REG - Sainsbury(J) PLC - Half-year Report
03/11/2022 07:00
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RNS Number : 1422F Sainsbury(J) PLC 03 November 2022
3 November
2022
J Sainsbury PLC
Interim Results for the 28 weeks ended 17 September 2022
Strategy delivering for customers, colleagues, communities and shareholders
Simon Roberts, Chief Executive of J Sainsbury plc, said: "Two years ago we
launched our plan to put food back at the heart of Sainsbury's. We committed
to improve shareholder returns by creating a simpler business and reducing
costs to invest in lower prices, food innovation and maintaining colleague and
customer satisfaction. We have grown market share in both grocery and general
merchandise and investment in our stores and colleagues is supporting leading
supermarket customer satisfaction and availability. Profits are significantly
higher than pre-Covid levels and we are generating strong cash flow,
supporting debt reduction and dividend payments.
"We really get how tough it is for millions of households right now. Customers
are watching every penny and every pound and we know that they are relying on
us to keep food prices as low as we can. We will have invested more than £500
million by March 2023 in keeping prices lower by cutting our costs at a faster
rate than our competitors(1), meaning we have more firepower to battle
inflation. Over the past year and a half we have consistently passed on less
price inflation than our competitors and I am confident we have never been
better value. Argos is also performing well in a market where customers are
looking for reassurance that they are getting great value and availability.
"We were the first supermarket to give our colleagues a second pay rise this
year and have invested £150 million to support them and drive outstanding
service. I want to thank all my colleagues for their hard work and dedication
and for everything they are doing to deliver for our customers. Our strong
results are testament to the outstanding commitment and contribution from
every member of our team."
Financial Highlights
· Grocery sales up 0.2 per cent in H1. Strong growth in Q2 of 3.8 per
cent as lockdown comparatives eased, market price inflation accelerated,
customers responded well to the strength of our offer and we benefited from
warm weather. Grocery sales were 9.3 per cent higher than H1 19/20
· General merchandise sales down 6.1 per cent across H1 but up 1.2 per
cent in Q2, driven by improved availability, favourable summer weather and
strong market share gains. Growth was driven by categories such as consumer
electronics and seasonal products
· Statutory Group sales (excluding VAT) up 4.4 per cent, with fuel
sales up 39.5 per cent. Like-for-like sales (excluding fuel) down 0.8 per
cent, with Q2 up 3.7 per cent after a decline of 4.0 per cent in Q1
· Retail operating profit down 9 per cent, reflecting our investment in
value, reduced grocery and general merchandise volumes post-pandemic and
higher operating costs, partially offset by a higher fuel contribution
· Underlying profit before tax of £340 million, down 8 per cent;
Financial Services operating profit of £19 million, flat year-on-year, and
finance costs 9 per cent lower. UPBT up 43 per cent versus H1 19/20
· Statutory profit before tax of £376 million, down 29 per cent,
reflecting higher exceptional income in the prior year from settlement of
legal disputes
· H1 net funds balance £361 million. Strong retail free cash flow of
£759 million, up 37 per cent, reflecting higher grocery sales and more
typical seasonal working capital inflows against last year's impact of Covid
unwind. On track to deliver guidance of at least £500 million free cash flow
in FY22/23
· Interim dividend of 3.9 pence
· Guidance unchanged: continue to expect FY22/23 underlying profit
before tax of between £630 million and £690 million
Strategic highlights
· Food First: Strong grocery volume market share performance and only
full choice supermarket to grow volume share versus pre-pandemic(2). As
customer shopping habits return to normal, online sales are down, but we are
gaining overall grocery market share as online customers return to shop in our
stores(3)
o Value: Consistently inflating behind the market(4), driven by more than
£500 million investment over two years to keep prices low. Continuing to
strengthen value position versus competitors; value index versus Aldi has
improved by 400 basis points in the past 12 months(5)
o Our mix and basket size trends are proving more resilient than competitors
and we are seeing less switching to Aldi and Lidl than all other full choice
supermarkets(6), reflecting the strength of our brand and customer base
o Innovation: Launched over 600 new products and on track to launch 1,200
new products by the end of this year. Sales of new Summer Editions products
exceeded expectations, over 70 per cent more products in our Autumn Editions
range this year. Launching 300 new Christmas products, over 50 per cent of
which are Taste the Difference. Taste the Difference is outperforming the
market(7) with H1 sales are up 14 per cent versus pre-pandemic, as customers
choose to treat themselves at home
o Service: £150 million annual investment in colleague pay and benefits to
support colleagues with the cost of living and drive outstanding service. We
have given hourly paid colleagues two pay rises this year, as well as free
food during shifts and offered all colleagues improved discounts. We are
making significant investments to enhance our stores, which are attracting
more customers as shopping behaviours normalise post-pandemic, driving strong
satisfaction scores in supermarkets ahead of competitors(8)
· Brands that Deliver: We are building brands that deliver both for our
customers and for our shareholders. Argos is considerably more profitable
versus pre-pandemic and over 10 million customers are now registered with the
Nectar app. Habitat is growing strongly and Tu's great value fashion continues
to win customers. Sainsbury's Bank is delivering on its strategic objectives,
focused on providing financial services products for Sainsbury's and Argos
customers
o Argos delivered market outperformance(9) and is more resilient than
competitors. Argos sales grew 1.6 per cent in Q2. By focusing on investing in
our brands and developing core capabilities, we have improved availability and
range. Hot weather supported sales of seasonal and electronic goods over the
Summer
o Tu clothing full price sales remain above pre-pandemic levels. Womenswear
dress sales up 40 per cent
o Continued focus on building the Habitat brand with strong sales growth in
Habitat Kids and improved customer satisfaction scores(10)
o Over 10 million customers have downloaded the Nectar app; My Nectar Prices
is helping customers save over £100 a year. We now expect Nectar360 to
deliver incremental profits of at least £90 million by March 2026, up from
previous guidance of £60-70 million
o Good progress against plan to simplify and strengthen Financial Services
reflected in solid performance despite challenging market conditions
· Save to Invest: Strong delivery of structural cost savings. We expect
to deliver over £1.3 billion of cost savings in the three years to FY23/24,
doubling the run rate from the three years to FY19/20. This is helping
mitigate higher than expected operating cost inflation.
· Plan for Better: We are making good progress on our Plan for Better.
