to 19 September 2020

 

£m

£m

£m

At the beginning of the period

4,747

4,826

4,826

New leases and modifications

736

542

363

Impairment charge

(1)

(137)

(128)

Depreciation charge

(260)

(484)

(265)

At the end of the period

5,222

4,747

4,796

 

Included within the above are land and buildings with a net book value of £4,916 million (6 March 2021: £4,414 million; 19 September 2020: £4,496 million), and equipment with a net book value of £306 million (6 March 2021: £333 million; 19 September 2020: £300 million).

 

Set out below are the carrying amounts of lease liabilities and the movements during the period:

 

 

28 weeks to 18 September 2021

52 weeks to 6 March 2021

28 weeks to 19 September 2020

 

£m

£m

£m

At the beginning of the period

5,834

5,774

5,774

New leases and modifications

731

561

357

Interest expense

153

305

168

Payments

(396)

(806)

(392)

At the end of the period

6,322

5,834

5,907

 

 

 

 

 

 

 

 

Current

558

524

538

Non-current

5,764

5,310

5,369

 

The Group presents additions to lease liabilities and right-of-use assets in line with the disclosure requirements of IFRS 16 'Leases'. In doing so, additions to right-of-use assets and lease liabilities above include the net impact of new leases, terminations, modifications, and reassessments. This year includes the impact of exercising purchase options on 13 leased supermarkets held by a property investment pool in which the Group holds an interest. The purchase options were not included within the lease liabilities at inception of the lease as the Group was not reasonably certain to exercise them. Following the exercise of the options, the respective lease liabilities have been remeasured to include the assumed purchase price, leading to an increase in lease liabilities with a corresponding increase to the right-of-use asset. The purchases will be completed in the financial year ended 2 March 2024 when the existing leases end.

 

The purchase price is subject to negotiation and at the half-year had not yet been agreed. Therefore to remeasure the lease liability, the purchase price has been estimated based on up to date property valuations carried out by independent valuers not connected with the Group. The lease liabilities (and right-of-use assets) may be subsequently adjusted as the property valuations change, and when purchase prices are agreed. This is not considered a significant estimate in line with IAS 1 "Presentation of financial statements".

 

Guarantee in relation to property pool

When the properties are sold by the property investment pool in the financial year ended 2 March 2024, the proceeds will be used to settle bonds issued by the structure. The Group has previously issued a financial guarantee in relation to this, which is triggered if there is a shortfall in the property proceeds and the bonds cannot be fully repaid. The guarantee is up to £300 million.

 

The current property valuations indicate that there is significant headroom and therefore no shortfall.

 

In the event of a delay in the property negotiations, meaning the bond repayment is due before the properties have been sold, the guarantee will be called upon in full. In such an event, once the properties are sold, Sainsbury's will recover the guarantee payment in full from the property proceeds.

 

 

 

Income statement disclosures

The following are the amounts recognised in profit or loss:

 

 

28 weeks to 18 September 2021

28 weeks to 19 September 2020

52 weeks to 6 March 2021

 

£m

£m

£m

Depreciation of right-of-use assets

(260)

(265)

(484)

Impairment of right-of-use assets

(1)

(128)

(137)

Interest on lease liabilities

(153)

(168)

(305)

Variable lease payments not included in the measurement of lease liabilities

(1)

(1)

(1)

Finance income from sub-leasing of right-of-use assets

-

1

2

Operating sublet income

29

17

42

Expenses relating to short term leases

(18)

(19)

(33)

Expenses relating to leases of low value assets

(1)

(1)

(2)

Total amount recognised in profit or loss

(405)

(564)

(918)

 

 

 

 

Total cash outflow for leases (excluding sublease income)

(416)

(412)

(841)

 

 

Maturity analysis

 

28 weeks to 18 September 2021

52 weeks to 6 March 2021

28 weeks to 19 September 2020

 

£m

£m

£m

Contractual undiscounted cash flows

 

 

 

Less than one year

826

748

857

One to two years

1,303

716

809

Two to three years

649

643

707

Three to four years

594

594

632

Four to five years

564

547

590

Total less than five years

3,936

3,248

3,595

Five to ten years

2,443

2,420

2,496

Ten to fifteen years

2,065

2,078

2,144

More than fifteen years

3,500

3,706

3,678

Total undiscounted lease liability

11,944

11,452

11,913

Lease liabilities included in the statement of financial position

6,322

5,834

5,907

Current

558

524

538

Non-current

5,764

5,310

5,369

 

13.        Intangible assets

 

 

28 weeks to
18 September

2021

52 weeks to
6 March 2021

28 weeks to
19 September 2020 (restated)

 

£m

£m

£m

Net book value

 

 

 

At the beginning of the period

914

974

974

Additions

165

172

64

Disposals

-

-

(20)

Amortisation charge

(78)

(136)

(65)

Impairment charge

-

(96)

(95)

At the end of the period

                          1,001

914

858

 

 

The net book value of goodwill and intangible assets predominantly comprises goodwill of £366 million (6 March 2021: £366 million; 19 September 2020: £367 million), software assets of £541 million (6 March 2021: £442 million; 19 September 2020: £374 million), acquired brands of £91 million (6 March 2021: £102 million; 19 September 2020: £111 million) and customer relationships of £3 million (6 March 2021: £4 million; 19 September 2020: £6 million).

 

Refer to note 2 for details of the prior year restatement.

 

14.        Financial instruments

 

a.         Financial assets and liabilities by category

 

Set out below are the accounting classifications of each class of financial assets and liabilities:

 

 

Amortised cost

Fair value through OCI

Fair value through profit or loss

Total

£m

£m

£m

£m

At 18 September 2021

 

 

 

 

Cash and cash equivalents

1,636

-

-

1,636

Trade and other receivables

589

-

-

589

Amounts due from Financial Services customers and banks

5,022

-

-

5,022

Financial assets at fair value through other comprehensive income

-

752

-

752

Trade and other payables

(4,227)

-

-

(4,227)

Current borrowings

(261)

-

-

(261)

Non-current borrowings

(722)

-

-

(722)

Amounts due to Financial Services customers and banks

(5,614)

-

-

(5,614)

Derivative financial instruments

-

-

13

13

Lease liabilities

(6,322)

-

-

(6,322)

 

(9,899)

752

13

(9,134)

 

 

 

 

 

 

Amortised cost

Fair value through OCI

Fair value through profit or loss

Total

£m

£m

£m

£m

At 6 March 2021 (restated)

 

 

 

 

Cash and cash equivalents

1,575

-

-

1,575

Trade and other receivables

609

-

-

609

Amounts due from Financial Services customers

5,407

-

-

5,407

Financial assets at  fair value through other comprehensive income

-

844

-

844

Trade and other payables

(4,102)

