Final Results

J Sainsbury PLC

Apr 28 2022 08:00 BSTSource: RNS

RNS Number : 6179J

Sainsbury(J) PLC

28 April 2022

28 April 2022 J Sainsbury PLC

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

Preliminary Results for the 52 weeks ended 5 March 2022

Delivering for customers, colleagues, communities and shareholders

Simon Roberts, Chief Executive of J Sainsbury plc, said: "In a year of unprecedented change we have been relentlessly focused on putting customers and colleagues first while delivering the first year of our plan to put food back at the heart of Sainsbury's. We said we would invest in value, innovation and service and that's exactly what we're doing. We have outperformed key competitors on both a one and two-year basis¹ while also delivering strong underlying profit growth, improved returns and consistent retail free cash flow. This gives us a strong foundation to keep building momentum in the year ahead.

"We know just how much everyone is feeling the impact of inflation, which is why we are so determined to keep delivering the best value for customers. We have been able to drive more investment into lowering food prices funded by our comprehensive cost savings plans. As a result, we continue to inflate behind competitors on the products customers buy most often. Last week we announced the next bold phase of investment, lowering prices across 150 of our highest volume fresh products.

"As our colleagues are feeling the impact of inflation too we prioritised investment of over £100 million into colleague pay. All Sainsbury's and Argos retail colleagues now earn the Living Wage wherever they work in the UK, we were the first major supermarket to make this happen. I want to thank every one of my colleagues for the outstanding job you've done every day. I am immensely proud of our entire team.

"I would also like to thank our suppliers for all their support throughout the last year. Partnership and collaboration through these times of significant industry challenge and change have never been more important.

"The dreadful situation in Ukraine continues to have a profound impact. We're doing everything we can to help with the humanitarian effort, and are working to manage the supply chain impacts.

"We have a clear long term focus on keeping prices low and we remain committed to helping everyone eat better, whatever the external environment may bring."

Financial highlights

· Retail sales inc. fuel up 3.4%, ex. fuel sales down 2.6%. Ex. VAT Group sales up 2.9%

o Grocery sales up 7.6% versus FY 2019/20, broadly flat versus FY 2020/21, reflecting sustained COVID-19-driven demand and strong volume market share performance over one and two years

o General Merchandise sales down 4.6% versus FY 2019/20, reflecting availability challenges in key product areas and our focus on profitable sales. Down 11.9% versus FY 2020/21

· Underlying profit before tax² of £730 million, up 25% versus FY 2019/20 and up 104% versus FY 2020/21, which included substantial COVID-19 costs

o Reflects elevated grocery sales and lower finance charges, with significant investment in core grocery funded by cost savings, fuel and a more profitable general merchandise and clothing business

· Statutory profit before tax of £854 million versus £278 million³ in FY 2019/20 and a loss of £164 million³ in FY 2020/21

o Reflects lower restructuring and impairment costs and exceptional income from settling legal disputes

· Financial Services £38 million profit versus FY 2020/21 £21 million loss and £48 million profit in FY 2019/20

o We expect further profit improvement in FY 2022/23

o Following the year end, the Bank has paid its first ever dividend to the Group, of £50 million

· Strong Retail Free Cash Flow of £503 million². Average Free Cash Flow in three years to March 2022 £633 million

· Non-lease Net Debt down £1,381 million in three years to March 2022, ahead of target £950 million+ over four years

· Proposed final dividend of 9.9 pence, full-year dividend of 13.1 pence, up 24%

· Capital allocation framework updated. Initial commitment to increase dividend payout ratio to around 60%

· Outlook: The year ahead will be impacted by significant external pressures and uncertainties. At this early stage of the year we expect FY 2022/23 underlying profit before tax² of between £630 million and £690 million

Strategic highlights

· Food First: We are focused on giving customers better value and improved innovation and customer service.

o Significant investment in grocery prices, funded by our cost saving programme, has driven a strong grocery volume market share performance over one and two years¹

o We are inflating behind the market on the highest volume products⁴. By investing ahead of competitors, with a clear focus on fresh food, our prices are improving

o We have more than tripled product innovation in the year and have grown Taste the Difference sales by 15% versus FY 2019/20. Customer satisfaction scores performed ahead of competitors in our supermarkets and online customer satisfaction improved relative to peers⁵

o 39 per cent of our sales came through digital channels, versus 23 per cent in FY 2019/20. Groceries Online accounted for 17 per cent of overall Grocery sales

· Brands that Deliver: Nectar, Argos, Habitat, Tu and Sainsbury's Bank are delivering for our customers and our shareholders and supporting investments in our wider customer offer.

o The Argos transformation programme is on track and Argos is a more profitable business. 80 per cent of Argos sales now originate online

o Sainsbury's Bank is making good progress with its strategic plan and has paid the Group a dividend for the first time, of £50 million

o Nectar has 9.3 million digital users, with over one million customers regularly benefitting from personalised promotions through My Nectar Prices and Nectar360 revenues are ahead of plan

o Tu Clothing is now a £1 billion brand, with sales growth of 3.1% versus FY 2019/20, underpinned by good online sales, up 49%

· Save to Invest: We are making good progress with our cost saving programme.

o We reduced our cost: sales ratio by 83 basis points versus FY 2019/20 and continue to target reducing our cost: sales ratio by 200 basis points despite significantly higher inflationary pressures

o Transforming our eat-in, takeaway and delivery food and drink and bakery offer as well as hot food counter closures will save £125-150 million over three years and integrating the Sainsbury's, Argos and Habitat supply chain and logistics operations will save at least £250 million when complete

o The cost savings programme is fuelling investment in our grocery value and our broader customer offer

· Plan for Better: This year we have accelerated our sustainability goals.

o As a Principal Partner of COP26, we brought forward our commitment to be Net Zero in our own operations by 2035, five years ahead of our original target. We have also committed to reduce our Scope 3 emissions by 30% by 2030.

o We are proud to support our communities and raised over £6 million for Comic Relief as part of this year's Red Nose Day and have already donated a further £2 million to Comic Relief to support the humanitarian crisis in Ukraine

o Through our partnership with Neighbourly, we donated over 2.5 million meals between August and March - the equivalent of £4.8 million - to charities and community groups⁶, additionally supporting our target to reduce food waste by 50% by 2030

Financial Summary	2021/22	2020/21	2019/20	YoY	Yo2Y
Statutory performance
Group revenue (excl. VAT, inc. fuel)	£29,895m	£29,048m	£28,993m	2.9%	3.1%
Profit/(loss) before tax³	£854m	£(164)m	£278m	N/A	207%
Profit/(loss) after tax³	£677m	£(201)m	£170m	N/A	298%
Basic earnings/(loss) per share³	29.8p	(9.4)p	6.7p	N/A	367%

Business performance
Group sales (inc. VAT)	£33,355m	£32,285m	£32,394m	3.3%	3.0%
Retail sales (inc. VAT, excl. fuel)	£28,095m	£28,837m	£26,868m	(2.6)%	4.6%
Digital sales	£10.8bn	£12.1bn	£6.0bn	(11)%	80%
Underlying profit before tax ^{2, 3}	£730m	£357m	£586m	104%	25%
Underlying basic earnings per share ^{2, 3}	25.4p	11.7p	19.8p	117%	28%
Interim dividend per share	3.2p	3.2p	3.3p	0%	(3.0)%
Proposed Final dividend per share⁷	9.9p	7.4p	7.3p	34%	36%
Proposed Full-year dividend per share⁷	13.1p	10.6p	10.6p	24%	24%
Net debt²	£6,759m	£6,469m	£6,947m	Up £290m	Down £188m
Non-lease net debt	£141m	£640m	£1,179m	Down £499m	Down £1,038m
Return on capital employed²	8.4%	5.6%	7.4%	Up 280bps	Up 100bps

Like-for-like sales performance

		2020/21		2021/22 YoY
		Q3	Q4	Q1	Q2	Q3	Q4	FY
	Like-for-like sales (exc. fuel)	8.6%	11.3%	1.6%	(1.4)%	(4.5)%	(5.6)%	(2.3)%
	Like-for-like sales (inc. fuel)	3.2%	3.2%	8.4%	3.0%	0.6%	2.7%	3.6%
Total sales performance
Total sales performance
		2020/21		2021/22 YoY					2021/22 Yo2Y
		Q3	Q4	Q1	Q2	Q3	Q4	FY	Q1	Q2	Q3	Q4	FY
	Grocery	7.4%	7.1%	0.8%	0.8%	(1.1)%	(1.6)%	(0.2)%	11.3%	6.0%	6.6%	4.7%	7.6%
	General Merchandise	6.0%	17.6%	(1.4)%	(11.4)%	(16.0)%	(21.1)%	(11.9)%	5.6%	(4.7)%	(11.0)%	(5.8)%	(4.6)%
	GM (Argos)	8.4%	18.1%	(3.7)%	(12.0)%	(16.1)%	(20.4)%	(12.5)%	6.7%	(2.4)%	(9.1)%	(4.7)%	(3.0)%
	GM (Sainsbury's Supermarkets)	(5.4)%	14.8%	11.2%	(8.0)%	(15.7)%	(24.1)%	(8.6)%	0.9%	(14.4)%	(20.0)%	(10.9)%	(12.0)%
	Clothing	0.4%	4.2%	57.6%	9.2%	(2.7)%	(9.3)%	12.7%	15.5%	1.0%	(1.7)%	(6.8)%	3.1%
	Total Retail (excl. fuel)	6.8%	9.2%	1.6%	(1.7)%	(5.3)%	(6.2)%	(2.6)%	10.3%	3.4%	1.4%	2.2%	4.6%
	Fuel	(29.0)%	(38.5)%	95.1%	36.1%	47.5%	80.1%	60.0%	(14.4)%	(3.8)%	3.6%	11.7%	(2.6)%
	Total Retail (inc. fuel)	1.7%	1.6%	8.5%	2.7%	(0.1)%	2.2%	3.4%	6.2%	2.2%	1.7%	3.7%	3.5%

Outlook

We start this year in a good position financially, with continued operating momentum and sharp execution supporting our strong competitive position.

The year ahead will be impacted by significant external pressures and uncertainties, including higher operating cost inflation and cost of living pressures impacting customers' disposable incomes.

In that context we are determined to continue our consistent improvement in grocery value, innovation and customer service, funded by our comprehensive cost savings programme and we expect to continue our strong grocery volume market share performance.

At this early stage of the financial year we expect underlying profit before tax will be between £630 million and £690 million in FY 2022/23. This is below the £730 million reported in FY 2021/22, a year which benefited by an estimated £100 million from elevated COVID-19 driven grocery volumes, but significantly ahead of the £586 million reported in FY 2019/20.

We continue to expect to generate retail free cash flow of at least £500 million in FY 2022/23. Together with our strong balance sheet, this is reflected in our commitment to return a higher proportion of underlying profits to shareholders, initially through an increased payout ratio.

Capital Allocation

Cash flow and Leverage

We have had another year of strong free cash flow generation, with retail free cash flow of £503 million despite some reversal of last year's exceptional working capital inflows.

Over the last three years we have generated average retail free cash flow of £633 million, ahead of our target of at least £500 million.

Strong cash generation, disciplined spending and a £240 million benefit from convertible bond redemptions have enabled us to reduce non-lease net debt by over £1.8 billion, from £2 billion five years ago to £141 million in FY 2021/22. We have hit our four-year £950 million+ net debt reduction target a year ahead of schedule and our net debt to EBITDA leverage ratio now stands at 3.1x.

We have achieved this deleverage while simultaneously paying a broadly stable dividend per share to shareholders, a total of £1.1 billion over five years and propose a full-year dividend per share this year of 13.1p, a 24 per cent increase year on year and the highest dividend per share we have paid since 2015. This will return around £300 million of cash to shareholders.

Capital Allocation

· Looking forward, we will continue to invest in the business to support and accelerate our strategy, including the Save to Invest programme and the ongoing transition to a more digital future

· We expect capital expenditure to remain in the range of £700 million to £750 million and expect to continue to generate retail free cash flow of at least £500 million per year

· We will use some of this retail free cash flow to deleverage further, targeting a solid investment grade balance sheet consistent with target leverage of net debt to EBITDA of 3.0x - 2.4x

· We are focused on delivering strong dividends and will return a higher proportion of underlying earnings to shareholders, in the first instance through the ordinary dividend, where we will increase the dividend payout ratio from around 53 per cent of underlying earnings to around 60 per cent

· We expect leverage to move below 3x over time, helped by a reduced impact of lease liabilities relating to property currently in the Highbury and Dragon property investment pools. Once leverage is comfortably within our target range, we expect to be able to return more cash to shareholders through higher dividends and/or share buybacks

Capital allocation priorities

1. Invest in the business to support and accelerate our strategy

2. A solid investment grade balance sheet, targeting leverage of 3.0x-2.4x net debt/EBITDA

3. Deliver strong ordinary dividends for shareholders, with a payout ratio of around 60 per cent of underlying net earnings

4. Selectively invest in projects where commercially interesting/NPV positive opportunities exist, such as lease buy-ins

5. Return surplus cash to shareholders through higher dividends and/or share buybacks

Dividend

The Board has proposed a final dividend of 9.9 pence per share. This brings the full-year dividend to 13.1 pence per share, a 24% increase, reflecting the strong growth in earnings per share and covered 1.9 times by underlying earnings.

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 7.30am (BST). The webcast can be accessed at the following link: https://webcasts.sainsburys.co.uk/sainsbury167

Following the release of the webcast, a Q&A conference call will be held at 9.30am (BST). This will be available to listen to on our website at the following link: https://webcasts.sainsburys.co.uk/sainsbury168

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 2022/23 First Quarter Trading Statement at 07:00 (BST) on 5 July 2022.

ENDS

Enquiries

Investor Relations	Media
James Collins	Rebecca Reilly
+44 (0) 7801 813 074	+44 (0) 20 7695 7295

Strategy Review: Driven by our passion for food, together we serve and help every customer

We are one year into our three-year plan to transform Sainsbury's and put food back at the heart of our business. We are simplifying our operations at pace and accelerating our cost saving programmes in order to invest in consistently delivering value to customers, improving food quality and increasing innovation. Our brands that deliver - Argos, Habitat, Tu, Nectar and Sainsbury's Bank - support our core food business, delivering for customers and shareholders in their own right. We will continue to pursue partnerships and to outsource where appropriate, where a partnership model can help us improve our customer offer and make our business more efficient and simpler.

Food First

We are putting food back at the heart of Sainsbury's. This means we are focused on lowering prices, launching new products and improving service. We have gained grocery volume market share from our key supermarket competitors on both a one and two-year basis¹ and grocery sales are up 7.6 per cent on a two-year basis.

Value
We are making good progress to improve the value of our food. We know that the current cost of living situation is challenging for everyone and we are relentlessly focused on delivering consistent long-term value by offering customers great quality, tasty food at low prices. As a result of being bold in our cost savings plan, we are able to drive investment back into lower food prices and we are consistently inflating behind competitors on the products customers buy most often - including milk, eggs, potatoes, bread, vegetables, fish and meat. As a result, our relative price position has remained strong throughout the year - improving 310 basis points against Aldi, year on year⁹, leading to more customers shopping with us. By focusing on fresh and high-volume lines we are offering customers better value, improving price perception and delivering strong volume market performance.