We have removed 'best before' dates from 100 more products and, as part of our
commitment to Help Everyone Eat Better, at least 75 per cent of products price
matched to Aldi are a healthy choice. We have distributed over six million
meals in partnership with Neighbourly in the last year and introduced
refreshed Human Rights commitments. We have reduced greenhouse gas emissions
within our own operations by 44.5 per cent year-on-year, supporting our
accelerated commitment to be Net Zero by 2035
H1 Financial Summary 2022/23 2021/22 YoY
Statutory performance
Group revenue (excl. VAT, inc. fuel) £16,408m £15,724m 4.4%
Profit before tax £376m £527m (29%)
Profit after tax £285m £378m (25%)
Basic earnings per share 12.3p 16.8p (27%)
Business performance
Group sales (inc. VAT) £18,338m £17,528m 4.6%
Retail sales (inc. VAT, excl. fuel) £14,674m £14,871m (1.3%)
Underlying profit before tax £340m £371m (8%)
Underlying basic earnings per share 11.2p 12.2p (8%)
Interim dividend per share 3.9p 3.2p 22%
Net debt (inc. lease liabilities) £(6,165)m £(6,345)m +£180m
Non-lease net funds / (debt) £361m £(27)m +£388m
Return on capital employed 7.7% 6.3% 140bps
Like-for-like sales performance 2021/22 2022/23 YoY
Q1 Q2 Q3 Q4 Q1 Q2 H1
Like-for-like sales (excl. fuel) 1.6% (1.4%) (4.5%) (5.6%) (4.0%) 3.7% (0.8%)
Like-for-like sales (incl. fuel) 8.4% 3.0% 0.6% 2.7% 2.9% 7.7% 4.9%
Total sales performance 2021/22 2022/23 YoY 2022/23 Yo3Y
Q1 Q2 Q3 Q4 Q1 Q2 H1 Q1 Q2 H1
Grocery 0.8% 0.8% (1.1%) (1.6%) (2.4%) 3.8% 0.2% 8.7% 10.1% 9.3%
Total General Merchandise (1.4%) (11.4%) (16.0%) (21.1%) (11.2%) 1.2% (6.1%) (6.2%) (3.6%) (5.0%)
GM (Argos) (3.7%) (12.0%) (16.1%) (20.4%) (10.5%) 1.6% (5.5%) (4.5%) (0.9%) (2.9%)
GM (Sainsbury's) 11.2% (8.0%) (15.7%) (24.1%) (14.6%) (1.3%) (9.1%) (13.8%) (15.5%) (14.5%)
Clothing 57.6% 9.2% (2.7%) (9.3%) (10.1%) (0.2%) (6.0%) 3.9% 0.8% 2.5%
Total Retail (excl. fuel) 1.6% (1.7%) (5.3%) (6.2%) (4.5%) 3.1% (1.3%) 5.4% 6.7% 5.9%
Fuel 95.1% 36.1% 47.5% 80.1% 48.3% 29.1% 39.5% 26.9% 24.2% 25.8%
Total Retail (incl. fuel) 8.5% 2.7% (0.1%) 2.2% 2.5% 7.2% 4.4% 8.9% 9.6% 9.2%
Outlook
Trading momentum has remained strong in the first few weeks of the second half
and we have continued to make volume market share gains. This reflects
continued investment in our customer offer, supported by the strength of our
financial position and cost savings programme.
We are well placed through the peak trading period and into next financial
year to support customers as they manage further cost of living pressures. We
are half way through a £1.3 billion cost saving programme that has doubled
the run rate of previous years and we are confident in our competitive
position in the face of macro challenges and operating cost inflation.
We continue to expect underlying profit before tax in FY22/23 to be between
£630 million and £690 million and to generate retail free cash flow of at
least £500 million.
Notes
Certain statements made in this announcement are forward-looking statements.
Such statements are based on current expectations and are subject to a number
of risks and uncertainties that could cause actual events or results to differ
materially from any expected future events or results referred to in these
forward-looking statements. They appear in a number of places throughout this
announcement and include statements regarding our intentions, beliefs or
current expectations and those of our officers, directors and employees
concerning, amongst other things, our results of operations, financial
condition, liquidity, prospects, growth, strategies and the business we
operate. Unless otherwise required by applicable law, regulation or accounting
standard, we do not undertake any obligation to update or revise any
forward-looking statements, whether as a result of new information, future
developments or otherwise.
A webcast presentation and live Q&A will be held at 9:00 (GMT). This will
be available to view on our website at the following link:
https://sainsbury-s-q2-interim-results-presentation.open-exchange.net/registration
(https://sainsbury-s-q2-interim-results-presentation.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 2022/23 Third Quarter Trading Statement at 07:00
(GMT) on 11 January 2023.
Enquiries
Investor Relations Media
James Collins Rebecca Reilly / Victoria Durman
+44 (0) 7801 813 074 +44 (0) 20 7695 7295
Food First
We are focused on building on our strong brand heritage and reputation for
quality, range and innovation while lowering prices and offering consistent
value for money in an inflationary environment. Our strategy is delivering; we
are improving the value we provide for customers, there are more new products
on our shelves and our colleagues are delivering improved customer service. We
are winning market share and growing our grocery sales.
Value
· We have consistently inflated prices behind competitors, both
overall and on the best-selling items that are most important to
customers(11). Our value position across the whole basket continues to improve
versus competitors, including improving by 400 basis points versus Aldi in the
last 12 months(5). We announced our biggest ever September investment in food
of £60 million as part of our commitment to invest £500 million by March
2023
· We are matching Sainsbury's quality with Aldi prices on 240 of
our most popular products and we recently increased the number of own-brand
products in Price Lock by 20 per cent as more customers switch from branded to
own-brand products
· We have improved the visibility in store and online of our
Special Offers and increased our meal bundles, driving improved customer
satisfaction with our promotional offer
· Our mix and basket size trends are proving more resilient than
competitors and we are seeing less switching to the limited choice
supermarkets than the other full choice supermarkets, reflecting our improving
value position and the strength of our brand and customer base(6)
Quality and Innovation
· We are on track to launch 1,200 new products this year, having
already created over 600 new products in H1. Summer Editions sales were up
over 30 per cent year-on-year
· We also launched our second Autumn Editions range with over 70
per cent more products than last year, including our Stanley Plum Tart and
Tuscan Pork Ragu. We will launch 300 new Christmas products and 50 per cent of
these will be Taste the Difference
· Taste the Difference sales are up by 14 per cent on a three-year
basis. We launched 160 new Taste the Difference products, up 40 per cent
year-on-year and we outperformed the market overall(7) and at key events such
as Easter and the Queen's Jubilee. We also launched 21 new Inspired to Cook
products to help customers cook tasty food at home
· Customer satisfaction scores for quality remain ahead of our full
choice supermarket competitors and we are the only full choice supermarket to
improve on quality perception scores while maintaining price perception scores
over a three-year period(12)
· We have invested to change the layout of our supermarkets and
convenience stores in line with the government's High in Fat, Salt and Sugar
(HFSS) guidance and to enhance our Fresh, Food Service and Grocery sections
· Through our partnership with Boparan Restaurant Group we have
opened two further "The Restaurant Hub" food halls, bringing the total to four
and we now have 50 Starbucks cafés in Sainsbury's supermarkets
Service
· In September we announced a £25 million package to support
colleagues with the cost of living. This included a second pay rise this year
for 127,000 hourly-paid colleagues, raising the base rate to £10.25 per hour
nationally and £11.30 per hour in London. The package also includes free food
during shifts and increased discounts at Sainsbury's and Argos
· Investment in colleagues and our stores is supporting strong
supermarket customer satisfaction scores. Customer satisfaction stores are
ahead of competitors in availability, speed of checkout, quality and colleague
availability(13)
· We are well positioned to serve our customers wherever and
however they want to shop. As customer shopping habits normalise and people
return to stores post-pandemic, we are growing overall market share with a
higher proportion of online customers switching to our own stores versus
competitors(14). Supermarket sales grew 3 per cent(15)
· Convenience sales are now 7 per cent higher than pre-pandemic,
driven by particularly strong growth in less urban convenience stores
· Our online productivity metrics have improved with item pick rate
per hour up 13 per cent versus pre-pandemic and deliveries per hour up 9 per
cent
· By the end of the financial year we plan to have opened around 16
convenience stores, closed three supermarkets and closed eight convenience
stores as part of our focus on having stores that are in the best locations
for customers
· We now deliver around 118,000 On Demand grocery orders per week
in as little as 30 minutes from nearly 700 stores through our Chop Chop
service and partnerships with Deliveroo and Uber Eats
Brands that Deliver
We are strengthening our brands, so that they deliver more consistently both
for our customers and for our shareholders. They must contribute positively in
their own right and support our ambitions in food. Argos is performing well in
a market where customers are looking for reassurance on value and is
considerably more profitable than pre-pandemic. Habitat is growing strongly
and Tu is holding up well despite pressure on customers' disposable incomes.