-

-

(4,102)

Current borrowings

(356)

-

-

(356)

Non-current borrowings

(748)

-

-

(748)

Amounts due to Financial Services customers and banks

(6,289)

-

-

(6,289)

Derivative financial instruments

-

-

(124)

(124)

Lease liabilities

(5,834)

-

-

(5,834)

 

(9,738)

844

(124)

(9,018)

 

 

 

 

 

 

Amortised cost

Fair value through OCI

Fair value through profit or loss

Total

£m

£m

£m

£m

At 19 September 2020 (restated)

 

 

 

 

Cash and cash equivalents

1,957

-

111

2,068

Trade and other receivables

453

-

190

643

Amounts due from Financial Services customers

6,192

-

-

6,192

Financial assets at  fair value through other comprehensive income

-

924

-

924

Trade and other payables

(4,332)

-

-

(4,332)

Current borrowings

(872)

-

-

(872)

Non-current borrowings

(772)

-

-

(772)

Amounts due to Financial Services customers and banks

(6,810)

-

-

(6,810)

Derivative financial instruments

-

-

(66)

(66)

Lease liabilities

(5,907)

-

-

(5,907)

 

(10,091)

924

235

(8,932)

 

Refer to note 2 for details of the prior year restatement.

 

b.   Carrying amount versus fair value

 

Set out below is a comparison of the carrying amount and the fair value of financial instruments that are carried in the financial statements at a value other than fair value. The fair value 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.

 

 

Carrying amount

Fair value

At 18 September 2021

£m

£m

Financial assets

 

 

Amounts due from Financial Services customers and banks

5,022

5,037

 

 

 

Financial liabilities

 

 

Loans due 2031

(602)

(693)

Tier 2 Capital due 2023

(180)

(181)

Amounts due to Financial Services customers and banks

(5,614)

(5,617)

 

 

 

Carrying

amount

Fair value

At 6 March 2021

£m

£m

Financial assets

 

 

Amounts due from Financial Services customers and banks

5,407

5,418

 

 

 

Financial liabilities

 

 

Loans due 2031

(627)

(761)

Bank loans due 2021

(199)

(199)

Tier 2 Capital due 2023

(179)

(183)

Amounts due to Financial Services customers and banks

(6,289)

(6,298)

 

 

 

 

 

Carrying

amount

Fair value

At 19 September 2020

 

 

 

£m

£m

Financial assets

 

 

 

 

 

Amounts due from Financial Services customers

 

 

 

6,192

6,235

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

Loans due 2031

 

 

 

(649)

(791)

Bank loans due 2021

 

 

 

(200)

(200)

Tier 2 Capital due 2023

 

 

 

(180)

(179)

Amounts due to Financial Services customers and banks

 

 

 

(6,810)

(6,820)

 

 

c.         Fair value measurements recognised in the balance sheet

 

The following table provides an analysis of financial instruments that are recognised at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

 

·     Level 1 fair value measurements are derived from quoted market prices (unadjusted) in active markets for identical assets or liabilities at the balance sheet date. This level includes listed equity securities and debt instrument on public exchanges;

·     Level 2 fair value measurements are derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). The fair value of financial instruments is determined by discounting expected cash flows at prevailing interest rates; and

·     Level 3 fair value measurements are derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

 

Level 1

Level 2

Level 3

Total

At 18 September 2021

£m

£m

£m

£m

Financial instruments at fair value through other comprehensive income

 

 

 

 

Interest bearing financial assets

-

1

-

1

Other financial assets

-

17

329

346

Investment securities

405

-

-

405

 

 

 

 

 

Derivative financial assets

-

29

35

64

 

 

 

 

 

Derivative financial liabilities

-

(51)

-

(51)

 

 

 

 

 

 

Level 1

Level 2

Level 3

Total

At 6 March 2021

£m

£m

£m

£m

Financial instruments at fair value through other comprehensive income

 

 

 

 

Interest bearing financial assets

-

1

-

1

Other financial assets

-

15

291

306

Investment securities

537

-

-

537

 

 

 

 

 

Derivative financial assets

-

7

6

13

 

 

 

 

 

Derivative financial liabilities

-

(137)

-

(137)

 

 

 

 

 

 

Level 1

Level 2

Level 3

Total

At 19 September 2020

£m

£m

£m

£m

Financial instruments at fair value through other comprehensive income

 

 

 

 

Interest bearing financial assets

-

1

-

1

Other financial assets

-

14

265

279

Investment securities

644

-

-

644

 

 

 

 

 

Derivative financial assets

-

30

2

32

 

 

 

 

 

Derivative financial liabilities

-

(98)

-

(98)

 

Level 3 Financial assets

Details of the determination of Level 3 fair value measurements are set out below:

 

 

Financial instruments at FVTOCI

Commodity derivatives

Total

£m

£m

£m

At 7 March 2021

291

6

297

In finance income in the Group income statement

-

29

29

In other comprehensive income

38

-

38

At 18 September 2021

329

35

364

 

 

Financial instruments at FVTOCI

Commodity derivatives

Total

£m

£m

£m

At 8 March 2020

237

(3)

234

In finance income in the Group income statement

-

9

9

In other comprehensive income

54

-

54

At 6 March 2021

291

6

297

 

 

Financial instruments at FVTOCI

Commodity derivatives

Total

£m

£m

£m

At 8 March 2020

237

(3)

234

In finance income in the Group income statement

-

5

5

In other comprehensive income

28

-

28

At 19 September 2020

265

2

267

 

Level 3 other financial assets

Other level 3 financial assets relate to the Group's beneficial interest in a property investment pool. The net present value of the Group's interest in the various freehold reversions owned by the property investment pool has been derived by assuming a property growth rate of zero per cent per annum (6 March 2021: zero per cent ; 19 September 2020: zero per cent) and a discount rate of seven per cent (6 March 2021: seven per cent; 19 September 2020: eight per cent). The sensitivity of this balance to changes of one per cent in the assumed rate of property rental growth and one per cent in the discount rate holding other assumptions constant is shown below:

 

 

18 September 2021

6 March 2021

 

Change in discount rate

 Change in growth rate

Change in discount rate

Change in growth rate

+/- 1.0%

+/- 1.0%

+/- 1.0%

+/- 1.0%

 

£m

£m

£m

£m

Financial assets

(6)/6

8/(8)

(6)/6

9/(9)

 

 

 

19 September 2020

 

 

 

Change in discount rate

Change in growth rate

+/- 1.0%

+/- 1.0%

 

 

 

£m

£m

Financial assets

 

 

