REG - Sainsbury(J) PLC - Final Results
28/04/2022 07:15
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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 basis(1) 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 tax(2) 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
million(3) in FY 2019/20 and a loss of £164 million(3) 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 million(2). 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 tax(2) 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 years(1)
o We are inflating behind the market on the highest volume products(4). 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 peers(5)
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 groups(6), 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 tax(3) £854m £(164)m £278m N/A 207%
Profit/(loss) after tax(3) £677m £(201)m £170m N/A 298%
Basic earnings/(loss) per share(3) 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 share(7) 9.9p 7.4p 7.3p 34% 36%
Proposed Full-year dividend per share(7) 13.1p 10.6p 10.6p 24% 24%
Net debt(2) £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 employed(2) 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
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
(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
(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
(http://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 basis(1) 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
year(9), 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 supermarkets(5) 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 pandemic(8). 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
competitors(5).
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 groups(6).
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 2021(1)
£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 2021(1) 2020(1) 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 2021(1)
£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 statement(1) 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 capital(2) 2,196 1,924
(Increase)/decrease in working capital(3) (185) 452
Net interest paid(3) (323) (372)
Pension cash contributions (71) (101)
Corporation tax paid (23) (94)
Net cash generated from operating activities(3) 1,594 1,809
Cash capital expenditure(3) (645) (568)
Repayments of obligations under leases(3) (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 received(3) 2 22
Retail free cash flow(3) 503 784
Dividends paid on ordinary shares (238) (232)
Repayment of borrowings(3) (256) (539)
Other(3) (27) (13)
Net (decrease)/increase in cash and cash equivalents (18) 0
Decrease in Debt 747 1,038
Conversion of perpetual convertible bond(4) 240 -
Other non-cash and net interest movements(5) (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 2021(1)
Return on capital employed (%)(2) 8.4 5.6
Net debt to EBITDA(3) 3.1 times 3.4 times
Fixed charge cover(4) 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 Total Before non-underlying items Non-underlying items Total
(Note 4)
(Note 4)
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 4 -
comprehensive income reserve
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 7 March 2020
(Restated)
(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, 12,13, 14 9 321
intangible assets
Non-cash adjustments arising from acquisitions - (1)
Financial Services movement in loss allowance for loans and advances to 19 85
customers
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 disposals(1) 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 expense(1)
Property, plant and equipment 590 1 591
Right-of-use assets 477 1 478
Amortisation expense(2)
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 expense(1)
Property, plant and equipment 627 2 629
Right-of-use assets 483 1 484
Amortisation expense(2)
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
£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 8 1 9 216 105 321
and intangible assets
Non-cash adjustments arising from acquisitions - - - (1) - (1)
Financial Services movement in loss allowance for loans and advances to - 19 19 - 85 85
customers
(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 677 (208)
of the parent
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 576 259
parent
Add coupon on subordinated perpetual convertible bonds (net of tax) - 6
Diluted underlying profit after tax attributable to ordinary shareholders of 576 265
the parent
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 modifications(1) 1,244 50 1,294
Depreciation charge (389) (89) (478)
Impairment charge (3) - (3)
At 5 March 2022 5,266 294 5,560
(1)Includes new leases, terminations, modifications and reassessments
At 8 March 2020 4,536 290 4,826
New leases and modifications(1) 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 The measure is used widely in the retail industry as an indicator of current
Financial Services, for stores that have been open for more than one year. 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 2022 2021
acombination of Sainsbury's like-for-like sales and Argos like-for-like sales
The relocation of Argos stores into Sainsbury's supermarkets are classified as for the 2022. See movements below:
new space, while the host supermarket is classified like-for-like. 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)%
The impact on sales of stores which were temporarily closed due to COVID-19 Total retail sales growth (inc. fuel, inc. VAT) 3.4% 0.1%
have been included within LFL sales. Only permanently closed sites and those VAT impact (0.4)% 0.6%
temporarily closed for non COVID-19 related reasons are treated as non LFL. 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 This is the lowest level at which the retail segment can be viewed from a
and Sainsbury's underlying share of post-tax profit from joint ventures and management perspective, with finance costs managed for the Group as a whole.