Through the year our Price Lock promotion fixed the price of up to 2,000 items for a minimum of at least eight weeks. Customers can be assured that prices will not rise on those products, helping them to plan and budget. Through Price Lock we are holding down the prices of more products than our competitors.

We have also increased the number of entry price point products on offer for customers, including Greengrocer fruit & vegetables, J. James meat and poultry and Stamford Street ready meals offer customers a wide choice of products.

Innovation
We have delivered our plan to triple the number of new lines we sell, launching over 1,900 products across all our food brands. We developed our 'Inspired to Cook' range in response to the shift towards eating at home and cooking from scratch, launching a range of over 200 products across Grocery and Fresh Foods which make home cooking simple and tasty for customers. In March we launched 350 new branded World Food products, our biggest investment into this category to date and in the first six weeks sales are up significantly.

Our premium Taste the Difference range continues to perform well, particularly at key seasonal and celebratory moments when people want to trade up, such as Christmas and Easter. We have grown sales by 15 per cent versus two years ago.

In March we began our food hall transformation programme. We have rolled out our successful Beauty Hall format in more stores, improved the layout of our fresh ranges to make it easier for customers to shop, increased our popular World Foods ranges and improved our in-store bakeries. We have also simplified some of our ranges and provided a greater breadth of products across others, delivering more choice for customers on the products they really want.

Service

We are committed to rewarding our colleagues and all Sainsbury's and Argos retail colleagues now receive a base rate of pay of £10 per hour, above both the National Living Wage and the Living Wage. In March we increased inner London pay from £10.10 to £11.05 in line with the London Living Wage. We have announced that from 1 May 2022 the outer London rate will also be moving to £11.05, from £10.50. This means that all Sainsbury's and Argos retail colleagues earn the Living Wage wherever they are in the UK. We were the first supermarket among the big four to make this happen.

Alongside competitive pay we also offer a comprehensive benefits package, including year-round colleague discount of 10 per cent, increased to 15 per cent for five days around every pay day, pension contributions and an improved family leave policy.

We improved customer service scores in supermarkets⁵ and are adapting our Sainsbury's store estate to offer more new and innovative products. This year we opened four new supermarkets and as part of our drive to offer a broader range of distinctive food to customers in-store, on the move and at home, we announced bold new plans to transform our eat-in, takeaway and home delivery offer. Through a partnership with Boparan Restaurant Group we have developed "The Restaurant Hub" format, a food hall style offer with different brands which we will roll out across 30 stores in the next year, with more to come in the future. We will also open 30 Starbucks cafés in Sainsbury's stores in the next year, bringing the total number to 60. We took the decision to close 200 underperforming cafés in the Spring.

Our Convenience business grew 9 per cent driven by more people returning to the workplace, with sales now broadly back at pre-pandemic levels. We opened 19 convenience stores and closed 23. We are making progress with our plan to open more Neighbourhood Hub stores which give customers a larger, more convenient local store with a wider produce range, more choice and better services.

39 per cent of our overall business now comes through digital channels, versus 23 per cent in FY 2019/20. We are seeing a normalisation of pre-COVID-19 shopping patterns as customers are returning to shopping in stores and demand for Groceries Online, non-food home delivery and Click & Collect has stabilised, although it remains more than double pre-pandemic levels.

Groceries Online accounted for 17 per cent of grocery sales with an average of 690,000 orders per week. In FY 2021/22 we grew our Groceries Online market share to become the second largest online grocery retailer, up from fourth before the pandemic⁸. This scale gives us advantage. We have improved profitability by enhancing picking rates and van utilisation. We are exploring new ways to make our delivery services better for customers and more efficient and initiatives include one-hour saver slots and changes to our delivery pass model. Customer satisfaction in Online is improving relative to competitors⁵.

We relaunched our same day groceries service in 284 stores and we continue to grow our On Demand grocery offer. In the fourth quarter we averaged 130,000 weekly orders from over 580 stores in as little as 30 minutes through our Chop Chop service and partnerships with Deliveroo and Uber Eats.

Brands that Deliver

Our brands that deliver - Nectar, Argos, Habitat, Tu and Sainsbury's Bank - are delivering for our customers and our shareholders and supporting investments in our wider customer offer.

Argos sales were down 12.5 per cent year on year against last year's high sales during the pandemic. Sales were down three per cent over two years and were impacted by availability issues caused by supply chain disruptions and the strategic decisions we made to reduce promotions and exit less profitable categories. Reflecting this focus, household and home and furniture sales grew while sales of toys, consumer electronics and technology categories declined. We have grown our furniture market share over the past two years, driven by Habitat, Sainsbury's and Argos's main home and furniture brand. Following a relaunch in September, Habitat products are now available in 600 Sainsbury's stores and online via the Argos and Habitat websites. We are growing our digital presence to ensure that we are well placed to serve customers who increasingly want to buy online. 80 per cent of Argos sales are now online, up from 63 per cent two years ago.

Nectar supports our ambitions in food by giving customers personalised rewards for their loyalty. 9.3 million digital Nectar users can benefit from personalised offers with us and with our Nectar partners. This year we launched My Nectar Prices - an innovative data-led tool which gives customers discounted prices that are personal to them, delivering even more value for loyal customers. Over one million customers are benefitting from lower prices and we will develop the proposition further. Nectar360, our marketing services business, is making good progress and we are on track to hit our 2026 plan on profit.

Tu clothing delivered sales growth of 12.7 per cent over one year and 3.1 per cent over two years and delivers over £1 billion in sales. We are selling more clothing at full price - with full priced sales participation now at 89 per cent compared with 65 per cent two years ago - and running fewer promotions, which improves profitability and supports increased investment in our core food business.

We continue to make good progress reshaping, strengthening and simplifying our Financial Services business, with profits of £38 million versus a loss of £21 million in FY 2020/21. This compares with £48 million in FY 2019/20. FY 2020/21 was impacted by COVID-19 where we saw significantly reduced demand across consumer credit, combined with increased bad debt provisions and less activity in our fee-based products, particularly Travel Money. Reflecting the Bank's progress, following the year end, it has paid dividend to the Group for the first time, of £50 million.

We have continued to improve our digital capability with the launch of the Argos Monthly Payment Plan, which allows customers to spread the cost of a purchase across fixed monthly repayments for a period of their choice. We have transformed the Sainsbury's Bank loan application journey for single and joint applicants with a fully digital onboarding experience that can transfer funds to accounts in just minutes. We have also improved the application journey for savings customers.

Save to Invest

We are making good progress with our cost saving programme, making bold decisions and prioritising what really matters to customers. By reducing our retail operating costs, we are able to invest more into our core food business, delivering better value, increasing our innovation and improving customer service. Our retail operating costs to sales ratio has reduced by 83 basis points versus FY 2019/20 and we continue to target reducing the ratio by at least 200 basis points by the end of FY 2023/24, despite cost inflation being significantly higher than was anticipated when this target was set.

We are working at pace to integrate the Sainsbury's, Argos and Habitat supply chain and logistics networks, which will save at least £250 million over the programme, improve overall efficiency and deliver a better service to our customers. Our property rationalisation programme is on track and this year we closed four underperforming supermarkets and 23 convenience stores. We are also working to improve the efficiency of Groceries Online, moving stores to a new, more efficient routing system and improving pick rates, which will save the business around £50 million overall. In addition, we are investing to improve the checkout experience for customers and colleagues which will drive around £50 million of cost efficiencies. This includes trialling improvements to the layout of self-service areas, making it easier for colleagues to help customers, reducing queuing times and creating additional space for shoppers with trolleys, increasing participation.

We are making good progress in Argos's end-to-end transformation programme, which will save £105 million over three years. We have opened five Local Fulfilment Centres (LFCs) and as a result, our customers are benefitting from improved availability, faster delivery and more collection options; we plan to open nine more LFCs this year. In line with improving availability and convenience for customers whilst reducing costs, this year we opened 64 Argos stores inside Sainsbury's supermarkets plus 62 in-store collection points. We have closed 73 standalone Argos stores this year. As of 5 March 2022, Argos has 728 stores, of which 400 are inside Sainsbury's supermarkets.

We partner with third parties and outsource where necessary to deliver for our customers, whilst supporting our own cost saving programme and our focus on food. The changes we are making to our cafes, hot food counters and bakeries will create £125-150 million of savings over three years and we will continue to explore ways to work with partners to drive value and improve service for our customers.

We are proud of our strong relationships with suppliers and are continuing to work closely with them to drive value and simplify processes, enabling us to lower our cost to serve and buy better, as well as minimising the impact of rising inflation as much as possible for customers.

Plan for Better

This year we have accelerated our sustainability goals, as set out in our Plan for Better. We have made good progress against our programme of change and have announced a more ambitious target towards becoming a Net Zero business.

Better for the planet

We are strengthening our commitment to tackle the climate crisis by accelerating our target to become Net Zero in our operations by 2035, five years earlier than our initial ambition and in alignment with the UN's own goal to limit global warming. Outside of our operations, we also have introduced an ambitious Scope 3 target, which requires the reduction of absolute GHG (greenhouse gas) emissions by 30 per cent by 2030, to align to well below the 2°C scenario of the Paris Agreement. The target includes reducing emissions from purchased goods, upstream transport and distribution, services sold and our customers' use and consumption of the products we sell. By delivering against our Scope 3 targets by 2030, we will help customers make more sustainable product choices.

Overall, we have reduced our absolute GHG emissions within our operations to 762,119 tCO2e, a reduction of 7 per cent year-on-year and 20 per cent from our 2018/19 baseline, keeping us on course for our new 2035 target. We have hit some key milestones in our plan, including the roll out of LED lighting across 100 per cent of our supermarket estate and transitioning to 100 per cent renewable electricity. We have also committed to the long-term purchasing of renewable energy from new wind farms and solar projects, significantly reducing our reliance on fossil fuels. For the eighth consecutive year we were awarded an A rating for climate change by CDP, an environmental impact disclosure system, and are the only UK retailer to have achieved this.

We were proud to be the Principal Supermarket Partner of COP26 in Glasgow in November. Alongside announcing our commitment to becoming Net Zero five years ahead of schedule, we joined other retailers to sign WWF's Retailers' Commitment For Nature, pledging to come together to halve the environmental impact of the UK food sector by 2030.

We have introduced measures to reduce the amount of plastic packaging we use. We no longer sell plastic straws, equating to the removal of 18.5 million plastic straws from circulation and reducing plastic by 6.6 tonnes. We have also introduced flexible plastic recycling collection points at all of our supermarkets to make it easier for our customers to recycle.

Better for Everyone

In line with our commitment to reduce food waste by 50 per cent by 2035, we have increased our food distribution to people by 119 per cent year on year. In August, we partnered with Neighbourly and from August to March we donated over 2.5 million meals, which is equivalent to a £4.8 million saving to charities and community groups⁶.  

Supply chain transparency is one our highest priorities and having previously published our Tier 1 clothing sites, this year we also published our Tier 1 food sites. This provides even greater transparency across our categories and we have committed to publishing additional lists of our General Merchandise and Goods Not for Resale sites this year.

Reflecting our drive for inclusivity, this year our ethnically diverse colleague network 'I AM ME' was recognised in the Top 10 Network Groups at the UK Ethnicity Awards and we joined the Black British Network to help improve representation even further across the business. We also committed £1 million in donations to Black charities and community groups supporting education, social mobility, Black businesses and food insecurity, areas which our colleagues and customers identified as especially important to them.

This year we raised over £6 million for Comic Relief, in addition to the £2 million we donated as a business to support the humanitarian crisis in Ukraine, followed by an additional £600,000 raised by our customers. We are proud to support the communities we serve and this year have raised a total of £38.4 million for good causes.

Better for You

Our Better for You pillar prioritises delivering healthy and sustainable diets for all. As the cost of living rises, we are more committed than ever to supporting healthy diets by keeping prices low on every day, staple items, including fresh and produce.

As part of our target to measure healthy and sustainable diets, we announced our goal to achieve at least 83.1 per cent of 'healthy' and 'better for you' sales by 2025. We are currently flat year on year at 80 per cent. We also disclosed our protein sales, with 72 per cent of protein sales being plant based and meat-free products, of which 12 per cent is entirely plant based.

To encourage customers to follow a healthy diet, we continued to support the government's Healthy Start vouchers. During the six-month programme, we topped up these vouchers to a higher value than any other retailer and helped over 17,000 customers take home an additional 1.2 million portions of fruit and vegetables.

¹ NielsenIQ Panel volume growth YoY and Yo2Y. Total FMCG (excluding Kiosk & Tobacco), 52 weeks to March 2022. Market Universe: Total Outlets

² Refer to alternative performance measures for definitions and reconciliation to statutory measures

³ Results for 2021 and 2020 have been restated to remove business rates from onerous contract provisions in line with IFRIC 21. Refer to note 2 of financial statements

⁴ Nielsen panel data, Top 100 SKUs by retailer. Average Selling Price YoY growth to March 2022

⁵ Competitor Benchmarking survey, supermarket and online customer satisfaction

⁶ Based on £1.90 per meal

⁷ Special dividend is included against FY 2019/20 to aid comparability

⁸ NielsenIQ Panel online value share. Total FMCG (excluding Kiosk & Tobacco), 52 weeks to March 2022. Market Universe: Total Outlets

⁹ Edge by Ascential data, internal modelling

Financial Review of the year results for the 52 weeks to 5 March 2022

In the 52 weeks to 5 March 2022, the Group generated profit before tax of £854 million (2020/21: loss before tax of £164 million; 2019/20: profit before tax of £278 million) and an underlying profit before tax of £730 million (2020/21: £357 million; 2019/20: £586 million). COVID-19 caused significant distortions to trading, operating costs and timing of business rates costs in 2020/21. Therefore in some cases commentary has been provided versus the pre-COVID-19 2019/20 financial year.

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 50 to 54 for further information

Summary income statement	52 weeks to	52 weeks to
	05 March	06 March	Change
	2022	2021¹
	£m	£m	%

Group sales (including VAT)	33,355	32,285	3.3
Retail sales (including VAT)	32,924	31,854	3.4
Retail sales (excluding fuel, including VAT)	28,095	28,837	(2.6)

Group sales (excluding VAT)	29,895	29,048	2.9
Retail sales (excluding VAT)	29,463	28,617	3.0


Underlying operating profit/(loss)
Retail	1,001	731	37
Financial services	38	(21)	N/A
Total underlying operating profit	1,039	710	46

Underlying net finance costs	(309)	(353)	12
Underlying profit before tax	730	357	104
Items excluded from underlying results	124	(521)	N/A
Profit/(Loss) before tax	854	(164)	N/A
Income tax expense	(177)	(37)	378
Profit/(Loss) for the financial period	677	(201)	N/A

Underlying basic earnings per share	25.4p	11.7p	117
Basic earnings/(loss) per share	29.8p	(9.4)p	N/A
Interim Dividend per share	3.2p	3.2p	-
Final Dividend per share	9.9p	7.4p	34
Total Dividend per share	13.1p	10.6p	24

1 The prior year results have been restated to reflect the removal of business rates from onerous property contract provisions. Refer to note 2 of the accounts for further information.