(7)/7

10/(10)

 

Level 3 derivative financial assets - power purchase agreement

The Group has entered into several long-term fixed-price power purchase agreements with independent producers. Included within derivative financial instruments is a net asset of £35 million relating to these agreements at 18 September 2021 (at 19 September 2020: £2 million; at 6 March 2021: £6 million). The Group values its power purchase agreements as the net present value of the estimated future usage at the contracted fixed price less the market implied forward energy price discounted back at the prevailing swap rate. The Group also makes an assumption regarding expected energy output based on the historical performance and the producer's estimate of expected electricity output. The sensitivity of this balance to changes of 20 per cent in the assumed rate of energy output and 20 per cent in the implied forward energy prices holding other assumptions constant is shown below:

 

 

 

 

 

 

18 September 2021

6 March 2021

 

Change in volume

+/- 20.0%

Change in electricity forward price

+/- 20.0%

Change in volume

+/- 20.0%

Change in electricity forward price

 +/- 20.0%

 

£m

£m

£m

£m

Derivative financial instruments

7/(7)

14/(14)

1/(1)

7/(7)

 

 

 

 

 

 

 

 

 

 

 

19 September 2020

 

 

 

Change in

volume

+/- 20.0%

Change in

electricity forward price

 +/- 20.0%

 

 

 

 

£m

£m

 

Derivative financial instruments

 

 

0/(1)

6/(8)

 

                           

 

d.         Financial Services expected credit loss (ECL)

 

Loans and advances are initially recognised at fair value and subsequently held at amortised cost, using the effective interest method, less provision for impairment and recognised on the balance sheet when cash is advanced: 

 

 

18 September

6 March

19 September

 

2021

2021

2020

 

£m

£m

£m

Non-current

 

 

 

Loans and advances to customers

2,100

2,332

2,890

Impairment of loans and advances

(51)

(52)

(78)

 

2,049

2,280

2,812

 

 

 

 

Current

 

 

 

Loans and advances to customers1

3,094

3,338

3,608

Impairment of loans and advances

(192)

(211)

(228)

 

2,902

3,127

3,380

 

 

 

 

Loan commitment provisions

(16)

(16)

(22)

Total impairment provisions for loans and advances to customers and loan commitments

(259)

(279)

(328)

Impairment provisions as a percentage of loans and advances to customers

5.0%

4.9%

5.1%

1 Excludes £71 million of amounts due from banks as at 18 September 2021 (6 March 2021: £nil; 19 September 2020: £nil).

 

The ECL models utilise four scenarios including a 'base case' scenario considered to be the most likely outcome together with an upside, downside and severe downside scenario. The base case has been assigned a probability weighting of 40% with the upside, downside and severe downside scenarios weighted 30%, 25%, 5% respectively.

The weighted economic measures from the scenarios are as follows:

 

 

As at 18 September 2021

5-year average

Base

Upside

Downside

Severe Downside

Unemployment rate

4.6

4.2

5.7

7.5

Consumer price growth

2.2

2.3

2.1

1.9

GDP

3.2

3.7

2.8

2.3

Mortgage debt as a percentage of household income

102.1

101.1

103.3

104.3

Real household disposable income

2.2

2.3

1.9

1.6

Probability weighting

40

30

25

5

 

 

As at 6 March 2021

5-year average

Base

Upside

Downside

Severe

 Downside

Unemployment rate

5.2

4.5

6.4

8.2

Consumer price growth

1.8

1.9

1.7

1.6

GDP

3.1

4.0

2.7

2.3

Mortgage debt as a percentage of household income

101.6

100.6

102.0

102.4

Real household disposable income

1.9

2.2

1.7

1.4

Probability weighting

40

30

25

5

 

Due to the unique nature of the COVID-19 pandemic and the UK government actions to support businesses and employees, the ECL models did not respond appropriately to updated economic forecasts as at 19 September 2020. The multiple economic scenarios applied to the modelled outputs at that time reflected an assessment of economic uncertainty prior to COVID-19, with the expected increased credit losses resulting from COVID-19 calculated separately under a range of scenarios which were then risk weighted and applied as an overlay to the IFRS 9 models. Since then the Group has worked to revise its ECL models so as to respond more appropriately to economics scenarios as impacted by COVID-19, incorporating at 18 September 2021 and 6 March 2021 those detailed above. The Group has not presented the scenarios included in the models at 19 September 2020 due to a lack of comparability given the approach at that time.

 

ECL sensitivity

The economic conditions impact the probability of default of the customers. The impact of 100% weighting of each of the economic scenarios is outlined as follows:

 

 

Impact on the loss allowance

 

18 September 2021

£m

6 March 2021

£m

Closing ECL allowance

259

279

Base scenario

(3)

(1)

Upside scenario

(9)

(14)

Downside scenario

12

13

Severe Downside scenario

30

29

 

The COVID-19 pandemic continues to have a significant impact on the global economy with the full impact unlikely to be known for some time, with the Coronavirus Job Retention Scheme and other Government support distorting historic data upon which ECL models have been developed.

 

The forecasted level of unemployment has reduced since the year end, however significant arrears emergence has yet to be observed in the lending portfolio. Therefore, the Group continues to hold a post model adjustment (PMA) for the potential impact of COVID-19 and the inherent uncertainty in arrears emergence. The PMA for COVID-19 is £33 million (£40 million at 6 March 2021) with the reduction relating to improvements made to the models to improve their responsiveness to extreme economic shifts and to reflect the overall improvement in the economic environment.

 

15.        Analysis of net debt

 

The Group's definition of net debt includes the capital injections to Sainsbury's Bank, but excludes the net debt of Sainsbury's Bank and its subsidiaries (Financial Services). Financial Services' net debt balances are excluded because they are required as part of the business as usual operations of a bank, as opposed to specific forms of financing for the Group. The Group's definition of net debt includes lease liabilities as recognised under IFRS 16 and perpetual securities, and excludes derivatives that are not used to hedge borrowings.

 

A reconciliation of opening to closing net debt is included below. Balances and movements for the total Group and Financial Services are shown in addition to Retail to enable reconciliation between the Group balance sheet and Group cash flow statement.

 

Financial assets at fair value through other comprehensive income exclude equity related financial assets which predominantly relate to the Group's beneficial interest in a commercial property investment pool. Derivatives exclude those not used to hedge borrowings, and borrowings exclude bank overdrafts as they are disclosed separately.

