REG - Sainsbury(J) PLC - Final Results
27/04/2023 07:00
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RNS Number : 6136X Sainsbury(J) PLC 27 April 2023
27 April 2023
J Sainsbury Plc
Preliminary Results for the 52 weeks ended 4 March 2023
Delivering greater value for customers, colleagues, communities and
shareholders
Two years into our Food First plan, we are a fundamentally stronger business.
We have made bold choices to reduce costs, make Argos and Tu more profitable
and resilient, grow profits at Nectar and strengthen our balance sheet. We
have reinvested the benefits in our food business, prioritising value,
customer service and innovation, which is driving improved market share
performance(1). This has also given us the financial flexibility to make
balanced choices, investing to help customers and colleagues, while also
delivering results at the top end of expectations.
Financial highlights
· Retail sales up 5.2%, ex. fuel sales up 2.0%. Statutory Group
sales (ex. VAT) up 5.3%. Q4 ex. fuel retail sales up 7.1% (7.8% like-for-like)
· Grocery sales up 3.0%, driven by inflation and improved market
share performance. Q4 grocery sales up 7.4%
· General Merchandise (GM) sales down 0.4%, with Argos gaining
share in a weak general merchandise market. Q4 GM sales up 7.6% (Argos sales
up 9.3%)
· Underlying profit before tax of £690 million, down 5% and at the
top end of £630 million to £690 million guidance range. Up 18% versus
2019/20 pre-pandemic UPBT of £586 million. Year-on-year decline reflects
annualisation of COVID-19 driven grocery volume, investment in the customer
proposition and operating cost inflation, partially offset by operating cost
savings and lower finance charges
· Statutory profit before tax of £327 million versus £854 million
last year. Impacted by non-cash asset impairments, driven by a higher discount
rate, and one-off income from legal settlements in the prior year
· Retail free cash flow £645 million
· Year end net funds, excluding leases, of £144 million, a £285
million improvement. Net debt including leases improved by £415 million to
£6,344 million
· Underlying earnings per share 23.0 pence, down 9%. Basic earnings
per share 9.0 pence, down 70%
· Proposed final dividend of 9.2 pence, full-year dividend of 13.1
pence, in line with last year
· Outlook: At this early stage of the year, we expect UPBT between
£640 million and £700 million in FY2023/24 and we continue to expect to
generate at least £500 million of Retail free cash flow
Simon Roberts, Chief Executive of J Sainsbury plc, said: "We really get how
tough life is for so many households right now which is why we are absolutely
determined to battle inflation for our customers. Our focus on value has never
been greater and we have spent over £560 million keeping our prices low over
the last two years. As a result, we are now the best value compared to our
competitors that we have been in many years and we are delivering improved
market share performance in Sainsbury's and Argos.
"We are two years into our plan to put food back at the heart of Sainsbury's
and have focused our efforts on reducing costs right across the business,
which has enabled us to make the right decisions for our colleagues and
customers. At the same time, we have improved the performance and
profitability of Argos, Tu, Nectar and Financial Services so that we can
invest further in the areas that customers and colleagues care about most.
"Our colleagues do a fantastic job serving our customers every day and we know
that they are also dealing with the impact of the rising cost of
living. That's why, over the last 12 months, we took the decision to
invest £225 million in supporting colleagues including raising colleague pay
three times, becoming the first major supermarket to pay our people the Living
Wage across the whole country and providing free food at work and increased
colleague discount. The results we have achieved this year are testament to
the outstanding contribution across our entire team. I want to thank every one
of my colleagues for their dedication and hard work.
"We continue to work closely with our suppliers and farmers and I am grateful
for their support in what has been another difficult year for food supply
chains. We know just how vital the agriculture industry is not only to
Sainsbury's, but to the country as a whole and this is why we have made the
choice to give £66 million of additional support to British farmers over the
last year.
"We made these very deliberate decisions and investments because they make our
business stronger, but more importantly because they are simply the right
thing to do. While there is still much to be done and there is no doubt that
the year ahead will remain challenging, I'm confident we will continue to
deliver for our customers, colleagues, communities and shareholders."
Strategic highlights
· Food First: Customers want low prices, exciting new products and
great customer service. This is where we are focusing our time, energy and
investment and is why more customers are choosing to shop with us(2). We have:
o Invested over £560 million in keeping prices lower over the last two years,
£10 million more than the commitment we announced in December, helping us
significantly improve our price position against all our competitors by as
much as 16 per cent(3)
o Launched Nectar Prices, offering discounts to every Nectar customer in
supermarkets and online, building on Your Nectar Prices which offers
personalised discounts. The most active Your Nectar Prices users are saving
almost £200 a year on their shopping(4)
o Exceeded our innovation target and launched more Taste the Difference
products, helping to win market share around big events(5) as customers
increasingly celebrate at home
o Invested record amounts to increase colleague pay, provide free food and
improve discount, driving up colleague and customer satisfaction scores
· Brands that Deliver: We have significantly improved profitability
across our brands, creating £145 million(6) more firepower to invest in our
core food business. We have:
o Grown our Nectar digital users to 11 million and now have over 18 million
Nectar members. Nectar360 is on track with its plan to deliver at least £90
million incremental profit by March 2026
o Transformed the Argos sales and cost base, making the business considerably
more profitable and more competitive than pre-pandemic. Argos has gained
market share(7) in a weak general merchandise market
o Launched more Habitat partnerships with third-party designers and delivered
value market share gains in a number of homeware categories(8)
o Grown full-price sales to now make up 80 per cent of our Clothing sales, up
15 percentage points versus pre-pandemic whilst also extending our range of
third party clothing brands to offer more choice and convenience
o Increased Financial Services profits, reflecting higher credit demand and
travel money volumes
· Save to Invest: We are making tough but necessary decisions to
simplify, prioritise and partner right across the business. These create cost
savings that fuel investments in price, innovation and customer service. We
have:
o Delivered more than £900 million of cost savings over the last two years,
remaining on track to deliver £1.3 billion of cost savings over three years,
doubling the run rate from the three years to FY2019/20
o Reduced our operating cost to sales ratio further, now 97 basis points lower
than FY2019/20 despite significantly higher than anticipated operating cost
inflation. Productivity improvements have driven a reduction in our labour
cost to sales ratio despite significant investment in colleague wages
· Plan for Better: We are committed to playing a leading role in
offering affordable high quality food that supports healthy and sustainable
diets and helps customers reduce their impact on the planet. We have:
o Reduced absolute greenhouse gas (GHG) emissions within our operations to
461,692 tCO2e, a reduction of 38.2 per cent year-on-year. We were awarded an A
rating for our Climate Change CDP submission for the ninth consecutive year
and are the only UK food retailer to have achieved this
o Donated over 10 million meals through our partnership with Neighbourly since
launching in 2021, preventing over 4,500 tonnes of food from going to waste
o Reduced absolute plastic packaging by 17.5 per cent from our baseline(9). We
are focused on reducing plastic packaging on high volume products and were the
first retailer to vacuum-pack all beef mince, which will save over 450 tonnes
of plastic a year
Financial Summary 2022/23 2021/22 2019/20 YoY Yo3Y
Statutory performance
Group revenue (excl. VAT, inc. fuel) £31,491m £29,895m £28,993m 5.3% 8.6%
Profit before tax £327m £854m £278m (62)% 13%
Profit after tax £207m £677m £170m (69)% 15%
Basic earnings per share 9.0p 29.8p 6.7p (70)% 27%
Business performance
Group sales (inc. VAT) £35,157m £33,355m £32,394m 5.4% 8.5%
Retail sales (inc. VAT, excl. fuel) £28,664m £28,095m £26,868m 2.0% 6.7%
Underlying profit before tax(10) £690m £730m £586m (5)% 18%
Underlying basic earnings per share(10) 23.0p 25.4p 19.8p (9)% 16%
Interim dividend per share 3.9p 3.2p 3.3p 22% 18%
Proposed Final dividend per share(11) 9.2p 9.9p 7.3p (7)% 26%
Proposed Full-year dividend per share(11) 13.1p 13.1p 10.6p - 24%
Net debt(10) £(6,344)m £(6,759)m £(6,947)m +£415m +£603m
Non-lease net funds / (debt) £144m £(141)m £(1,179)m +£285m +£1,323m
Return on capital employed(10) 7.6% 8.4% 7.4% (80)bps 20bps
Like-for-like sales performance 2021/22 2022/23 YoY
Q3 Q4 Q1 Q2 Q3 Q4 FY
Like-for-like sales (excl. fuel) (4.5%) (5.6%) (4.0%) 3.7% 5.9% 7.8% 2.6%
Like-for-like sales (incl. fuel) 0.6% 2.7% 2.9% 7.7% 6.8% 5.9% 5.7%
Total sales performance 2021/22 2022/23 YoY 2022/23 Yo3Y
Q3 Q4 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
Grocery (1.1%) (1.6%) (2.4%) 3.8% 5.6% 7.4% 3.0% 8.7% 10.1% 12.5% 12.4% 10.8%
Total General Merchandise (16.0%) (21.1%) (11.2%) 1.2% 4.6% 7.6% (0.4)% (6.2%) (3.6%) (6.9%) 1.4% (4.9)%
GM (Argos) (16.1%) (20.4%) (10.5%) 1.6% 4.5% 9.3% 0.1% (4.5%) (0.9%) (5.0%) 4.2% (2.9)%
GM (Sainsbury's) (15.7%) (24.1%) (14.6%) (1.3%) 5.4% (1.0)% (2.9)% (13.8%) (15.5%) (15.6%) (11.8)% (14.6)%
Clothing (2.7%) (9.3%) (10.1%) (0.2%) 1.3% (1.9)% (3.0)% 3.9% 0.8% (0.4%) (8.6)% 0.0%
Total Retail (excl. fuel) (5.3%) (6.2%) (4.5%) 3.1% 5.2% 7.1% 2.0% 5.4% 6.7% 6.7% 9.5% 6.7%
Fuel 47.5% 80.1% 48.3% 29.1% 12.2% (2.8)% 23.4% 26.9% 24.2% 16.2% 8.6% 20.3%
Total Retail (incl. fuel) (0.1%) 2.2% 2.5% 7.2% 6.2% 5.4% 5.2% 8.9% 9.6% 8.0% 9.3% 8.8%
Outlook
Our Food First strategy has given us the financial flexibility to make the
right decisions for customers, for colleagues, for communities and ultimately
for our shareholders. This has delivered strong results and we're starting the
new financial year with great momentum. We're determined to build on this
stronger base and sustain this momentum, retaining the flexibility to make the
right choices given a still uncertain outlook for consumer
spending. Therefore, at this early stage of the year we expect underlying
profit before tax will be between £640 million and £700 million in
FY2023/24. We continue to expect to generate at least £500 million of Retail
free cash flow.
Dividend
The Board has proposed a final dividend of 9.2 pence per share. This brings
the full year dividend to 13.1 pence per share, in line with last year.
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 live webcast presentation and Q&A will be held at 09:15 (BST). The
webcast can be accessed at the following link:
https://sainsburys-2022-23-preliminary-results-announcement.open-exchange.net/registration
(https://sainsburys-2022-23-preliminary-results-announcement.open-exchange.net/registration)
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 2023/24 First Quarter Trading Statement at 07:00
(BST) on 4 July 2023.
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 two years into our three-year plan to transform Sainsbury's, putting
food back at the heart of our business and we are fundamentally stronger.
Prioritising food, building on our strong brand heritage and reputation for
quality, innovation and service while offering customers more consistent value
has enabled us to deliver strong results.
Bolder prioritisation has allowed us to make more focused investments in our
brands - Argos, Habitat, Tu, Nectar and Sainsbury's Bank - and these have
continued to support our core food business while consistently delivering for
customers and shareholders in their own right. By making our brands more
profitable, we have been able to continue to invest in food, offer greater
value, an improved product range, better service and we find that customers
who love our food will also shop with us across our brands.
Underpinning all of this is our ambitious cost savings programme, Save to
Invest. While we have had to make some difficult decisions, the investments we
have made through this programme are delivering strong results and putting us
ahead of our competitors. Our work to build a simpler and more efficient
business enables us to reinvest where it makes the biggest difference to
customers.
Food First
We are making good progress to put food back at the heart of Sainsbury's by
offering better value, more new products and improved service. Our grocery
volume market share performance has improved considerably(1) since we launched
our Food First plan and we are growing our volumes ahead of other full-choice
grocers(12).
Value
As the cost of living crisis continues to put pressure on millions of
households, we are relentlessly focused on delivering consistent value for
customers. Driven by our bold cost savings programme, we have invested over
£560 million over the last two years to keep food prices low through
campaigns that prioritise the products customers buy most often. Over 60 per
cent of this investment has gone into fresh products such as meat, fish,
poultry, fruit and vegetables and dairy. As a result, we have consistently
inflated behind our key competitors(13) and we are seeing less switching of
customer spend to limited-choice supermarkets than our competitors(14).
At the end of December we increased the number of products in Aldi Price Match
by 20 per cent and our largest ever campaign matched the price on around 300
fresh products and household staples including chicken breasts, milk, eggs,
nappies and cereal. Own brand ranges are performing strongly and our entry
price range is the fastest growing product tier.
We recently launched Nectar Prices, offering discounts to all supermarket and
online customers using the Nectar app or card and results are already
exceeding our expectations. Your Nectar Prices - previously My Nectar Prices,
which launched in 2021 - offers customers their own personalised discounts,
generating more than 70 million unique offers a week for customers using
SmartShop in supermarkets. The most active Your Nectar Prices users are saving
almost £200 a year on their shopping(4).
Innovation
We have exceeded our innovation target by 15 per cent and launched nearly
1,400 new products during the year. More customers are celebrating special
occasions, treating themselves at home and we outperformed the market at key
seasonal events(5). We expanded our Taste the Difference range by 33 per cent
year-on-year and Taste the Difference sales are up 16 per cent versus
FY2019/20.
Our seasonal ranges are popular with customers and our second Autumn Editions
range included 70 per cent more products year-on-year. Since launching
Inspired to Cook last year, the range has been popular with customers as more
people look for creative solutions to home cooking from scratch and our World
Foods range is also performing well.
In January we launched Flourish, a new range with 70 fresh and healthy
convenient products that help people eat better whilst on the move. The range
is already popular and bestselling lines so far include the Pesto Chicken
Sandwich and Immune Boosting smoothie.
We are also changing the way we work with suppliers to build long term
partnerships that drive better results. Last year we agreed a long-term
contract with Moy Park, our chicken supplier, to ensure that from March 2023
all our by Sainsbury's fresh and frozen chicken is grown under better welfare
conditions. Our investment has enabled Moy Park to have better product control
and we have been able to make these improvements without increasing prices for
customers.