Underlying profit before tax is up £373 million, and up £144 million compared to 2019/20, driven by continued elevated sales despite much lower COVID-19 costs, falling finance costs, and the delivery of the Argos Transformation programme, offset by increased variable pay. We have made strong progress on our Save to Invest plans, with an 83bps reduction in operating costs allowing for considerable investments to improve value for customers.

Group sales

Group sales (including VAT, including fuel) increased by 3.3 per cent year-on-year. Retail sales (including VAT, excluding fuel) decreased by 2.6 per cent, as General Merchandise sales moderated, but remained ahead of 2019/20. Fuel sales increased by 60.0 per cent and Financial Services sales increased by 0.2 per cent.

Total sales performance by category	52 weeks to	52 weeks to	52 weeks to	YoY	Yo2Y
	05 March 2022	06 March 2021	07 March 2020	Change	Change
	£bn	£bn	£bn	%	%
Grocery	21.0	21.1	19.5	(0.2)%	7.6%
General Merchandise	6.1	6.9	6.4	(11.9)%	(4.6)%
Clothing	1.0	0.9	1.0	12.7%	3.1%
Retail (exc. fuel)	28.1	28.8	26.9	(2.6)%	4.6%
Fuel sales	4.8	3.0	4.9	60.0%	(2.6)%
Retail (inc. fuel)	32.9	31.9	31.8	3.4%	3.5%

Grocery sales remained significantly above pre-pandemic levels reflecting a sustained shift of consumption in-home. In line with the reduction of government restrictions during the period, sales were stronger in the first half, and moderated in the second half, albeit at a level still higher than 2019/20. We delivered a strong volume market share performance, supported by our value investments for customers. We inflated prices behind the market and key competitors on high volume lines supported by our Sainsbury's Quality, Aldi Price Match programme and other value initiatives.

General Merchandise sales declined, reflecting tough comparators and availability challenges driven by both product supply and freight availability. Clothing recovered strongly from a year of suppressed demand with growth driven by full price sales and increased in-store sales.

Fuel sales increased by 60.0 per cent, driven by both increased demand as traffic volumes recovered and inflation in the market driven by higher oil prices, but remained below pre COVID-19 levels.

Total sales performance by channel	52 weeks to	52 weeks to
	05 March 2022	06 March 2021
Total Sales fulfilled by Supermarket stores	(2.0)%	11.4%
Supermarkets (inc Argos stores in Sainsbury's)	(1.8)%	2.5%
Groceries Online	(4.7)%	119.6%
Convenience	8.8%	(9.4)%

Overall sales served from our Supermarkets fell by 2.0 per cent after rising 11.4 per cent in the prior year. Within this, Supermarket sales including Argos stores in Sainsbury's fell by 1.8 per cent. Groceries Online sales decreased by 4.7 per cent, as COVID-19 restrictions ended and demand moderated through the year after rapid growth of almost 120 per cent in the previous year. Convenience sales grew by 8.8 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	52 weeks to	52 weeks to
	05 March 2022	06 March 2021
Like-for-like sales (exc. fuel)	(2.3)%	8.1%
Like-for-like sales (inc. fuel)	3.6%	0.7%

Retail like-for-like ('LFL') sales, excluding fuel, decreased by 2.3 per cent (2020/21: 8.1 per cent increase), reflecting lower General Merchandise sales, but showed strong growth versus 2019/20 led by Grocery sales. The impact of stores temporarily closed due to COVID-19 have been included within LFL sales, with only permanently closed sites treated as not LFL.

Space

In 2021/22, Sainsbury's opened four new supermarkets and closed four (2020/21: opened one new supermarket and closed 11). There were 19 new Convenience stores opened in the year and 23 were closed (2020/21: 15 opened and nine stores closed).

During the period 64 new Argos stores in Sainsbury's were opened and 73 standalone Argos stores were closed, in line with our Argos Transformation plan. The number of Argos collection points in Sainsbury's stores increased from 306 to 335. As at 5 March 2022, Argos had 728 stores including 400 stores in Sainsbury's.

Store numbers and retailing space
	As at	New stores	Disposals / closures	Extensions / refurbishments / downsizes	As at
	06 March				05 March
	2021				2022

Supermarkets	598	4	(4)	65	598
Supermarkets area '000 sq. ft.	20,822	134	(78)	(75)	20,803

Convenience	813	19	(23)	1	809
Convenience area '000 sq. ft.	1,929	42	(54)	1	1,918
Sainsbury's total store numbers	1,411	23	(27)	66	1,407

Argos stores	401	-	(73)	-	328
Argos stores in Sainsbury's	336	64	-	-	400
Argos in Homebase	-	-	-	-	-
Argos total store numbers	737	64	(73)	-	728
Argos collection points	306	62	(33)	-	335
Habitat	3	-	-	-	3

In 2022/23, we expect to open one supermarket and around 20 new convenience stores, and to close around two supermarkets and five convenience stores. In addition, we expect to open around 25 Argos stores inside Sainsbury's, and close around 60 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.

Retail underlying operating profit


	52 weeks to	52 weeks to	52 weeks to	YoY	Yo2Y
	05 March	06 March	07 March
	2022	2021¹	2020¹	Change	Change
Retail underlying operating profit (£m)²	1,001	731	938	36.9%	6.7%
Retail underlying operating margin (%)³	3.40	2.55	3.30	85bps	10bps

Retail underlying EBITDA (£m)⁴	2,145	1,910	2,135	12.3%	0.5%
Retail underlying EBITDA margin (%)⁵	7.28	6.67	7.51	61bps	(23)bps

1 The prior year results have been restated to reflect the removal of business rates from onerous property contract provisions. Refer to note 2 of the accounts for further information.

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

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

4 Retail underlying operating profit before underlying depreciation and amortisation of £1,144 million.

5 Retail underlying EBITDA divided by retail sales excluding VAT.

Retail underlying operating profit increased by 36.9 per cent to £1,001 million (2020/21: £731 million) and retail underlying operating margin increased by 85 basis points year-on-year to 3.40 per cent (2020/21: 2.55 per cent). COVID-19 costs reduced materially year on year to £82 million (2020/21: £485 million).

Retail underlying operating profit was up 6.7 per cent versus two years ago (2019/20: £938 million), reflecting sales growth and a retail underlying operating margin improvement of 10bps. Our Save to Invest programme delivered an 83bps reduction in operating costs as a percentage of sales versus 2019/20. We have invested much of this benefit, as well as benefits from fuel and more profitable clothing and general merchandise sales into lower grocery prices, targeted at key products for customers, driving strong volume growth.

Savings were delivered across the business, with significant contributions from our retail operating model work, both for in Store and Online where annualisation of rapid growth in the prior year allowed material efficiencies. Argos transformation continued to deliver savings as we integrate the two businesses and reduce occupancy and store operational costs. Savings from our Logistics Transformation programme helped to mitigate the significant cost pressures felt.

In 2022/23, Sainsbury's expects a retail underlying depreciation and amortisation charge of around £1.2 billion, including around £500 million right of use asset depreciation.

Financial Services

Financial Services results
12 months to 28 February 2022
	2022	2021	Change

Underlying revenue (£m)	432	431	0%
Interest and fees payable (£m)	(57)	(90)	(37)%
Total income (£m)	375	341	10%
Underlying operating profit/(loss) (£m)	38	(21)	N/A

Net interest margin (%)¹	4.5	3.5	100bps
Cost:income ratio (%)	74	74	-
Bad debt as a percentage of lending (%)²	1.2	1.8	60bps
Active customers (m) - Bank	1.8	1.8	-
Active customers (m) - AFS	2.1	2.2	(4)%
Tier 1 capital ratio (%)³	15.6	17.6	(200)bps
Total capital ratio (%)⁴	18.1	20.2	(210)bps
Unsecured lending (£bn)	4.3	4.1	5%
Secured lending (£bn)	0.8	1.3	(38)%
Customer deposits (£bn)	(4.2)	(5.1)	(18)%

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. Reflects impact of dividend declared.

4 Total capital divided by risk-weighted assets.

Financial Services returned to profit with underlying operating profit of £38 million (2020/21: loss of £21 million). This reflects both a reduction in credit provisioning as the unemployment outlook improved, a release of some COVID-19 related bad debt provisions made in 2020/21 and improvements in net interest margin. Unsecured lending balances were lower on average through the year, but recovered well in the second half and ended the year up 5 per cent.

Financial Services total income of £375 million increased by 10 per cent year-on-year (FY 2020/21: £341 million). Net interest margin recovery is reflective of management action to reduce interest payable through savings rates alongside improvements in unsecured asset margins and a lower mix of secured lending (following our decision to cease new mortgage lending in 2019). Fee income has risen as activity post lockdown increased, with ATMs and Card fees both recovering, whilst Travel Money remains subdued but is higher than last year.

The Financial Services cost:income ratio is flat at 74.0 per cent (FY 2020/21: 74.0 per cent). Of the £27 million increase in costs, £17m reflects higher royalty payments to Argos, therefore the ratio is down on a group contribution basis.

Bad debt expense as a percentage of lending decreased 60 basis points year-on-year to 1.2 per cent (FY 2020/21: 1.8 per cent), driven by stable arrears and the improving economic outlook. We released £12 million of our COVID provision, reflecting the more positive economic outlook, particularly in relation to forecast unemployment.

In line with the group strategic priority Brands that Deliver, and reflecting the Bank's strong capital position, a £50 million dividend has been paid. This is a key milestone as we start to deliver on our commitment that Financial Services will be cash generative for the Group. The Bank remains well capitalised with a CET1 ratio of 15.6 per cent, a decrease from 17.6 per cent last year driven by this dividend payment.

We expect a further improvement in Financial Services underlying operating profit in the year ahead.

Underlying net finance costs

Underlying net finance costs reduced by 12 per cent to £309 million (2020/21: £353 million). These costs include £40 million of net non-lease interest (2020/21: £60 million). The reduction of net non-lease interest is driven by the repayment of the £200m Green loan in August 2021 and redemption of the perpetual convertible bonds in July 2021. The net interest costs on lease liabilities have reduced to £269 million (202/21: £293 million), mainly due to lower interest rates on new leases.

Sainsbury's expects underlying net finance costs in 2022/23 of between £315 million - £325 million, including around £270 million - £280 million lease interest.

Items excluded from underlying results

In order to provide shareholders with insight into the underlying performance of the business, items recognised in reported profit or loss before tax which, by virtue of their size and or nature, do not reflect the Group's underlying performance are excluded from the Group's underlying results and shown in the table below.

Items excluded from underlying results	52 weeks to	52 weeks to
	05 March 2022	06 March 2021¹
	£m	£m
Restructuring and integration programmes	(103)	(345)
Impairment charges	-	(220)
Restructuring, impairment and integration	(103)	(565)
Income recognised in relation to legal disputes	182	42
Software as a service accounting adjustment	(21)	-
IAS 19 pension income	11	6
Property, finance and acquisition adjustments	55	(4)
Items excluded from underlying results	124	(521)

1 The prior year results have been restated to reflect the removal of business rates from onerous property contract provisions. Refer to note 2 of the accounts for further information.

- Restructuring, impairment and integration costs of £103 million (2020/21: £565 million) include £92 million (2020/21: £548 million) relating to the programme announced in November 2020 for the structural integration of Sainsbury's and Argos. We expect that we will incur one off costs from these infrastructure, operating model and structure changes of £900 million to £1 billion, with cash costs of around £300m million, with the majority in the period to March 2024. In line with IFRIC 21 "Levies", business rates are now recognised as a periodic cost as incurred and as such we expect approximately £40 million of business rates associated with leased properties in the restructuring programme to be recognised after the year ended March 2024. Refer to note 2 for further details. Cash costs in the year were £114 million (2020/21: £39 million). To date we have incurred costs of £640 million and cash costs of £153 million. In 2022/23 we expect to incur cash costs of around £100 million in relation to this programme.

- Income recognised in relation to legal disputes of £182 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, with £93 million of cash received in the year net of legal fees. The prior year relates to ATM business rates reimbursement, and £14 million of cash was received in the year in relation to these.

- Software as a service accounting policy change resulted in a non-cash cost of £21 million (2020/21: Nil) following the IFRS interpretations committee clarification of how these costs should be treated. These costs represent the prior year impacts of this change.

- IAS 19 Pension income of £11 million (2020/21: £6 million) comprises pension finance income of £15 million and scheme expenses of £4 million.

- Other movements of £55 million income (2020/21: cost of £4 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 of £76 million driven by higher energy prices. The energy derivatives relate to long-term, fixed price power purchase arrangements (PPAs) with independent producers. These are accounted for as derivative financial instruments, however are not designated in hedging relationships, therefore gains and losses are recognised in the income statement. Increases in electricity forward prices in the year have led to gains on the related derivative financial instruments. During the year, the Group entered into an additional PPA, however have designated this in a formal hedging relationship, with gains and losses being recognised within other comprehensive income.

Taxation

The tax charge was £177 million (2020/21: £37 million). The underlying tax rate (UTR) was 21.1 per cent (2020/21: 29.4 per cent) and the effective tax rate (ETR) was 20.7 per cent (2020/21: (22.6) per cent).

The UTR is lower than the prior year, with the higher underlying profit resulting in a smaller percentage impact from non-qualifying deprecation and the impact of accounting for the rate change on the recognition of deferred tax. Unlike previous periods, there is a positive impact on the UTR of prior year adjustments for corporation tax, reflecting the release of historic provisions held in respect of now agreed tax returns.

The ETR is significantly higher than the prior year, primarily due to the accounting loss in FY21. The major impact on the ETR in the current year relates to the non-deductibility of non-underlying costs and the impact of prior year adjustments to non-underlying items.

Sainsbury's expects an underlying tax rate in 2022/23 of around 25 per cent.

Earnings per share

Underlying basic earnings per share increased to 25.4 pence (2020/21: 11.7 pence) driven by the increase in underlying earnings, partially offset by a higher share count. Basic earnings per share was 29.8 pence (2020/21: (9.4) pence loss per share).

Dividends

The Board has recommended a final dividend of 9.9 pence per share (2020/21: 7.4 pence). This will be paid on 15^th July 2022 to shareholders on the Register of Members at the close of business on 10^th June 2022. In line with the Group's policy to keep the dividend covered 1.9 times by underlying earnings, this will result in an increased full-year dividend of 13.1 pence (2020/21: 10.6 pence), an increase of 24 per cent.

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 24^th June 2022.

We have laid out a capital allocation framework, signalling that we will prioritise the right level of investment to support our strategy and an investment grade balance sheet but that we expect to pay a higher proportion of underlying net earnings to shareholders, in the first instance through an increase in the dividend pay-out ratio to around 60 per cent from around 53 per cent.