 

 

 

Cash Movements

Non-Cash Movements

 

 

7 March 2021

Cash flows excluding interest

Net interest (received) / paid

Accrued Interest

Other non-cash movements

Changes in fair value

18 September 2021

 

£m

£m

£m

£m

£m

£m

£m

Retail

 

 

 

 

 

 

 

Net derivative financial instruments

(14)

-

5

(6)

6

8

(1)

Borrowings (excluding overdrafts)

(826)

223

15

(14)

-

-

(602)

Lease liabilities

(5,829)

242

153

(153)

(731)

-

(6,318)

Arising from financing activities

(6,669)

465

173

(173)

(725)

8

(6,921)

 

 

 

 

 

 

 

 

Financial assets at fair value through other comprehensive income

1

-

-

-

-

-

1

Cash and cash equivalents (restated)

546

230

-

-

-

-

776

Bank overdrafts (restated)

(99)

(102)

-

-

-

-

(201)

Retail net debt (excluding perpetual securities) (restated)

(6,221)

593

173

(173)

(725)

8

(6,345)

 

 

 

 

 

 

 

 

Financial Services

 

 

 

 

 

 

 

Net derivative financial instruments

-

-

-

-

-

1

1

Borrowings (excluding overdrafts)

(179)

-

5

(5)

(1)

-

(180)

Lease liabilities

(5)

1

-

-

-

-

(4)

Arising from financing activities

(184)

1

5

(5)

(1)

1

(183)

 

 

 

 

 

 

 

 

Financial assets at fair value through other comprehensive income

537

(130)

-

-

-

(2)

405

Cash and cash equivalents

1,029

(169)

-

-

-

-

860

Financial services net debt

1,382

(298)

5

(5)

(1)

(1)

1,082

 

 

 

 

 

 

 

 

Group

 

 

 

 

 

 

 

Net derivative financial instruments

(14)

-

5

(6)

6

9

-

Borrowings (excluding overdrafts)

(1,005)

223

20

(19)

(1)

-

(782)

Lease liabilities

(5,834)

243

153

(153)

(731)

-

(6,322)

Arising from financing activities

(6,853)

466

178

(178)

(726)

9

(7,104)

 

 

 

 

 

 

 

 

Financial assets at fair value through other comprehensive income

538

(130)

-

-

-

(2)

406

Cash and cash equivalents (restated)

1,575

61

-

-

-

-

1,636

Bank overdrafts (restated)

(99)

(102)

-

-

-

-

(201)

Group net debt (excluding perpetual securities)

(4,839)

295

178

(178)

(726)

7

(5,263)

 

 

 

 

 

 

 

 

Retail net debt (excluding perpetual securities)

(6,221)

593

173

(173)

(725)

8

(6,345)

Perpetual convertible bonds

(248)

8

-

-

240

-

-

Retail net debt (including perpetual securities)

(6,469)

601

173

(173)

(485)

8

(6,345)

 

 

 

 

 

 

 

 

Of which:

 

 

 

 

 

 

 

Leases

(5,829)

 

 

 

 

 

(6,318)

Net debt excluding lease liabilities

(640)

 

 

 

 

 

(27)

 

Other non-cash movements predominantly comprise new leases and lease modifications.

 

Overdraft balances are included within borrowings in the Group balance sheet, and within cash and cash equivalents in the Group cash flow statement.

 

Refer to note 2 for details of the prior year restatement.

 

 

Cash Movements

Non-Cash Movements

 

 

8 March 2020

Cash flows excluding interest

Net interest (received) / paid

Accrued Interest

Other non-cash movements

Changes in fair value

19 September 2020

 

£m

£m

£m

£m

£m

£m

£m

Retail

 

 

 

 

 

 

 

Net derivative financial instruments

(15)

-

3

(3)

2

(3)

(16)

Borrowings (excluding overdrafts)

(1,116)

269

22

(24)

-

-

(849)

Lease liabilities

(5,768)

223

168

(168)

(356)

-

(5,901)

Arising from financing activities

(6,899)

492

193

(195)

(354)

(3)

(6,766)

 

 

 

 

 

 

 

 

Financial assets at fair value through other comprehensive income

1

-

-

-

-

-

1

Cash and cash equivalents (restated)

506

954

-

-

-

-

1,460

Bank overdrafts (restated)

(59)

(556)

-

-

-

-

(615)

Retail net debt (excluding perpetual securities) (restated)

(6,451)

890

193

(195)

(354)

(3)

(5,920)

 

 

 

 

 

 

 

 

Financial Services

 

 

 

 

 

 

 

Net derivative financial instruments

4

-

-

-

-

(6)

(2)

Bank overdrafts

-

-

-

-

-

-

-

Borrowings (excluding overdrafts)

(180)

-

-

-

-

 

(180)

Lease liabilities

(6)

1

-

-

(1)

-

(6)

Arising from financing activities

(182)

1

-

-

(1)

(6)

(188)

 

 

 

 

 

 

 

 

Financial assets at fair value through other comprehensive income

802

(159)

-

-

-

1

644

Cash and cash equivalents

547

61

-

-

-

-

608

Financial services net debt

1,167

(97)

-

-

(1)

(5)

1,064

 

 

 

 

 

 

 

 

Group

 

 

 

 

 

 

 

Net derivative financial instruments

(11)

-

3

(3)

2

(9)

(18)

Borrowings (excluding overdrafts)

(1,296)

269

22

(24)

-

-

(1,029)

Lease liabilities

(5,774)

224

168

(168)

(357)

-

(5,907)

Arising from financing activities

(7,081)

493

193

(195)

(355)

(9)

(6,954)

 

 

 

 

 

 

 

 

Financial assets at fair value through other comprehensive income

803

(159)

-

-

-

1

645

Cash and cash equivalents (restated)

1,053

1,015

-

-

-

-

2,068

Bank overdrafts (restated)

(59)

(556)

-

-

-

-

(615)

Group net debt (excluding perpetual securities) (restated)

(5,284)

793

193

(195)

(355)

(8)

(4,856)

 

 

 

 

 

 

 

 

Retail net debt (excluding perpetual securities)

(6,451)

890

193

(195)

(354)

(3)

(5,920)

Perpetual capital securities

(248)

250

-

-

(2)

-

-

Perpetual convertible bonds

(248)

-

-

-

-

-

(248)

Retail net debt (including perpetual securities)

(6,947)

1,140

193

(195)

(356)

(3)

(6,168)

 

 

 

 

 

 

 

 

Of which:

 

 

 

 

 

 

 

Leases

(5,768)

 

 

 

 

 

(5,901)

Net debt excluding lease liabilities

(1,179)

 

 

 

 

 

(267)

 

Refer to note 2 for details of the prior year restatement.