Service
We have announced a record £225 million of investment over the last 12 months
in colleague pay and benefits. In 2022 we became the first major supermarket
to pay the Living Wage across the country and the first to give hourly-paid
colleagues a third pay rise in one year. All Sainsbury's and Argos retail
colleagues now receive a base rate of pay of £11 per hour and colleagues in
London receive £11.95 per hour, increasing pay for frontline, hourly paid
colleagues by 10 per cent in the last year and 44 per cent over seven years.
Alongside competitive pay we have invested heavily in extra support for
colleagues in response to increased financial pressure. Colleagues told us
that free food at work was important and so we recently extended the provision
of free food during shifts for a further six months. To help our colleagues
have more control over their monthly budgets, we also introduced a pay advance
scheme where colleagues can access their pay as they earn it and invested in
more frequent deeper discounts at Argos and Sainsbury's to help colleagues
save money on their shopping.
Rewarding our colleagues is driving higher colleague engagement scores and
higher customer satisfaction scores. Supermarket satisfaction is consistently
performing ahead of full choice competitors(15), particularly in product
quality and availability and colleague availability(16). Colleague engagement
scores have also improved over the last two years.
Customers are increasingly returning to stores post-pandemic and more people
are prioritising convenience and speed as they return to the workplace. As a
result, we have grown Convenience sales to £3 billion for the first time and
sales are up 10 per cent year-on-year. Convenience and On Demand sales
combined are up 9 per cent versus pre-pandemic and On Demand is averaging
118,000 weekly orders in as little as 30 minutes through our Chop Chop service
and partnerships with Deliveroo, Uber Eats and Just Eat.
Groceries Online sales were down 13 per cent year-on-year but were 81 per cent
higher than pre-pandemic levels. Groceries Online accounts for 14 per cent of
grocery sales versus 8 per cent in FY2019/20. We introduced more Christmas
delivery slots to serve customers and brought forward Easter grocery slots and
availability scores are up(17). Online productivity has improved with items
picked per hour up 6 per cent year-on-year and up 9 per cent on pre-pandemic
levels.
Brands that Deliver
Our portfolio of brands - Argos, Habitat, Tu, Nectar and Sainsbury's Bank -
are now £145 million more profitable than before the pandemic(6), helping to
support our ambition in food. By offering a wide range of great quality,
affordable General Merchandise products alongside our food range, customers
can do more of their shopping in one place and as a result, more are choosing
to shop with us(2). Our brands are more profitable and, combined with our Save
to Invest programme, are giving us greater firepower to invest in price,
innovation and customer service.
Nectar is the UK's largest coalition loyalty programme and continues to grow,
providing value for customers and helping drive increased profitability
through Nectar360. We recently awarded our one trillionth Nectar point,
equivalent to £5 billion worth of points over the last 20 years and we now
have over 11 million digital Nectar users. We launched Nectar Prices in April,
offering great discounts to Nectar customers in supermarkets and online. At
the same time, Your Nectar Prices gives Nectar users personalised prices.
Through Nectar, we are the only supermarket to have both a broad and
personalised capability. Growing Nectar participation creates richer data,
further fuelling the growth of our Nectar360 business. This allows us to offer
over 700 brands more relevant content and activations across a range of
marketing channels. Nectar360 is on track to deliver at least £90 million of
incremental profit contribution by March 2026.
Argos has consistently outperformed the General Merchandise market over the
last year(7) as we have built on its reputation for value and delivered better
convenience and availability. Customers value the certainty and speed of Fast
Track delivery and Click & Collect and towards the end of the year more
sales went through Argos stores inside supermarkets than standalone Argos
stores for the first time. Argos's market-leading Click & Collect and
delivery offering made an especially big difference during the postal strikes
over Christmas and last summer's hot weather, when many customers used Fast
Track delivery - often under four hours - for seasonal products including
paddling pools and barbecues. We have extended the breadth of range at Argos,
including more premium brands, and continue to invest in Argos's digital
capabilities, with 73 per cent of sales now originating online.
The transformation of the Argos store and distribution network continues at
pace, reducing cost and improving availability and service for customers. We
now have 17 Local Fulfilment Centres, a network that is transforming the speed
at which we can fulfil customer orders and is improving product availability
and driving improved customer satisfaction(18). We now have the best national
same and next day delivery proposition of any UK retailer. Over the last year
we have closed 45 standalone Argos stores and opened 24 Argos stores inside
Sainsbury's supermarkets and 92 in-store collection points. We now have 424
stores inside Sainsbury's supermarkets, 285 standalone stores and Collection
points inside 420 Sainsbury's stores.
Tu is the sixth largest UK clothing brand by volume(19). Full-price sales now
make up 80 per cent of our Clothing sales, up 15 percentage points versus
pre-pandemic and we are working with more online third-party brands including
Sosandar, Little Mistress and Finery to provide a wider choice. We have
migrated the Tu clothing online web platform onto the Argos platform,
improving the quality of the web experience and enabling customers to use
their Nectar points for purchases, further integrating our portfolio of brands
and helping customers save money. This integration is also saving the business
money and driving greater simplicity. Online sales are up 46 per cent versus
pre-pandemic.
Habitat is performing well against a challenging General Merchandise backdrop
and we have gained value market share in a number of homeware categories
including bedding and decorations(8). We are working with third-party
designers including Sanderson Design Group to offer more choice to customers
and have launched a one-off range with Kew Botanical Gardens for the summer.
Our Financial Services business is benefitting from a tighter focus on
providing services for Sainsbury's and Argos customers. Profits have recovered
to pre-pandemic levels as lending activity and travel money demand have
increased but the loan book remains smaller than pre-pandemic levels.
Save to Invest
Our cost saving programme, Save to Invest, provides the fuel that drives our
ability to invest in the areas that make the biggest difference for customers.
We have made bold and deliberate decisions over the last two years to ensure
we can invest in keeping prices low for customers and colleague pay. We are on
track to deliver around £1.3 billion of cost savings in the three years to
FY2023/24 and have reduced our operating cost to sales ratio by 97 basis
points over the last two years, despite significantly higher than anticipated
operating cost inflation.
We are making structural savings by rationalising our property estate and
focusing on ensuring our stores are in the right locations to deliver for
customers and serve communities. In the last year, we have closed eight
convenience stores and three supermarkets. We have also opened 13 new
convenience stores including one Neighbourhood Hub. We made the difficult
decision to close our Argos operations in Republic of Ireland, including 34
stores and the website, in addition to the ongoing programme of Argos
standalone store closures and the opening of Argos stores inside Sainsbury's
supermarkets.
In February, we announced plans to close two of our warehouses and invest £90
million to improve automation at our Daventry warehouse, enabling a reduction
of stock, faster delivery to customers and a simpler delivery process for
suppliers. Industry-leading automation alongside improved training and
development for colleagues is a key focus for future investment as we look at
how we can improve our logistics network to get better and faster results for
customers.
We plan to transform and simplify our logistics operations by working more
effectively with the expert partners who already run significant parts of our
network. We have announced plans to move to three dedicated partnerships
across transport, food, general merchandise and clothing by the end of 2024,
instead of multiple different contracts across the network. This will make the
best use of our partners' expertise to provide better service and availability
for customers, drive innovation and facilitate the sharing of industry best
practice.
We are also focused on making our supply chains more efficient and increasing
productivity in order to improve performance whilst creating simpler and more
streamlined end-to-end processes. We have rolled out new supply chain
capabilities across our food business including changing the way we forecast
demand, how we purchase and order goods and the way our suppliers plan
production. This is driving better availability and reducing waste.
We are becoming a simpler, nimbler and more efficient business so that we can
reinvest in what matters most to customers. We have made changes to some of
our office space and the way some of our Store Support Centre teams work in
order to simplify processes. More than ever, our office-based colleagues are
able to work remotely or from home and we have seen a significant reduction in
the number that regularly use Sainsbury's offices across our locations in the
UK. These changes were therefore a necessary step in adapting our ways of
working to become more flexible, particularly following the pandemic.
Plan for Better
We know that the environmental and social challenges facing the world have
never been greater and that these are issues our customers and colleagues care
about too. As a UK retailer serving communities across the country with a
global supply base, we have a responsibility to put environmental and social
sustainability at the core of how we do business to protect our planet and our
people and ensure we can continue to deliver for our customers now and in the
future.
Better for the planet
We recognise the importance of investing in environmental sustainability to
help reduce our impact on the planet and ensure the long-term success of our
business. This is why we are continuing to take bold and decisive actions to
meet our accelerated target to become Net Zero in our own operations by 2035.
As part of the WWF's Retailer Commitment for Nature, we (along with the other
signatories) have increased our ambition to reduce Scope 3 emissions by 50 per
cent by 2030 and net zero Scope 3 emissions by 2050. We have submitted this
updated target to the SBTi (Science Based Targets initiative) for approval by
the end of 2023.
We have reduced our Scope 1 and 2 absolute greenhouse gas (GHG) emissions
within our operations to 461,692 tCO2e, a reduction of 38.2 per cent
year-on-year and 51.4 per cent from our 2018/19 baseline. We were proud that
our environmental transparency was again recognised by CDP, an environmental
impact disclosure system. We were awarded an A rating for climate change for
the ninth consecutive year, the only UK food retailer to reach this standard.
We were also recognised by CDP as a Supplier Engagement Leader for our work in
engaging with our suppliers to tackle climate change.
This year we finalised the rollout of LED lighting to 100 per cent of our
entire estate, helping to reduce our lighting energy consumption by an average
of 70 per cent. From December 2023, 40 per cent of our electricity consumption
will originate from New to Planet sources.
We have committed to reducing our own-brand plastic packaging by 50 per cent
by 2025, so far achieving absolute reduction in plastic packaging of 17.5 per
cent from our baseline(9). We have introduced initiatives such as quadruple
strength fruit squash, double length toilet rolls and removing single-use
plastic lids and were the first UK retailer to vacuum-pack all beef mince, one
of our highest volume products. This uses at least 55 per cent less plastic
and saves over 450 tonnes of plastic annually. We also recently removed
single-use plastic trays from our by Sainsbury's whole chicken range, saving
140 tonnes of plastic a year.
We are supporting our communities to help reduce food waste at home to
decrease carbon emissions and help households save money. Since the launch of
our partnership with Neighbourly in 2021, we have donated over 10 million
meals to local partners who redistribute food to those who need it most. This
is equivalent to a £19 million donation to charities and community groups and
has prevented over 4,500 tonnes of food going to waste.
Better for Everyone
We are passionate about making a positive impact on the lives of millions of
people by making the right choices for our customers, colleagues and
communities.
Being an inclusive business with diverse representation at all levels is
important to us. We came third in the latest FTSE Women Leaders Review, with
50.7 per cent senior women across our combined executive committee and direct
reports. Only 23 FTSE 100 companies have met or exceeded the 40 per cent
target. We also featured in The Times's Top 50 Employers for Women 2022:
Taking Action on Gender Equality. Whilst we are proud of the progress we have
made, we still have more to do and are committed to driving positive,
sustainable change.
As part of our mission to be a truly inclusive retailer, last summer we
launched 'Thrive with Sainsbury's', a free programme that invested £1 million
to support Black founder-led start-up businesses transition to supermarket
shelves. In partnership with Foundervine and Mission Ventures, the programme
seeks to combat the barriers Black and ethnic minority start-up businesses
face by offering one-to-one training, support with business branding and
product improvements. So far, three brands - Mirror Margarita, Riddles Ice Tea
and RAISE snacks - will be stocked in supermarkets later this year.
In response to the rising cost of living and as part of our commitment to
Helping everyone eat better, we launched our Nourish the Nation community
programme to provide food and urgent support for those most in need. Working
with our longstanding charity partners Comic Relief, FareShare and other key
redistribution partners, we are providing funding to initiatives designed to
tackle food insecurity and ensure communities have access to balanced,
nutritional and sustainable food sources. Through our Nourish the Nation
programme we have raised £7.2 million to support Comic Relief and our food
redistribution partners.
Better for You
Our ambition is to provide every customer with accessible information,
affordable products and incentives to help them make better choices for
themselves and for the planet. In 2022, we announced our revised health target
based on changes to our nutrient criteria following updated government
reformulation targets and expert advice, to increase our Healthy and Better
for You sales tonnage to 85 per cent of total sales by FY2025/26. At least 70
per cent of the products in Aldi Price Match are also Healthy or Better for
You choices.
We launched The Great Fruit & Veg Challenge for the third year to reward
shoppers with extra Nectar points for purchasing fruit and vegetables between
July and September. Over 585,000 customers signed up to take part and bought
88 million portions of fruit and vegetables during the challenge.
(1) Nielsen Panel volume market share FY2017/18 - FY2022/23. Total FMCG
(excluding Kiosk & Tobacco), Market Universe: Total Outlets
(2) Nielsen Panel data, Proportion of Sainsbury's shoppers within the total
market, 52 weeks to P13, Total market= Total Outlets, FMCG excluding Kiosk
& Tobacco
(3) Value Reality. 1,610bps improvement vs Aldi - March 2023 vs November 2020;
Edge by Ascential, internal modelling
(4) Average annual saving across our top 30,000 most active Your Nectar Price
users
(5) Nielsen EPOS data - JS volume growth YoY% difference to Total Market
growth YoY% for key events week growth versus last year events week
(6) Combined operating profit of Sainsbury's Bank, Argos (inc. Habitat) and
Nectar FY2019/20 to FY2022/23
(7) GfK tracked market share 12 months to March 2023
(8) Global Data, Retail % of Value, Homewares, full-year to March 2023
(9) Baseline reflects 2018 CY for Food + 2020 CY for GM
(10) Refer to alternative performance measures for definitions and
reconciliation to statutory measures
(11) Special dividend is included against FY2019/20 to aid comparability
(12) Nielsen Panel volume growth Yo3Y. Total FMCG (excluding Kiosk &
Tobacco), 52 weeks to March 2023. Market Universe: Total Outlets
(13) Nielsen panel data. Top 100 SKUs by retailer. Average Selling Price YoY
growth. 52 weeks to 4 March 2023
(14) Nielsen panel data. Net volume switching £m to Aldi + Lidl as % of each
retailer's volume. 52 weeks to 4 March 2023
(15) Competitor benchmarking survey. Overall Supermarket customer satisfaction
% score. January 2022 to March 2023
(16) Competitor benchmarking survey. Q4 22/23 supermarket CSAT scores 12 weeks
to 4 March 2023
(17) Competitor benchmarking survey. Q4 22/23 Groceries Online CSAT scores 12
weeks to 4 March 2023. Availability = Availability of Items Offered
(18) Customer Satisfaction - Argos, % score FY2022/23 average vs FY2021/22
average
(19) Kantar Retail Share Total Clothing, Footwear & Accessories - % sales
volume. 24 weeks ending 5 Feb 2023
Financial Review of the year results for the 52 weeks to 4 March 2023
In the 52 weeks to 4 March 2023, the Group generated profit before tax of
£327 million (2021/22: £854 million) and an underlying profit before tax of
£690 million (2021/22: £730 million).