Over 10 million customers are now registered with the Nectar app and
Sainsbury's Bank's performance has been resilient in a toughening environment.
Argos
· After declines in Q1 against a lockdown comparative, Argos sales
increased by 1.6 per cent in Q2, helped by significantly improved product
availability year-on-year and the impact of good Summer weather on seasonal
sales. Sales were particularly strong in consumer electronics and gardening
tools, barbecues and outdoor toys
· Our Argos transformation programme is on track and profitability
is significantly higher than pre-pandemic levels. We now have 414 Argos stores
inside Sainsbury's supermarkets, making it easier for customers to shop for
general merchandise conveniently. We have opened 11 Local Fulfilment Centres,
ensuring we can serve more customers with more products faster
Habitat
· We continue to build the Habitat brand, supporting strong sales
growth. Our Autumn/Winter campaign focused on Habitat's breadth of range and
value for money and products featured in the campaign are selling well
· Our Habitat Kids range delivered a particularly strong
performance, especially in bedroom furniture and bedding
· Customer satisfaction scores have improved; value perception is
up 2.4 percentage points year-on-year and brand awareness is up 2.8 percentage
points(10)
· In October we announced a one-year partnership with British
designer Sebastian Conran, son of Habitat founder Sir Terence Conran,
including new collaborative ranges and a mentoring scheme for Habitat
designers and buyers
Tu
· Our clothing business remains strong and structurally more
profitable than pre-pandemic, with significantly lower promotional
participation. Overall clothing sales were 2.5 per cent higher than H1 19/20
and full price sales grew from 64 per cent to 80 per cent
· We delivered a record performance in womenswear dress sales, up
40 per cent, and a good performance in Back to School clothing sales
· Our latest Tu & Me campaign Autumn collection was well
received by customers
Nectar
· Nectar is the UK's biggest loyalty programme and over 10 million
customers are now registered with the app
· SmartShop usage continues to increase and helps to drive value
for customers by enabling them to track their spend and benefit from My Nectar
Prices, which offers personalised discounts where customers can save over
£100 a year
· Nectar is also increasingly popular with Argos customers and is
now used in over 30 per cent of Argos sales
· Nectar360 is now working with more than 700 suppliers and is
tracking ahead of its previous target to deliver incremental profits of £60
million to £70 million. We now expect Nectar360 to deliver incremental
profits of at least £90 million by March 2026
Financial Services
· We are making good progress with our plan to strengthen and
simplify our Financial Services business and we continue to invest in
digitisation
· Financial Services delivered underlying operating profit of £19
million in the half, in line with last year. Underlying revenues were up 19
per cent, driven by an increase in credit demand and a recovery in ATM and
Travel Money commission income. Additional provisioning has been made on the
back of the subdued economic environment and as portfolio
behaviours normalise post-pandemic, but overall arrears levels remain low
· In May we re-opened all our Travel Money Bureaux and revenues
have recovered well as travel has returned, although revenues remain below
pre-pandemic levels. ATM transaction volumes are up over 6 per cent
year-on-year
· We launched our Digital Savings platform, significantly improving
the customer experience
· Sainsbury's Bank paid its first dividend of £50 million to the
Group in H1
Save to Invest
Two years ago we set out to deliver a step change in efficiency by
transforming our approach to costs, simplifying our organisation and
delivering a structural reduction in our operating cost base. We are pleased
with the level of structural cost savings delivered so far and we are in a
strong place. The scale of our cost savings delivery is enabling us to make
bold investments in our core food business.
· We expect to deliver over £1.3 billion of cost savings in the
three years to FY23/24, doubling the run rate from the three years to FY19/20.
Halfway through this programme, we have delivered £730 million of savings.
Cost inflation is considerably higher than we had anticipated, but our strong
programme of cost savings is helping us to mitigate the impact of inflation
and invest in low prices for customers and in colleague pay ahead of key
competitors
· Argos is delivering improved profitability driven by our
end-to-end strategic transformation programme. We expect to close around 50
Argos standalone stores and open around 25 Argos stores inside Sainsbury's
this financial year
· By March 2024, we expect to have around 160 Argos standalone
stores, 430-460 Argos stores inside Sainsbury's supermarkets and 450-500
collection points. We had previously guided to around 100 standalone Argos
stores by this date; this change reflects progress in rent negotiations
· We have opened 11 Local Fulfilment Centres and as a result, our
customers are benefitting from improved availability and faster delivery. We
are on track to make a total saving of £105 million by the end of March 2024
for the overall Argos transformation programme
· We continue to review ways to make our stores more efficient,
easy and convenient to shop. Introducing more self-service checkouts means our
colleagues are able to focus on different tasks and deliver improved service
and improves customer satisfaction scores for speed of checkout
· We continue to improve the profitability of Groceries Online,
consistently reducing the cost to serve while delivering an improved customer
experience
· The transformation of our café, bakery and hot food counters is
on track to save over £160 million over the three years to FY22/23. We have
so far closed 312 food counters and 260 cafés. We have opened two further
'The Restaurant Hub' food halls and we now have 50 Starbucks cafés in
Sainsbury's stores. By working with third parties we can deliver for customers
and support our own cost saving programme
· We are making good progress with the integration of Sainsbury's,
Argos and Habitat supply chain and logistics networks, which will save at
least £250 million over the programme
· We have made good progress in reducing overall energy consumption
throughout our business which is in turn supporting cost savings. We have
reduced electricity consumption (kWh) across Sainsbury's and Argos by 23 per
cent over the last three years, by rolling out LED lighting in 100 per cent of
our stores and fitting aerofoil technology in our fridges among other
initiatives
· We believe we are in a good position relative to the industry on
our proportion of Net Zero energy sourcing. We have committed to the long-term
purchasing of renewable energy from new windfarms which gives us good
protection from variable cost inflation
Plan for Better
As a responsible retailer, we want to Help Everyone Eat Better, offering
products that help customers reduce their impact on the environment one plate
at a time. We are making good progress against our plan to become Net Zero
across our own operations by no later than 2035.