Net debt and retail cash flows

As at 5 March 2022, net debt was £6,759 million (6 March 2021: £6,469 million), an increase of £290 million (2020/21: £478 million reduction). Excluding the impact of lease liabilities on net debt, Sainsbury's reduced net debt by £499 million in the year of which £240 million results from the conversion of the perpetual convertible bond in July 2021. Non lease net debt is now £1,381 million lower than at 2018/19 year end, exceeding the four-year £950 million non lease net debt reduction target we had communicated with a year to spare, even excluding the impact of the perpetual convertible bond. Sainsbury's expects to generate retail free cashflow of at least £500 million per annum on average for the next three years.

Group net debt includes the impact of capital injections into Sainsbury's Bank, less dividends received, but excludes Financial Services' own net debt balances. Financial Services balances are excluded because they are part of the daily operating cycle of the Bank rather than for financing purposes.

Net debt includes lease liabilities under IFRS 16 of £6,618 million (2020/21: £5,829 million). Lease liabilities increased by £789 million, primarily reflecting the impact of exercising purchase options on 21 leased supermarkets held by property investment pools in which the Group holds an interest. Following the exercise of the options, the lease liabilities have been remeasured based on the estimated purchase price of the stores.

Summary cash flow statement¹	Retail	Retail
	52 weeks to	52 weeks to
	05 March 2022	06 March 2021
	£m	£m
Retail underlying operating profit	1,001	731

Adjustments for:
Retail underlying depreciation and amortisation	1,144	1,179
Share based payments and other	54	26
Retail exceptional operating cash flows (excluding pensions)	(3)	(12)
Adjusted retail operating cash flow before changes in working capital²	2,196	1,924
(Increase)/decrease in working capital³	(185)	452
Net interest paid³	(323)	(372)
Pension cash contributions	(71)	(101)
Corporation tax paid	(23)	(94)
Net cash generated from operating activities³	1,594	1,809
Cash capital expenditure³	(645)	(568)
Repayments of obligations under leases³	(491)	(499)
Initial direct costs on right-of-use assets	(3)	(7)
Proceeds from disposal of property, plant and equipment	46	27
Dividends and distributions received³	2	22
Retail free cash flow³	503	784
Dividends paid on ordinary shares	(238)	(232)
Repayment of borrowings³	(256)	(539)
Other³	(27)	(13)
Net (decrease)/increase in cash and cash equivalents	(18)	0
Decrease in Debt	747	1,038
Conversion of perpetual convertible bond⁴	240	-
Other non-cash and net interest movements⁵	(1,259)	(560)
Movement in net debt	(290)	478

Opening net debt	(6,469)	(6,947)
Closing net debt	(6,759)	(6,469)
of which
Lease Liabilities	(6,618)	(5,829)
Net Debt Excluding Lease Liabilities	(141)	(640)

1 See note 6 for a reconciliation between Retail and Group cash flow. The prior year results have been restated to reflect the removal of business rates from onerous property contract provisions. Refer to note 2 of the accounts for further information.

2 Excludes working capital and pension contributions.

3 Refer to the Alternative Performance Measures on pages 50 to 54 for reconciliation.

4 £242 million of the £250 million perpetual convertible bond converted. Given a carrying value of £248 million this resulted in a £240 million reduction in net debt.

5 Other non-cash includes new leases and lease modifications and fair value movements on derivatives used for hedging long term borrowings.

Adjusted retail operating cash flow before changes in working capital increased by £272 million year-on-year to £2,196 million (2020/21: £1,924 million). Retail non underlying operating cashflows of £3 million cost (2020/21: £12 million cost) reflected legal disputes income offsetting restructuring costs. Working capital increased by £185 million (2020/21: £452 million decrease), in line with expectations as our working capital position normalised compared to a prior year where both our stock and payables positions were heavily impacted by COVID-19 trading patterns.

Corporation tax paid decreased to £23 million (2020/21: £94 million) reflecting payments made in the prior year before the decision to forego business rates relief which subsequently impacted taxable profits. Proceeds from disposals of £46 million (2020/21: £27 million) resulted from disposals of non-trading sites.

Retail free cash flow decreased by £281 million year-on-year to £503 million (2020/21: £784 million), driven by the working capital reduction in the prior year with some of this reversing in the current year. Retail Free cash flow was used to fund dividends and reduce borrowings.

Dividends of £238 million were paid in the year, which were covered 2.1 times by free cash flow (2020/21: 3.3 times).

The Group held undrawn committed credit facilities of £1,394 million and undrawn uncommitted facilities of £245 million as at 5 March 2022.

Capital expenditure

Core retail cash capital expenditure was £645 million (2020/21: £568 million). This was lower than expected due to a number of projects being delayed due to COVID-19.

Sainsbury's expects core retail cash capital expenditure (excluding Financial Services) to be around £700-£750 million per annum over the next three years, reflecting investment in high-returning supply chain, logistics and infrastructure projects including the Argos transformation.

Financial Ratios


Key financial ratios	52 weeks to	52 weeks to
	05 March 2022	06 March 2021¹

Return on capital employed (%)²	8.4	5.6
Net debt to EBITDA³	3.1 times	3.4 times
Fixed charge cover⁴	2.8 times	2.2 times

1 The prior year results have been restated to reflect the removal of business rates from onerous property contract provisions. Refer to note 2 of the accounts for further information.

2 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 less net debt (excluding perpetual securities). This is calculated using the average of 14 datapoints - the prior year closing capital employed, the current year closing capital employed and 12 intra-year periods as this more closely aligns to the recognition of profit / loss.

3 Net debt of £6,759 million includes lease obligations under IFRS 16 and perpetual securities treated as debt, divided by Group underlying EBITDA of £2,206 million.

4 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.

All three metrics saw significant improvements due to the recovery of profit and EBITDA following a prior year heavily impacted by COVID-19. Our net debt to EBITDA metric showed a smaller improvement as net debt increased, with the increase in lease liabilities more than offsetting significant non lease net debt reduction.

Property value

As at 5 March 2022, Sainsbury's estimated market value of properties, with values based on a 25 year lease with RPI increases, including our share of properties held within property joint ventures or investment vehicles, was £10.9 billion (6 March 2021: £10.1 billion), with the increase primarily driven by a reduction in property yields.

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 last triennial valuation, as at 30 September 2018, showed a deficit of £538 million. The Trustee is currently carrying out the latest triennial valuation as at 30 September 2021.

At 5 March 2022, the net defined benefit surplus under IAS19 for the Group was £2,283 million (excluding deferred tax). The £1,539 million increase from 6 March 2021 was driven by both changes in financial assumptions which resulted in a net gain, an adjustment to mortality assumptions and updated experience which lowered liabilities, in addition to gains on plan assets.

During the year, the Sainsbury's section of the Scheme reached full funding on the stronger, secondary funding target agreed as part of the 2018 triennial valuation. This has resulted in one of the three streams of contributions payable to the Scheme under the Asset Backed Contributions funding framework switching off and another stream switching to the Argos section, until that section is also fully funded. Total contributions to the Scheme will therefore reduce by £15 million a year.

For 2022/23, total pension scheme cash contributions are expected to be £62 million.

Retirement benefit obligations
	Sainsbury's	Argos	Group	Group
	as at	as at	as at	as at
	05 March 2022	05 March 2022	05 March 2022	06 March 2021

	£m	£m	£m	£m
Present value of funded obligations	(8,060)	(1,313)	(9,373)	(10,218)
Fair value of plan assets	10,158	1,535	11,693	11,000
Pension surplus	2,098	222	2,320	782
Present value of unfunded obligations	(20)	(17)	(37)	(38)
Retirement benefit surplus	2,078	205	2,283	744
Deferred income tax liability	(562)	(78)	(640)	(192)
Net retirement benefit surplus	1,516	127	1,643	552

Consolidated income statement

for the 52 weeks to 5 March 2022

		52 weeks to 5 March 2022			52 weeks to 6 March 2021 (Restated)
		Before non-underlying items	Non-underlying items (Note 4)	Total	Before non-underlying items	Non-underlying items (Note 4)	Total
	Note	£m	£m	£m	£m	£m	£m
Revenue	5	29,895	-	29,895	29,048	-	29,048
Cost of sales		(27,538)	9	(27,529)	(26,870)	(333)	(27,203)
Gross profit/(loss)		2,357	9	2,366	2,178	(333)	1,845
Administrative expenses		(1,352)	(78)	(1,430)	(1,480)	(222)	(1,702)
Other income		34	186	220	12	1	13
Operating profit/(loss)		1,039	117	1,156	710	(554)	156
Finance income	8	3	17	20	3	29	32
Finance costs	8	(312)	(10)	(322)	(356)	4	(352)
Profit/(loss) before tax		730	124	854	357	(521)	(164)

Income tax (expense)/credit	9	(154)	(23)	(177)	(105)	68	(37)
Profit/(loss) for the financial period		576	101	677	252	(453)	(201)

Earnings/(loss) per share	10			pence			pence
Basic earnings/(loss)				29.8			(9.4)
Diluted earnings/(loss)				28.8			(9.4)

Refer to note 2 for details of prior year restatements.

Consolidated statement of comprehensive income/(loss)

for the 52 weeks to 5 March 2022

		52 weeks to 5 March 2022	52 weeks to 6 March 2021 (Restated)
	Note	£m	£m
Profit/(loss) for the financial year		677	(201)

Items that will not be reclassified subsequently to the income statement
Remeasurement on defined benefit pension schemes	19	1,457	(482)
Movements on financial assets at fair value through other comprehensive income		76	55
Cash flow hedges fair value movements - inventory hedges		73	(60)
Current tax relating to items not reclassified		-	44
Deferred tax relating to items not reclassified		(461)	9
		1,145	(434)
Items that may be reclassified subsequently to the income statement
Currency translation differences		(1)	(5)
Movements on financial assets at fair value through other comprehensive income		(5)	2
Items reclassified from financial assets at fair value through other comprehensive income reserve		4	-
Cash flow hedges fair value movements - non-inventory hedges		131	(1)
Items reclassified from cash flow hedge reserve		7	13
Deferred tax on items that may be reclassified		(57)	10
		79	19
Total other comprehensive income/(loss) for the year (net of tax)		1,224	(415)
Total comprehensive income/(loss) for the year		1,901	(616)

Refer to note 2 for details of prior year restatements.

Consolidated balance sheet

At 5 March 2022, 6 March 2021 and 7 March 2020

		5 March 2022	6 March 2021 (Restated)	7 March 2020 (Restated)
	Note	£m	£m	£m
Non-current assets
Property, plant and equipment	12	8,402	8,587	8,949
Right of use assets	13	5,560	4,747	4,826
Intangible assets	14	1,006	914	974
Investments in joint ventures and associates		3	5	9
Financial assets at fair value through other comprehensive income		604	754	972
Trade and other receivables		65	50	43
Amounts due from Financial Services customers and other banks		2,026	2,280	3,453
Derivative financial assets		213	8	6
Net retirement benefit surplus	19	2,283	744	1,119
		20,162	18,089	20,351
Current assets
Inventories		1,797	1,625	1,732
Trade and other receivables		683	725	811
Amounts due from Financial Services customers and other banks		3,163	3,127	3,951
Financial assets at fair value through other comprehensive income		196	90	82
Derivative financial assets		78	5	12
Cash and cash equivalents	16	825	1,575	994
		6,742	7,147	7,582
Assets held for sale		8	24	4
		6,750	7,171	7,586
Total assets		26,912	25,260	27,937

Current liabilities
Trade and other payables		(4,546)	(4,488)	(4,275)
Amounts due to Financial Services customers and other deposits		(4,444)	(6,086)	(6,890)
Borrowings	18	(54)	(356)	(48)
Lease liabilities	13	(526)	(524)	(510)
Derivative financial liabilities		(29)	(93)	(53)
Taxes payable		(169)	(83)	(168)
Provisions	15	(100)	(199)	(106)
		(9,868)	(11,829)	(12,050)
Net current liabilities		(3,118)	(4,658)	(4,464)
Non-current liabilities
Other payables		(24)	(20)	(11)
Amounts due to Financial Services customers and other deposits		(815)	(203)	(1,204)
Borrowings	18	(707)	(748)	(1,248)
Lease liabilities	13	(6,095)	(5,310)	(5,264)
Derivative financial liabilities		(3)	(44)	(36)
Deferred income tax liability		(806)	(255)	(265)
Provisions	15	(171)	(150)	(68)
		(8,621)	(6,730)	(8,096)
Total liabilities		(18,489)	(18,559)	(20,146)

Net assets		8,423	6,701	7,791
Equity
Called up share capital		668	637	634
Share premium		1,406	1,173	1,159
Merger reserve		568	568	568
Capital redemption reserve		680	680	680
Other reserves		409	167	168
Retained earnings		4,692	3,228	4,086
Total equity before perpetual securities		8,423	6,453	7,295
Perpetual securities		-	248	496
Total equity		8,423	6,701	7,791

Refer to note 2 for details of restatements.

Consolidated cash flow statement

for the 52 weeks to 5 March 2022

		52 weeks to 5 March 2022	52 weeks to 6 March 2021 (Restated)
	Note	£m	£m
Cash flows from operating activities
Profit/(loss) before tax		854	(164)
Net finance costs		302	320
Operating profit		1,156	156
Adjustments for:
Depreciation expense	12, 13	1,069	1,113
Amortisation expense	14	151	136
Net impairment loss on property, plant and equipment, right of use assets, intangible assets	12,13, 14	9	321
Non-cash adjustments arising from acquisitions		-	(1)
Financial Services movement in loss allowance for loans and advances to customers		19	85
Loss/(profit) on sale of non-current assets and early termination of leases		(6)	(17)
Non-underlying fair value movements	4	(76)	-
Share-based payments expense		58	29
Defined benefit scheme expenses	19	4	13
Cash contributions to benefit schemes	19	(71)	(101)
Operating cash flows before changes in working capital		2,313	1,734
Changes in working capital
(Increase)/decrease in inventories		(179)	117
Decrease in financial assets at fair value through other comprehensive income		115	267
Decrease in trade and other receivables		33	62
Decrease in amounts due from Financial Services customers and other deposits		161	1,912
Increase in trade and other payables		28	321
(Decrease) in amounts due to Financial Services customers and other deposits		(1,030)	(1,805)
(Decrease)/increase in provisions and other liabilities		(80)	177
Cash generated from operations		1,361	2,785
Interest paid		(329)	(349)
Corporation tax paid		(23)	(93)
Net cash generated from operating activities		1,009	2,343

Cash flows from investing activities
Purchase of property, plant and equipment		(416)	(423)
Initial direct costs on new leases		(3)	(7)
Purchase of intangible assets		(278)	(172)
Proceeds from disposal of property, plant and equipment		46	27
Dividends and distributions received		2	22
Net cash used in investing activities		(649)	(553)

Cash flows from financing activities
Proceeds from issuance of ordinary shares		21	17
Proceeds from borrowings		-	660
Repayment of borrowings		(248)	(289)
Repayment of short term borrowings		-	(660)
Repayment of perpetual capital securities		(8)	(250)
Purchase of own shares		(48)	(30)
Repayment of capital element of lease obligations		(493)	(501)
Dividends paid on ordinary shares	11	(238)	(232)
Dividends paid on perpetual securities		(4)	(23)
Net cash used in financing activities		(1,018)	(1,308)

Net (decrease)/increase in cash and cash equivalents		(658)	482

Opening cash and cash equivalents		1,476	994
Closing cash and cash equivalents	16	818	1,476

Refer to note 2 for details of prior year restatement.