 

 

Cash Movements

Non-Cash Movements

 

 

8 March 2020

Cash flows excluding interest

Net interest (received) / paid

Accrued Interest

Other non-cash movements

Changes in fair value

6 March 2021

 

£m

£m

£m

£m

£m

£m

£m

Retail

 

 

 

 

 

 

 

Net derivative financial instruments

(15)

-

6

(5)

5

(5)

(14)

Borrowings (excluding overdrafts)

(1,116)

289

38

(37)

-

-

(826)

Lease liabilities

(5,768)

499

305

(305)

(560)

-

(5,829)

Arising from financing activities

(6,899)

788

349

(347)

(555)

(5)

(6,669)

 

 

 

 

 

 

 

 

Financial assets at fair value through other comprehensive income

1

-

-

-

-

-

1

Cash and cash equivalents (restated)

506

40

-

-

-

-

546

Bank overdrafts (restated)

(59)

(40)

-

-

-

-

(99)

Retail net debt (excluding perpetual securities) (restated)

(6,451)

788

349

(347)

(555)

(5)

(6,221)

 

 

 

 

 

 

 

 

Financial Services

 

 

 

 

 

 

 

Net derivative financial instruments

4

-

-

-

-

(4)

-

Bank overdrafts

-

-

-

-

-

-

-

Borrowings (excluding overdrafts)

(180)

-

-

-

-

1

(179)

Lease liabilities

(6)

2

-

-

(1)

-

(5)

Arising from financing activities

(182)

2

-

-

(1)

(3)

(184)

 

 

 

 

 

 

 

 

Financial assets at fair value through other comprehensive income

802

(267)

-

-

-

2

537

Cash and cash equivalents

547

482

-

-

-

-

1,029

Financial services net debt

1,167

217

-

-

(1)

(1)

1,382

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group

 

 

 

 

 

 

 

Net derivative financial instruments

(11)

-

6

(5)

5

(9)

(14)

Borrowings (excluding overdrafts)

(1,296)

289

38

(37)

-

1

(1,005)

Lease liabilities

(5,774)

501

305

(305)

(561)

-

(5,834)

Arising from financing activities

(7,081)

790

349

(347)

(556)

(8)

(6,853)

 

 

 

 

 

 

 

 

Financial assets at fair value through other comprehensive income

803

(267)

-

-

-

2

538

Cash and cash equivalents (restated)

1,053

522

-

-

-

-

1,575

Bank overdrafts (restated)

(59)

(40)

-

-

-

-

(99)

Group net debt (excluding perpetual securities) (restated)

(5,284)

1,005

349

(347)

(556)

(6)

(4,839)

 

 

 

 

 

 

 

 

Retail net debt (excluding perpetual securities)

(6,451)

788

349

(347)

(555)

(5)

(6,221)

Perpetual capital securities

(248)

250

-

-

(2)

-

-

Perpetual convertible bonds

(248)

-

-

-

-

-

(248)

Retail net debt (including perpetual securities)

(6,947)

1,038

349

(347)

(557)

(5)

(6,469)

 

 

 

 

 

 

 

 

Of which:

 

 

 

 

 

 

 

Leases

(5,768)

 

 

 

 

 

(5,829)

Net debt excluding lease liabilities

(1,179)

 

 

 

 

 

(640)

 

Refer to note 2 for details of the prior year restatement.

 

Reconciliation of net cash flow to movement in net debt

 

 

 

28 weeks to 18 September 2021

28 weeks to 19 September 2020

52 weeks to 6 March 2021

 

 

 

 

£m

£m

£m

Opening net debt

 

 

(6,469)

(6,947)

(6,947)

 

 

 

 

 

 

Cash flow movements

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents (including overdrafts)

 

 

(41)

459

482

Elimination of Financial Services movement in cash and cash equivalents

 

 

169

(61)

(482)

Repayment of perpetual capital securities

 

 

8

250

250

Repayment of Retail borrowings

 

 

223

269

289

Repayment of Retail lease obligations

 

 

242

223

499

Net interest paid on components of Retail net debt

 

 

173

193

349

Changes in net debt resulting from cash flow

 

 

774

1,333

1,387

 

 

 

 

 

 

Non-cash movements

 

 

 

 

 

Accrued interest

 

 

(173)

(195)

(347)

Retail fair value and other non-cash movements

 

 

(477)

(359)

(562)

Changes in net debt resulting from non-cash movements

 

 

(650)

(554)

(909)

 

 

 

 

 

 

Movement in net debt

 

 

124

779

478

 

 

 

 

 

 

Closing net debt

 

 

(6,345)

(6,168)

(6,469)

               

 

16.        Borrowings

 

 

28 weeks to 18 September 2021

52 weeks to 6 March 2021

 

Current

Non-current

Total

Current

Non-current

Total

 

£m

£m

£m

£m

£m

£m

Loan due 2031

57

545

602

55

572

627

Bank overdrafts (restated)

201

201

99

-

99

Bank loans due 2021

-

-

-

199

-

199

Sainsbury's Bank Tier 2 Capital due 2023

3

177

180

3

176

179

Total borrowings (restated)

261

722

983

356

748

1,104

 

 

 

 

28 weeks to 19 September 2020

 

 

 

 

Current

Non-current

Total

 

 

 

 

£m

£m

£m

Loan due 2031

 

 

 

53

596

649

Bank overdrafts (restated)

 

 

 

615

-

615

Bank loans due 2021

 

 

 

200

-

200

Sainsbury's Bank Tier 2 Capital due 2023

 

 

 

4

176

180

Total borrowings (restated)

 

 

 

872

772

1,644

 

The bank loan due 2021 was repaid in full on 9 August 2021.

 

Refer to note 2 for details of the prior year restatement.

 

Available facilities

The Revolving Credit Facility is split into two Facilities, a £300 million Facility (A) and a £1,150 million Facility (B). Facility A has a final maturity of April 2025 and Facility B has a final maturity of October 2024. As at 18 September 2021, the Revolving Facility was undrawn (6 March 2021: nil; 19 September 2020: nil).

The Revolving Credit Facility incurs commitment fees at market rates and drawdowns bear interest at a margin above SONIA.

The Group maintains uncommitted facilities to provide additional capacity to fund short-term working capital requirements. Drawdowns on these uncommitted facilities bear interest at a margin. The uncommitted facilities were undrawn at 18 September 2021 (6 March 2021: nil; 19 September 2020: nil).