Better for You
Healthy and sustainable diets
· We are committed to keeping prices low on healthy foods; at least
75 per cent of products in our Aldi price-matched promotion are a Healthy or
Better For You choice
· We have reintroduced £2 top-up coupons to buy fruit and
vegetables, to accompany the Government-funded NHS Healthy Start scheme every
week over the next six months in England. This could help feed more than half
a million pregnant women and children in need of support
· We are inspiring customers to eat well on a budget with the
re-launch of 'Feed your Family for a Fiver' campaign and by sharing Healthy
and Better for You recipes online
Better for the Planet
Carbon
· We have reduced greenhouse gas emissions (GHG) within our own
operations by 44.5 per cent year-on-year, mainly driven by our transition to
100 per cent renewable electricity as well as our ongoing GHG emission
reduction initiatives
· Coming together with other retailers, we collectively invested
£9 million in the Responsible Commodities Facility (RCF) to provide financial
incentives to farmers in Brazil who commit to 100 per cent deforestation and
conversion-free (DCF) soy cultivation
· We launched our new innovation investment programme, in
partnership with Williams Advanced Engineering, and are pledging to invest £5
million to help support small businesses pioneering sustainable technologies
Food Waste
· We have removed 'best before' dates from 100 Fresh products and
will have removed these dates from a further 130 products by the end of the
year
· We reduced operational food waste across our business by 7 per
cent
· In the year since launching our partnership with Neighbourly, we
have distributed over six million meals, supporting an average of 750,000
people each week
Plastic and Recycling
· We became the first retailer to launch our own refillable
handwash pouch, saving 26 tonnes of plastic per year and replaced our double
concentrate squash bottles to quadruple concentrate, saving 185 tonnes of
plastic each year
· We launched new double-length toilet rolls, reducing packaging by
30 per cent and saving customers money
· Since launching our partnership with Newlife in 2019, we have
donated 65.5 tonnes of unsellable clothing
Better for Everyone
Human Rights
· We published our first Human Rights saliency report and set out
five Human Rights commitments, based on our most salient human rights risks
and emerging issues that affect the people within our supply chain
Diversity and Inclusion
· We launched the 'Thrive with Sainsbury's' programme, which
supports Black founder-led brands to create food and drink products and
committed £1 million to help these businesses grow and to mentor
participating founders
· We have made good progress against our Diversity and Inclusion
targets and have increased both black and female representation in senior
leadership positions year-on-year
Animal Health and Welfare
· We were awarded 'UK Retailer of the Year 2022' by the Aquaculture
Stewardship Council (ASC)
· We are focusing on a refreshed commitment to improve animal
health and welfare and practising responsible antibiotic stewardship
(1) Nielsen panel, Total Average Selling Price growth YoY, 52 weeks to 17 Sept
2022. Total FMCG exc. Kiosk & Tobacco
(2) Nielsen panel volume growth Yo3Y. Total FMCG excl. Kiosk & Tobacco, 28
weeks to 17 Sept 2022. Total Outlets
(3) Nielsen panel volume growth YoY. Total FMCG excl. K&T, 12 weeks to 17
Sept 2022. Total universe: Total Outlets
(4) Nielsen panel, Total Average Selling Price growth YoY, 52 weeks to 17 Sept
2022. Total FMCG exc. Kiosk & Tobacco
(5) Value Reality. H1 Mar-Sept 2022 vs H1 Mar-Sept 2021; Edge by Ascential,
internal modelling
(6) NielsenIQ panel data. Net volume switching £m to Aldi + Lidl as % of each
retailer's relative volume. 28 weeks to 17 September 2022
(7) Nielsen panel, Premium OL market - Total FMCG excl. Kiosk and Tobacco.
Volume growth differential for 12 weeks to 17 September 2022. Total universe:
total outlets
(8) Supermarket CSAT. Competitor Benchmarking. 12 weeks to 17 Sept 2022
(9) BRC data, 28 weeks to 17 Sept 2022. Argos differential, Total NFNC (exc.
H&B & stationery) sales
(10) YouGov Value Perception and Brand Awareness scores for Habitat brand. H1
22/23 average scores vs H1 21/22 average scores
(11) Nielsen panel data, Top 100 SKUs by retailer. Average Selling Price YoY
growth. 52 weeks to 17 Sept 2022
(12) OC&C Proposition Index, Grocery Price vs Quality, August 2022 survey
(13) Nielsen panel data. Proportion of H1 22/23 value switching back into own
stores. Average of other online players = Tesco, Asda, Morrisons
(14) Competitor benchmarking survey. Q2 22/23 supermarket CSAT scores 12 weeks
to 17 September 2022
(15) Including Argos stores in Sainsbury's sales
Financial Review for the 28 weeks to 17 September 2022
In the 28 weeks to 17 September 2022, the Group generated profit before tax of
£376 million (HY 2021/22: £527 million) and an underlying profit before tax
of £340 million (HY 2021/22: £371 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 Note 2.5 on page 25 for further
information.
The prior period (28 weeks to 18 September 2021) results have been restated to
reflect the removal of business rates from onerous property contract
provisions. Refer to note 2 of the accounts for further information.
Summary income statement(1) 28 weeks to 28 weeks to 52 weeks to
17 September 18 September Change 05 March
2022 2021 2022
£m £m % £m
Group sales (including VAT) 18,338 17,528 4.6 33,355
Retail sales (including VAT) 18,084 17,315 4.4 32,924
Retail sales (excluding fuel, including VAT) 14,674 14,871 (1.3) 28,095
Group sales (excluding VAT) 16,408 15,724 4.4 29,895
Retail sales (excluding VAT) 16,154 15,511 4.1 29,463
Underlying operating profit
Retail 477 523 (9) 1,001
Financial services 19 19 - 38
Total underlying operating profit 496 542 (8) 1,039
Underlying net finance costs(2) (156) (171) 9 (309)
Underlying profit before tax 340 371 (8) 730
Items excluded from underlying results(3) 36 156 (77) 124
Profit before tax 376 527 (29) 854
Income tax expense (91) (149) 39 (177)
Profit for the financial period 285 378 (25) 677
Underlying basic earnings per share 11.2p 12.2p (8) 25.4p
Underlying diluted earnings per share 11.1p 11.6p (4) 24.5p
Basic earnings per share 12.3p 16.8p (27) 29.8p
Diluted earnings per share 12.1p 16.1p (25) 28.8p
Dividend per share 3.9p 3.2p 22 3.2p
1 Prior year restated - refer to note 2 of the financial statements
2 Refer to APMs and note 7 of the financial statements
3 Refer to APMs and note 3 of the financial statements
The first half has seen strong delivery against a tough comparator which
benefitted from elevated sales in Q1 as a result of the last COVID-19
restrictions. The ongoing delivery of our cost programme has allowed us to
largely mitigate the impact of rising operating cost inflation and deliver for
customers, colleagues and investors. We have consistently prioritised
protecting value for customers, raising prices less than the market, and this
remains key to our strategy to grow volume market share. We have supported
colleagues through this period of higher inflation with a 2(nd) pay rise
during the year, and are delivering for shareholders with another strong
retail free cash flow result to support the higher dividend pay-out ratio
announced in our preliminary results.
Group sales
Group sales including VAT increased by 4.6 per cent year-on-year whilst Retail
sales (including VAT, including fuel) increased by 4.4 per cent year-on-year,
driven by a significant increase in Fuel sales. Retail sales (including VAT,
excluding fuel) decreased by 1.3 per cent.
Total sales performance by category 28 weeks to 28 weeks to
17 September 2022 18 September 2021 Change
£bn £bn %
Grocery 11.3 11.3 0.2%
General Merchandise 2.9 3.1 (6.1)%
Clothing 0.5 0.5 (6.0)%
Retail (exc. fuel) 14.7 14.9 (1.3)%
Fuel sales 3.4 2.4 39.5%
Retail (inc. fuel) 18.1 17.3 4.4%
Sales strengthened through the half, with the first quarter annualising strong
sales from COVID-19 restrictions in the prior year, and the second quarter
also benefited from warmer weather than the prior year. Grocery inflation in
the market increased during the period, but we continued to prioritise value
for customers, inflating behind all key competitors.
General Merchandise sales saw the strongest impact from prior year comparators
and returned to growth in the second quarter, driven by improved availability
and market share gains. Consumer electronics sales growth was particularly
strong against a period of supply challenges last year and seasonal sales
benefited from a warm summer. Clothing saw a similar pattern with sales
broadly flat in the second quarter.
Fuel sales increased by 39.5 per cent, with higher sterling oil prices leading
to inflation of 36.9 per cent. Fuel sales are now 25.8 per cent above
pre-COVID-19 levels.
Total sales performance by channel 28 weeks to 28 weeks to
17 September 2022 18 September 2021
Total Sales fulfilled by Supermarket stores (0.5)% (0.5)%
Supermarkets (inc Argos stores in Sainsbury's) 2.9% (3.0)%
Groceries Online (17.4)% 12.8%
Convenience 10.5% 4.9%
Overall sales fulfilled from our Supermarkets fell by 0.5 per cent, driven by
a 17.4 per cent decline in Groceries Online as some customers returned to
stores following restrictions in the prior year. Conversely, sales in
Convenience stores continued to recover, growing 10.5 per cent, with growth
strongest in Food on the Move city centre stores and more urban locations.