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
4 March 2023 5 March 2022 Change
£m £m %
Group sales (including VAT) 35,157 33,355 5.4
Retail sales (including VAT) 34,626 32,924 5.2
Retail sales (excluding fuel, including VAT) 28,664 28,095 2.0
Group sales (excluding VAT) 31,491 29,895 5.3
Retail sales (excluding VAT) 30,960 29,463 5.1
Underlying operating profit
Retail 926 1,001 (7)
Financial services 46 38 21
Total underlying operating profit 972 1,039 (6)
Underlying net finance costs (282) (309) 9
Underlying profit before tax 690 730 (5)
Items excluded from underlying results (363) 124 N/A
Profit before tax 327 854 (62)
Income tax expense (120) (177) 32
Profit for the financial period 207 677 (69)
Underlying basic earnings per share 23.0p 25.4p (9)
Basic earnings per share 9.0p 29.8p (70)
Interim Dividend per share 3.9p 3.2p 22
Final Dividend per share 9.2p 9.9p (7)
Total Dividend per share 13.1p 13.1p -
The business delivered a strong performance against a tough comparison last
year which benefited from elevated COVID-19 sales. The ongoing cost programme
helped us mitigate the impact of rising operating cost inflation and invest
ahead of competitors to deliver for customers, colleagues and shareholders. We
have consistently prioritised protecting value for customers, raising prices
behind the market, and this remains key to our strategy to grow volume market
share. We have supported colleagues throughout the year with three pay rises
and are delivering a higher dividend payout ratio for shareholders, supported
by strong cash generation.
Group sales
Group sales (including VAT, including fuel) increased by 5.4 per cent
year-on-year. Retail sales (including VAT, excluding fuel) increased by 2.0
per cent, Fuel sales increased by 23.4 per cent and Financial Services sales
increased by 23.0 per cent.
Total sales performance by category 52 weeks to 52 weeks to
4 March 2023 5 March 2022 Change
£bn £bn %
Grocery 21.7 21.0 3.0
General Merchandise 6.0 6.1 (0.4)
Clothing 1.0 1.0 (3.0)
Retail (exc. fuel) 28.7 28.1 2.0
Fuel sales 6.0 4.8 23.4
Retail (inc. fuel) 34.6 32.9 5.2
Our Grocery customers managed their spend carefully, buying into own branded
products and our strong promotional plan to partly offset the impact of
significant market-wide grocery inflation. This helped us deliver relatively
resilient volumes within a context of volume decline across the market. We
continued to prioritise value for customers, inflating behind key competitors.
Grocery sales strengthened through the year as inflation increased. The
successful delivery of key events (Platinum Jubilee, World Cup, Christmas and
Valentine's Day) and an exceptionally hot summer also helped drive sales
growth after a tough first quarter COVID-19 comparative.
General Merchandise sales declined against strong COVID-19 comparatives in the
first quarter but grew from the second quarter, with Argos delivering market
share gains in a weak market. A strong performance in Consumer Electronics
& Technology was driven by improved availability and increased
collaboration with suppliers on key product lines. Small Domestic Appliances,
particularly air fryers and clothes airers, also proved popular as customers
reacted to cost-of-living concerns and social media trends.
Clothing sales growth was adversely impacted by a first quarter that
annualised elevated sales the prior year when COVID-19 restrictions closed
non-essential retail stores.
Fuel sales increased by 23.4 per cent, driven entirely by higher market prices
reflecting oil price inflation and a weakened sterling exchange rate.
Sainsbury's increased its share of the fuel market.
Total sales performance by channel 52 weeks to 52 weeks to
4 March 2023 5 March 2022
Total Sales fulfilled by Supermarket stores 1.9% (2.0)%
Supermarkets (inc. Argos stores in Sainsbury's) 4.8% (1.8)%
Groceries Online (13.5)% (4.7)%
Convenience 9.9% 8.8%
Sales in Supermarkets grew by 4.8 per cent as customers returned to stores
following COVID-19 distortions in the prior year. Conversely, Groceries Online
sales decreased by 13.5 per cent over the year as demand normalised, but were
81 per cent higher than pre-pandemic levels in 2019/20. Convenience sales
increased by 9.9 per cent, with growth strongest in Food on the Move city
centre stores and more urban locations.
Retail like-for-like sales performance 52 weeks to 52 weeks to
4 March 2023 5 March 2022
Like-for-like sales (exc. fuel) 2.6% (2.3)%
Like-for-like sales (inc. fuel) 5.7% 3.6%
Retail like-for-like ('LFL') sales, excluding fuel, increased by 2.6 per cent
(2021/22: 2.3 per cent decrease), driven by Grocery, with sales growth
strengthening throughout the year.
Space
In 2022/23, Sainsbury's did not open any new supermarkets and closed three
(2021/22: opened four new supermarkets and closed four). There were 13 new
Convenience stores opened in the year and eight were closed (2021/22: 19
opened and 23 stores closed).
During the period, two standalone Argos stores were opened alongside 24 new
Argos stores in Sainsbury's while 45 standalone Argos stores were closed, in
line with our Argos transformation plan. The number of Argos collection points
in Sainsbury's stores increased from 335 to 420. As at 4 March 2023, Argos had
709 stores including 424 stores in Sainsbury's.
Store numbers and retailing space
As at New stores Disposals / closures Extensions / refurbishments / downsizes As at
5 March 4 March
2022 2023
Supermarkets 598 - (3) 24 595
Supermarkets area '000 sq. ft. 20,803 - (62) (25) 20,716
Convenience 809 13 (8) - 814
Convenience area '000 sq. ft. 1,918 40 (22) - 1,936
Sainsbury's total store numbers 1,407 13 (11) 24 1,409
Argos stores 328 2 (45) - 285
Argos stores in Sainsbury's 400 24 - - 424
Argos total store numbers 728 26 (45) - 709
Argos collection points 335 92 (7) - 420
Habitat 3 - - - 3
In 2023/24, we expect to open three supermarkets and around 25 new convenience
stores, and to close around one supermarket and five to ten convenience
stores. In addition, we expect to open around 30 Argos stores inside
Sainsbury's and close around 100 Argos standalone stores, including 34 stores
in Ireland.
In the UK, we expect the standalone Argos store estate will reduce to around
180 stores by March 2024, while we expect to have 430-460 Argos stores inside
Sainsbury's supermarkets as well as 450-500 collection points. We had
previously guided to around 160 standalone Argos stores by this date. This
change reflects further progress in rent negotiations.
Retail underlying operating profit
52 weeks to 52 weeks to YoY
4 March 5 March
2023 2022 Change
Retail underlying operating profit (£m)(1) 926 1,001 (7.5)%
Retail underlying operating margin (%)(2) 2.99 3.40 (41)bps
Retail underlying EBITDA (£m)(3) 2,060 2,145 (4.0)%
Retail underlying EBITDA margin (%)(4) 6.65 7.28 (63)bps
1 Retail underlying earnings before interest, tax and Sainsbury's
underlying share of post-tax profit from joint ventures.
2 Retail underlying operating profit divided by retail sales
excluding VAT.
3 Retail underlying operating profit before underlying depreciation
and amortisation of £1,134 million.
4 Retail underlying EBITDA divided by retail sales excluding VAT.
Retail underlying operating profit decreased by 7.5 per cent to £926 million
(2021/22: £1,001 million) and retail underlying operating margin decreased by
41 basis points year-on-year to 2.99 per cent (2021/22: 3.40 per cent).
These declines reflect our investment in value, reduced volumes and higher
levels of operating cost inflation, offset by both higher fuel sales and our
ongoing Save to Invest programme.
Continued step changes in our retail operating model delivered savings, led by
enhanced labour productivity, structural distribution platform savings and
ongoing optimisation of our estate through front end configuration.
In 2023/24, Sainsbury's expects a retail underlying depreciation and
amortisation charge of around £1,150 million, including around £450 million
right of use asset depreciation.
Financial Services
Financial Services results
12 months to 28 February 2023
2023 2022 Change
Underlying revenue (£m) 531 432 23%
Interest and fees payable (£m) (84) (57) 47%
Total income (£m) 447 375 19%
Underlying operating profit (£m) 46 38 21%
Net interest margin (%)(1) 5.1 4.5 60bps
Cost:income ratio (%) 66 74 (800bps)
Bad debt as a percentage of lending (%)(2) 2.1 1.2 90bps
Active customers (m) - Bank 1.9 1.8 2%
Active customers (m) - AFS 2.1 2.1 -
Tier 1 capital ratio (%)(3) 15.5 15.6 (10bps)
Total capital ratio (%)(4) 17.9 18.1 (20bps)
Total Customer lending (£bn)(5) 5.3 5.1 4%
Unsecured lending (£bn) 4.7 4.3 10%
Secured lending (£bn) 0.6 0.8 (27%)
Customer deposits (£bn) (4.7) (4.2) 12%
1 Net interest receivable divided by average interest-bearing
assets.
2 Bad debt expense divided by average net lending.
3 Common equity Tier 1 capital divided by risk-weighted assets.
4 Total capital divided by risk-weighted assets.
5 Amounts due from customers at the Balance Sheet date in respect of
loans, mortgages, credit cards and AFS credit, net of provisions.
Financial services underlying operating profit of £46 million is up £8
million (2021/22: £38 million), primarily driven by increased customer demand
for credit and Travel Money, tempered by higher impairments and increased
costs.
Net Interest Margin increased 60bps, with net interest income up 15 per cent
due to a higher mix proportion of unsecured lending, improving yields and a
focus on managing the increased cost of funding. Fee income has shown recovery
post COVID-19 within Travel Money as demand for foreign travel returns and in
Credit Cards due to higher Retail spend. The recovery of credit demand helped
drive unsecured lending balances growth of 10 per cent year-on-year, resulting
in total income up 19 per cent to £447 million (2021/22: £375 million).
The Cost:income ratio reduced to 66 per cent (2021/22: 74 per cent), driven
primarily by the volume-driven recovery in income, together with careful
management of yields, funding and costs.
Higher impairments reflect both the latest economic outlook assumptions on
inflation and unemployment, as well as higher unsecured lending balances and
tough comparators in the prior year. Bad debt expense as a percentage of
lending increased 90bps year-on-year to 2.1 per cent (2021/22: 1.2 per cent),
reflecting the above as well as the higher proportion of unsecured lending
balances as the mortgage book runs down.
As disclosed at last year's preliminary results, a £50 million dividend was
paid from Sainsbury's Bank to the Group for the first time in April 2022. The
Bank remains well capitalised with a Total Capital ratio of 17.9 per cent
(2021/22: 18.1 per cent).
We expect Financial Services underlying operating profit for 2023/24 to be
broadly in line with 2022/23.
Underlying net finance costs
Underlying net finance costs reduced by 9 per cent to £282 million (2021/22:
£309 million). These costs include £26 million of net non-lease interest
(2021/22: £40 million). The reduction of net non-lease interest was driven by
increased interest income, where the benefit from higher interest rates was
supported by higher cash balances. Financing costs on lease liabilities
reduced to £256 million (2021/22: £269 million), due primarily to the
declining remaining term of the existing lease portfolio, with lower costs
associated with leases as they age.
Sainsbury's expects underlying net finance costs in 2023/24 of between £295
million - £305 million, including around £245 million - £255 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 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.
52 weeks to 4 March 2023 52 weeks to 5 March 2022
Items excluded from underlying results £m £m
Restructuring and integration programmes (106) (103)
Impairment charges (281) -
Restructuring, impairment and integration (387) (103)
Income recognised in relation to legal disputes 30 182
Software as a service accounting adjustment - (21)
IAS 19 pension income 58 11
Property, finance and acquisition adjustments (64) 55
Items excluded from underlying results (363) 124
- Restructuring and integration costs of £106 million (2021/22:
£103 million) include £106 million (2021/22: £92 million) relating to the
structural integration of Sainsbury's and Argos announced in November 2020.
Cash costs in the year were £50 million (2021/22: £114 million). We still
expect to incur one off costs from these retail infrastructure and operating
model changes of around £900 million to £1 billion, with cash costs of
around £300 million, with the majority to be incurred in the period to March
2024. To date we have incurred costs of £746 million and cash costs of £203
million. In 2023/24 we expect to incur cash costs of around £60 million in
relation to this programme.
- Non-cash impairments of £281 million were driven by a material
increase in the underlying discount rate, following sustained increases in
gilt interest rates (2021/22: £nil).
- Income recognised in relation to legal disputes of £30 million
(2021/22: £182 million) primarily relates to settlements for overcharges from
payment card processing fees and is shown net of legal fees. £30 million of
cash was received in the year (2021/22: £107 million).
- 2021/22 included a non-cash cost of £21 million relating to
software as a service following the IFRS interpretations committee
clarification of how these costs should be treated and represented the out of
period impacts of this change.
- IAS 19 Pension income rose to £58 million (2021/22: £11 million)
driven by the increased net surplus brought forward from the 2021/22 year end
and an increased discount rate which reduced pension scheme liabilities.
- Other movements of £64 million expense (2021/22: £55 million
income) relate to property losses, acquisition adjustments and non-underlying
financing costs. The adverse year-on-year movement is primarily driven by a
loss on energy derivatives of £29 million (2021/22: £76 million gain) caused
by lower 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, but are not designated in
hedging relationships. Therefore gains and losses are recognised in the income
statement. Decreases in electricity forward prices in the year have led to
loss on the related derivative financial instruments. In addition, the Group
recorded a total cost of £10 million related to property transactions,
including expenses related to the Post Balance Sheet Event disclosed below,
and a loss on disposal of non-trading properties (2021/22: £7 million
profit).
Taxation
The tax charge was £120 million (2021/22: £177 million). The underlying tax
rate (UTR) was 22.8 per cent (2021/22: 21.1 per cent) and the effective tax
rate (ETR) was 36.7 per cent (2021/22: 20.7 per cent).
The UTR is higher than the previous year. This reflects the impact of a
similar value of tax adjusting items as last year having a greater
proportional impact on lower profits in the current year. In addition, the
previous year benefited from the agreement of a number of open returns with
HMRC.
The ETR is higher than the prior year largely due to non-deductible expenses,
particularly in respect of non-underlying impairment charges and the impact of
restructuring in Ireland, giving rise to trade losses which will extinguish
rather than being available for future offset. The effective tax rate is also
higher than the standard rate of UK corporation tax due to the impact of
non-deductible capital expenditure and non-underlying costs.
Sainsbury's expects an underlying tax rate in 2023/24 of around 29 per cent,
with the increase being driven primarily by the change in the standard rate of
UK corporation tax from 1 April 2023.
Earnings per share
Underlying basic earnings per share decreased to 23.0 pence (2021/22: 25.4
pence), primarily driven by the decrease in underlying profits. Basic earnings
per share was 9.0 pence (2021/22: 29.8 pence per share).