Consolidated statement of changes in equity

for the 52 weeks to 5 March 2022

		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
	Note	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 7 March 2021 (as previously reported)		637	1,173	568	847	3,131	6,356	-	248	6,604
Opening balance adjustment		-	-	-	-	97	97	-	-	97
At 7 March 2021 (restated)		637	1,173	568	847	3,228	6,453	-	248	6,701
Profit for the period		-	-	-	-	677	677	-	-	677
Other comprehensive income		-	-	-	285	1,457	1,742	-	-	1,742
Tax relating to other comprehensive income		-	-	-	(87)	(431)	(518)	-	-	(518)
Total comprehensive income for the period ended 5 March 2022		-	-	-	198	1,703	1,901	-	-	1,901

Cash flow hedges gains and losses transferred to inventory		-	-	-	28	-	28	-	-	28

Transactions with owners:
Dividends	11	-	-	-	-	(238)	(238)	-	-	(238)
Share-based payment		-	-	-	-	60	60	-	-	60
Purchase of own shares		-	-	-	-	(48)	(48)	-	-	(48)
Allotted in respect of share option schemes		5	17	-	-	(1)	21	-	-	21
Conversion of perpetual convertible bonds		26	216	-	-	(2)	240	-	(240)	-
Repayment of perpetual convertible bonds		-	-	-	-	-	-	-	(8)	(8)
Other adjustments		-	-	-	16	(13)	3	-	-	3
Tax on items charged to equity		-	-	-	-	3	3	-	-	3
At 5 March 2022		668	1,406	568	1,089	4,692	8,423	-	-	8,423

		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 (as previously reported)		634	1,159	568	848	4,068	7,277	248	248	7,773
Opening balance adjustment		-	-	-	-	18	18	-	-	18
At 8 March 2020 (restated)		634	1,159	568	848	4,086	7,295	248	248	7,791
(Loss)/profit for the period		-	-	-	-	(208)	(208)	-	7	(201)
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		-	-	-	-	(623)	(623)	-	7	(616)

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)
At 6 March 2021		637	1,173	568	847	3,228	6,453	-	248	6,701

Refer to note 2 for details of prior year restatement.

Notes to the consolidated financial statements

1 General information

The financial information, which comprises the Group income statement, Group statement of comprehensive income, Group balance sheet, Group cash flow statement, Group statement of changes in equity and related notes, is derived from the full Group financial statements for the 52 weeks to 5 March 2022 and does not constitute full accounts within the meaning of section 435 (1) and (2) of the Companies Act 2006.

The Group Annual Report and Financial Statements 2022 on which the auditors have given an unqualified report and which does not contain a statement under section 498 (2) or (3) of the Companies Act 2006, will be delivered to the Registrar of Companies in due course, and made available to shareholders in June 2022.

J Sainsbury plc is a public limited company (the 'Company') incorporated in the United Kingdom, whose shares are publicly traded on the London Stock Exchange. The Company is domiciled in the United Kingdom and its registered address is 33 Holborn, London EC1N 2HT, United Kingdom.

The financial year represents the 52 weeks to 5 March 2022 (prior financial year: 52 weeks to 6 March 2021). The consolidated financial statements for the 52 weeks to 5 March 2022 comprise the financial statements of the Company and its subsidiaries (the 'Group') and the Group's share of the post-tax results of its joint ventures and associates.

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

2 Basis of preparation

The Group's financial statements have been prepared in accordance with UK-adopted international accounting standards.

The financial statements are presented in sterling, rounded to the nearest million ('£m') unless otherwise stated. They have been prepared under the historical cost convention, except for derivative financial instruments, defined benefit pension scheme assets and financial assets at fair value through other comprehensive income that have been measured at fair value.

Sainsbury's Bank Plc and its subsidiaries have been consolidated for the twelve months to 28 February 2022 being the Bank's year-end date (prior financial year: 28 February 2021). There have been no significant transactions or events that occurred between this date and the Group's balance sheet date, and therefore no adjustments have been made to reflect the difference in year-end dates.

Unless otherwise stated, significant accounting policies have been applied consistently to all periods presented in the financial statements.

2.1 Prior period restatements

Business rates within property provisions

The consolidated financial statements include a prior year restatement in relation to the treatment of business rates within property provisions. Where the Group no longer operates from a leased property, onerous property contract provisions are recognised for the least net cost of exiting from the contract. Unless a separate exit agreement with a landlord has already been agreed, the Group's policy is that this onerous contract provision includes all unavoidable costs of meeting the obligations of the contract - these include service charges and insurance, and have also historically included business rates.

There is apparent mixed practice across companies concerning the treatment of business rates in onerous contract provisions. However following additional guidance published this year by accounting advisory firms, the Group has reassessed its policy in this area, and concluded that business rates are a statutory obligation rather than a contractual one, and should be recognised as a periodic cost in line with IFRIC 21 "Levies". Prior period comparatives have therefore been restated to remove business rates from previously recognised property provisions.

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 by grossing up cash and overdrafts (reported within current borrowings). There is no impact on the income statement, cash flow statement nor earnings and diluted earnings per share.

Prior period comparatives

The prior period comparatives have been restated in accordance with IAS 8: 'Accounting Policies, Changes in Accounting Policies and Errors' and have impacted the primary financial statements as follows:

Income statement

For the 52 weeks to 6 March 2021

	Before non-underlying items			Non-underlying items			Total
	As previously reported	Business rates adjustment	As restated	As previously reported	Business rates adjustment	As restated	As previously reported	Business rates adjustment	As restated
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Revenue	29,048	-	29,048	-	-	-	29,048	-	29,048
Cost of sales	(26,871)	1	(26,870)	(412)	79	(333)	(27,283)	80	(27,203)
Gross profit/(loss)	2,177	1	2,178	(412)	79	(333)	1,765	80	1,845
Administrative expenses	(1,480)	-	(1,480)	(238)	16	(222)	(1,718)	16	(1,702)
Other income	12	-	12	1	-	1	13	-	13
Operating profit/(loss)	709	1	710	(649)	95	(554)	60	96	156
Finance income	3	-	3	29	-	29	32	-	32
Finance costs	(356)	-	(356)	3	1	4	(353)	1	(352)
Profit/(loss) before tax	356	1	357	(617)	96	(521)	(261)	97	(164)
		-			-			-
Income tax (expense)/credit	(105)	-	(105)	86	(18)	68	(19)	(18)	(37)
Profit/(loss) for the financial period	251	1	252	(531)	78	(453)	(280)	79	(201)

Earnings per share	11.7	-	11.7				(13.0)	3.6	(9.4)
Diluted EPS	11.4	-	11.4				(13.0)	3.6	(9.4)

Balance sheets

As at 6 March 2021	As previously reported	Notional cash pooling adjustment	Business rates adjustment	As restated
	£m	£m	£m	£m
Cash and cash equivalents	1,477	98	-	1,575
Total assets	25,162	98	-	25,260

Current liabilities
Borrowings	(258)	(98)	-	(356)
Taxes payable	(59)	-	(24)	(83)
Provisions	(209)	-	10	(199)
Total current liabilities	(11,717)	(98)	(14)	(11,829)
Net current liabilities	(4,644)	-	(14)	(4,658)

Non-current liabilities
Provisions	(261)	-	111	(150)
Total liabilities	(18,558)	(98)	97	(18,559)
			-
Net assets	6,604	-	97	6,701

Equity
Retained earnings	3,131	-	97	3,228
Total equity before perpetual securities	6,356	-	97	6,453
Total equity	6,604	-	97	6,701

As at 7 March 2020	As previously reported	Business rates adjustment	As restated
	£m	£m	£m
Current liabilities
Taxes payable	(163)	(5)	(168)
Provisions	(108)	2	(106)
Total current liabilities	(12,047)	(3)	(12,050)
Net current liabilities	(4,461)	(3)	(4,464)

Non-current liabilities
Provisions	(89)	21	(68)
Total liabilities	(20,164)	18	(20,146)
		-
Net assets	7,773	18	7,791

Equity
Retained earnings	4,068	18	4,086
Total equity before perpetual securities	7,277	18	7,295
Total equity	7,773	18	7,791

Cash flow statement

For the 52 weeks to 6 March 2021

	As previously reported	Business rates adjustment	As restated
	£m	£m	£m
Cash flows from operating activities
Profit/(loss) before tax	(261)	97	(164)
Net finance costs	321	(1)	320
Operating profit	60	96	156
Operating cash flows before changes in working capital	1,638	96	1,734
Changes in working capital		-
(Decrease)/increase in provisions and other liabilities	273	(96)	177
Cash generated from operations	2,785	-	2,785
Net cash generated from operating activities	2,343	-	2,343

Net cash used in investing activities	(553)	-	(553)

Net cash used in financing activities	(1,308)	-	(1,308)

Net (decrease)/increase in cash and cash equivalents	482	-	482

Change in accounting policy - Software as a Service (SaaS) arrangements

During the year, the Group revised its accounting policy in relation to upfront configuration and customisation costs incurred in implementing software as a service (SaaS) arrangements. This is in response to the IFRS Interpretations Committee (IFRIC) agenda decision clarifying its interpretation of how current accounting standards apply to these types of arrangements during the current financial year. Adjustments in relation to costs capitalised in prior years have therefore been recognised as follows:

			£m
Intangible assets			(30)
Prepayments			9
Total assets / net assets			(21)

Administrative expenses			(21)
Profit before tax			(21)

The impact is not considered to have a material impact on the prior year balance sheet nor income statement, therefore the prior year results have not been restated. Given this is an out of period cost and could distort comparability between reporting periods, this has been included within non-underlying profit before tax. Intangible asset write-offs have been included within disposals.

In addition to the above, £14 million of current year spend that would have been capitalised to intangible assets under the Group's previous accounting policy has now been recognised within prepayments (£6 million) and underlying profit (£8 million). There is no impact on cash flows.

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 12 months to 27 April 2023.

In assessing the Group's ability to continue as a going concern, the Directors have considered the Group's most recent corporate planning and budgeting processes. 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 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 £1,094 million Facility (B). Facility A has a final maturity of April 2025 and Facility B has a final maturity of October 2024. As at 5 March 2022, both Facility (A) and Facility (B) were undrawn.

In assessing going concern, scenarios in relation to the Group's principal risks have been considered by overlaying them into the corporate plan and assessing the impact on cash flows, net debt and funding headroom. These severe but plausible scenarios included modelling inflationary pressures on both food margins and general recession-related risks, the impact of any regulatory fines, and the failure to deliver planned cost savings.

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 projects, bonuses and dividend payments.

The Group's most recent corporate planning and budgeting processes incorporates assumed cashflows to address climate change risks, including those associated with the Group's Plan for Better commitment which include reducing environmental impacts and meeting customer expectations in this area, notably through reducing packaging and energy usage across the estate. Climate-related risks do not result in any material uncertainties affecting the Group's ability to continue as a going concern.

Consideration was also given to the conflict in Ukraine which has continued to develop subsequent to the Group's balance sheet date. Inflationary pressures which may be caused by the conflict are already incorporated into the overall going concern assessment, as such the impact of the conflict in Ukraine does not impact the conclusions reached over going concern.

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 Amendments to published standards

Effective for the Group and Company in these financial statements:

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.

Standards and revisions effective for future periods:

The following standards and revisions will be effective for future periods:

- Amendments to IFRS 3 'Business Combinations' with reference to the Conceptual Framework

- Amendments to IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' on Onerous Contracts - Cost of Fulfilling a Contract

- Amendments to IAS 16 'Property, Plant and Equipment' on Proceeds before Intended Use

- Amendments to IAS 1 'Presentation of Financial Statements' on the classification of liabilities as current or non-current

- Amendments to IAS 1 'Presentation of Financial Statements' and IFRS Practice Statement 2 'Making Materiality Judgements' on the disclosure of accounting policies

- Amendments to IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors' on the definition of accounting estimates

- Amendments to IAS 12 'Income Taxes' on Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction

- IFRS 17 'Insurance Contracts'

The Group has considered the impact of the remaining above standards and revisions and have concluded that they will not have a significant impact on the Group's financial statements.

3 Alternative Performance Measures (APMs)

In the reporting of financial information, the Directors use various APMs. 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.

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.

The APMs that the Group has focused on in the period are defined and reconciled on page 50 to 54. All of the APMs relate to the current period's results and comparative periods.

4 Profit before non-underlying items

In order to provide shareholders with additional insight into the year-on-year 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. This adjusted measure excludes items recognised in reported profit or loss before tax which, if included, could distort comparability between periods.

Determining which items are to be adjusted requires judgement, in which the Group considers items which are significant either by virtue of their size and/or nature, or that are non-recurring. The same assessment is applied consistently to any reversals of prior non-underlying items.

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 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.

	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	167	-	180	(35)	145

Restructuring and integration
Restructuring programmes	(69)	(35)	12	-	(92)	17	(75)
Financial Services transition and other	-	(11)	-	-	(11)	2	(9)
Total restructuring and integration	(69)	(46)	12	-	(103)	19	(84)

Software as a service accounting adjustment	-	(21)	-	-	(21)	4	(17)

Property, finance, pension and acquisition adjustments
ATM business rates reimbursement	2	-	-	-	2	-	2
Profit on disposal of properties	-	-	7	-	7	-	7
Non-underlying finance and fair value movements	76	-	-	(8)	68	(13)	55
IAS 19 pension expenses	-	(4)	-	15	11	(2)	9
Acquisition adjustments	-	(20)	-	-	(20)	4	(16)
Total property, finance, pension and acquisition adjustments	78	(24)	7	7	68	(11)	57

Tax adjustments
Over provision in prior years	-	-	-	-	-	(2)	(2)
Revaluation of deferred tax balances	-	-	-	-	-	9	9
Other tax adjustments	-	-	-	-	-	(7)	(7)

Total adjustments	9	(78)	186	7	124	(23)	101

Income recognised in relation to legal disputes

During the current period, agreements were reached and two legal cases settled in relation to overcharges from payment card processing fees, which largely reflect inter-bank "interchange fees". This has led to net income of £167 million being recognised. The Group has one ongoing legal case remaining.

Of the £167 million, cash of £75 million was received in a prior year and held as deferred income. Net cash of £93 million was received during the current financial year and £1 million of legal fees remains outstanding.

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

In the prior year, the Group announced a restructuring programme to accelerate the structural integration of Sainsbury's and Argos and further simplify the Argos business; create a new supply chain and logistics operating model, moving to a single integrated supply chain and logistics network across Sainsbury's and Argos; and further rationalise / repurpose the Group's supermarkets and convenience estate. The programme also considered the Group's Store Support Centre ways of working.