Overall, compared to pre-COVID-19 2019/20, Groceries Online sales are up 88.5
per cent.
Retail like-for-like sales performance 28 weeks to 28 weeks to
17 September 2022 18 September 2021
Like-for-like sales (exc. fuel) (0.8)% 0.3%
Like-for-like sales (inc. fuel) 4.9% 6.1%
Retail like-for-like ('LFL') sales excluding fuel were down in the half
reflecting tough first quarter comparisons, but grew 3.7 per cent in the
second quarter.
Space
In the first half of 2022/23, Sainsbury's closed one Supermarket (2021/22 one
opening and one closure). We opened four new Convenience stores and two were
closed (2021/22 opened eight convenience stores and closed 10). During the
period we opened 14 new Argos stores in Sainsbury's and one standalone Argos
store, and closed 25 standalone Argos stores (2021/22 opened 37 stores in
Sainsbury's and closed 36 standalone stores). In total Argos had 718 stores
and 375 collection points at the end of the period.
Store numbers and retailing space
As at New stores Disposals / closures Extensions / refurbishments / downsizes As at
5 March 17 September
2022 2022
Supermarkets 598 - (1) 14 597
Supermarkets area '000 sq. ft. 20,803 - (16) (16) 20,771
Convenience 809 4 (2) - 811
Convenience area '000 sq. ft. 1,918 11 (4) - 1,925
Sainsbury's total store numbers 1,407 4 (3) 14 1,408
Argos stores 328 1 (25) - 304
Argos stores in Sainsbury's 400 14 - - 414
Argos total store numbers 728 15 (25) - 718
Argos collection points 335 45 (5) - 375
Habitat 3 - - - 3
In 2022/23, we expect to open around 16 new convenience stores, and to close
three supermarkets and eight convenience stores. In addition, we expect to
open around 25 Argos stores inside Sainsbury's, and close around 50 Argos
standalone stores.
In the UK, we expect the standalone Argos store estate will reduce to around
160 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 100 standalone Argos stores by this date, and this
change reflects progress in rent negotiations.
Retail underlying operating profit
Retail underlying operating profit decreased by 8.7 per cent to £477 million
(HY 2021/22: £523 million) and retail underlying operating margin decreased
by 42 basis points year-on-year to 2.95 per cent (HY 2021/22: 3.37 per cent).
This decline in profit reflects our investment in value, reduced volumes as we
annualise COVID-19 restrictions and higher levels of operating cost inflation,
offset by both higher fuel sales and our ongoing Save to Invest Programme.
Continued work on our retail operating model delivered strong savings in both
Sainsbury's and Argos, led by enhanced labour modelling and further savings in
Online as we continue to embed the rapid capacity growth during COVID-19 and
improve pick rates. The Argos Transformation programme continued to deliver
savings as we integrate Argos and Sainsbury's and reduce occupancy and store
operational costs.
Retail underlying operating profit
28 weeks to 28 weeks to
17 September 18 September YoY
2022 2021 Change
Retail underlying operating profit (£m)(1) 477 523 (8.7)%
Retail underlying operating margin (%)(2) 2.95 3.37 (42)bps
Retail underlying EBITDA (£m)(3) 1,087 1,141 (4.7)%
Retail underlying EBITDA margin (%)(4) 6.73 7.36 (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 £610 million.
4 Retail underlying EBITDA divided by retail sales excluding VAT.
In 2022/23, we now expect a depreciation and amortisation charge of around
£1,150 million, including around £500 million right of use asset
depreciation.
Financial Services
Financial Services results
6 months to 31 August 2022
2022 2021 Change
Underlying revenue (£m) 254 213 19%
Interest and fees payable (£m) (28) (30) (7)%
Total income (£m) 226 183 23%
Underlying operating profit (£m) 19 19 0%
Net interest margin (%)(1) 5.2 4.3 Up 90bps
Cost:income ratio (%) 67 72 Down 500bps
Bad debt as a percentage of lending (%)(2) 2.2 1.3 Up 90bps
Active customers (m) - Bank 1.9 1.8 3.6%
Active customers (m) - AFS 2.1 2.1 (1.6)%
Total capital ratio (%)(3, 4) 17.3 20.1 Down 280bps
Total Customer lending (£bn)(5) 5.1 5.0 2%
Unsecured lending (£bn) 4.4 4.0 11%
Secured lending (£bn) 0.7 1.0 (28)%
Customer deposits (£bn) (4.6) (4.6) 0%
1 Net interest receivable divided by average interest-bearing
assets.
2 Bad debt expense divided by average net lending.
3 Total capital divided by risk-weighted assets.
4 Total Capital Ratio excludes profits still subject to formal
verification, inclusion of these profits would increase the capital ratio by
0.4%. In addition, the Bank issued a tender to repurchase and extinguish
£120m of its existing Tier 2 on 30th August. This was executed and replaced
with a new issuance on 12th September, the Total Capital Ratio prior to the
new issuance was 15.9%, the figures shown includes this re-issuance as it is a
material adjustment between 31 August and 17th September.
5 Amounts due from customers at the Balance Sheet date in
respect of loans, mortgages, credit cards and store cards net of provisions.
Financial Services underlying operating profit of £19 million was flat
year-on-year (H1 21/22: profit of £19 million). This was driven by an
increase in credit demand and recovery in Travel Money, offset by higher
impairments and increased costs. Higher impairments reflect both a revision in
economic assumptions on inflation and unemployment, as well as the
normalisation of low arrears levels in the prior year.
Financial Services total income of £226 million increased by 23 per cent (H1
21/22: £183 million), driven primarily by a recovery of credit demand with
unsecured lending balances up 11 per cent year-on-year, and a rebound in
Travel Money as foreign travel resumed. Net Interest margin has increased
90bps, with net interest income up 14 per cent due to a higher unsecured mix,
improving yields and a focus on managing the cost of funding. Fee income has
shown recovery post COVID within Credit Card and ATMs, with higher retail
spend and the demand for cash returning.
The Financial Services cost:income ratio has reduced to 67 per cent (H1 21/22:
72 per cent), primarily driven by a recovery in income as volumes recovered.
Bad debt expense as a percentage of lending increased 90 basis points
year-on-year to 2.2 per cent (H1 21/22: 1.3 per cent), reflecting the higher
proportion of unsecured balances, revised economic assumptions and increased
arrears.
A £50m 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 17.3%.
Underlying net finance costs
Underlying net finance costs reduced by 9 per cent to £156 million (HY
2021/22: £171 million). These costs include £17 million of net non-lease
interest cost (HY 2021/22: £22 million). The reduction of net non-lease
interest is driven by interest income from higher cash balances. In addition,
the net underlying interest costs on lease liabilities have reduced to £139
million (HY 2021/22: £149 million), mainly due to lower interest rates on new
leases.
We now expect underlying net finance costs in 2022/23 of £290 million - £300
million, lower than previously guided, including around £260 million of lease
interest.
Items excluded from underlying results
In order to provide shareholders with additional insight into the underlying
performance of the business, an adjusted measure of profit (underlying profit
before tax) is provided to supplement the reported IFRS numbers, reflecting
how the business measures performance internally. Underlying results exclude
items recognised in reported profit or loss before tax which, if included,
could distort comparability between periods. In determining which items to
exclude from underlying profit, the Group considers items which are
significant either by virtue of their size and/or nature, or that are
non-recurring. The adjusted items are below.