2022 2021 (Restated)
associates. £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 In order to provide shareholders with additional insight into the year-on-year Underlying profit before tax is bridged to statutory profit before tax in the
tax which, if included, could distort comparability between periods. In performance of the business, this adjusted measure of profit is provided to income statement and note 4 of the financial statements.
determining which items to exclude from underlying profit, the Group considers supplement the reported IFRS numbers and reflects how the business measures
items which are significant either by virtue of their size and/or nature, or performance internally.
that are non-recurring.
The adjusted items are as described in note 4 of the financial statements
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 A reconciliation of the measure is provided in note 10 of the financial
generated for investors. statements.
Retail underlying EBITDA No direct equivalent Retail underlying operating profit as above, before underlying depreciation, EBITDA is used to review the retail segment's profit generation and the
and amortisation. 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 This provides shareholders with additional insight into the underlying net A reconciliation of this measure is included in note 8 of the financial
recognised within finance income / expenses. finance costs of the Group by excluding non-recurring one-off items. 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 The tax on non-underlying items is included in note 4 of the financial
non-underlying items. statements
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.
5March 2022 6 March 2021
Ref £m £m
As part of this a number of line items have been combined. The cash flow in Net interest paid a (323) (372)
note 6 of the financial statements includes a reference to show what has been Repayment of lease liabilities b (491) (499)
combined in these line items. 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 This measures cash generation, working capital efficiency and capital
and cash capital expenditure and including payments of lease obligations, cash expenditure of the retail business
flows from joint ventures and associates and Sainsbury's Bank capital
injections.
5March 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 This enables management to assess the cash generated from its core retail
capital, less net interest paid (including distributions on perpetual operations.
5March 2022 6 March 2021
securities) and pension cash contributions. £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)
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.
5March 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 This shows the overall strength of the balance sheet alongside the liquidity A reconciliation of the measure is provided in note 17 of the financial
the net debt of Sainsbury's Bank and its subsidiaries. and its indebtedness and whether the Group can cover its debt commitments. 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:
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.
5March 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/ No direct equivalent Net debt divided by Group underlying EBITDA. This helps management measure the ratio of the business's debt to operational Net debt as provided in note 17. Group underlying EBITDA is reconciled within
cash flow. the fixed charge cover analysis below.
underlying EBITDA
Return on capital employed No direct equivalent Return on capital employed is calculated as return divided by average capital This represents the total capital that the Group has utilised in order to
employed. generate profits. Management use this to assess the performance of the
52 weeks to 5 March 2022 52 weeks to 6 March 2021 (Restated)
business. £m £m
Underlying profit before tax 730 357
Add: Underlying net interest 309 353
Return is defined as 52 week rolling underlying profit before interest and Return 1,039 710
tax.
Capital employed is reconciled as follows:
52 weeks to 5 March 2022 52 weeks to 6 March 2021 (Restated)
Capital employed is defined as Group net assets excluding pension £m £m
deficit/surplus, less net debt (excluding perpetual securities). The average Group net assets 8,423 6,701
is calculated on a 14 point basis. 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
The 14-point basis uses the average of 14 datapoints - the prior year closing Capital employed 12,412 12,610
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 Return on capital employed 8.4% 5.6%
income statement.
Fixed charge cover No direct equivalent Group underlying EBITDA divided by rent (representing capital and interest This helps assess the Group's ability to satisfy fixed financing expenses from
repayments on leases) and underlying net finance costs, where interest on performance of the business.
52 weeks to 5 March 2022 52 weeks to 6 March 2021 (Restated)
perpetual securities is treated as an underlying finance cost. All items are
£m £m
calculated on a 52 week rolling basis. 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
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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