The programme is a multi-year activity which began in the prior year and has continued into the current year. Total cumulative costs to 5 March 2022 are £(640) million split between £(548) million in the prior year and £(92) million in the current period as detailed in the table below. Total expected costs are still in the range of £900 million to £1 billion to March 2024, with the majority in the period to March 2024. In line with IFRIC 21 "Levies", business rates are now recognised as a periodic cost and as such approximately £40 million of business rates associated with leased properties in the restructuring programme will be recognised after the year ended March 2024. Refer to note 2 for further details.

(Costs)/gains recognised in the current year are as follows:

	52 weeks to 5 March 2022	52 weeks to 6 March 2021 (Restated)
	£m	£m
Write downs of property, plant and equipment (a)	(6)	(26)
Write downs of leased assets (a)	(3)	(72)
Write downs of intangible assets	-	(3)
Closure provisions (b)	(24)	(145)
Accelerated depreciation of assets (c)	(33)	(27)
Redundancy provisions (d)	(40)	(61)
Consultancy costs	(18)	(10)
Gain on lease terminations (e)	9	16
Property Profits (f)	12	-
Recognition of sub lease debtor (g)	11	-
Restructuring programmes	(92)	(328)
Impairment of non-financial assets	-	(220)
Total restructuring and impairment costs	(92)	(548)

a) During the financial year, the Group announced the closure of 200 of its in-store cafes. Related assets have been written down as a result.

b) Closure provisions relate to onerous contract costs, dilapidations and strip out costs on leased sites that have been identified for closure. Upon initial recognition of closure provisions, management uses its best estimates of the relevant costs to be incurred as well as expected closure dates. Business rates on leased property where the Group no longer operates from are recognised in the period they are incurred.

c) 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.

d) Redundancy costs are recognised as the plan is announced and a valid expectation raised with the affected colleagues. The current year charge relates to redundancies announced as part of Argos store closures, depot closures, and café and food counter closures.

e) 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. This includes the release of any lease liabilities and right of use assets, as well as any closure provisions previously recognised.

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

g) During the year, the Group was able to negotiate a sub-lease on a previously impaired site for the duration of the remaining headlease. This resulted in the creation of a sub-lease debtor, with any difference between the lease receivable and right of use asset being recognised in the income statement.

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.

Software as a service accounting adjustment

During the year, the Group revised its accounting policy in relation to upfront configuration and customisation costs incurred in implementing software as a service (SaaS) arrangements; refer to note 2.1 for further details. Costs capitalised in prior years totalling £21 million have been written off this year. Given this is an out of period cost and could distort comparability between reporting periods, this has been included within non-underlying profit before tax.

Financial Services transition and other

These comprise Financial Services transition costs of £(11) 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. These costs of integration do not reflect the business's trading performance and so are adjusted to ensure consistency between periods. The programme ended this financial year.

Property, finance, pension and acquisition adjustments

· A further £2 million of ATM rates reimbursement income is due to be received from the Valuation Office following the Supreme Court's ruling that ATMs outside stores should not be assessed for additional business rates on top of normal store rates.

· Profit on disposal of non-trading properties for the financial period comprised £(7) million for the Group. These are excluded from underlying profit as such profit is not related to the ongoing operating activities of the Group.

· Non-underlying finance and fair value movements for the financial period comprised £68 million for the Group. 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. Included within cost of sales is £76 million of income in relation to favourable movements on long-term, fixed price power purchase arrangements (PPAs) with independent producers. These are accounted for as derivative financial instruments, however are not designated in hedging relationships, therefore gains and losses are recognised in the income statement. Increases in electricity forward prices in the year have led to gains on the related derivative financial instruments. During the year, the Group entered into an additional PPA, however have designated this in a formal hedging relationship, with gains and losses being recognised within other comprehensive income. The remaining movements of £(8) million within finance income and costs are analysed further in note 8.

· Defined benefit pension interest and expenses comprises pension finance income of £15 million and scheme expenses of £(4) million (see note 19). 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 of £(20) million reflect the unwind of non-cash fair value adjustments arising from Home Retail Group and Nectar UK acquisitions. The Group would not normally recognise these as assets outside of a business combination. Therefore the unwinds are classified as non-underlying and are recognised as follows:

	52 weeks to 5 March 2022			52 weeks to 6 March 2021
	Argos	Nectar	Total Group	Argos	Nectar	Total Group
	£m	£m	£m	£m	£m	£m
Depreciation	3	-	3	5	-	5
Amortisation	(18)	(5)	(23)	(18)	(6)	(24)
	(15)	(5)	(20)	(13)	(6)	(19)

Comparative information (restated)

	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	(263)	(65)	-	-	(328)	58	(270)
Impairment of non-financial assets	(112)	(108)	-	-	(220)	33	(187)
Financial Services transition and other	-	(17)	-	-	(17)	3	(14)
Total restructuring, impairment and integration	(375)	(190)	-	-	(565)	94	(471)

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	-	-	-	-	-	-	-
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	33	44	2	46

Tax adjustments
Derecognition of capital losses	-	-	-	-	-	(28)	(28)

Total adjustments	(333)	(222)	1	33	(521)	68	(453)

Refer to note 2 for details of prior year restatements.

Cash flow statement

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

	52 weeks to 5 March 2022	52 weeks to 6 March 2021
	£m	£m
Cash flows from operating activities
IAS 19 pension expenses	(7)	(7)
Financial Services transition and other	(13)	(15)
Restructuring programmes	(114)	(39)
Income recognised in relation to legal disputes	93	-
ATM rates reimbursement	14	27
Cash used in operating activities	(27)	(34)

Cash flows from investing activities
Proceeds from property disposals¹	46	27
Cash generated from investing activities	46	27

Net cash flows	19	(7)

1. £19 million of the current period proceeds from property disposals are a result of restructuring programmes.

5 Revenue

	5 March 2022	6 March 2021
	£m	£m
Grocery and General Merchandise & Clothing (GM&C)	25,440	26,103
Fuel	4,023	2,514
Total retail sales	29,463	28,617

Financial Services interest receivable	322	344
Financial Services fees and commission	110	87
Total Financial Services income	432	431

Total revenue	29,895	29,048

6 Segment reporting

Background

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 and Clothing

- Financial Services

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 3. All material operations and assets are in the UK.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. Segment revenue presents a disaggregation of revenue from customers consistent with the Group's primary revenue streams.

Income statement and balance sheet

	Retail	Financial Services	Group
52 weeks to 5 March 2022	£m	£m	£m
Segment revenue
Retail sales to external customers	29,463	-	29,463
Financial Services to external customers	-	432	432
Revenue	29,463	432	29,895

Underlying operating profit	1,001	38	1,039
Underlying finance income	3	-	3
Underlying finance costs	(312)	-	(312)
Underlying profit before tax	692	38	730
Non-underlying expense (note 4)			124
Profit before tax			854
Income tax expense (note 9)			(177)
Profit for the financial year			677

Assets	20,368	6,541	26,909
Investment in joint ventures and associates	3	-	3
Segment assets	20,371	6,541	26,912
Segment liabilities	(12,870)	(5,619)	(18,489)

Other segment items
Additions to non-current assets
Property, plant and equipment	417	-	417
Intangible assets	229	49	278
Right-of-use assets	1,294	-	1,294
Depreciation expense¹
Property, plant and equipment	590	1	591
Right-of-use assets	477	1	478
Amortisation expense²
Intangible assets	130	21	151
Impairment charges	8	1	9
Share based payments	53	5	58

1. Depreciation within the Retail segment includes a £(3) million credit in relation to the unwind of fair value adjustments recognised on acquisition of HRG.

2. Amortisation within the Retail segment includes a £23 million charge in relation to the unwind of fair value adjustments recognised on acquisition of HRG and Nectar UK.

	Retail	Financial Services	Group
52 weeks to 6 March 2021 (Restated)	£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)	731	(21)	710
Underlying finance income	3	-	3
Underlying finance costs	(356)	-	(356)
Underlying profit/(loss) before tax	378	(21)	357
Non-underlying expense			(521)
Loss before tax			(164)
Income tax expense			(37)
Loss for the financial year			(201)

Assets	17,735	7,520	25,255
Investment in joint ventures and associates	5	-	5
Segment assets	17,740	7,520	25,260
Segment liabilities	(11,941)	(6,618)	(18,559)


Other segment items
Additions to non-current assets
Property, plant and equipment	419	-	419
Intangible assets	145	27	172
Right-of-use assets	542	-	542
Depreciation expense¹
Property, plant and equipment	627	2	629
Right-of-use assets	483	1	484
Amortisation expense²
Intangible assets	116	20	136
Impairment charges	216	105	321
Restructuring charges	227	-	227
Share based payments	26	3	29

1. Depreciation within the Retail segment includes a £(5) million credit in relation to the unwind of fair value adjustments recognised on acquisition of HRG and Nectar UK. 2. Amortisation expense within the Retail segment includes £24 million charge in relation to the unwind of fair value adjustments recognised on acquisition of HRG and Nectar UK.

Refer to note 2 for details of prior year restatements.

Geographical segments

The Group trades predominantly in the UK and the Republic of Ireland and consequently the majority of revenues, capital expenditure and segment net assets arise there. The profits, turnover and assets of the businesses in the Republic of Ireland are not material to the Group.

Cash flow

		52 weeks to 5 March 2022			52 weeks to 6 March 2021 (Restated)
	APM	Retail	Financial Services	Group	Retail	Financial Services	Group
	reference	Retail	Financial Services	Group	Retail	Financial Services	Group

		£m	£m	£m	£m	£m	£m

Profit/(loss) before tax		833	21	854	(17)	(147)	(164)
Net finance costs		304	(2)	302	320	-	320
Operating profit		1,137	19	1,156	303	(147)	156
Adjustments for:
Depreciation and amortisation expense		1,197	23	1,220	1,226	23	1,249
Net impairment charge on property, plant and equipment, right-of-use assets and intangible assets		8	1	9	216	105	321
Non-cash adjustments arising from acquisitions		-	-	-	(1)	-	(1)
Financial Services movement in loss allowance for loans and advances to customers		-	19	19	-	85	85
(Profit)/loss on sale of non-current assets and early termination of leases		(6)	-	(6)	(19)	2	(17)
Non-underlying fair value movements		(76)	-	(76)	-	-	-
Share-based payments expense		53	5	58	26	3	29
Non-cash defined benefit scheme expenses		4	-	4	13	-	13
Cash contributions to defined benefit scheme		(71)	-	(71)	(101)	-	(101)
Operating cash flows before changes in working capital		2,246	67	2,313	1,663	71	1,734
Changes in working capital
Movements in working capital		(306)	(646)	(952)	612	439	1,051
Cash generated from operations		1,940	(579)	1,361	2,275	510	2,785
Interest paid	a	(319)	(10)	(329)	(349)	-	(349)
Corporation tax (paid)/received		(23)	-	(23)	(94)	1	(93)
Net cash generated/(used) from operating activities		1,598	(589)	1,009	1,832	511	2,343

Cash flows from investing activities
Purchase of property, plant and equipment		(416)	-	(416)	(423)	-	(423)
Initial direct costs on new leases		(3)	-	(3)	(7)	-	(7)
Purchase of intangible assets		(229)	(49)	(278)	(145)	(27)	(172)
Proceeds from disposal of property, plant and equipment		46	-	46	27	-	27
Dividends and distributions received	e	2	-	2	22	-	22
Net cash used in investing activities		(600)	(49)	(649)	(526)	(27)	(553)

Cash flows from financing activities
Proceeds from issuance of ordinary shares	d	21	-	21	17	-	17
Proceeds from short term borrowings	c	-	-	-	660	-	660
Repayment of borrowings	c	(248)	-	(248)	(289)	-	(289)
Repayment of short term borrowings	c	-	-	-	(660)	-	(660)
Repayment of perpetual capital securities	c	(8)	-	(8)	(250)	-	(250)
Purchase of own shares	d	(48)	-	(48)	(30)	-	(30)
Repayment of capital element of obligations under lease liabilities	b	(491)	(2)	(493)	(499)	(2)	(501)
Dividends paid on ordinary shares		(238)	-	(238)	(232)	-	(232)
Dividends paid on perpetual securities	a	(4)	-	(4)	(23)	-	(23)
Net cash used in financing activities		(1,016)	(2)	(1,018)	(1,306)	(2)	(1,308)

Net (decrease)/increase in cash and cash equivalents		(18)	(640)	(658)	-	482	482

Refer to note 2 for details of prior year restatements.

7 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.

Income is recognised when earned by the Group when all obligations per the terms of the contract have been performed. Any supplier arrangements which are linked to inventory purchases are included within the cost of the related inventory, and therefore recognised within cost of sales once the inventory is sold. Unpaid amounts relating to supplier arrangements are recognised within trade and other receivables, unless there is a legal right of offset, in which case it is recognised within trade and other payables.

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.

	52 weeks to 5 March 2022	52 weeks to 6 March 2021
	£m	£m

Fixed amounts	208	236
Supplier rebates	94	55
Marketing and advertising income ¹	79	69
Total supplier arrangements	381	360

1. The prior year has been restated. There is no impact to any of the primary statements.

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

	52 weeks to 5 March 2022	52 weeks to 6 March 2021
	£m	£m
Within inventory	(4)	(5)

Within current trade receivables
Supplier arrangements due	39	49
Accrued supplier arrangements	37	37

Within current trade payables
Supplier arrangements due	47	32
Accrued supplier arrangements	2	5
Deferred income due	-	(2)
Total supplier arrangements	121	116

8 Finance income and finance costs

	2022			2021 (restated)
	Underlying	Non-Underlying	Total	Underlying	Non-Underlying	Total
	£m	£m	£m	£m	£m	£m
Interest on bank deposits and other financial assets	1	-	1	1	-	1
Fair value measurements	-	2	2	-	10	10
IAS 19 pension financing income	-	15	15	-	19	19
Finance income on net investment in leases	2	-	2	2	-	2
Finance Income	3	17	20	3	29	32

Secured borrowings	(40)	-	(40)	(49)	-	(49)
Unsecured borrowings	(2)	-	(2)	(1)	-	(1)
Lease liabilities	(271)	(10)	(281)	(295)	(10)	(305)
Provisions - amortisation of discount	(1)	-	(1)	(1)	-	(1)
Interest capitalised - qualifying assets	2	-	2	4	-	4
Perpetual securities coupon	-	-	-	(14)	14	-
Finance costs	(312)	(10)	(322)	(356)	4	(352)

Refer to note 2 for details of prior year restatements.

9 Taxation

	52 weeks to 5 March 2022	52 weeks to 6 March 2021 (Restated)
	£m	£m
Current year UK tax	131	34
Current year overseas tax	6	6
Under/(over) provision in prior years	5	(12)
Total current tax expense	142	28

Origination and reversal of temporary differences	52	(46)
(Over)/under provision in prior years	(35)	27
Adjustment from changes in tax rates	23	-
Derecognition of capital losses	(5)	28
Total deferred tax expense	35	9

Total income tax expense in income statement	177	37

Analysed as:
Underlying tax	154	105
Non-underlying tax	23	(68)
Total income tax expense in income statement	177	37

Underlying tax rate	21.1%	29.4%
Effective tax rate	20.7%	(22.6)%

Refer to note 2 for details of prior year restatements.