Items excluded from underlying results(1) 28 weeks to 28 weeks to
17 September 18 September
2022 2021
£m £m
Restructuring and integration programmes (33) (47)
Income recognised in relation to legal disputes 30 181
IAS 19 pension income 35 6
Property, finance and acquisition adjustments 4 16
Items excluded from underlying results 36 156
1 Prior year restated - see note 2 of the financial statements
- Restructuring and integrations costs of £33 million (2021/22: £47
million) includes £33 million (2021/22: £37 million) relating to the
programme announced in November 2020. Cash costs in the half were £33 million
(2021/22: £81 million) and we expect full year cash costs of around £60
million.
- We continue to expect that we will incur one off costs from these
infrastructure, operating model and structure changes of £900 million to £1
billion, with cash costs of around £300 million, with the majority in the
period to March 2024. To date charges of £673 million and cash costs of £181
million have been incurred. In line with IFRIC 21 "Levies", business rates are
now recognised as a periodic cost as incurred and as such we expect
approximately £40 million of business rates associated with leased properties
in the restructuring programme to be recognised after the year ending March
2024.
- Income recognised in relation to legal disputes of £30 million
(2021/22: £181 million) primarily relates to settlements for overcharges from
payment card processing fees and is shown net of legal fees. No net cash was
received in the half (2021/22: £27 million).
- IAS 19 Pension income of £35 million (2021/22: £6 million)
comprises pension finance income of £30 million, a settlement credit of £8
million relating to a gain on payments made to members exiting the scheme
relative to the liabilities extinguished, and scheme expenses of £3 million.
The higher pensions finance income is driven by both an increased pensions
surplus and higher interest rates.
- Other movements of £4 million income (2020/21: £16 million) relate
to property profits, acquisition adjustments and non-underlying financing
costs. The positive value is driven by a gain on energy derivatives driven by
higher energy prices.
Taxation
The tax charge was £91 million (HY 2021/22: £149 million). The underlying
tax rate was 23.5 per cent (HY 2021/22: 26.4 per cent) and the effective tax
rate was 24.2 per cent (HY 2021/22: 28.3 per cent).
The underlying and effective tax rates are lower than the prior year. The
2021/22 charge was adversely impacted by restating deferred tax balances in
advance of the legislated 6% increase in the headline rate of corporation tax.
The 2022/23 effective tax rate of 24.2 per cent is higher than the standard
rate of corporation tax in the UK of 19 per cent. This is largely a result of
the impact of non-deductible expenses, particularly in respect of
non-deductible capital expenditure and prior year adjustments.
We expect an underlying tax rate in 2022/23 of around 24 per cent.
Earnings per share
Underlying basic earnings per share decreased to 11.2 pence (HY 2021/22: 12.2
pence) driven by the decrease in underlying earnings. Basic earnings per share
decreased to 12.3 pence (HY 2021/22: 16.8 pence). Underlying diluted earnings
per share decreased to 11.1 pence (HY 2021/22: 11.6 pence) and diluted
earnings per share decreased to 12.1 pence (HY 2021/22: 16.1 pence).
Dividends
The Board has recommended an interim dividend of 3.9 pence per share (2021/22:
3.2 pence) reflecting 30 per cent of the 2021/22 full year dividend per share.
This will be paid on 16 December 2022 to shareholders on the Register of
Members at the close of business on 11 November 2022. 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 25 November 2022.
Net debt and retail cash flows
As at 17 September 2022, net debt was £6,165 million (18 September 2021:
£6,345 million), a decrease of £180 million. Excluding the impact of lease
liabilities on net debt, Sainsbury's reduced non-lease net debt by £388
million, moving to a net funds position of £361 million (18 September 2021:
net debt of £27 million).
Net debt includes lease liabilities under IFRS 16 which grew to £6,526
million (HY 2021/22: £6,318 million) as a result of exercising purchase
options on a further eight leased supermarkets held by property investment
pools in which the Group holds an interest in the second half of 2021/22
(taking the total to 21 stores in 2021/22). Group net debt includes the impact
of capital injections to and dividends received from Sainsbury's Bank, but
excludes the net debt of Financial Services. Financial Services' net debt
balances are excluded because they are required as part of the business as
usual operations of the bank, as opposed to specific forms of financing for
the Group.
Having exceeded our £950 million net debt reduction target at last year end,
a year ahead of plan, we continue to expect to generate average retail free
cash flow of at least £500 million per year over the three years to March
2025(5).
Summary cash flow statement(1) Retail Retail Retail
28 weeks to 28 weeks to 52 weeks to
17 September 18 September 5 March
2022 2021 2022
£m £m £m
Retail underlying operating profit 477 523 1001
Adjustments for:
Retail underlying depreciation and amortisation(2) 610 618 1,144
Share based payments and other 34 26 54
Retail exceptional operating cash flows (excluding pensions)(2) (33) (30) (3)
Adjusted retail operating cash flow before changes in working capital(3) 1,088 1,137 2,196
Decrease/(increase) in working capital(2) 360 135 (185)
Net interest paid(2) (161) (177) (323)
Pension cash contributions (23) (39) (71)
Corporation tax paid (32) - (23)
Adjusted net cash generated from operating activities(2) 1,232 1,056 1,594
Cash capital expenditure(2) (297) (298) (645)
Repayments of lease liabilities (245) (242) (491)
Initial direct costs on right-of-use assets (9) (1) (3)
Proceeds from disposal of property, plant and equipment 28 39 46
Dividends and distributions received 50 - 2
Retail free cash flow 759 554 503
Dividends paid on ordinary shares (229) (165) (238)
Repayment of borrowings(2) (22) (231) (256)
Other(2) (23) (30) (27)
Net increase/(decrease) in cash and cash equivalents 485 128 (18)
Decrease in Debt 267 473 747
Conversion of perpetual convertible-bond - - 240
Other non-cash and net interest movements(4) (158) (477) (1,259)
Movement in net debt 594 124 (290)
Opening net debt (6,759) (6,469) (6,469)
Closing net debt (6,165) (6,345) (6,759)
of which
Lease Liabilities (6,526) (6,318) (6,618)
Net Funds / (Net Debt) Excluding Lease Liabilities 361 (27) (141)
1 See note 5b for a reconciliation between Retail and Group cash
flow, and Alternative Performance Measures on page 57 for reconciliations of
specific line items as indicated.
2 Refer to the Alternative Performance Measures on pages 57 to 63
for reconciliation.
3 Excludes working capital and pension contributions.
4 Other non-cash includes new leases and lease modifications, fair
value movements on derivatives used for hedging long term borrowings.
5 The strategic purchase of 21 stores which has yet to complete is a
capital allocation decision and will be reported outside of retail free cash
flow.
Adjusted retail operating cash flow before changes in working capital was
£1,088 million (HY 2021/22: £1,137 million) and working capital decreased by
£360 million since the year end (HY 2021/22: £135 million). Working capital
typically decreases between year end and half year, driven by seasonality and
the phasing of payables. HY 2021/22 saw a more subdued effect due to the
unwind of COVID-19 trading patterns, whilst this year sees a return to a more
normal phasing, supported by strong Q2 sales growth.
Corporation tax of £32 million was paid in the half, with no payments made in
the prior half year, reflecting payments made in 2020/21 before the decision
to forgo business rates relief which subsequently impacted taxable profits in
that year. Pensions contributions of £23 million (HY 2021/22: £39 million)
are down on last year with the Sainsbury's scheme now fully funded and
contributions stopped. Proceeds from disposals of £28 million (HY 2021/22:
£39 million) represents disposal of non-trading sites and we do not expect
any material further proceeds in the second half of the year.