Dividends
The Board has recommended a final dividend of 9.2 pence per share (2021/22:
9.9 pence). This will be paid on 14 July 2023 to shareholders on the Register
of Members at the close of business on 9 June 2023. The Group's policy to pay
a dividend of around 60 per cent of underlying earnings has allowed us to
maintain a full-year dividend of 13.1 pence (2021/22: 13.1 pence).
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 23 June 2023.
Net debt and retail cash flows
As at 4 March 2023, net debt was £6,344 million (5 March 2022: £6,759
million), a reduction of £415 million (2021/22: £290 million increase).
Excluding the impact of lease liabilities on net debt, Sainsbury's reduced net
debt by £285 million in the year, moving to a net funds position of £144
million (5 March 2022: net debt of £141 million). We continue to expect to
generate retail free cash flow of at least £500 million in the coming year.
Net debt includes lease liabilities under IFRS 16 of £6,488 million (2021/22:
£6,618 million). Lease liabilities decreased by £130 million.
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.
Summary cash flow statement(1) Retail Retail
52 weeks to 52 weeks to
4 March 2023 5 March 2022
£m £m
Retail underlying operating profit 926 1,001
Adjustments for:
Retail underlying depreciation and amortisation 1,134 1,144
Share based payments and other 49 54
Retail exceptional operating cash flows (excluding pensions)(2) (23) (3)
Adjusted retail operating cash flow before changes in working capital(2) 2,086 2,196
Decrease/(increase) in working capital(3) 174 (185)
Net interest paid(3) (307) (323)
Pension cash contributions (44) (71)
Corporation tax paid (99) (23)
Adjusted net cash generated from operating activities(3) 1,810 1,594
Cash capital expenditure(3) (717) (645)
Repayments of lease liabilities (512) (491)
Initial direct costs on right-of-use assets (16) (3)
Proceeds from disposal of property, plant and equipment 29 46
Dividends and distributions received(3) 51 2
Retail free cash flow 645 503
Dividends paid on ordinary shares (319) (238)
Repayment of borrowings(3) (40) (256)
Other(3) (32) (27)
Net increase/(decrease) in cash and cash equivalents 254 (18)
Decrease in Debt 552 747
Conversion of perpetual convertible bond(4) - 240
Other non-cash and net interest movements(5) (391) (1,259)
Movement in net funds/(debt) 415 (290)
Opening net debt (6,759) (6,469)
Closing net debt (6,344) (6,759)
of which
Lease liabilities (6,488) (6,618)
Net funds/(debt) excluding lease liabilities 144 (141)
1 See note 7 for a reconciliation between Retail and Group cash flow
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
decreased by £110 million year-on-year to £2,086 million (2021/22: £2,196
million) due to lower underlying profit and increased non-underlying costs.
Higher retail non-underlying operating cashflows of £23 million (2021/22: £3
million) largely reflected lower legal disputes income offsetting
restructuring costs. Working capital decreased by £174 million (2021/22:
£185 million increase), in line with expectations, primarily driven by sales
growth and a return to normal phasing of working capital following COVID-19
impacts.
Corporation tax paid increased to £99 million (2021/22: £23 million) with
last year benefiting from payments made in 2020/21 before the decision to
forgo business rates relief which subsequently reduced taxable profits in that
year.
Pensions contributions of £44 million (2021/22: £71 million) are down versus
last year, in line with the long-term pension funding framework and the
triennial valuation agreed with the pension Trustee. Proceeds of £29
million (2021/22: £46 million) resulted from disposals of non-trading sites.
A £50 million dividend was received from Sainsbury's Bank (2021/22: £nil).
Retail free cash flow increased by £142 million year-on-year to £645 million
(2021/22: £503 million), with the year-on-year movement driven by the working
capital reduction and the dividend received from Sainsbury's Bank, partly
offset by higher capital expenditure and corporation tax. Retail free cash
flow was used to fund dividends and reduce borrowings.
Dividends of £319 million were paid in the year, which were covered 2.0 times
by free cash flow (2021/22: 2.1 times).
The Group has right sized its access to contingent funding with credit
facilities reduced from £1,450 million to £1,000 million. At 4 March 2023,
this facility remained undrawn. During the year, the Group arranged a
three-year unsecured £575 million Term Loan facility with a maturity date of
March 2026 to part fund the transaction disclosed in Post Balance Sheet Events
below. This replaced the £575 million unsecured term facility that was due to
mature in November 2024 detailed at Interims as a Post Balance Sheet Event.
Capital expenditure
Core retail cash capital expenditure was £717 million (2021/22: £645
million). This was in line with expectations and higher than recent years,
when projects were delayed due to COVID-19.
Sainsbury's expects core retail cash capital expenditure (excluding Financial
Services) in 2023/24 to be £750-£800 million.
Financial Ratios
Key financial ratios 52 weeks to 52 weeks to
4 March 2023 5 March 2022
Return on capital employed (%)(1) 7.6 8.4
Net debt to EBITDA(2) 3.0 times 3.1 times
Fixed charge cover(3) 2.7 times 2.8 times
1 ROCE: Return is defined as a 52 week rolling underlying profit
before interest and tax. Capital employed is defined as Group net assets
excluding the pension deficit/surplus 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.
2 Net debt of £6,344 million includes lease obligations under IFRS
16, divided by Group underlying EBITDA of £2,139 million.
3 Group underlying EBITDA divided by rent (both capital and
interest) and net underlying finance costs, where interest on perpetual
securities is treated as an underlying finance cost.
Sainsbury's continues to target leverage of 3.0x - 2.4x to deliver a solid
investment grade balance sheet and net debt continues to reduce. Year-end
leverage of 3.0x reflects higher average capital employed as a consequence of
the exercise of purchase options on 21 leased supermarkets previously
disclosed in last year's Group's results. The completion of the property
transaction detailed within Post Balance Sheet Events will result in lower
lease debt and an overall reduction in net debt.
Return on capital employed (ROCE) has declined primarily due to lower
earnings, with higher capital employed driven by an increase in the average
value of right of use assets and derivatives. Fixed charge cover is stable.
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 IAS 19 while the funding of the Scheme is determined by the
Trustee's triennial valuation. The last triennial valuation, as at 30
September 2021 and agreed in October 2022, showed a surplus of £130 million
(when the IAS 19 Surplus was recorded as £720 million) and there was no
change to the Asset Backed Contributions structure that was agreed in 2019.
At 4 March 2023, the net defined benefit surplus under IAS 19 for the Group
was £989 million (excluding deferred tax). This represents a £1,294 million
reduction from the prior year-end date of 5 March 2022. This was driven by a
lower accounting value of the Scheme's liabilities (higher discount rate used
to calculate the present value of benefits, an adjustment to the expected
future improvements in mortality slightly offset by higher than expected
inflation), more than offset by a decrease in the market value of assets. The
asset value decrease was due to a reduction in the value of liability driven
investment assets which the Scheme used to match the value of liabilities and
provide a hedge against changes in inflation and interest rates.
Significant movements in gilt markets as a consequence of the political events
of late 2022 resulted in the Trustee reducing the level of interest rate
hedging in the Scheme. Coinciding with a fall in gilt yields, this reduced the
ongoing funding level. However, there has been no change to the contributions
to the Scheme, and the Company does not currently anticipate there to be any
impact on the contributions from the 2024 triennial valuation.
The Trustee has since taken action to partially reinstate the interest rate
hedging ratios. The Trustee has also reviewed the collateral sufficiency
framework which ensures sufficient high quality liquid assets are maintained
in order to meet liquidity requirements, even in times of market stress and
volatility. The level of collateral that the Scheme can call on at any time is
well above the limits suggested recently by the Pensions Regulator.
For 2023/24, total pension scheme cash contributions are expected to be around
£45 million.
Retirement benefit obligations
Sainsbury's Argos Group Group
as at as at as at as at
4 March 2023 4 March 2023 4 March 2023 5 March 2022
£m £m £m £m
Present value of funded obligations (5,128) (793) (5,921) (9,373)
Fair value of plan assets 6,007 927 6,934 11,693
Pension surplus 879 134 1,013 2,320
Present value of unfunded obligations (12) (12) (24) (37)
Retirement benefit surplus 867 122 989 2,283
Deferred income tax liability (262) (68) (330) (640)
Net retirement benefit surplus 605 54 659 1,643
Post Balance Sheet Events
Property transaction - Supermarket Income REIT
Subsequent to the balance sheet date, on 17 March 2023 the Group completed the
purchase of a commercial property investment pool, known as Highbury and
Dragon, in which it already held a beneficial interest. The investment pool
contained 26 supermarkets, all of which were formerly leased to Sainsbury's.
Of the 26 stores acquired, 21 will be retained and five sold. We will enter
into new 15-year leases on four of the five divested stores.
The total consideration of £431 million (excluding costs) consists of three
tranches: £279 million was paid immediately, £117 million is due on 10 July
2023, and the third tranche of £35 million is conditional on the sale of five
stores from the property pool. In addition, the Group will fully fund the bond
redemptions attached to the property pool, of which £170.5 million was paid
on 20 March 2023, and £130.4 million will be paid on 13 July 2023. The Group
will fully fund the consideration and bond redemptions by utilising the
Group's cash resources and also by drawing under the three-year unsecured term
loan. This will result in a reduction of lease debt of £1,042 million and
drives an overall reduction in net debt and ongoing lease costs.
Consolidated income statement
for the 52 weeks to 4 March 2023
52 weeks to 4 March 2023 52 weeks to 5 March 2022
Before non-underlying items Non-underlying items (Note 4) Total Before non-underlying items Non-underlying items (Note 4) Total
Note £m £m £m £m £m £m
Revenue 5 31,491 - 31,491 29,895 - 29,895
Cost of sales (28,996) (413) (29,409) (27,523) 9 (27,514)
Impairment loss on financial assets (78) - (78) (15) - (15)
Gross profit/(loss) 2,417 (413) 2,004 2,357 9 2,366
Administrative expenses (1,480) (35) (1,515) (1,352) (78) (1,430)
Other income 35 38 73 34 186 220
Operating profit/(loss) 972 (410) 562 1,039 117 1,156
Finance income 8 18 56 74 3 17 20
Finance costs 8 (300) (9) (309) (312) (10) (322)
Profit/(loss) before tax 690 (363) 327 730 124 854
Income tax (expense)/credit 9 (157) 37 (120) (154) (23) (177)
Profit/(loss) for the financial period 533 (326) 207 576 101 677
Earnings per share 10 pence pence
Basic earnings 9.0 29.8
Diluted earnings 8.8 28.8
Impairment loss on financial assets has been disclosed separately in the
current year and prior year comparative. Refer to note 2 for further details.
Consolidated statement of comprehensive income/(loss)
for the 52 weeks to 4 March 2023
52 weeks to 4 March 2023 52 weeks to 5 March 2022
Note £m £m
Profit for the financial period 207 677
Items that will not be subsequently reclassified to the income statement
Remeasurement on defined benefit pension schemes 20 (1,398) 1,457
Movements on financial assets at fair value through other comprehensive income 1 76
Cash flow hedges fair value movements - inventory hedges 123 73
Current tax relating to items not reclassified 25 -
Deferred tax relating to items not reclassified 322 (461)
(927) 1,145
Items that may be subsequently reclassified to the income statement
Currency translation differences 4 (1)
Movements on financial assets at fair value through other comprehensive income 1 (5)
Items reclassified from financial assets at fair value through other (1) 4
comprehensive income reserve
Cash flow hedges fair value movements - non-inventory hedges (30) 131
Items reclassified from cash flow hedge reserve (18) 7
Deferred tax on items that may be reclassified 14 (57)
(30) 79
Total other comprehensive (loss)/income for the period (net of tax) (957) 1,224
Total comprehensive (loss)/income for the period (750) 1,901
Consolidated balance sheet
At 4 March 2023 and 5 March 2022
4 March 2023 5 March 2022
Note £m £m
Non-current assets
Property, plant and equipment 12 8,201 8,402
Right-of-use-assets 13 5,345 5,560
Intangible assets 14 1,024 1,006
Investments in joint ventures and associates 2 3
Financial assets at fair value through other comprehensive income 515 604
Trade and other receivables 56 65
Amounts due from Financial Services customers and other banks 1,908 2,026
Derivative financial assets 217 213
Net retirement benefit surplus 20 989 2,283
18,257 20,162
Current assets
Inventories 1,899 1,797
Trade and other receivables 627 683
Amounts due from Financial Services customers and other banks 3,484 3,163
Financial assets at fair value through other comprehensive income 494 196
Derivative financial assets 70 78
Cash and cash equivalents 17 1,319 825
7,893 6,742
Assets held for sale 8 8
7,901 6,750
Total assets 26,158 26,912
Current liabilities
Trade and other payables (4,837) (4,546)
Amounts due to Financial Services customers and other deposits (4,880) (4,444)
Borrowings 19 (53) (54)
Lease liabilities 13 (1,533) (526)
Derivative financial liabilities (16) (29)
Taxes payable (155) (169)
Provisions 16 (140) (100)
(11,614) (9,868)
Net current liabilities (3,713) (3,118)
Non-current liabilities
Trade and other payables - (24)
Amounts due to Financial Services customers and other deposits (1,066) (815)
Borrowings 19 (603) (707)
Lease liabilities 13 (4,956) (6,095)
Derivative financial liabilities (58) (3)
Deferred income tax liability (476) (806)
Provisions 16 (132) (171)
(7,291) (8,621)
Total liabilities (18,905) (18,489)
Net assets 7,253 8,423
Equity
Called up share capital 672 668
Share premium 1,418 1,406
Merger reserve 568 568
Capital redemption reserve 680 680
Other reserves 274 341
Retained earnings 3,641 4,760
Total equity 7,253 8,423
Consolidated cash flow statement
for the 52 weeks to 4 March 2023
52 weeks to 4 March 2023 52 weeks to 5 March 2022
Note £m £m
Cash flows from operating activities
Profit before tax 327 854
Net finance costs 235 302
Operating profit 562 1,156
Adjustments for:
Depreciation expense 12, 13 1,036 1,069
Amortisation expense 14 172 151
Net impairment loss on property, plant and equipment, right of use assets, 12, 13, 14 315 9
intangible assets
Financial Services movement in loss allowance for loans and advances to 76 19
customers
Profit on sale of non-current assets and early termination of leases (15) (6)
Non-underlying fair value movements 4 29 (76)
Share-based payments expense 59 58
Defined benefit scheme (income)/expenses 20 (2) 4
Cash contributions to defined benefit scheme 20 (44) (71)
Operating cash flows before changes in working capital 2,188 2,313
Changes in working capital
Increase in inventories (105) (179)
(Decrease)/increase in financial assets at fair value through other (207) 115
comprehensive income
Decrease in trade and other receivables 68 33
(Increase)/decrease in amounts due from Financial Services customers and other (307) 161
deposits
Increase in trade and other payables 280 28
Increase/(decrease) in amounts due to Financial Services customers and other 687 (1,030)
deposits
Decrease in provisions and other liabilities - (80)
Cash generated from operations 2,604 1,361
Interest paid (316) (329)
Corporation tax paid (103) (23)
Net cash generated from operating activities 2,185 1,009
Cash flows from investing activities
Purchase of property, plant and equipment (525) (416)
Initial direct costs on new leases (16) (3)
Purchase of intangible assets (213) (278)
Proceeds from disposal of property, plant and equipment 29 46
Dividends and distributions received 1 2
Net cash used in investing activities (724) (649)
Cash flows from financing activities
Proceeds from issuance of ordinary shares 13 21
Repayment of borrowings (95) (248)
Repayment of perpetual capital securities - (8)
Purchase of own shares (45) (48)
Capital repayment of lease obligations (514) (493)
Dividends paid on ordinary shares 11 (319) (238)
Dividends paid on perpetual securities - (4)
Net cash used in financing activities (960) (1,018)
Net increase/(decrease) in cash and cash equivalents 501 (658)
Opening cash and cash equivalents 818 1,476
Closing cash and cash equivalents 17 1,319 818
Consolidated statement of changes in equity
for the 52 weeks to 4 March 2023
Called up share capital Share premium account Merger reserve Capital redemption and other reserves* Retained earnings* Total equity
Note £m £m £m £m £m £m
At 6 March 2022 668 1,406 568 1,021 4,760 8,423
Profit for the period - - - - 207 207
Other comprehensive income/(loss) - - - 80 (1,398) (1,318)
Tax relating to other comprehensive income/(loss) - - - 14 347 361
Total comprehensive income/(loss) for the period ended 4 March 2023 - - - 94 (844) (750)
Cash flow hedges losses transferred to inventory - - - (139) - (139)
Transactions with owners:
Dividends 11 - - - - (319) (319)
Share-based payment - - - - 58 58
Purchase of own shares - - - (45) - (45)
Allotted in respect of share option schemes 4 12 - 23 (26) 13
Other adjustments - - - - 5 5
Tax on items charged to equity - - - - 7 7
At 4 March 2023 672 1,418 568 954 3,641 7,253
Called up share capital Share premium account Merger reserve Capital redemption and other reserves* Retained earnings* Total equity before perpetual securities Perpetual convertible bonds Total equity
Note £m £m £m £m £m £m £m £m
At 7 March 2021 637 1,173 568 814 3,261 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 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 - 14 (15) 21 - 21
Conversion of perpetual convertible bonds 26 216 - - (2) 240 (240) -
Redemption of perpetual capital securities - - - - - - (8) (8)
Other Adjustments - - - 15 (12) 3 - 3
Tax on items charged to equity - - - - 3 3 - 3
At 5 March 2022 668 1,406 568 1,021 4,760 8,423 - 8,423
* In order to provide better visibility of reserves, the Group has presented
the Own share reserve within Capital redemption and other reserves for the
first time in the period. The Own Share Reserve of £68 million as at 5 March
2022 and £33 million as at 6 March 2021 has subsequently been reclassified
from Retained Earnings to Capital redemption and other reserves.