 

17.        Cash and cash equivalents

 

Cash and cash equivalents comprise the following:

 

 

28 weeks to 18 September 2021

52 weeks to 6 March 2021

28 weeks to 19 September 2020

 

 

restated

restated

 

£m

£m

£m

Cash in hand and bank balances

508

325

1,076

Money market funds and deposits

579

398

580

Deposits at central banks

549

852

412

Cash and bank balances as reported in the Group balance sheet

1,636

1,575

2,068

 

 

 

 

Bank overdrafts (within current borrowings)

(201)

(99)

(615)

Net cash and cash equivalents as reported in the Group cash flow statement

1,435

1,476

1,453

 

Of the above balance, £19 million (6 March 2021: £20 million; 19 September 2020: £22 million) was restricted as at the period-end. Of the £19 million (6 March 2021: £20 million; 19 September 2020: £22 million) restricted cash, £16 million (6 March 2021: £17 million; 19 September 2020: £17 million) is held as a reserve deposit with the Bank of England in accordance with statutory requirements. This deposit is not available for use in day-to-day operations. A further £2 million (6 March 2021: £3 million; 19 September 2020: £2 million) is restricted for insurance purposes.

 

Refer to note 2 for details of the prior year restatement.

 

Reconciliation of cash flow items

Working capital

 

 

Inventories

Financial assets at fair value through OCI

Trade and other receivables

Amounts due from Financial Services customers

Trade and other payables

Amounts due to Financial Services customers

Provisions

 

£m

£m

£m

£m

£m

£m

 

At 18 September 2021

1,682

752

779

5,022

(4,584)

(5,614)

(382)

At 6 March 2021

1,625

844

775

5,407

(4,508)

(6,289)

(470)

Balance sheet movement

(57)

92

(4)

385

76

(675)

(88)

Fair value movements

-

38

-

-

-

-

-

Reclassification to other lines in the cash flow statement

-

-

-

-

15

-

-

Amortisation of discounts

-

-

-

-

-

-

(1)

Financial Services ECL impairments

-

-

-

(35)

-

-

-

Movement in capital accruals

-

-

-

-

4

-

-

Other

-

-

(2)

-

-

-

(2)

Movement shown in cash flow statement

(57)

130

(6)

350

95

(675)

(91)

 

 

 

Inventories

Financial assets at fair value through OCI

Trade and other receivables

Amounts due from Financial Services customers

Trade and other payables

Amounts due to Financial Services customers

Provisions

 

£m

£m

£m

£m

£m

£m

 

At 19 September 2020

1,635

924

800

6,192

(4,703)

(6,810)

(377)

At 7 March 2020

1,732

1,054

854

7,404

(4,286)

(8,094)

(197)

Balance sheet movement

97

130

54

1,212

417

(1,284)

180

Fair value movements

-

29

-

-

-

-

-

Reclassification to other lines in the cash flow statement

-

-

-

-

(31)

-

-

Financial Services ECL impairments

-

-

-

(39)

-

-

-

Dividends received from JVs

-

-

(18)

-

-

-

-

Movement in capital accruals

-

-

-

-

31

-

-

Other

-

-

22

-

(8)

-

-

Movement shown in cash flow statement

97

159

58

1,173

409

(1,284)

180

 

 

 

 

 

 

 

 

 

 

Inventories

Financial assets at fair value through OCI

Trade and other receivables

Amounts due from Financial Services customers

Trade and other payables

Amounts due to Financial Services customers

Provisions

 

£m

£m

£m

£m

£m

£m

 

At 6 March 2021

1,625

844

775

5,407

(4,508)

(6,289)

(470)

At 7 March 2020

1,732

1,054

854

7,404

(4,286)

(8,094)

(197)

Balance sheet movement

107

210

79

1,997

222

(1,805)

273

Fair value movements

-

57

-

-

-

-

-

Hedge adjustment to inventory

10

-

-

-

-

-

-

Reclassification to other lines in the cash flow statement

-

-

-

-

80

-

-

Dividends received from JVs

-

-

(18)

-

-

-

-

Financial Services ECL impairments

-

-

-

(85)

-

-

-

Movement in capital accruals

-

-

-

-

8

-

-

Other

-

-

1

-

11

-

-

Movement shown in cash flow statement

117

267

62

1,912

321

(1,805)

273

 

(Profit)/loss on the sale of properties and early termination of leases in the cash flow statement is reconciled as follows:

 

 

28 weeks to 18 September 2021

28 weeks to 19 September 2020

52 weeks to 6 March 2021

 

£m

£m

£m

(Profit)/loss on disposal of properties (note 3)

(3)

5

(1)

Non underlying gain on early termination of leases (note 3)

(5)

-

(16)

Profit on disposal of properties within restructuring programmes (note 3)

(13)

-

-

Underlying gain on early termination of leases

(1)

-

-

Financial services loss on disposal of property, plant and equipment (note 5b)

-

2

-

(Profit)/loss on sale of properties and early termination of leases

(22)

7

(17)

 

18.        Retirement benefit obligations

 

All retirement benefit obligations relate to the Sainsbury's Pension Scheme plus two unfunded pension liabilities relating to former senior employees of Sainsbury's and Home Retail Group.

 

The Sainsbury's Pension Scheme has two segregated sections: the Sainsbury's Section and the Argos Section.

The unfunded pension liabilities are unwound when each employee reaches retirement and takes their pension from the Group payroll or is crystallised in the event of an employee retiring and choosing to take the provision as a one-off cash payment.

 

The amounts recognised in the balance sheet are as follows:

 

 

18 September 2021

6 March 2021

 

 

Sainsbury's

Argos

Group

Sainsbury's

Argos

Group

 

£m

£m

£m

£m

£m

£m

Present value of funded obligations

(9,352)

(1,488)

(10,840)

(8,808)

(1,410)

(10,218)

Fair value of plan assets

10,394

1,574

11,968

9,596

1,404

11,000

Retirement benefit surplus/(deficit)

1,042

86

1,128

788

(6)

782

Present value of unfunded obligations

(23)

(18)

(41)

(21)

(17)

(38)

Retirement benefit surplus/(deficit)

1,019

68

1,087

767

(23)

744

               

 

 

 

 

 

19 September 2020

 

 

 

 

Sainsbury's

Argos

Group

 

 

 

 

£m

£m

£m

Present value of funded obligations

 

 

 

(9,043)

(1,457)

(10,500)

Fair value of plan assets

 

 

 

10,072

1,478

11,550

Retirement benefit surplus

 

 

 

1,029

21

1,050

Present value of unfunded obligations

 

 

 

(21)

(17)

(38)

Retirement benefit surplus

 

 

 

1,008

4

1,012

 

The principal actuarial assumptions used at the balance sheet date are as follows:

 

 

 

 

 

 

18 September

6 March

19 September

 

 

 

 

 

2021

2021

2020

 

 

 

 

 

%

%

%

Discount rate

 

 

 

 

1.75

1.95

1.60

Inflation rate - RPI

 

 

 

 

3.40

3.15

2.90

Inflation rate - CPI

 