Retail free cash flow increased by £205 million year-on-year to £759 million
(HY 2021/22: £554 million) reflecting the material change in working capital
pattern noted above, as well as a £50 million dividend received from
Sainsbury's Bank given their strong capital position.
Sainsbury's paid dividends of £229 million in the half (HY 2021/22: £165
million).
As at 17 September 2022 Sainsbury's has drawn debt facilities of £545
million (HY 2021/22 £592 million). The Group holds undrawn committed credit
facilities of £1,394 million and undrawn uncommitted facilities of £195
million.
Capital expenditure
Retail cash capital expenditure was £297 million (HY 2021/22: £298 million).
We expect annual retail cash capital expenditure (excluding Financial
Services) to be around £700 million to £750 million over the three years to
March 2025.
Financial ratios
Key financial ratios 28 weeks to 28 weeks to 52 weeks to
17 September 18 September 5 March
2022 2021 2022
Return on capital employed (%)(1) 7.7 6.3 8.4
Net debt to EBITDA(2) 2.9 times 3.3 times 3.1 times
Fixed charge cover(3) 2.7 times 2.3 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 and excluding net debt. The average is
calculated on a 14 point basis.
2 Net debt of £6,165 million includes lease obligations under IFRS
16, divided by Group underlying EBITDA of £2,158 million, calculated for a
52-week period to 17 September 2022.
3 Group underlying EBITDA divided by rent (both capital and
interest) and net underlying finance costs, where interest on perpetual
securities is treated as an underlying finance cost.
Return on capital employed (ROCE) has declined in the first half, reflecting
both lower earnings and increased capital employed driven by lease net debt.
The prior half year comparator is impacted by the decision to forgo business
rates relief, which resulted in a full year's charge being recorded in the
second half of 2020/21.
Sainsbury's continues to target leverage of 3.0x - 2.4x to deliver a solid
investment grade balance sheet. Our net debt to EBITDA leverage metric has
shown strong progress since year end. However, this is supported by seasonal
working capital flows and we expect to return to the top of this range by year
end. 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 IAS19 while the funding of the Scheme is determined by the
Trustee's triennial valuation.
The Scheme was subject to a triennial actuarial valuation as at 30 September
2021, which has now completed. There was an actuarial surplus of £130 million
(Sainsbury's section: a surplus of £231 million, Argos section: a deficit of
£101 million), from a deficit of £538 million in 2018. The asset backed
contributions (ABC) structure established by Sainsbury's in July 2019
continues to deliver as planned. Under the ABC, properties with a value of
£1.35 billion were transferred into a property holding company, a wholly
owned subsidiary of the Group, and leased to other Group entities. Rental
receipts facilitate payments of interest and capital on loan notes issued to a
Scottish Limited Partnership, in which the Scheme holds an interest. The
Scheme's interest in the Partnership entitles it to annual distributions over
up to 20 years.
These were approximately £58 million per year until 2030, and subsequently
approximately £28 million a year for the remaining period (increasing by 2% a
year). The distributions are made through three payment streams: 1) Payments
to the Sainsbury's section 2) Payments to the Argos section 3) Switching
payment stream, paid to either the Sainsbury's section or Argos section.
The payments to the Sainsbury's and Argos sections (streams 1 and 2) will stop
in 2030, or when the relevant section reaches its funding target, if earlier.
The third stream is initially paid to the Sainsbury's section.
As the Sainsbury's section reached its funding target in December 2021, stream
1 (£15 million a year) was permanently switched off and stream 3 (currently
£24 million a year) switched to the Argos section from March 2022. Stream 3
payments will continue until 2038 or until both sections have reached their
funding targets, if earlier. The Argos section also continues to receive the
stream 2 payments of £20 million a year.
At 17 September 2022, the net defined benefit surplus under IAS19 for the
Group was £1,455 million (excluding deferred tax). The £828 million decrease
from 5 March 2022 was driven by remeasurement losses resulting from the net
impact of rising interest rates on both plan assets and liabilities.
For 2022/23, total pension scheme cash contributions are expected to be £53
million.
Retirement benefit obligations
Sainsbury's Argos Group Group
as at as at as at as at
17 September 17 September 17 September 5 March
2022 2022 2022 2022
£m £m £m £m
Present value of funded obligations (5,836) (922) (6,758) (9,373)
Fair value of plan assets 7,176 1,064 8,240 11,693
Pension surplus 1,340 142 1,482 2,320
Present value of unfunded obligations (15) (12) (27) (37)
Retirement benefit surplus 1,325 130 1,455 2,283
Deferred income tax liability (413) (41) (454) (640)
Net retirement benefit surplus 912 89 1,001 1,643
Post Balance Sheet Events
Borrowings
Subsequent to the balance sheet date, an unsecured term facility for £575m
was entered into in October 2022, with an ultimate maturity date of 30
November 2024. As at the date of signing the term facility was undrawn.
Retirement benefit obligations
Subsequent to the balance sheet date, there have been significant movements in
gilt markets. In particular the 'mini budget' announced by the government on
23rd September caused rapid sales of government bonds which further depressed
gilt markets. Although a temporary intervention by the Bank of England and
subsequent policy changes have stabilised the market, gilt yields remain
significantly higher than they were prior to the mini budget. This has
resulted in a significant decrease in the value of the Group's pension
Scheme's assets, and also its liabilities.
The Group's pension Scheme adopts a collateral sufficiency framework which
ensures sufficient high quality liquid assets are maintained in order to meet
liquidity requirements, even in times of market stress. The scale and speed of
the increase in interest rate expectations since the 'mini budget', and
volatility within the markets, resulted in the Group deciding to put in place
a loan facility to the Scheme of £500m on 18th October. The purpose of this
facility was to further enhance the pensions Scheme's resilience in the event
of unexpected substantial further rises in interest rates. This facility will
remain in place for 3 months and as at the date of signing has not been drawn.
Group income statement (unaudited)
for the 28 weeks to 17 September 2022
28 weeks to 17 September 2022 28 weeks to 18 September 2021 (restated)
Before non-underlying items Non-underlying items Total Before non-underlying items Non-underlying items Total
(Note 3)
(Note 3)
Note £m £m £m £m £m £m
Revenue 4 16,408 - 16,408 15,724 - 15,724
Cost of sales (15,183) (11) (15,194) (14,476) (28) (14,504)
Gross profit/(loss) 1,225 (11) 1,214 1,248 (28) 1,220
Administrative expenses (751) (18) (769) (725) (32) (757)
Other income 22 40 62 19 184 203
Operating profit 496 11 507 542 124 666
Finance income 7 5 30 35 - 36 36
Finance costs 7 (161) (5) (166) (171) (4) (175)
Profit before tax 340 36 376 371 156 527
Income tax expense 8 (80) (11) (91) (98) (51) (149)
Profit for the financial period 260 25 285 273 105 378
Earnings per share 9 pence pence
Basic earnings 12.3 16.8
Diluted earnings 12.1 16.1
52 weeks to 5 March 2022
Before non-underlying items Non-underlying items Total
(Note 3)
Note £m £m £m
Revenue 4 29,895 - 29,895
Cost of sales (27,538) 9 (27,529)
Gross profit 2,357 9 2,366
Administrative expenses (1,352) (78) (1,430)
Other income 34 186 220
Operating profit 1,039 117 1,156
Finance income 7 3 17 20
Finance costs 7 (312) (10) (322)
Profit before tax 730 124 854
Income tax expense 8 (154) (23) (177)
Profit for the financial period 576 101 677
Earnings per share 9 pence
Basic earnings 29.8
Diluted earnings 28.8
The notes on pages 22 to 53 form an integral part of these Condensed
Consolidated Interim Financial Statements.