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 4 March 2023 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 2023 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 2023.
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 4 March 2023 (prior financial
year: 52 weeks to 5 March 2022). The consolidated financial statements for the
52 weeks to 4 March 2023 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 pound 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.
Sainsbury's Bank plc and its subsidiaries have been consolidated for the
twelve months to 28 February 2023 being the Bank's year-end date (prior
financial year: 28 February 2022). 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.
Significant accounting policies have been included in the relevant notes to
which the policies relate, and those relating to the financial statements as a
whole can be read further below. Unless otherwise stated, significant
accounting policies have been applied consistently to all periods presented in
the financial statements.
Impairment of financial assets disclosure
In accordance with IAS 1 Presentation of Financial Statements, Impairment loss
on financial assets has been separately disclosed within the Consolidated
income statement. Previously, this amount was included within Cost of sales,
which has therefore been restated from £27,538 million to £27,523 million
before non-underlying items; and from £27,529 million to £27,514 million in
total. There is no impact to Gross profit, Operating profit or Profit before
tax.
2.1 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 26 April 2024.
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 phased maturities to manage refinancing risk 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 Group successfully reduced net debt over the past year as part of the
continued focus on deleveraging. Furthermore, the committed Revolving Credit
Facility, which enables the Group to maintain sufficient levels of contingent
funding, has been successfully refinanced and right-sized during the year with
a new £1,000 million facility comprising two £500 million tranches. Tranche
A has a final maturity of December 2026 and Tranche B has a final maturity of
December 2027. As at 4 March 2023, the Revolving Credit Facility was undrawn.
In addition, the Group successfully arranged a £575 million committed term
loan facility with maturity of March 2026 in order to part fund the
acquisition of a property portfolio.
In assessing going concern, scenarios in relation to the Group's principal
risks have been considered in line with those disclosed in the viability
statement by overlaying them into the corporate plan and assessing the impact
on cash flows, net debt, funding headroom and financial covenants. 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 includes
assumed cashflows to address climate change risks, including costs associated
with initiatives in place as part of the Plan for Better commitment which
include reducing environmental impacts and meeting customer expectations in
this area, notably through reducing packaging and reducing 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.
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.
2.2 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 6 March 2022 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 3 'Business Combinations' - Reference to the Conceptual
Framework
- Amendments to IAS 16 'Property, Plant and Equipment' - Proceeds before
Intended Use
- Amendments to IAS 37 'Provisions, Contingent Assets and Contingent
Liabilities' - Onerous Contracts - Costs of Fulfilling a Contract
- Amendments to IFRS 1 'First-time Adoption of International Financial
Reporting Standards' - Subsidiary as a first-time adopter
- Amendments to IFRS 9 'Financial Instruments' - Fees in the '10 per cent'
test for derecognition of financial liabilities
- Amendments to IAS 41 'Agriculture' - Taxation in fair value measurements
The accounting policies have remained unchanged from those disclosed in the
Annual Report for the year ended 5 March 2022.
Standards and revisions effective for future periods:
The following standards and revisions will be effective for future periods:
- 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'
- Amendments to IFRS 16 'Leases' on Lease Liability in a Sale and Leaseback
- Amendments to IAS 1 'Presentation of Financial Statements' on Non-current
Liabilities with Covenants
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 factors which affect IFRS measures, and 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 used by the Group are detailed on pages 51-54 of this report. This
includes further information on the definition, purpose and reconciliation to
the closest IFRS measure. All APMs relate to the current and comparative
periods and are consistent with those used previously. There have been no
changes to APMs in the year.
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, which
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.
Below highlights the grouping in which non-underlying items have been
allocated and provides further detail on why such items have been recognised
within non-underlying items.
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 - - 30 - 30 (6) 24
Restructuring and impairment
Restructuring programmes (103) (14) 11 - (106) 7 (99)
Impairment of non-financial assets (281) - - - (281) 38 (243)
Total restructuring and impairment (384) (14) 11 - (387) 45 (342)
Property, finance, pension and acquisition adjustments
ATM business rates reimbursement 3 - - - 3 (1) 2
Property related transactions (3) (3) (3) - (9) 2 (7)
Non-underlying finance and fair value movements (29) - - (9) (38) 7 (31)
IAS 19 pension income - 2 - 56 58 (11) 47
Acquisition adjustments - (20) - - (20) 4 (16)
Total property, finance, pension and acquisition adjustments (29) (21) (3) 47 (6) 1 (5)
Tax adjustments
Over provision in prior years - - - - - 2 2
Difference due to change in applicable rate of deferred tax - - - - - (5) (5)
Total adjustments (413) (35) 38 47 (363) 37 (326)
Income recognised in relation to legal disputes
In the prior year, agreements were reached in relation to overcharges from
payment card processing fees, which largely reflect inter-bank "interchange
fees". This led to net income of £167 million being recognised. During the
current period a further agreement has been reached resulting in net income of
£30 million being recognised.
Net cash of £30 million was received during the year.
Restructuring programmes
In the year ended 6 March 2021, 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 and has continued into the current
year. Total cumulative costs to 4 March 2023 are £(746) million split between
£(640) million in the prior years and £(106) 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.
(Costs)/gains recognised in the current year are as follows:
52 weeks to 4 March 2023 52 weeks to 5 March 2022
£m £m
Write downs of property, plant and equipment (a) (8) (6)
Write downs of leased assets (a) (21) (3)
Write downs of intangible assets (5) -
Closure provisions (b) 1 (24)
Accelerated depreciation of assets (c) (20) (33)
Redundancy provisions (d) (54) (40)
Consultancy costs (12) (18)
Gain on lease terminations (e) 2 9
Property profits (f) 11 12
Recognition of sub lease debtor - 11
Total restructuring costs (106) (92)
a) Write down of assets associated with Argos stores and IT assets as a
result of the overall restructuring programme to accelerate the structural
integration of Sainsbury's and Argos and further simplify the Argos business.
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. The current year includes amounts
reversed in relation to sites no longer being exited as part of the programme.
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 the exit of operations in Ireland.
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, as well as any
closure provisions previously recognised.
f) Property profits relate to profits recognised in the period as sites
previously impaired as part of the restructuring programmes have been sold.
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.
Impairment of non-financial assets
In addition to the above, in line with IAS 36 'Impairment of Non-financial
Assets', the Group is required to assess whether there is any indication that
an asset (or cash-generating unit (CGU)) may be impaired.
Management considered whether the level of uncertainty within the wider
macroeconomic environment, including sustained increases in the Bank of
England gilt rates, represented an indicator of impairment at the reporting
date. It was determined that the increase in discount rates was a significant
impairment indicator and therefore a full impairment review was undertaken.
A non-cash impairment charge of £281 million has been recognised in the
period and comprises the below amounts, and has all been recognised within the
Retail segment. Further details of the impairment charge are included within
note 15.
£m
Write downs of property, plant and equipment (141)
Write downs of leased assets (122)
Write downs of intangible assets (18)
Impairment of non-financial assets (281)
Property, finance, pension and acquisition adjustments
· A further £3 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. The total cumulative amount recognised to
4 March 2023 is £45 million.
· Property related transactions relate to the loss on disposal
of non-trading properties, which comprised of £(3) million in the financial
period, and £(6) million of costs relating to a property transaction. These
are excluded from underlying profit as such profit is not related to the
ongoing operating activities of the Group.
· Non-underlying finance movements for the financial period
comprised £(38) 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 £(29) million in relation to unfavourable 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. Decreases in electricity
forward prices in the year have led to losses on the related derivative
financial instruments. Non-underlying finance and fair value movements also
includes lease interest on impaired non-trading sites, including site
closures. Lease interest on impaired, non-trading sites is excluded as they do
not contribute to the operating activities of the Group. The remaining
movements of £(9) million within finance income and costs are analysed
further in note 8.
· Defined benefit pension interest and expenses comprises
pension finance income of £57 million, settlement credit of £8 million and
scheme expenses of £(6) million (see note 20). 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 4 March 2023 52 weeks to 5 March 2022
Argos Nectar Total Group Argos Nectar Total Group
£m £m £m £m £m £m
Cost of sales 1 - 1 - - -
Depreciation 1 - 1 3 - 3
Amortisation (18) (4) (22) (18) (5) (23)
(16) (4) (20) (15) (5) (20)
Comparative information
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)
Difference due to change in applicable rate of deferred tax - - - - - 9 9
Other tax adjustments - - - - - (7) (7)
Total adjustments 9 (78) 186 7 124 (23) 101
Cash flow statement
The table below shows the impact of non-underlying items on the Group cash
flow statement:
52 weeks to 4 March 2023 52 weeks to 5 March 2022
£m £m
Cash flows from operating activities
IAS 19 pension expenses (7) (7)
Financial Services transition and other - (13)
Restructuring programmes (50) (114)
Income recognised in relation to legal disputes 30 93
ATM rates reimbursement 3 14
Property related transactions (6) -
Cash used in operating activities (30) (27)
Cash flows from investing activities
Proceeds from property disposals(1) 29 46
Cash generated from investing activities 29 46
Net cash flows (1) 19
(1) £26 million of the current period proceeds from property disposals are a
result of restructuring programmes (2022: £19 million).
5 Revenue
2023 2022
£m £m
Grocery and General Merchandise & Clothing (GM&C) 25,993 25,440
Fuel 4,967 4,023
Total retail sales 30,960 29,463
Financial Services interest receivable 394 322
Financial Services fees and commission 137 110
Total Financial Services income 531 432
Total revenue 31,491 29,895
6 Segment reporting
The Group's operating segments have been determined based on the information
regularly provided to the Chief Operating Decision Maker (CODM), which has
been determined to be the Group Operating Board, which is used to make optimal
decisions on the allocation of resources and assess performance.
The CODM is presented information for the following operating segments:
- Retail - Food
- Retail - General Merchandise and Clothing
- Financial Services
The CODM uses underlying profit before tax as the key measure of segmental
performance as it represents the ongoing trading performance with additional
insight into year-on-year performance that is more comparable over time. The
use of underlying profit before tax aims to provide parity and transparency
between users of the financial statements and the CODM in assessing the core
performance of the business and performance of management.
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 4 March 2023 £m £m £m
Segment revenue
Retail sales to external customers 30,960 - 30,960
Financial Services to external customers - 531 531
Revenue 30,960 531 31,491
Underlying operating profit 926 46 972
Underlying finance income 18 - 18
Underlying finance costs (300) - (300)
Underlying profit before tax 644 46 690
Non-underlying expense (note 4) (363)
Profit before tax 327
Income tax expense (note 9) (120)
Profit for the financial year 207
Assets 18,925 7,231 26,156
Investment in joint ventures and associates 2 - 2
Segment assets 18,927 7,231 26,158
Segment liabilities (12,584) (6,321) (18,905)
Other segment items
Additions to non-current assets
Property, plant and equipment 532 2 534
Intangible assets 194 19 213
Right-of-use assets 398 - 398
Depreciation expense(1)
Property, plant and equipment 565 1 566
Right-of-use assets 469 1 470
Amortisation expense(2)
Intangible assets 141 31 172
Impairment of non-financial assets 315 - 315
Impairment loss on financial assets 2 76 78
Share based payments 54 5 59
1. Depreciation within the Retail segment includes a £(1) million credit in
relation to the unwind of fair value adjustments recognised on acquisition of
HRG.
2. Amortisation within the Retail segment includes a £22 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 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 124
Profit before tax 854
Income tax expense (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 of non-financial assets 8 1 9
Impairment (reversal)/loss on financial assets (4) 19 15
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.