 

 

 

2.70

2.45

1.90

Future pension increases

 

 

 

 

2.25 - 3.30

2.15 - 3.10

1.80 - 2.85

 

The amounts recognised in the income statement in respect of the IAS 19 charges for the defined benefit schemes are as follows:

 

 

 

 

 

18 September 2021

6 March 2021

19 September 2020

 

 

 

 

£m

£m

£m

Excluded from underlying profit before tax:

 

 

 

 

 

 

Interest cost on pension liabilities

 

 

 

(106)

(163)

(88)

Interest income on plan assets

 

 

 

114

182

99

Total included in finance income/(costs)

 

 

 

8

19

11

Defined benefit pension scheme expenses

 

 

 

(2)

(7)

(3)

Past service cost

 

 

 

-

(6)

-

Total excluded from underlying profit before tax

 

 

 

6

6

8

Total income statement credit

 

 

 

6

6

8

 

The movements in the net defined benefit obligations are as follows:

 

 

 

 

 

18 September 2021

6 March 2021

19 September 2020

 

 

 

 

£m

£m

£m

The movements in the Groups net defined benefit obligations are as follows:

 

 

 

 

 

 

As at the beginning of the period

 

 

 

744

1,119

1,119

Net interest income

 

 

 

8

19

11

Remeasurement gains/(losses)

 

 

 

298

(482)

(175)

Pension scheme expenses

 

 

 

(2)

(7)

(3)

Contributions by employer

 

 

 

39

101

60

Past service charge

 

 

 

-

(6)

-

As at the end of the period

 

 

 

1,087

744

1,012

 

Cash contributions

Cash contributions for the full year are expected to be approximately £76 million.

 

Valuation of pension assets

The Pension Scheme has circa £2 billion of private market assets, split between private debt, private equity and property. These assets are held as they are expected to deliver a greater risk/return profile vs public market equivalents over the long term. The assets are illiquid (likely to be realised over 5+ years) but the Pension Scheme holds sufficient liquid assets (cash, gilts and other liquid securities) to be confident that it can meet its pension and collateral obligations over time.

 

The valuation of these assets is based on the audited accounts of the funds, where available, and net asset value statements from the investment managers where recent accounts are not available. For many of the investments the valuations provided are at 30 June. The Group therefore performs a roll-forward for these valuations, adjusting for cash received or paid and applying the changes seen in relevant liquid indices as follows:

 

Asset Class

Return

Global equity USD return

2.91%

Global High Yield Debt USD return

1.30%

US loans USD return

0.94%

UK REITS GBP return

9.08%

 

The roll-forward has increased the valuation of illiquid assets by £33 million. A 1% increase/decrease in the indices used would have caused a £8 million increase/decrease in the adjustment.

 

Sensitivities

The following sensitivities are based on management's best estimate of a reasonably anticipated change. The sensitivities are calculated using the same methodology used to calculate the retirement benefit obligation, by considering the change in the retirement benefit obligation for a given change in assumption. The net retirement benefit obligation is the difference between the retirement benefit obligation and the fair value of plan assets. Changes in the assumptions may occur at the same time as changes in the fair value of plan assets. There has been no change in the calculation methodology since the prior period.

 

 

Sainsbury's

Argos

Total

 

£m

£m

£m

An increase of 0.5% in the discount rate would decrease the present value of funded obligations by

(836)

(146)

(982)

A decrease of 0.5% in the discount rate would increase the present value of funded obligations by

957

168

1,125

An increase of 0.5% in the inflation rate would increase the present value of funded obligations by

542

131

673

A decrease of 0.5% in the inflation rate would decrease the present value of funded obligations by

(579)

(129)

(708)

An increase of 0.5% in the inflation rate for future pension increases would increase the present value of funded obligations by

316

104

420

A decrease of 0.5% in the inflation rate for future pension increases would increase the present value of funded obligations by

(395)

(107)

(502)

An increase of one year to the life expectancy would increase the present value of funded obligations by

368

57

425

 

19.        Related party transactions

 

The Group's related parties are its joint ventures and key management personnel, comprising members of the J Sainsbury plc Board of Directors and the Operating Board as disclosed in the Annual Report and Financial Statements 2021. 

 

Transactions with joint ventures and associates

 

For the 28 weeks to 18 September 2021, the Group entered into various transactions with joint ventures and associates as set out below:

 

 

28 weeks to

18 September 2021

28 weeks to

19 September 2020

52 weeks to

6 March

2021

 

£m

£m

£m

Services and loans provided to joint ventures

 

 

 

Dividends and distributions received

-

4

4

Rental expenses paid

(3)

(3)

(6)

 

Balances arising from transactions with joint ventures and associates

 

 

18 September

 2021

19 September 2020

6 March

 2021

 

£m

£m

£m

Other payables

(1)

(1)

(2)

 

20.        Contingent liabilities

 

The Group has a number of contingent liabilities in respect of historic guarantees, particularly in relation to disposed assets, which if the current tenant and their ultimate parents become insolvent, may expose the Group to a material liability. This is not expected to materialise.

 

Along with other retailers, the Group is currently subject to claims from current and ex-employees in the Employment Tribunal for equal pay under the Equality Act 2010 and/or the Equal Pay Act 1970. There are currently circa 8,500 equal pay claims from circa 4,430 claimants, in which the claimants are alleging that their work within Sainsbury's stores is of equal value to that of colleagues working in Sainsbury's distribution centres, and that differences in terms and conditions relating to pay are not objectively justifiable. The claimants are seeking the differential back pay based on the higher wages in distribution centres, and the equalisation of wages and terms and conditions on an ongoing basis. The Group believes further claims may be served.

 

Typically, claims of this nature can take many years to be determined. Given that the claims against the Group are still at a relatively early stage and the outcome of such claims is highly uncertain at this stage, the Group cannot make any assessment of the likelihood nor quantum of any outcome. No provision has therefore been recognised on the Group's balance sheet. There are substantial factual and legal defences to these claims and the Group intends to defend them vigorously.

Principal risks and uncertainties

 

Risk is an inherent part of doing business.  The J Sainsbury plc Board has overall responsibility for the identification and management of the principal risks, emerging 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, operational resilience and major incidents response

·      Business strategy and change

·      Colleague engagement, retention and capability

·      Customer

·      Data security

·      Environment and sustainability

·      Financial and treasury

·      Health and safety

·      Political and regulatory environment

·      Product safety and sourcing

·      Sainsbury's Bank

·      Trading environment and competitive landscape

 

The Group expanded the Environment and sustainability Principal Risk to include climate-related risks, which reflects how these are monitored and reported within the business. These were previously referenced across a number of the Group's principal risks. As such, the gross and net position of this risk have regressed.