10 Earnings 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 Trusts, which are treated as cancelled.

In calculating the diluted earnings per share, 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 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 4. 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.

	2022	2021 (Restated)
	million	million
Weighted average number of shares in issue	2,271.8	2,210.0
Weighted average number of dilutive share options	39.6	21.7
Weighted average number of dilutive subordinated perpetual convertible bonds	39.6	88.4
Total number of shares for calculating diluted earnings per share	2,351.0	2,320.1

	£m	£m
Profit/(loss) for the financial period (net of tax)	677	(201)
Less profit attributable to:
Holders of perpetual convertible bonds	-	(7)
Profit/(loss) for the financial period attributable to ordinary shareholders	677	(208)

Diluted earnings/(loss) for calculating diluted earnings/(loss) per share	677	(208)

Profit/(loss) for the financial period attributable to ordinary shareholders of the parent	677	(208)
Adjusted for non-underlying items (note 4)	(124)	521
Tax on non-underlying items	23	(68)
Add back coupons on perpetual securities (net of tax)	-	14
Underlying profit after tax attributable to ordinary shareholders of the parent	576	259
Add coupon on subordinated perpetual convertible bonds (net of tax)	-	6
Diluted underlying profit after tax attributable to ordinary shareholders of the parent	576	265

	Pence per share	Pence per share
Basic earnings/(loss)	29.8	(9.4)
Diluted earnings/(loss)¹	28.8	(9.4)
Underlying basic earnings	25.4	11.7
Underlying diluted earnings	24.5	11.4

1. Basic and diluted loss per share are the same in the prior year as the dilutive share options and their respective earnings adjustments are anti-dilutive.

Refer to note 2 for details of prior year restatements.

11 Dividends

	2022	2021	2022	2021
	pence per share	pence per share	£m	£m
Amounts recognised as distributions to ordinary shareholders in the year:
Final dividend of prior financial year	7.4	-	164	-
Interim dividend of current financial year	3.2	3.2	74	71
Special dividend of prior financial year	-	7.3	-	161
	10.6	10.5	238	232

After the balance sheet date on 27 April 2022 a final dividend of 9.9 pence per share (2021: 7.4 pence per share) was proposed by the Directors in respect of the 52 weeks to 5 March 2022. This results in a total final proposed dividend of £230 million (2021: £164 million).

Subject to shareholders' approval at the Annual General Meeting, the dividend will be paid on 15 July 2022 to the shareholders on the register at 10 June 2022. The proposed final dividend has not been included as a liability at 5 March 2022.

12 Property, plant and equipment

	Land and buildings	Fixtures and equipment	Total
	£m	£m	£m
Cost
At 7 March 2021	9,655	5,288	14,943
Additions	87	330	417
Disposals	(40)	(330)	(370)
Transfer to asset held for sale	(9)	-	(9)
At 5 March 2022	9,693	5,288	14,981

Accumulated depreciation and impairment
At 7 March 2021	2,793	3,563	6,356
Depreciation expense for the year	170	421	591
Impairment loss for the year	-	6	6
Disposals	(37)	(328)	(365)
Transfer to asset held for sale	(9)	-	(9)
At 5 March 2022	2,917	3,662	6,579

Net book value at 5 March 2022	6,776	1,626	8,402

Capital work-in-progress included above	103	314	417

Cost
At 8 March 2020	9,716	5,362	15,078
Additions	89	330	419
Disposals	(59)	(404)	(463)
Transfer to asset held for sale	(91)	-	(91)
At 6 March 2021	9,655	5,288	14,943

Accumulated depreciation and impairment
At 8 March 2020	2,693	3,436	6,129
Depreciation expense for the year	173	456	629
Impairment loss for the year	26	62	88
Disposals	(32)	(391)	(423)
Transfer to asset held for sale	(67)	-	(67)
At 6 March 2021	2,793	3,563	6,356

Net book value at 6 March 2021	6,862	1,725	8,587

Capital work-in-progress included above	122	320	442

13 Leases

Group as lessee

The Group's lease portfolio is principally comprised of property leases of land and buildings in relation to stores, distribution centres and support offices, but also includes other assets such as motor vehicles. The leases have varying terms and often include break clauses or options to renew beyond the non-cancellable periods.

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

	Land and buildings	Equipment	Total
Net book value	£m	£m	£m
At 7 March 2021	4,414	333	4,747
New leases and modifications¹	1,244	50	1,294
Depreciation charge	(389)	(89)	(478)
Impairment charge	(3)	-	(3)
At 5 March 2022	5,266	294	5,560

¹Includes new leases, terminations, modifications and reassessments

At 8 March 2020	4,536	290	4,826
New leases and modifications¹	413	129	542
Depreciation charge	(398)	(86)	(484)
Impairment charge	(137)	-	(137)
At 6 March 2021	4,414	333	4,747

1. Includes new leases, terminations, modifications and reassessments

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

	2022	2021
	£m	£m
At 7 March 2021 and 8 March 2020	5,834	5,774
New leases and modifications	1,280	561
Interest expense	281	305
Payments	(774)	(806)
At 5 March 2022 and 6 March 2021	6,621	5,834
Current	526	524
Non-current	6,095	5,310

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 21 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 year-end 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.

14 Intangible assets

	Goodwill	Computer software	Acquired brands	Customer relationships	Total
	£m	£m	£m	£m	£m
Cost
At 7 March 2021	394	899	229	32	1,554
Additions	-	278	-	-	278
Disposals ¹	(2)	(100)	-	-	(102)
At 5 March 2022	392	1,077	229	32	1,730

Accumulated amortisation and impairment
At 7 March 2021	28	457	127	28	640
Amortisation expense for the year	-	129	20	2	151
Disposals	(2)	(65)	-	-	(67)
At 5 March 2022	26	521	147	30	724

Net book value at 5 March 2022	366	556	82	2	1,006

Cost
At 8 March 2020	400	749	231	32	1,412
Additions	-	172	-	-	172
Disposals	(6)	(22)	(2)	-	(30)
At 6 March 2021	394	899	229	32	1,554

Accumulated depreciation and impairment
At 8 March 2020	22	281	109	26	438
Amortisation expense for the year	-	114	20	2	136
Impairment loss for the year	12	84	-	-	96
Disposals	(6)	(22)	(2)	-	(30)
At 6 March 2021	28	457	127	28	640

Net book value at 6 March 2021	366	442	102	4	914

1. Disposals include write offs of software-as-a-service balances as disclosed in note 2.

15 Provisions

Property provisions

Where the Group no longer operates from a leased property, onerous property contract provisions are recognised for the least net cost of exiting from the contract. Unless a separate exit agreement with a landlord has already been agreed, the Group's policy is that this onerous contract provision includes all unavoidable costs of meeting the obligations of the contract. The amounts provided are based on the Group's best estimates of the likely committed outflows and site closure dates. These provisions do not include rent in accordance with IFRS 16, however do include unavoidable costs related to the lease such as service charges and insurance. These provisions historically included business rates, however business rates are considered a statutory obligation rather than a contractual one, and are therefore now recognised as a periodic cost in line with IFRIC 21 "Levies". Prior period comparatives have been restated to remove business rates from previously recognised property provisions. Refer to note 2 for further details.

Property provisions also include provisions for dilapidations which are recognised where the Group has the obligation to make-good its leased properties. These provisions are recognised based on historically settled dilapidations which form the basis of the estimated future cash outflows. Any difference between amounts expected to be settled and the actual cash outflow will be accounted for in the period when such determination is made.

Where the Group is able to exit lease contracts before the expiry date or agree sublets, this results in the release of any associated property provisions. Such events are subject to the agreement of landlords, therefore the Group makes no assumptions on the ability to either exit or sublet a property until a position is agreed.

Insurance provisions

The provision relates to the Group's outstanding insurance claims liabilities in relation to public and employer's liability claims, and third party motor claims. Claims provisions are based on assumptions regarding past claims experience and on assessments by an independent actuary and are intended to provide a best estimate of the most likely or expected outcome.

Restructuring provisions

A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring.

The charge for the year mostly comprises redundancy payments as part of Argos store closures, depot closures, and café and food counter closures announced during the year as detailed in note 4.

Financial services related provisions

Financial services loan commitment provisions reflect expected credit losses modelled in relation to loan commitments not yet recognised on the balance sheet, including on credit cards and Argos store cards.

Other financial services related provisions are primarily in relation to Argos Financial Services customers in respect of potential redress payable arising from the historic sales of Payment Protection Insurance (PPI).

The eventual cost is dependent on response rates, uphold rates, complaint rates, redress costs and claim handling costs. The provision represents management's best estimate of future costs. These assumptions are inherently uncertain and the ultimate financial impact may differ from the amount provided.

	Property provisions	Insurance provisions	Restructuring	Financial services related provisions	Other provisions	Total
	£m	£m	£m	£m	£m	£m
At 7 March 2021 (restated)	164	67	54	26	38	349
Additional provisions	9	34	44	6	1	94
Unused amounts reversed	(7)	(5)	(16)	(3)	(24)	(55)
Utilisation of provision	(27)	(34)	(53)	(3)	(1)	(118)
Amortisation of discount	1	-	-	-	-	1
At 5 March 2022	140	62	29	26	14	271
Current	16	22	28	26	8	100
Non-current	124	40	1	-	6	171

At 8 March 2020 (restated)	38	63	20	37	16	174
Additional provisions	146	33	61	7	32	279
Unused amounts reversed	(5)	(2)	-	(2)	-	(9)
Utilisation of provision	(16)	(27)	(27)	(16)	(10)	(96)
Amortisation of discount	1	-	-	-	-	1
At 6 March 2021 (restated)	164	67	54	26	38	349
Current	72	24	53	21	29	199
Non-current	92	43	1	5	9	150

16 Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise the following:

	2022	2021
		(restated)
	£m	£m
Cash in hand and bank balances	566	325
Money market funds and deposits	25	398
Deposits at central banks	234	852
Cash and bank balances as reported in the Group balance sheet	825	1,575

Bank overdrafts	(7)	(99)
Net cash and cash equivalents as reported in the Group cash flow statement	818	1,476

Of the above balance, £18 million (2021: £20 million) was restricted as at year-end. Of the £18 million (2021: £20 million) restricted cash, £15 million (2021: £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 £3 million (2021: £3 million) is restricted for Insurance purposes.

Refer to note 2 for details of restatement.

17 Analysis of net debt

The Group's definition of net debt includes the following:

· Cash

· Borrowings and overdrafts

· Lease liabilities

· Perpetual securities

· Debt-related financial assets at fair value through other comprehensive income

· Derivatives used in hedging borrowings

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. Derivatives exclude those not used to hedge borrowings, and borrowings exclude bank overdrafts as they are disclosed separately.

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.

		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	5 March 2022
	£m	£m	£m	£m	£m	£m	£m
Retail
Net derivative financial instruments	(14)	-	10	(10)	11	8	5
Borrowings (excluding overdrafts)	(826)	248	28	(25)	-	-	(575)
Lease liabilities	(5,829)	491	281	(281)	(1,280)	-	(6,618)
Arising from financing activities	(6,669)	739	319	(316)	(1,269)	8	(7,188)

Financial assets at fair value through other comprehensive income	1	-	-	-	-	(1)	-
Cash and cash equivalents (restated)	546	(110)	-	-	-	-	436
Bank overdrafts (restated)	(99)	92	-	-	-	-	(7)
Retail net debt (excluding perpetual securities)	(6,221)	721	319	(316)	(1,269)	7	(6,759)

Financial Services
Net derivative financial instruments	-	-	-	-	-	4	4
Borrowings (excluding overdrafts)	(179)	-	10	(11)	-	1	(179)
Lease liabilities	(5)	2	-	-	-	-	(3)
Arising from financing activities	(184)	2	10	(11)	-	5	(178)

Financial assets at fair value through other comprehensive income	537	(115)	-	-	-	(4)	418
Cash and cash equivalents	1,029	(640)	-	-	-	-	389
Financial services net debt	1,382	(753)	10	(11)	-	1	629

Group
Net derivative financial instruments	(14)	-	10	(10)	11	12	9
Borrowings (excluding overdrafts)	(1,005)	248	38	(36)	-	1	(754)
Lease liabilities	(5,834)	493	281	(281)	(1,280)	-	(6,621)
Arising from financing activities	(6,853)	741	329	(327)	(1,269)	13	(7,366)

Financial assets at fair value through other comprehensive income	538	(115)	-	-	-	(5)	418
Cash and cash equivalents (restated)	1,575	(750)	-	-	-	-	825
Bank overdrafts (restated)	(99)	92	-	-	-	-	(7)
Group net debt (excluding perpetual securities)	(4,839)	(32)	329	(327)	(1,269)	8	(6,130)

Retail net debt (excluding perpetual securities)	(6,221)	721	319	(316)	(1,269)	7	(6,759)
Perpetual convertible bonds	(248)	8	-	-	240	-	-
Retail net debt (including perpetual securities)	(6,469)	729	319	(316)	(1,029)	7	(6,759)

Of which:
Leases	(5,829)						(6,618)
Net debt excluding lease liabilities	(640)						(141)

Other non-cash movements relate to interest accruals and new leases. Refer to note 2 for details of 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 (restated)	(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 (restated)	(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 restatement.

Reconciliation of net cash flow to movement in net debt

	52 weeks to	52 weeks to
	5 March	6 March
	2022	2021
	£m	£m
Opening net debt	(6,469)	(6,947)

Cash flow movements
Net (decrease)/increase in cash and cash equivalents (including overdrafts)	(658)	482
Elimination of Financial Services movement in cash and cash equivalents	640	(482)
Repayment of perpetual capital securities	8	250
Decrease in Retail borrowings	248	289
Decrease in Retail lease obligations	491	499
Net interest paid on components of Retail net debt	319	349
Changes in net debt resulting from cash flow	1,048	1,387

Non-cash movements
Accrued interest	(316)	(347)
Retail fair value and other non-cash movements	(1,022)	(562)
Changes in net debt resulting from non-cash movements	(1,338)	(909)

Movement in net debt	(290)	478

Closing net debt	(6,759)	(6,469)

18 Borrowings

	2022			2021
	Current	Non-current	Total	Current	Non-current	Total
	£m	£m	£m	£m	£m	£m
Loan due 2031	44	531	575	55	572	627
Bank overdrafts (restated)	7	-	7	99	-	99
Bank loans due 2021	-	-	-	199	-	199
Sainsbury's Bank Tier 2 Capital due 2027	3	176	179	3	176	179
	54	707	761	356	748	1,104

Refer to note 2 for details of restatement.

a) Loan due 2031

The loan is secured against 48 (2021: 48) supermarket properties. This is an inflation linked amortising loan from the finance company Longstone Finance plc with an outstanding principal value of £566 million (2021: £614 million) fixed at a real rate of 2.36 per cent where principal and interest rate are uplifted annually by RPI subject to a cap at five per cent and a floor at nil per cent. The carrying value of the loan is £575 million (2021: £627 million) with a final repayment date of April 2031.