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 4 March 2023 52 weeks to 5 March 2022
Retail Financial Services Group Retail Financial Services Group
APM
reference
£m £m £m £m £m £m
Profit before tax 284 43 327 833 21 854
Net finance costs 235 - 235 304 (2) 302
Operating profit 519 43 562 1,137 19 1,156
Adjustments for:
Depreciation and amortisation expense 1,175 33 1,208 1,197 23 1,220
Net impairment charge on property, plant and equipment, right-of-use assets 315 - 315 1 9
and intangible assets 8
Financial Services movement in loss allowance for loans and advances to - 76 76 19 19
customers -
Profit on sale of non-current assets and early termination of leases (15) - (15) - (6)
(6)
Non-underlying fair value movements 29 - 29 (76) - (76)
Share-based payments expense 54 5 59 53 5 58
Non-cash defined benefit scheme expenses (2) - (2) - 4
4
Cash contributions to defined benefit scheme (44) - (44) (71) - (71)
Operating cash flows before changes in working capital 2,031 157 2,188 2,246 67 2,313
Changes in working capital
Movements in working capital 185 231 416 (306) (646) (952)
Cash generated from operations 2,216 388 2,604 1,940 (579) 1,361
Interest paid a (307) (9) (316) (319) (10) (329)
Corporation tax paid (99) (4) (103) (23) - (23)
Net cash generated from/(used in) operating activities 1,810 375 2,185 1,598 (589) 1,009
Cash flows from investing activities
Purchase of property, plant and equipment (523) (2) (525) (416) - (416)
Initial direct costs on new leases (16) - (16) - (3)
(3)
Purchase of intangible assets (194) (19) (213) (229) (49) (278)
Proceeds from disposal of property, plant and equipment 29 - 29 46 - 46
Dividends and distributions received/(paid) e 51 (50) 1 - 2
2
Net cash used in investing activities (653) (71) (724) (600) (49) (649)
Cash flows from financing activities
Proceeds from issuance of ordinary shares d 13 - 13 - 21
21
Repayment of borrowings c (40) (55) (95) (248) - (248)
Repayment of perpetual capital securities c - - - (8) - (8)
Purchase of own shares d (45) - (45) (48) - (48)
Capital repayment of lease obligations b (512) (2) (514) (491) (2) (493)
Dividends paid on ordinary shares (319) - (319) (238) - (238)
Dividends paid on perpetual securities a - - - - (4)
(4)
Net cash used in financing activities (903) (57) (960) (1,016) (2) (1,018)
Net increase/(decrease) in cash and cash equivalents 254 247 501 (18) (640) (658)
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 satisfied. 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. Amounts which have been
invoiced at the balance sheet date are categorised as supplier arrangements
due and those not yet invoiced are categorised as accrued supplier
arrangements.
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.
2023 2022
£m £m
Fixed amounts 192 208
Supplier rebates 94 94
Marketing and advertising income 97 79
Total supplier arrangements 383 381
Of the above amounts, the following was outstanding and held on the balance
sheet at the period-end:
2023 2022
£m £m
Within inventory (4) (4)
Within current trade receivables
Supplier arrangements due 45 39
Accrued supplier arrangements 43 37
Within current trade payables
Supplier arrangements due 49 47
Accrued supplier arrangements 2 2
Total supplier arrangements 135 121
8 Finance income and finance costs
52 weeks to 4 March 2023 52 weeks to 5 March 2022
Underlying Non-Underlying Total Underlying Non-Underlying Total
£m £m £m £m £m £m
Interest on bank deposits and other financial assets 16 - 16 1 - 1
Fair value measurements - - - - 2 2
IAS 19 pension financing income - 56 56 - 15 15
Finance income on net investment in leases 2 - 2 2 - 2
Finance Income 18 56 74 3 17 20
Secured borrowings (41) - (41) (40) - (40)
Unsecured borrowings (2) - (2) (2) - (2)
Lease liabilities (258) (9) (267) (271) (10) (281)
Provisions - amortisation of discount - - - (1) - (1)
Interest capitalised - qualifying assets 1 - 1 2 - 2
Finance costs (300) (9) (309) (312) (10) (322)
9 Taxation
52 weeks to 4 March 2023 52 weeks to 5 March 2022
£m £m
Current year UK tax 105 131
Current year overseas tax 3 6
Over-provision in prior years 2 5
Total current tax expense 110 142
Origination and reversal of temporary differences 9 52
Under/(over) provision in prior years 3 (35)
Adjustment from change in applicable rate of deferred tax (2) 23
Derecognition of capital losses - (5)
Total deferred tax expense 10 35
Total income tax expense in income statement 120 177
Analysed as:
Underlying tax 157 154
Non-underlying tax (37) 23
Total income tax expense in income statement 120 177
Underlying tax rate 22.8% 21.1%
Effective tax rate 36.7% 20.7%
10 Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to
ordinary shareholders of J Sainsbury plc by the weighted average number of
Ordinary shares in issue during the year, excluding own shares held by the J
Sainsbury Employee Share Ownership Trust (ESOT).
Diluted earnings per share amounts are calculated by dividing the profit
attributable to ordinary shareholders of J Sainsbury plc by the weighted
average number of Ordinary shares in issue during the year, excluding own
shares held, and adjusted for the effects of potentially dilutive shares. The
dilutive impact is calculated as the weighted average of all potentially
diluted ordinary shares. These represent share options granted by the Group,
including performance-based options, where the scheme to date performance is
deemed to have been earned.
For the comparative period, the weighted average number of dilutive shares
includes the number of shares that would have been issued if all perpetual
subordinated convertible bonds are assumed to be converted at the beginning of
the period.
In addition, underlying basic earnings per share and underlying diluted
earnings per share are presented to reflect the underlying profit attributable
to ordinary shareholders of J Sainsbury plc and the underlying trading
performance of the Group. In calculating the APMs, the profit attributable is
adjusted for items considered non-underlying as defined in note 4. No
adjustments have been made to the weighted average number of Ordinary or
potentially dilutive shares which continue to be determined in accordance with
IAS.
All operations are continuing for the periods presented.
2023 2022
million million
Weighted average number of shares in issue 2,312.6 2,271.8
Weighted average number of dilutive share options 39.6 39.6
Weighted average number of dilutive subordinated perpetual convertible bonds - 39.6
Total number of shares for calculating diluted earnings per share 2,352.2 2,351.0
£m £m
Profit for the financial period attributable to ordinary shareholders 207 677
Diluted earnings for calculating diluted earnings per share 207 677
Profit for the financial period attributable to ordinary shareholders of the 207 677
parent
Adjusted for non-underlying items (note 4) 363 (124)
Tax on non-underlying items (note 4) (37) 23
Underlying profit after tax attributable to ordinary shareholders of the 533 576
parent
Diluted underlying profit after tax attributable to ordinary shareholders of 533 576
the parent
Pence per share Pence per share
Basic earnings 9.0 29.8
Diluted earnings 8.8 28.8
Underlying basic earnings 23.0 25.4
Underlying diluted earnings 22.7 24.5
11 Dividends
2023 2022 2023 2022
pence per share pence per share £m £m
Amounts recognised as distributions to ordinary shareholders in the year:
Final dividend of prior financial year 9.9 7.4 229 164
Interim dividend of current financial year 3.9 3.2 90 74
13.8 10.6 319 238
Proposed final dividend at financial year end 9.2 9.9 213 230
The proposed final dividend was approved by the Board on 26 April 2023 and is
subject to shareholders' approval at the Annual General Meeting. If approved,
it will be paid on 14 July 2023 to shareholders on the register as at 9 June
2023. No amount for the proposed final dividend has been recognised at the
balance sheet date.
Distributions to shareholders will have no tax consequences to the Group.
12 Property, plant and equipment
Land and buildings Fixtures and equipment Total
£m £m £m
Cost
At 6 March 2022 9,693 5,288 14,981
Additions 250 284 534
Disposals (71) (540) (611)
Transfer to assets held for sale (7) (3) (10)
At 4 March 2023 9,865 5,029 14,894
Accumulated depreciation and impairment
At 6 March 2022 2,917 3,662 6,579
Depreciation expense for the year 184 382 566
Impairment loss for the year 110 39 149
Disposals (56) (540) (596)
Transfer to assets held for sale (2) (3) (5)
At 4 March 2023 3,153 3,540 6,693
Net book value at 4 March 2023 6,712 1,489 8,201
Capital work-in-progress included above 206 314 520
Cost
At 7 March 2021 9,655 5,288 14,943
Additions 87 330 417
Disposals (40) (330) (370)
Transfer to assets 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 assets 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
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 6 March 2022 5,266 294 5,560
New leases and modifications(1) 283 115 398
Depreciation charge (375) (95) (470)
Impairment charge (142) (1) (143)
At 4 March 2023 5,032 313 5,345
1 Includes new leases, terminations, modifications and reassessments
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
1Includes new leases, terminations, modifications and reassessments
Set out below are the carrying amounts of lease liabilities and the movements
during the period:
2023 2022
£m £m
At 6 March 2022 and 7 March 2021 6,621 5,834
New leases and modifications 382 1,280
Interest expense 267 281
Payments (781) (774)
At 4 March 2023 and 5 March 2022 6,489 6,621
Current 1,533 526
Non-current 4,956 6,095
Maturity analysis
2023 2022
£m £m
Contractual undiscounted cash flows
Less than one year 1,798 773
One to two years 680 1,683
Two to three years 632 627
Three to four years 591 575
Four to five years 541 542
Total less than five years 4,242 4,200
Five to ten years 2,473 2,416
Ten to fifteen years 1,981 2,005
More than fifteen years 3,505 3,338
Total undiscounted lease liability 12,201 11,959
Lease liability included in the statement of financial position 6,489 6,621
Current 1,533 526
Non-current 4,956 6,095
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. In the
prior year, the Group exercised purchase options on 21 leased supermarkets
held by a property investment pool in which the Group holds an interest. The
purchase options were first included within the lease liability in the prior
financial year when the Group exercised them. During the current year, the
Group reached an agreement on an acquisition price on these 21 supermarkets
and thus this acquisition price was used to remeasure the lease liabilities.
14 Intangible assets
Goodwill Computer software Acquired brands Customer relationships Total
£m £m £m £m £m
Cost
At 6 March 2022 392 1,077 229 32 1,730
Additions - 213 - - 213
Disposals (1) (185) - - (186)
At 4 March 2023 391 1,105 229 32 1,757
Accumulated amortisation and impairment
At 6 March 2022 26 521 147 30 724
Amortisation expense for the year - 150 20 2 172
Impairment loss for the year 14 9 - - 23
Disposals (1) (185) - - (186)
At 4 March 2023 39 495 167 32 733
Net book value at 4 March 2023 352 610 62 - 1,024
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 depreciation 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
1 Disposals included write offs of software-as-a-service balances.
15 Impairment of non-financial assets
Goodwill
Goodwill is not amortised but tested for impairment annually or more
frequently where there is an indication that the asset may be impaired.
At the acquisition date goodwill is allocated to the CGU or group of CGUs
within the Retail or Financial Services segments that are expected to benefit
from the combination.
Impairment is assessed by measuring the recoverable amount of the CGU,
calculated as the higher of fair value less cost to dispose and value-in-use,
at the level at which this is monitored by management. Where the carrying
value of the CGU exceeds the recoverable amount an impairment loss is
recognised in the income statement. The impairment charge is allocated first
against goodwill and then pro-rata over other assets within the CGU by
reference to the carrying amount of each remaining asset in the unit.
Impairment losses recognised for goodwill are not subsequently reversed.
Property, plant and equipment, right-of-use assets, and finite lived
intangible assets
Property, plant and equipment (PPE), right-of-use assets, and finite-lived
intangible assets are assessed on an ongoing basis to determine whether there
is an indication that the net book value is no longer supportable. If any
such indication exists, the recoverable amount of the asset, being the higher
of its fair value less costs to dispose and its value-in-use, is estimated in
order to determine the extent of the impairment loss. Where it is not possible
to estimate the recoverable amount of an individual asset, the Group estimates
the recoverable amount of the CGU to which the asset belongs.
If the recoverable amount of an asset or CGU is estimated to be less than its
carrying amount, the carrying amount of the asset or CGU is reduced to its
recoverable amount and an impairment loss is recognised immediately in the
income statement.
Where there has been a change in the estimates used to determine the
recoverable amount and an impairment loss subsequently reverses, the carrying
amount of the asset or CGU is increased to the revised estimate of its
recoverable amount, not to exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset or CGU in
prior years. An impairment loss reversal is recognised in the income
statement.
Identification of cash generating units
Cash generating units are deemed the smallest group of assets that
independently generate cash inflows and are independent of the cash flows
generated by other assets. The CGUs identified within the respective
reportable operating segments are as follows:
Retail
Cash generating units are deemed to be corporate level business units, trading
stores, store pipeline development sites or in certain cases for Argos, a
cluster of stores.
PPE, intangible assets and right-of-use assets are allocated to the store CGU
they are associated with. For non-store assets, including depots and IT
assets, these are allocated to store CGUs where it can be done on a reasonable
and consistent basis, otherwise these are allocated to the CGU corporate level
to which they relate.
Goodwill recognised on acquisition of retail chains of stores (Bells and
Jacksons) is allocated to its respective store CGUs. Goodwill arising on the
purchase of Home Retail Group is allocated to the Home Retail Group CGU.
Nectar is a separate CGU.
Financial Services
Cash generating units are deemed to be each respective product or product
group that is capable of generating cash flows independent of other products.
Non-product assets are reviewed separately as collective CGUs with the
products that they support.
Goodwill arising on the purchase of Sainsbury's Bank plc is allocated to the
Financial Services CGU.
Identification of a triggering event
Management considered whether the level of uncertainty within the wider
macroeconomic environment, including sustained increases in the Bank of
England gilt rates, represented an indicator of impairment at the reporting
date. It was determined that the increase in discount rates was a significant
impairment indicator and therefore a full impairment review was undertaken.
Approach and assumptions
The recoverable amount for CGUs have been determined based on the fair value
less cost to dispose and a value-in-use calculation which is based upon the
cash flows expected to be generated, derived from the latest budget and
forecast data which are reviewed by the Board. Budget and forecast data
reflects both past experience and future expectations of market conditions.
A vacant possession valuation basis is used to approximate the fair value less
costs to dispose. This is not considered to be a significant accounting
judgement.
The key assumptions in measuring the value-in-use are as follows:
Assumption Retail Segment Financial Services Segment
Cash flow years / assumptions -Derived from the Board approved cash flow projections for four years and then -Derived from the Board approved cash flow projections for four years and then
for owned stores, extrapolated into perpetuity with an assumed growth rate of extrapolated over the remaining useful lives of the assets being tested for
2.0%. impairment with no assumed growth rate.
-For leased stores, cash flows are taken to lease end with an assumed growth
rate of 2.0% beyond the four-year forecast period.
-In the case of properties identified for closure, cash flow years relate to
the remaining period that the store will trade for.
-Online grocery sales are fulfilled by individual stores and therefore these
cash flows are allocated to the individual store CGUs which fulfil the online
sales. In Argos, online GM&C sales for Click & Collect are allocated
to the individual store CGUs which fulfil the online sales.
Discount rate -A post-tax discount rate representing the Retail segment's weighted average -A post-tax discount rate representing the Financial Services segment's
cost of capital (WACC), subsequently grossed up to a pre-tax rate of 9.1%. weighted average cost of capital (WACC), subsequently grossed up to a pre-tax
rate of 15.1%.