 

The Group continues to monitor and respond to any potential disruption in its supply chains in response to the impact of COVID-19 globally and Brexit.

 

Aside from the Environment and sustainability Principal Risk, the others remain unchanged from those reported in the Group's Annual Report and Financial Statements 2021.  For more information on these risks, please refer to pages 32 to 43 of the J Sainsbury plc Annual Report and Financial Statements 2021, a copy of which is available on the Group's corporate website www.j-sainsbury.co.uk.

 

Statement of Directors' responsibilities

 

The Directors confirm that this set of Condensed Consolidated Interim Financial Statements has been prepared in accordance with UK adopted IAS 34 'Interim Financial Reporting' and the Disclosure and Transparency Rules of the UK's Financial Conduct Authority, and that the Interim Management Report herein includes a true and fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

·      that the report contains a fair review of important events that have occurred during the first 28 weeks of the financial year, and their impact on the condensed set of financial statements, and of the principal risks and uncertainties for the remaining six months of the financial year; and

·      that the report contains a fair review of related party transactions.

 

The Directors of J Sainsbury plc are listed in the J Sainsbury plc Annual Report and Financial Statements 2021.

 

A list of current directors is maintained on the Group's website: www.about.sainsburys.co.uk/about-us/our-management.

 

By order of the Board

 

 

 

 

 

 

Simon Roberts

Chief Executive

3 November 2021

 

 

 

 

 

 

Kevin O'Byrne

Chief Financial Officer

3 November 2021

 

 

INDEPENDENT REVIEW REPORT TO J SAINSBURY PLC

 

Introduction

 

We have been engaged by the J Sainsbury plc (the Company) to review the condensed set of financial statements in the interim financial report for the 28 week period ended 18 September 2021 which comprises of the Group income statement, the 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.

 

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 week period ended 18 September 2021 is not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Basis for Conclusion

 

We conducted our review in accordance with International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.  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 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.

 

As disclosed in note 2, the annual financial statements of the group will be prepared in accordance with UK adopted international accounting standards. The condensed set of financial statements included in this interim financial report has been prepared in accordance with UK adopted International Accounting Standard 34, "Interim Financial Reporting".

 

Responsibilities of the directors

 

The directors are responsible for preparing the interim financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Auditor's Responsibilities for the review of the financial information

 

In reviewing the interim report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statements in the interim financial report. Our conclusion is based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

 

Use of our report

 

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "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.

 

 

 

Ernst & Young LLP

London

3 November 2021

 

 

Alternative performance measures (APMs)

 

In the reporting of financial information, the Directors use various APMs which they believe provide additional useful information for understanding the financial performance and financial health of the Group. These APMs should be considered in addition to, and are not intended to be a substitute for, IFRS measurements. As they are not defined by International Financial Reporting Standards, they may not be directly comparable with other companies who use similar measures.

 

The Directors believe that these APMs provide additional useful information for understanding the financial performance and health of the Group. They are also used to enhance the comparability of information between reporting periods (such as like-for-like sales and underlying profit) by adjusting for non-recurring or uncontrollable factors which affect IFRS measures, to aid users in understanding the Group's performance.

 

Consequently, APMs are used by the Directors and management for performance analysis, planning, reporting and incentive setting purposes.

 

All of the following APMs relate the current period's results and comparative periods.

 

APM

Closest equivalent IFRS measure

Definition

Purpose

Reconciliation

Income statement - Revenue

 

 

 

Retail sales

Revenue

Group sales less Financial Services revenue.

 

Shows the annual rate of growth in the Group's Retail business sales.

A reconciliation of the measure is provided in note 4 of the financial statements.

Like-for-like sales

No direct equivalent

Year-on-year growth in sales including VAT, excluding fuel, excluding Financial Services, for stores that have been open for more than one year.

 

The relocation of Argos stores into Sainsbury's supermarkets are classified as new space, while the host supermarket is classified like-for-like.

 

The impact on sales of stores which were temporarily closed due to COVID-19 have been included within LFL sales. Only permanently closed sites and those temporarily closed for non COVID-19 related reasons are treated as non LFL.

The measure is used widely in the retail industry as an indicator of current trading performance and is useful when comparing growth between retailers that have different profiles of expansion, disposals and closures.

 

The reported retail like-for-like sales growth of 0.3 per cent is based on a combination of Sainsbury's like-for-like sales and Argos like-for-like sales for the 28 weeks to 18 September 2021. See movements below:

28 weeks to 18 September 2021

28 weeks to 19 September 2020

Retail like-for-like (exc. Fuel, inc. VAT)

0.3%

6.9%

Underlying net new space impact

(0.1)%

0.2%

Retail sales growth (exc. Fuel, inc. VAT)

0.2%

7.1%

Fuel impact

5.8%

(8.5)%

Total retail sales growth (inc. fuel, inc. VAT)

(1.4)%

VAT impact

(0.6)%

0.8%

Total retail sales growth per note 4

(0.6)%

 

 

 

           

 

APM

Closest equivalent IFRS measure

Definition

Purpose

Reconciliation

 

Income statement - Profit

Retail underlying operating profit

Profit before tax

Underlying earnings before interest, tax, Financial Services operating profit and Sainsbury's underlying share of post-tax profit from joint ventures and associates.

This is the lowest level at which the retail segment can be viewed from a management perspective, with finance costs managed for the Group as a whole.

 

 

28 weeks to 18 September 2021

28 weeks to 19 September 2020

52 weeks to 6 March 2021

 

£m

£m

£m

Group PBT (note 5a)

541

(137)

(261)

(Less)/Add back Group non-underlying items (note 3)

(170)

438

617

Group UPBT

371

301

356

Financial Services underlying operating loss/(profit)

(19)

55

21

Retail underlying profit before tax

352

356

377

Net underlying finance costs

171

199

353

Retail underlying operating profit

523

555

730

 

 

 

 

Retail sales (note 5a)

15,511

14,715

          28,617

Retail underlying operating margin

3.37%

3.77%

2.55%

 

Underlying profit before tax

Profit before tax

Underlying results exclude items recognised in reported profit or loss before tax which, if included, could distort comparability between periods. In determining which items to exclude from underlying profit, the Group considers items which are significant either by virtue of their size and/or nature, or that are non-recurring.

In order to provide shareholders with additional insight into the underlying performance of the business, this adjusted measure of profit is provided to supplement the reported IFRS numbers, and reflects how the business measures performance internally.

Underlying profit before tax is bridged to statutory profit before tax in the income statement and note 3 of the financial statements.

 

The adjusted items are as described in note 3 of the financial statements