The Group has entered into inflation swaps to convert £490 million (2021: £490 million) of the £566 million (2021: £614 million) loan from RPI linked interest to fixed rate interest until April 2023. These transactions have been designated as cash flow hedges.

The principal activity of Longstone Finance plc is the issuing of commercial mortgage-backed securities and applying the proceeds towards the secured loans due 2031 with the Group as summarised above.

Intertrust Corporate Services Limited holds all the issued share capital of Longstone Finance Holdings Limited on trust for charitable purposes. Longstone Finance Holdings Limited beneficially owns all the issued share capital of Longstone Finance plc. As the Group has no interest, power or bears any risk over these entities they are not included in the Group consolidation.

b) Bank overdrafts

Bank overdrafts are repayable on demand and bear interest at a spread above Bank of England base rate.

c) Bank loan due 2021

On 6^th August 2021 the Group repaid the secured £200m Green Loan and subsequently ensured the release of all security interests.

d) Sainsbury's Bank Tier 2 Capital due 2027

The Bank issued £175 million of fixed rate reset callable subordinated Tier 2 notes on 23 November 2017. The notes pay interest on the principal amount at a rate of six per cent per annum, payable in equal instalments semi-annually in arrears, until 23 November 2022 at which time the interest rate will reset. The Bank has the option to redeem these notes on 23 November 2022.

e) Short term borrowings

The Revolving Credit Facility is split into two Facilities, a £300 million Facility (A) and a £1,094 million Facility (B). Facility A has a final maturity of April 2025 and Facility B has a final maturity of October 2024. At 5 March 2022, the Revolving Credit Facility was undrawn (2021: undrawn).

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 5 March 2022 (2021: undrawn).

19 Retirement benefit obligations

Background

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

The Sainsbury's Pension Scheme has two sections, the Sainsbury's Section which holds the assets and liabilities of the original Sainsbury's Pension Scheme, and the Argos Section which holds the assets and liabilities of the Home Retail Group Pension Scheme. Each section's assets are segregated by deed and ring fenced for the benefit of the members of that section. The Scheme is run by a corporate trustee with nine directors.

The Scheme is also used to pay life assurance benefits to current (including new) colleagues.

The retirement benefit obligations at the year-end have been calculated by Isio, the actuarial advisers to the Group, using the projected unit credit method and based on adjusting the position at the date of the previous triennial valuation for known events and changes in market conditions as allowed under IAS 19 'Employee Benefits'.

The amounts recognised in the balance sheet are as follows:

		2022			2021
	Sainsbury's	Argos	Group	Sainsbury's	Argos	Group
	£m	£m	£m	£m	£m	£m
Present value of funded obligations	(8,060)	(1,313)	(9,373)	(8,808)	(1,410)	(10,218)
Fair value of plan assets	10,158	1,535	11,693	9,596	1,404	11,000
Retirement benefit surplus/(deficit)	2,098	222	2,320	788	(6)	782
Present value of unfunded obligations	(20)	(17)	(37)	(21)	(17)	(38)
Retirement benefit surplus/(deficit)	2,078	205	2,283	767	(23)	744

The retirement benefit surplus and the associated deferred income tax balance are shown within different line items on the face of the balance sheet.

The movements in the Group's net defined benefit surplus are as follows:

	2022	2021
	£m	£m
As at the beginning of the year	744	1,119
Net interest income	15	19
Remeasurement gains/(losses)	1,457	(482)
Pension scheme expenses	(7)	(7)
Contributions by employer	71	101
Past service credit/(charge)	3	(6)
As at the end of the year	2,283	744

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

	2022	2021
	%	%
Discount rate	2.40	1.95
Inflation rate - RPI	3.60	3.15
Inflation rate - CPI	2.90	2.45
Future pension increases	2.30 - 3.45	2.15 - 3.10

20 Contingent liabilities and contingent assets

The Group has a number of contingent liabilities in respect of historic lease guarantees, particularly in relation to the disposal of assets, which if the current tenant and their ultimate parents become insolvent, may expose the Group to a material liability. This liability decreases over time as the leases expire. The Group has considered a number of factors, including past history of default as well as the profitability and cash generation of the current leaseholders, and has concluded that the likelihood of pay out is remote.

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 8,600 equal pay claims from circa 4,400 claimants, in which the claimants are alleging that their work within Sainsbury's stores is or was, 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 will be served.

There are three stages in the tribunal procedure for equal value claims of this nature and the claimants will need to succeed in all three. The first stage is whether store claimants have the legal right to make the comparison with depot workers. Following European and Supreme Court decisions in other similar litigation, Sainsbury's has conceded this point. The second stage is the lengthy process to determine whether any of the claimants' roles are of equal value to their chosen comparators. This process is likely to continue for several more years. In the event that any of the claimants succeed at the second stage there will be further hearings, in the years following, to consider whether any pay differential is justified.

Given that the outcome of the second and third stages in the litigation remains 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.

As disclosed in note 4 to the financial statements, the Group had a number of ongoing legal cases in relation to overcharges arising from payment card interchange fees. During the year settlements have been reached in two of these cases, resulting in non-underlying income of £167 million being recognised. The last of these cases goes to trial for a final determination of quantum in early 2023. A range of possible outcomes is possible, including £nil. As the outcome and quantum of any award is not virtually certain no income has been recognised in accordance with IAS 37: 'Provisions, Contingent Liabilities and Contingent Assets'.

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.

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

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 5 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 decline of (2.3) per cent is based on a combination of Sainsbury's like-for-like sales and Argos like-for-like sales for the 2022. See movements below:	2022	2021
Retail like-for-like (exc. Fuel, inc. VAT)	(2.3)%	8.1%
Underlying net new space impact	(0.3)%	(0.8)%
Retail sales growth (exc. Fuel, inc. VAT)	(2.6)%	7.3%
Fuel impact	6.0%	(7.2)%
Total retail sales growth (inc. fuel, inc. VAT)	3.4%	0.1%
VAT impact	(0.4)%	0.6%
Total retail sales growth	3.0%	0.7%

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.

	2022	2021 (Restated)
	£m	£m
Group PBT (note 6)	854	(164)
(Less)/Add back Group non-underlying items (note 4)	(124)	521
Group UPBT	730	357
Financial Services underlying operating (profit)/loss	(38)	21
Retail underlying profit before tax	692	378
Net underlying finance costs	309	353
Retail underlying operating profit	1,001	731

Retail sales (note 6)	29,463	28,617
Retail underlying operating margin	3.40%	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 year-on-year 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 4 of the financial statements.

The adjusted items are as described in note 4 of the financial statements

APM

Closest equivalent IFRS measure

Definition

Purpose

Reconciliation

Income statement - Profit

Underlying basic earnings per share

Basic earnings per share

Earnings per share using underlying profit as described above.

This is a key measure to evaluate the performance of the business and returns generated for investors.

A reconciliation of the measure is provided in note 10 of the financial statements.

Retail underlying EBITDA

No direct equivalent

Retail underlying operating profit as above, before underlying depreciation, and amortisation.

EBITDA is used to review the retail segment's profit generation and the sustainability of ongoing capital reinvestment and finance costs.

	2022	2021 (Restated)
	£m	£m
Retail underlying operating profit	1,001	731
Add: Retail depreciation and amortisation expense	1,197	1,226
Less: Non-underlying depreciation and amortisation	(53)	(47)
Retail underlying EBITDA	2,145	1,910

Retail sales (note 6)	29,463	28,617
Retail underlying EBITDA margin	7.28%	6.67%

Underlying net finance costs

Finance income less finance costs

Net finance costs before any non-underlying items as defined above that are recognised within finance income / expenses.

This provides shareholders with additional insight into the underlying net finance costs of the Group by excluding non-recurring one-off items.

A reconciliation of this measure is included in note 8 of the financial statements.

The adjusted items are as follows:

· 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. 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.

Underlying tax rate

Effective tax rate

Tax on underlying items, divided by underlying profit before tax.

Provides an indication of the tax rate across the Group before the impact of non-underlying items.

The tax on non-underlying items is included in note 4 of the financial statements

APM

Closest equivalent IFRS measure

Definition

Purpose

Reconciliation

Cash flows and net debt

Retail cash flow items in Financial Review

No direct equivalent

N/A

To help the reader understand cash flows of the business a summarised cash flow statement is included within the Financial Review.

As part of this a number of line items have been combined. The cash flow in note 6 of the financial statements includes a reference to show what has been combined in these line items.

			5 March 2022	6 March 2021
	Ref	£m		£m
Net interest paid	a	(323)		(372)
Repayment of lease liabilities	b	(491)		(499)
Repayment of borrowings	c	(256)		(539)
Other	d	(27)		(13)
Dividends and distributions received	e	2		22

Retail free cash flow

Net cash generated from operating activities

Net cash generated from retail operations, after perpetual security coupons and cash capital expenditure and including payments of lease obligations, cash flows from joint ventures and associates and Sainsbury's Bank capital injections.

This measures cash generation, working capital efficiency and capital expenditure of the retail business

	5 March 2022	6 March 2021
	£m	£m
Cash generated from retail operations	1,940	2,275
Net interest paid (ref (a) above)	(323)	(372)
Corporation Tax	(23)	(94)
Retail purchase of property, plant and equipment	(416)	(423)
Retail purchase of intangibles assets	(229)	(145)
Retail proceeds from disposal of property, plant and equipment	46	27
Initial direct costs on right-of-use assets	(3)	(7)
Repayments of obligations under leases	(491)	(499)
Dividends and distributions received	2	22
Retail free cash flow	503	784

Adjusted net cash generated from retail operations (per Financial Review)

Cash generated from operations

This presents retail operating cash flows adjusted for movements in working capital, less net interest paid (including distributions on perpetual securities) and pension cash contributions.

This enables management to assess the cash generated from its core retail operations.

	5 March 2022	6 March 2021
	£m	£m
Retail cash generated from operating activities (note 6)	1,598	1,832
Perpetual security coupons	(4)	(23)
Adjusted net cash generated from operating activities	1,594	1,809

Core retail capital expenditure

No direct equivalent

Capital expenditure excluding Sainsbury's Bank.

This allows management to assess core retail capital expenditure in the period in order to review the strategic business performance.

	2022	2021
	£m	£m
Purchase of property, plant and equipment	(416)	(423)
Purchase of intangibles	(229)	(145)
Cash capital expenditure	(645)	(568)

APM

Closest equivalent IFRS measure

Definition

Purpose

Reconciliation

Underlying working capital movements

No direct equivalent

Removes working capital and cash movements relating to non-underlying items.

To provide a reconciliation of the working capital movement in the Financial statements to the underlying working capital movement in the Financial review.

	5 March 2022	6 March 2021 (Restated)
	£m	£m
Retail working capital movements per cash flow (note 6)	(306)	612

Adjustments for:
Retail non-underlying impairment charges (note 6)	8	216
Non-underlying restructuring and impairment charges (note 4)	(92)	(548)
Bank non-underlying restructuring and impairment charges	7	105
Accelerated depreciation (note 4)	33	27
Gains on early termination of leases (note 4)	(9)	(16)
Profit on disposal of properties within restructuring programme (note 4)	(12)	-
ATM income (note 4)	2	42
Income recognised in relation to legal disputes (note 4)	180	-
Other	1	2
Non-underlying working capital movements before cash movements	118	(172)

Non-underlying cash movements:
Restructuring (note 4)	114	39
Bank restructuring	(4)	-
ATM income (note 4)	(14)	(27)
Income recognised in relation to legal disputes (note 4)	(93)	-
Retail non-underlying operating cash flows (excluding pensions)	3	12

Total adjustments for non-underlying working capital	121	(160)

Underlying working capital movements	(185)	452

APM

Closest equivalent IFRS measure

Definition

Purpose

Reconciliation

Net debt

Borrowings, cash, derivatives, financial assets at FVTOCI, lease liabilities

Net debt includes the capital injections into Sainsbury's Bank, but excludes the net debt of Sainsbury's Bank and its subsidiaries.

It is calculated as: financial assets at fair value through other comprehensive income (excluding equity investments) + net derivatives to hedge borrowings + net cash and cash equivalents + loans + lease obligations + perpetual securities.

This shows the overall strength of the balance sheet alongside the liquidity and its indebtedness and whether the Group can cover its debt commitments.

A reconciliation of the measure is provided in note 17 of the financial statements. In addition, to aid comparison to the balance sheet, reconciliations between financial assets at FVTOCI and derivatives per the balance sheet and Group net debt (i.e. including Financial Services) is included below:

	5 March 2022	6 March 2021
	£m	£m
Financial instruments at FVTOCI per balance sheet	800	844
Less: equity related securities	(382)	(306)
Financial instruments at FVTOCI included in net debt	418	538

Net derivatives per balance sheet	259	(124)
Less: derivatives not used to hedge borrowings	(250)	110
Derivatives included in net debt	9	(14)

Other

Net debt/

underlying EBITDA

No direct equivalent

Net debt divided by Group underlying EBITDA.

This helps management measure the ratio of the business's debt to operational cash flow.

Net debt as provided in note 17. Group underlying EBITDA is reconciled within the fixed charge cover analysis below.

Return on capital employed

No direct equivalent

Return on capital employed is calculated as return divided by average capital employed.

Return is defined as 52 week rolling underlying profit before interest and tax.

Capital employed is defined as Group net assets excluding pension deficit/surplus, less net debt (excluding perpetual securities). The average is calculated on a 14 point basis.

The 14-point basis uses the average of 14 datapoints - the prior year closing capital employed, the current year closing capital employed and 12 intra-year periods as this more closely aligns to the recognition of amounts in the income statement.

This represents the total capital that the Group has utilised in order to generate profits. Management use this to assess the performance of the business.

	52 weeks to 5 March 2022	52 weeks to 6 March 2021 (Restated)
	£m	£m
Underlying profit before tax	730	357
Add: Underlying net interest	309	353
Return	1,039	710


Capital employed is reconciled as follows:
	52 weeks to 5 March 2022	52 weeks to 6 March 2021 (Restated)
	£m	£m
Group net assets	8,423	6,701
Less: Pension surplus (note 19)	(2,283)	(744)
Deferred tax on pension surplus	640	192
Less: net debt (ex-perpetual securities) (note 17)	6,759	6,221
Effect of in-year averaging	(1,127)	240
Capital employed	12,412	12,610

Return on capital employed	8.4%	5.6%

Fixed charge cover

No direct equivalent

Group underlying EBITDA divided by rent (representing capital and interest repayments on leases) and underlying net finance costs, where interest on perpetual securities is treated as an underlying finance cost. All items are calculated on a 52 week rolling basis.

This helps assess the Group's ability to satisfy fixed financing expenses from performance of the business.

	52 weeks to 5 March 2022	52 weeks to 6 March 2021 (Restated)
	£m	£m
Group underlying operating profit	1,039	710
Add: Group depreciation and amortisation expense	1,220	1,249
Less: Non-underlying depreciation and amortisation expense	(53)	(47)
Group underlying EBITDA	2,206	1,912
Repayment of capital element of lease obligations	(493)	(501)
Underlying finance income	3	3
Underlying finance costs	(312)	(356)
Fixed charges	(802)	(854)
Fixed charge cover	2.8	2.2

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