-The post-tax WACC has been calculated using the capital asset pricing model,
the inputs of which include a 20-year average risk-free rate for the UK, a UK -The post-tax WACC has been calculated using a combination of adjusted market
equity risk premium, levered debt premium and risk adjustment and an average analysis and the actual cost of debt on Tier 2 capital instruments.
beta for the Group.
-The discount rate is applied consistently to all individual product CGUs and
-The discount rate is applied consistently to all individual store CGUs and the collective CGUs which support the products.
the Group of CGUs supported by Sainsbury's or Argos stores.
For store pipeline development sites, where there are plans to develop the
store, the carrying value of the asset is compared with its value-in-use using
a methodology consistent with the store CGU approach described above. Future
cash flows include the estimated costs to completion. For sites where there is
no plan to develop a store, the recoverable amount is based on its fair value
less costs to dispose.
Climate change considerations
The Group's scenario analysis performed as part of the Task Force on
Climate-Related Financial Disclosures (TCFD) report identified that the most
material climate-related risks were heat events, labour capacity, drought,
flooding, regulation and changes in consumer preferences. Produce, Cotton,
Coffee, Tea, Clothing, Meat, Fish and Poultry (MFP), and Fuel were the product
categories most exposed to the climate-related risks.
The most material transitional climate risk was in fuel. As such, the Group's
current year impairment review included cashflow assumptions in relation to
the expected future revenue loss within the fuel category. As such, the
impairment conclusions reached have incorporated the expected climate-related
risks associated with fuel sales.
Other than fuel, changes in consumer preferences in MFP was identified as the
risk most vulnerable to transitional risks and modelling this risk in
isolation to 2030 in a 1.5°C scenario calculated a £300m to £350m loss in
revenue. The Group has considered what the impact that this revenue loss (if
unmitigated) could have on the carrying value of the Group's store assets. In
doing so, a corresponding reduction in margin and therefore cash flows has
been modelled. Immaterial impairment risks were identified. As such, all other
climate change related risks do not have a material impact on the Group's
impairment considerations.
Output and sensitivities
Impairment charges recognised in the Retail Segment relate to both sites
identified for closure as part of the restructuring programme as well as
impairments on stores that will continue to trade but for which the cash flows
no longer support the carrying amount of the assets. There were no charges
recognised in the Financial Services Segment. The overall charges are as
follows:
Restructuring programme Impairments Total
£m £m £m
Impairment of property, plant and equipment 8 141 149
Impairment of leased assets 21 122 143
Impairment of intangible assets 5 18 23
34 281 315
Of the above assumptions, the value-in-use calculations are most sensitive to
changes in the discount rate, forecast cash flows, and the long-term growth
rate used beyond the forecast four-year forecast period. The table below sets
out the key sensitivities performed on the value-in-use models and considered
the reasonable possible changes in these assumptions. The impact of changing
one sensitivity does not have a consequential impact on other sensitivities.
Sensitivity area Sensitivities Increase / (decrease) in impairment
£m
Discount rate Increase of 2% 163
Decrease of 2% (105)
Cash flows Increase of 10% (77)
Decrease of 10% 57
Long-term growth rate Increase of 0.5% (30)
Decrease of 1% 58
Goodwill
Goodwill was separately tested at the year-end as required under IAS 36.
Goodwill comprises the following:
2023 2022
£m £m
Jacksons Stores Limited 18 28
Home Retail Group 119 119
Sainsbury's Bank plc 45 45
Nectar 147 147
Bells Stores Limited 5 9
Other 18 18
352 366
Value-in-use calculations used to derive the recoverable amount of the CGU to
which the respective goodwill has been allocated are based on the following
key assumptions:
Cash flow years / assumptions Cash flows relating to Home Retail Group, Sainsbury's Bank plc and Nectar are
derived from Board approved cash flow projections for four years and then
extrapolated into perpetuity with an assumed growth rate of 2.0%.
Cash flows relating to goodwill attributable to stores are consistent with the
assumptions detailed above.
Discount rate A post-tax discount rate representing the Retail segment's weighted average
cost of capital (WACC), as detailed above, has been used for all goodwill
balances, except Sainsbury's Bank plc where the post-tax discount rate
representing the Financial Services segment's WACC, as detailed above, has
been used.
Jackson Stores Limited and Bells Stores Limited goodwill balances are
allocated to individual store CGUs to which they relate, within the Retail
segment detailed above. Home Retail Group goodwill is allocated to the
collective Argos store and non-store CGUs. Sainsbury's Bank plc goodwill is
allocated to the Financial Services collective CGUs, as noted above. Nectar is
a separate CGU.
Goodwill impairments of £14 million were recognised in the year as part of
the year-end impairment review, detailed above. This impairment was in
relation to the store CGUs to which Jacksons Stores Limited and Bells Stores
Limited goodwill amounts are allocated to. There was no impairment identified
at the collective CGU level for Argos nor Financial Services, thus there was
nil impairment in the Home Retail Group or Sainsbury's Bank plc goodwill
amounts. No impairments were recognised to Nectar goodwill.
Sensitivity analysis on the impairment tests for each group of cash-generating
units to which goodwill has been allocated has been performed. The valuations
indicate sufficient headroom such that a reasonably possible change to key
assumptions would not result in any impairment of goodwill.
While goodwill impairments of £14 million were noted on certain store CGUs to
which Jacksons Stores Limited and Bells Stores Limited goodwill amounts are
allocated to, any reasonable possible changes in assumptions would not lead to
changes in this impairment amount of more or less than £2 million.
The headroom disclosed below for goodwill in Jacksons Stores Limited and Bells
Stores Limited relates to all store CGUs to which these goodwill amounts are
allocated. Overall, management are satisfied that there are no reasonable
possible changes to assumptions that would lead to further impairments in
Jacksons Stores Limited, or impairments in any other goodwill.
Sensitivities (revised headroom)
Carrying Headroom Discount rate Cash flows
amount
Decrease of 2% Increase of 2% Decrease of 10% Increase of 10%
£m £m £m £m £m £m
Jacksons Stores Limited 18 13 20 9 10 15
Home Retail Group 119 1,257 2,072 803 1,050 1,464
Sainsbury's Bank plc 45 418 525 338 358 477
Nectar UK 147 1,165 1,692 871 1,031 1,300
Bells Stores Limited 5 1 1 - - 1
Other 18 21 41 10 16 27
16 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. 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.
Property provisions also include provisions for dilapidations which are
recognised where the Group has the obligation to make-good its leased
properties, which is when a decision to exit a lease has been made. This is
the point at which a reliable estimate of the expected cost for dilapidations
can be made. 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. Utilisation of the above amounts is
expected to be incurred in conjunction with the profile of the leases to which
they relate.
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
The current year charge relates to redundancies announced as part of Argos
store closures, depot closures, and the exit of operations in Ireland.
Utilisation of restructuring provisions is expected to be incurred in line
with the closure date of the site to which the provision relates.
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 6 March 2022 140 62 29 26 14 271
Additional provisions 26 30 64 5 - 125
Unused amounts reversed (33) (4) (3) (1) (1) (42)
Utilisation of provision (19) (29) (32) (2) - (82)
At 4 March 2023 114 59 58 28 13 272
Current 55 19 30 28 8 140
Non-current 59 40 28 - 5 132
At 7 March 2021 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
17 Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents
comprise the following:
2023 2022
£m £m
Cash in hand and bank balances 569 566
Money market funds 255 25
Money market deposits 150 -
Deposits at central banks 345 234
Cash and bank balances as reported in the Group balance sheet 1,319 825
Bank overdrafts - (7)
Net cash and cash equivalents as reported in the Group cash flow statement 1,319 818
Of the above balance, £28 million was restricted at the balance sheet date
(2022: £18 million). The balance includes £15 million (2022: £15 million)
held as a reserve deposit with the Bank of England in accordance with
statutory requirements is not available for use in day-to-day operations, £10
million (2022: £nil) held within the ESOT, and £3 million (2022: £3
million) is restricted for insurance purposes.
18 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
6 March 2022 Cash flows excluding interest Net interest (received) / paid Accrued Interest Other non-cash movements Changes in fair value 4 March 2023
£m £m £m £m £m £m £m
Retail
Net derivative financial instruments 5 - (5) 5 (5) - -
Borrowings (excluding overdrafts) (575) 40 45 (40) (9) - (539)
Lease liabilities (6,618) 512 267 (267) (382) - (6,488)
Arising from financing activities (7,188) 552 307 (302) (396) - (7,027)
Financial assets at fair value through other comprehensive income - - - - - - -
Cash and cash equivalents 436 247 - - - - 683
Bank overdrafts (7) 7 - - - - -
Retail net debt (6,759) 806 307 (302) (396) - (6,344)
Financial Services
Net derivative financial instruments 4 - - - - (4) -
Borrowings (excluding overdrafts) (179) 55 9 (12) - 5 (122)
Lease liabilities (3) 2 - - - - (1)
Arising from financing activities (178) 57 9 (12) - 1 (123)
Financial assets at fair value through other comprehensive income 418 207 - - - 1 626
Cash and cash equivalents 389 247 - - - - 636
Financial services net debt 629 511 9 (12) - 2 1,139
Group
Net derivative financial instruments 9 - (5) 5 (5) (4) -
Borrowings (excluding overdrafts) (754) 95 54 (52) (9) 5 (661)
Lease liabilities (6,621) 514 267 (267) (382) - (6,489)
Arising from financing activities (7,366) 609 316 (314) (396) 1 (7,150)
Financial assets at fair value through other comprehensive income 418 207 - - - 1 626
Cash and cash equivalents 825 494 - - - - 1,319
Bank overdrafts (7) 7 - - - - -
Group net debt (6,130) 1,317 316 (314) (396) 2 (5,205)
Retail net debt (6,759) 806 307 (302) (396) - (6,344)
Of which:
Leases (6,618) (6,488)
Net debt excluding lease liabilities (141) 144
Other non-cash movements relate to new leases, interest accruals and foreign
exchange.
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 546 (110) - - - - 436
Bank overdrafts (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 1,575 (750) - - - - 825
Bank overdrafts (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)
Reconciliation of net cash flow to movement in net debt
52 weeks to 52 weeks to
4 March 5 March
2023 2022
£m £m
Opening net debt (6,759) (6,469)
Cash flow movements
Net increase/(decrease) in cash and cash equivalents (including overdrafts) 501 (658)
Elimination of Financial Services movement in cash and cash equivalents (247) 640
Repayment of perpetual capital securities - 8
Decrease in Retail borrowings 40 248
Decrease in Retail lease obligations 512 491
Net interest paid on components of Retail net debt 307 319
Changes in net debt resulting from cash flow 1,113 1,048
Non-cash movements
Accrued interest (302) (316)
Retail fair value and other non-cash movements (396) (1,022)
Changes in net debt resulting from non-cash movements (698) (1,338)
Movement in net debt 415 (290)
Closing net debt (6,344) (6,759)
19 Borrowings
2023 2022
Current Non-current Total Current Non-current Total
£m £m £m £m £m £m
Loan due 2031 48 491 539 44 531 575
Bank overdrafts - - - 7 - 7
Transaction costs (1) (4) (5) - - -
Sainsbury's Bank Tier 2 Capital 6 116 122 3 176 179
53 603 656 54 707 761
a) Loan due 2031
The loan is secured against 48 (2022: 48) supermarket properties (note 12).
This is an inflation linked amortising loan from the finance company Longstone
Finance plc with an outstanding principal value of £527 million (2022: £566
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 £539 million (2022:
£575 million) with a final repayment date of April 2031.
The Group has entered into inflation swaps to convert £490 million (2022:
£490 million) of the £527 million (2022: £566 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 issuance 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) Sainsbury's Bank Tier 2 Capital
The Bank issued £120 million of fixed rate reset callable subordinated Tier 2
notes in September 2022. These notes pay interest on the principal amount at a
rate of 10.5 per cent per annum, payable in equal instalments semi-annually in
arrears, until March 2028 at which time the interest rate will reset. This was
issued in conjunction with a tender to repurchase and extinguish £120 million
of the existing £175 million subordinated Tier 2 notes that were issued in
November 2017. The Bank subsequently redeemed the remaining £55 million of
the existing £175 million issued in November 2022.
d) Short term borrowings
The Group refinanced its Revolving Credit Facility in December 2022. The new
Revolving Credit Facility is unsecured and is split into two Facilities, a
£500 million Facility (A) and a £500 million Facility (B). Facility A has a
maturity of December 2026 and Facility B has a maturity of December 2027. At 4
March 2023, the Revolving Credit Facility was undrawn (2022: 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 4 March 2023 (2022: undrawn).
e) Term loan
The Group issued a £575 million unsecured term loan in December 2022, with
maturity of March 2026. This new term loan refinanced the £575m Bridge Loan
Facility arranged in October 2022 with maturity of November 2024.
At 4 March 2023, the term loan was undrawn.
f) Transaction costs
Transaction costs are amortised on a straight-line basis over the life of the
facility they relate to.
20 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:
2023 2022
Sainsbury's Argos Group Sainsbury's Argos Group
£m £m £m £m £m £m
Present value of funded obligations (5,128) (793) (5,921) (8,060) (1,313) (9,373)
Fair value of plan assets 6,007 927 6,934 10,158 1,535 11,693
Retirement benefit surplus 879 134 1,013 2,098 222 2,320
Present value of unfunded obligations (12) (12) (24) (20) (17) (37)
Retirement benefit surplus 867 122 989 2,078 205 2,283
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:
2023 2022
£m £m
As at the beginning of the year 2,283 744
Net interest income 56 15
Remeasurement (losses)/gains (1,398) 1,457
Pension scheme expenses (6) (7)
Contributions by employer 44 71
Benefits paid 2 -
Past service credit - 3
Settlement gains 8 -
As at the end of the year 989 2,283
The principal actuarial assumptions used at the balance sheet date are as
follows:
2023 2022
% %
Discount rate 5.00 2.40
Inflation rate - RPI 3.25 3.60
Inflation rate - CPI 2.55 2.90
Future pension increases 1.90 - 2.95 2.30 - 3.45
Discount rate
The discount rate for the Scheme is derived from the expected yields on high
quality corporate bonds over the duration of the Group's pension scheme and
extrapolated in line with gilts with no theoretical growth assumptions. High
quality corporate bonds are those for which at least one of the main ratings
agencies considers to be at least AA (or equivalent).
Inflation
On 25 November 2022, the Government and UK Statistics Authority's joint
consultation response on RPI reform was published. This confirmed their
intention to amend the RPI calculation methodology to be aligned to that
already in use for the calculation of the CPI (including housing) with effect
from 2030. As a result, the Group reduced the post 2030 gap between RPI and
CPI to nil in the prior year, effectively assuming RPI will be aligned with
CPI post 2030, resulting in a single weighted average RPI-CPI gap of 0.70%
p.a. for the 4th March 2023 year-end. This approach has been applied
consistently in the current year.
Mortality
The base mortality assumptions are based on the SAPS S2 tables, with
adjustments to reflect the Scheme's population. Following the completion of
the 2021 triennial valuation and consideration of the previous three years of
mortality experience both in the Scheme and the UK as a whole, the Company has
decided to update the actuarial mortality base tables that determine the life
expectancy assumptions to reflect a best-estimate adjustment derived from
analysis carried out for the valuation. Future mortality improvements for the
2023 year-end are CMI 2021 projections with a long term rate of improvement of
1.25 per cent p.a. Future mortality improvements for the 2023 year-end are
CMI 2021 projections with a long term rate of improvement of 1.25 per cent
p.a. Future mortality improvements for the 2022 year-end were CMI 2021
projections with a long term rate of improvement of 1.25 per cent p.a.
While COVID-19 had an impact on mortality in 2020, the impact on future
mortality trends is currently unknown. All IAS 19 calculations use the CMI
model, which measures potential changes to future mortality trends. The
Group's policy is to use the available version as at the year-end which is
still CMI 2021 which was released on 9 March 2022.
As a result of the significant change to mortality in the CMI 2020 model, the
CMI modified the calibration process for CMI 2020 to allow choice on the
weighting placed on an individual year's data. For the Core version of CMI
2020, a weight of zero per cent was applied to 2020 data and weightings of 100
per cent for other years, so the potentially exceptional 2020 experience was
ignored when modelling future improvements. This approach was maintained for
CMI 2021, with zero per cent weighting applied to 2020 and 2021 data.
A 10 per cent weighting has therefore been applied again to the 2020 and 2021
mortality data, broadly reflecting that the effects of the pandemic were
significantly reduced going forwards with mortality rates for 2022 immediately
returning to those in 2019. Thereafter, mortality improvements are in line
with the CMI 2021 Core model. The impact of different weightings on the Scheme
liabilities is included in the sensitivities section within this note.
The life expectancy for members aged 65 years at the balance sheet date is as
follows:
Sainsbury's section Main Scheme Sainsbury's section Executive Scheme Argos section Sainsbury's section Main Scheme Sainsbury's section Executive Scheme Argos section
2023 2023 2023 2022 2022 2022
Years Years Years Years Years Years
Male pensioner 19.5 22.7 20.3 19.6 23.8 21.3
Female pensioner 23.3 24.0 23.4 23.5 25.0 23.9
The life expectancy at age 65 for members aged 45 years at the balance sheet
date is as follows:
Sainsbury's section Main Scheme Sainsbury's section Executive Scheme Argos section Sainsbury's section Main Scheme Sainsbury's section Executive Scheme Argos section
2023 2023 2023 2022 2022 2022
Years Years Years Years Years Years
Male pensioner 20.7 24.0 21.6 20.8 25.0 22.5
Female pensioner 24.9 25.5 24.8 25.0 26.5 25.4
21 Contingent liabilities
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
13,000 equal pay claims from circa 8,100 claimants and the Group believes that
further claims may be served. 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
depots, and the equalisation of wages and terms and conditions on an ongoing
basis.
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
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. In the event that any of the claimants
succeed at the second stage, there will be a third stage comprising further
hearings, in the following years, to consider Sainsbury's material factor
defences, relating to non-discriminatory reasons for any pay differential.
Completion of these two stages is likely to take many years which may involve
hearings and appeals. It is not possible to predict a final date with any
certainty.
If the Group is unsuccessful at the end of the litigation the liability could
be material but due to the complexity and multitudinous factual and legal
uncertainties we are not in a position to predict an outcome, quantum or
impact at this stage.
There are substantial factual and legal defences to these claims and the Group
intends to defend them vigorously.
22 Post balance sheet events
Subsequent to the Group's balance sheet date, on 14 March 2023 the Group
exchanged contracts for the purchase of Supermarket Income REIT's beneficial
interest in a commercial property investment pool, in which the Group already
held a beneficial interest. The purchase has been implemented through the
acquisition of Cornerford Limited, Horndrift Limited, Avenell Property PLC and
Hobart Property PLC.
The transaction completed on 17 March 2023 for a total consideration of £431
million (excluding costs), which is being paid in three tranches. £279
million was paid on 17 March 2023 and £117 million will be paid on 10 July
2023, whilst the third tranche of £35 million is conditional on the sale of
five stores from the property pool by the Group. Additionally, the Group will
fully fund the bond redemptions attached to the property pool, of which
£170.5 million was paid on 20 March 2023 and £130.4 million will be paid on
13 July 2023.
The total consideration and bond redemptions are to be funded by utilising
the Group's cash resources and also by drawing under the committed unsecured
term facility, from which the Group drew £200 million on 14 March 2023.
As this transaction took place subsequent to the Group's balance sheet date,
no adjustments are required to be made to the Group's financial
statements. As the transaction exchanged and completed after the balance
sheet date, control of the entities acquired only passed to the Group after
the balance sheet date and therefore the initial accounting for this
transaction has not yet been completed.
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 and Financial The measure is used widely in the retail industry as an indicator of current
Services, for stores that have been open for more than one year. trading performance and is useful when comparing growth between retailers that
The reported retail like-for-like sales increase of 2.6 per cent is based on a 2023 2022
have different profiles of expansion, disposals and closures. combination of Sainsbury's like-for-like sales and Argos like-for-like sales
for 2023. See movements below:
Retail like-for-like (exc. Fuel, inc. VAT) 2.6% (2.3)%
The relocation of Argos stores into Sainsbury's supermarkets are classified as Underlying net new space impact (0.6)% (0.3)%
new space, while the host supermarket is classified like-for-like. Retail sales growth (exc. Fuel, inc. VAT) 2.0% (2.6)%
Fuel impact 3.2% 6.0%
Total retail sales growth (inc. fuel, inc. VAT) 5.2% 3.4%
VAT impact (0.1)% (0.4)%
Within the comparative period, the impact on sales of stores which were Total retail sales growth per note 5 5.1% 3.0%
temporarily closed due to COVID-19 have been included within LFL sales. Only
permanently closed sites and those temporarily closed for non COVID-19 related
reasons are treated as non LFL.
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.
2023 2022
associates. £m £m
Group PBT (note 6) 327 854
Add back/(less) Group non-underlying items (note 4) 363 (124)
Group UPBT 690 730
Financial Services underlying operating profit (46) (38)
Retail underlying profit before tax 644 692
Net underlying finance costs 282 309
Retail underlying operating profit 926 1,001
Retail sales (note 5) 30,960 29,463
Retail underlying operating margin 2.99% 3.40%
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.
2023 2022
£m £m
Group PBT (note 6) 327 854
Add back/(less) Group non-underlying items (note 4) 363 (124)
Group UPBT 690 730
Financial Services underlying operating profit (46) (38)
Retail underlying profit before tax 644 692
Net underlying finance costs 282 309
Retail underlying operating profit 926 1,001
Retail sales (note 5) 30,960 29,463
Retail underlying operating margin 2.99% 3.40%
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.
2023 2022
£m £m
Retail underlying operating profit 926 1,001
Add: Retail depreciation and amortisation expense 1,175 1,197
Less: Non-underlying depreciation and amortisation (41) (53)
Retail underlying EBITDA 2,060 2,145
Retail sales (note 5) 30,960 29,463
Retail underlying EBITDA margin 6.65% 7.28%
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:
· 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:
· Non-underlying finance movements - these include fair
value remeasurements on derivatives not in a hedging relationship and lease
interest on impaired non-trading sites, including site closures. The fair
value movements are driven by external market factors and can significantly
fluctuate year-on-year. They are therefore excluded to ensure consistency
between periods. Lease interest on impaired, non-trading sites is excluded as
they do not contribute to the operating activities of the Group.
· IAS 19 pension interest - Although a recurring item, the
Group has chosen to exclude net retirement benefit income and costs from
underlying profit as, following closure of the defined benefit scheme to
future accrual, it is not part of the ongoing operating activities of the
Group and its exclusion is consistent with how the Directors assess the
performance of the business.
Underlying tax rate
Effective tax rate
Tax on underlying items, divided by underlying profit before tax.
Provides an indication of the tax rate across the Group before the impact of
non-underlying items.
The tax on non-underlying items is included in note 4 of the financial
statements.
APM Closest equivalent IFRS measure Definition Purpose Reconciliation
Cash flows and net debt
Retail cash flow items in Financial Review No direct equivalent N/A To help the reader understand cash flows of the business a summarised cash
flow statement is included within the Financial Review.
As part of this a number of line items have been combined. The cash flow in
4 March 2023 5 March 2022
note 6 of the financial statements includes a reference to show what has been Ref £m £m
combined in these line items. Net interest paid a (307) (323)
Capital repayment of lease liabilities b (512) (491)
Repayment of borrowings c (40) (256)
Other d (32) (27)
Dividends and distributions received e 51 2
Retail free cash flow Net cash generated from operating activities Net cash generated from retail operations, after cash capital expenditure and This measures cash generation, working capital efficiency and capital
including payments of lease obligations, cash flows from joint ventures and expenditure of the retail business.
associates and Sainsbury's Bank capital injections.
4March 2023 5 March 2022
£m £m
Cash generated from retail operations 2,216 1,940
Net interest paid (ref (a) above) (307) (323)
Corporation Tax (99) (23)
Retail purchase of property, plant and equipment (523) (416)
Retail purchase of intangibles assets (194) (229)
Retail proceeds from disposal of property, plant and equipment 29 46
Initial direct costs on right-of-use assets (16) (3)
Capital repayment of lease liabilities (512) (491)
Dividends and distributions received 51 2
Retail free cash flow 645 503
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.
securities) and pension cash contributions.
4March 2023 5 March 2022
£m £m
Retail cash generated from operating activities (note 6) 1,810 1,598
Perpetual security coupons - (4)
Adjusted net cash generated from operating activities 1,810 1,594
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.
2023 2022
£m £m
Purchase of property, plant and equipment (523) (416)
Purchase of intangibles (194) (229)
Cash capital expenditure (717) (645)
Retail free cash flow
Net cash generated from operating activities
Net cash generated from retail operations, after 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.
4 March 2023 5 March 2022
£m £m
Cash generated from retail operations 2,216 1,940
Net interest paid (ref (a) above) (307) (323)
Corporation Tax (99) (23)
Retail purchase of property, plant and equipment (523) (416)
Retail purchase of intangibles assets (194) (229)
Retail proceeds from disposal of property, plant and equipment 29 46
Initial direct costs on right-of-use assets (16) (3)
Capital repayment of lease liabilities (512) (491)
Dividends and distributions received 51 2
Retail free cash flow 645 503
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.
4 March 2023 5 March 2022
£m £m
Retail cash generated from operating activities (note 6) 1,810 1,598
Perpetual security coupons - (4)
Adjusted net cash generated from operating activities 1,810 1,594
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.
2023 2022
£m £m
Purchase of property, plant and equipment (523) (416)
Purchase of intangibles (194) (229)
Cash capital expenditure (717) (645)
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.
4March 2023 5 March 2022
£m £m
Retail working capital movements per cash flow (note 6) 185 (306)
Adjustments for:
Retail non-underlying impairment charges (note 6) 315 8
Non-underlying restructuring and impairment charges (note 4) (387) (92)
Bank non-underlying restructuring and impairment charges - 7
Accelerated depreciation (note 4) 20 33
Gains on early termination of leases (note 4) (2) (9)
Profit on disposal of properties within restructuring programme (note 4) (11) (12)
ATM income (note 4) 3 2
Income recognised in relation to legal disputes (note 4) 30 180
Property related transactions (note 4) (9) -
Other 7 1
Non-underlying working capital movements before cash movements (34) 118
Non-underlying cash movements:
Restructuring (note 4) 50 114
Bank restructuring - (4)
ATM income (note 4) (3) (14)
Income recognised in relation to legal disputes (note 4) (30) (93)
Property related transactions (note 4) 6 -
Retail non-underlying operating cash flows (excluding pensions) 23 3
Total adjustments for non-underlying working capital (11) 121
Underlying working capital movements 174 (185)
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 18 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
4March 2023 5 March 2022
comprehensive income (excluding equity investments) + net derivatives to hedge £m £m
borrowings + net cash and cash equivalents + loans + lease obligations. Financial instruments at FVTOCI per balance sheet 1,009 800
Less: equity related securities (383) (382)
Financial instruments at FVTOCI included in net debt 626 418
Net derivatives per balance sheet 213 259
Less: derivatives not used to hedge borrowings (213) (250)
Derivatives included in net debt - 9
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 18. 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 4 March 2023 52 weeks to 5 March 2022
business. £m £m
Underlying profit before tax 690 730
Add: Underlying net interest 282 309
Return is defined as 52 week rolling underlying profit before interest and Return 972 1,039
tax.
Capital employed is reconciled as follows:
52 weeks to 4 March 2023 52 weeks to 5 March 2022
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 7,253 8,423
is calculated on a 14-point basis. Less: Pension surplus (note 20) (989) (2,283)
Deferred tax on pension surplus (note 9) 330 640
Less: net debt (ex-perpetual securities) (note 18) 6,344 6,759
Effect of in-year averaging (101) (1,127)
The 14-point basis uses the average of 14 datapoints - the prior year closing Capital employed 12,837 12,412
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 7.6% 8.4%
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 4 March 2023 52 weeks to 5 March 2022
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 972 1,039
Add: Group depreciation and amortisation expense 1,208 1,220
Less: Non-underlying depreciation and amortisation expense (41) (53)
Group underlying EBITDA 2,139 2,206
Repayment of capital element of lease obligations (514) (493)
Underlying finance income 18 3
Underlying finance costs (300) (312)
Fixed charges (796) (802)
Fixed charge cover 2.7 2.8
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 18. 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 4 March 2023 52 weeks to 5 March 2022
£m £m
Underlying profit before tax 690 730
Add: Underlying net interest 282 309
Return 972 1,039
Capital employed is reconciled as follows:
52 weeks to 4 March 2023 52 weeks to 5 March 2022
£m £m
Group net assets 7,253 8,423
Less: Pension surplus (note 20) (989) (2,283)
Deferred tax on pension surplus (note 9) 330 640
Less: net debt (ex-perpetual securities) (note 18) 6,344 6,759
Effect of in-year averaging (101) (1,127)
Capital employed 12,837 12,412
Return on capital employed 7.6% 8.4%
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 4 March 2023 52 weeks to 5 March 2022
£m £m
Group underlying operating profit 972 1,039
Add: Group depreciation and amortisation expense 1,208 1,220
Less: Non-underlying depreciation and amortisation expense (41) (53)
Group underlying EBITDA 2,139 2,206
Repayment of capital element of lease obligations (514) (493)
Underlying finance income 18 3
Underlying finance costs (300) (312)
Fixed charges (796) (802)
Fixed charge cover 2.7 2.8
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