Refer to note 2 for details of prior year restatement.
Group statement of comprehensive (loss)/income (unaudited)
for the 28 weeks to 17 September 2022
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021 (restated)
5 March
2022
Note £m £m £m
Profit for the financial period 285 378 677
Items that will not be reclassified subsequently to the income statement
Remeasurement on defined benefit pension schemes 18 (886) 298 1,457
Movements on financial assets at fair value through other comprehensive income (6) 40 76
Cash flow hedges fair value movements - inventory hedges 171 53 73
Current tax relating to items not reclassified 14 - -
Deferred tax relating to items not reclassified 208 (165) (461)
(499) 226 1,145
Items that may be reclassified subsequently to the income statement
Currency translation differences 5 2 (1)
Movements on financial assets at fair value through other comprehensive income (1) (2) (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 31 14 131
Items reclassified from cash flow hedge reserve (10) 4 7
Deferred tax on items that may be reclassified (34) (18) (57)
(10) - 79
Total other comprehensive (loss)/income for the financial period (net of tax) (509) 226 1,224
Total comprehensive (loss)/income for the financial period (224) 604 1,901
The notes on pages 22 to 53 form an integral part of these Condensed
Consolidated Interim Financial Statements.
Refer to note 2 for details of prior year restatement.
Group balance sheet (unaudited)
at 17 September 2022
17 September 2022 5 March 2022 18 September 2021 (restated)
Note £m £m £m
Non-current assets
Property, plant and equipment 11 8,272 8,402 8,417
Right-of-use assets 12 5,456 5,560 5,222
Intangible assets 13 1,021 1,006 1,001
Investments in joint ventures and associates 3 3 5
Financial assets at fair value through other comprehensive income 14a 249 604 640
Trade and other receivables 75 65 39
Amounts due from Financial Services customers and banks 14d 2,013 2,026 2,049
Derivative financial assets 14c 434 213 44
Net retirement benefit surplus 18 1,455 2,283 1,087
18,978 20,162 18,504
Current assets
Inventories 1,891 1,797 1,682
Trade and other receivables 728 683 740
Amounts due from Financial Services customers and banks 14d 3,275 3,163 2,973
Financial assets at fair value through other comprehensive income 14a 522 196 112
Derivative financial assets 14c 112 78 20
Cash and cash equivalents 17 1,580 825 1,636
8,108 6,742 7,163
Assets held for sale 8 8 9
8,116 6,750 7,172
Total assets 27,094 26,912 25,676
Current liabilities
Trade and other payables (4,966) (4,546) (4,563)
Amounts due to Financial Services customers and banks 14a (4,719) (4,444) (4,970)
Borrowings 16 (52) (54) (261)
Lease liabilities 12 (1,536) (526) (558)
Derivative financial liabilities 14c (4) (29) (33)
Taxes payable (234) (169) (194)
Provisions (88) (100) (105)
(11,599) (9,868) (10,684)
Net current liabilities (3,483) (3,118) (3,512)
Non-current liabilities
Other payables (28) (24) (21)
Amounts due to Financial Services customers and banks 14a (1,013) (815) (644)
Borrowings 16 (687) (707) (722)
Lease liabilities 12 (4,992) (6,095) (5,764)
Derivative financial liabilities 14c (52) (3) (18)
Deferred income tax liability (651) (806) (490)
Provisions (143) (171) (171)
(7,566) (8,621) (7,830)
Total liabilities (19,165) (18,489) (18,514)
Net assets 7,929 8,423 7,162
Equity
Called up share capital 670 668 666
Share premium 1,408 1,406 1,398
Merger reserve 568 568 568
Capital redemption reserve 680 680 680
Other reserves 509 409 276
Retained earnings 4,094 4,692 3,574
Total equity 7,929 8,423 7,162
( )
The notes on pages 22 to 53 form an integral part of these Condensed
Consolidated Interim Financial Statements.
Refer to note 2 for details of prior year restatement.
Group cash flow statement (unaudited)
for the 28 weeks to 17 September 2022
28 weeks to 28 weeks to 52 weeks to
17 September 18 September 5 March
2022 2021 2022
(restated)
Note £m £m £m
Cash flows from operating activities
Profit before tax 376 527 854
Net finance costs 131 139 302
Operating profit 507 666 1,156
Adjustments for:
Depreciation expense 11,12 564 581 1,069
Amortisation expense 13 86 78 151
Net impairment charge on property, plant and equipment, right-of-use assets, 11,12,13 20 1 9
and intangible assets
Non-cash adjustments arising from acquisitions (1) - -
Financial Services impairment losses on loans and advances 23 35 19
Profit on sale of properties and early termination of leases 17 (12) (22) (6)
Non-underlying fair value movements (28) - (76)
Share-based payments expense 37 28 58
Defined benefit scheme (income)/expenses 18 (5) 2 4
Cash contributions to defined benefit schemes 18 (23) (39) (71)
Operating cash flows before changes in working capital 1,168 1,330 2,313
Changes in working capital
Increase in inventories 17 (87) (57) (179)
Decrease in financial assets at fair value through other comprehensive income 17 22 130 115
(Increase)/decrease in trade and other receivables 17 (51) (6) 33
(Increase)/decrease in amounts due from Financial Services customers and other 17 (158) 350 161
deposits
Increase in trade and other payables 17 438 95 28
Increase/(decrease) in amounts due to Financial Services customers and other 17 472 (675) (1,030)
deposits
Decrease in provisions and other liabilities 17 (41) (76) (80)
Cash generated from operations 1,763 1,091 1,361
Interest paid (161) (178) (329)
Corporation tax paid (34) - (23)
Net cash generated from operating activities 1,568 913 1,009
Cash flows from investing activities
Purchase of property, plant and equipment (202) (154) (416)
Initial direct costs on new leases (9) (1) (3)
Purchase of intangible assets (106) (165) (278)
Proceeds from disposal of property, plant and equipment 28 39 46
Dividends and distributions received - - 2
Net cash used in investing activities (289) (281) (649)
Cash flows from financing activities
Proceeds from issuance of ordinary shares 2 11 21
Repayment of borrowings 15 (22) (223) (248)
Repayment of perpetual capital securities - (8) (8)
Purchase of own shares (25) (41) (48)
Repayment of capital element of lease obligations 15 (246) (243) (493)
Dividends paid on ordinary shares 10 (229) (165) (238)
Dividends paid on perpetual securities - (4) (4)
Net cash used in financing activities (520) (673) (1,018)
Net Increase/(decrease) in cash and cash equivalents 759 (41) (658)
Opening cash and cash equivalents 818 1,476 1,476
Closing cash and cash equivalents 17 1,577 1,435 818
The notes on pages 22 to 53 form an integral part of these Condensed
Consolidated Interim Financial Statements.
Refer to note 2 for details of prior year restatement.
Group statement of changes in equity (unaudited)
for the 28 weeks to 17 September 2022
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
£m £m £m £m £m £m £m £m
At 6 March 2022 668 1,406 568 1,089 4,692 8,423 - 8,423
Profit for the period - - - - 285 285 - 285
Other comprehensive income/(loss) - - - 189 (886) (697) - (697)
Tax relating to other comprehensive income/(loss) - - - (34) 222 188 - 188
Total comprehensive income/(loss) for the period ended 17 September 2022 - - - 155 (379) (224) - (224)
Cash flow hedges gains and losses transferred to inventory - - - (56) - (56) - (56)
Transactions with owners:
Dividends - - - - (229) (229) - (229)
Share-based payment - - - - 37 37 - 37
Purchase of own shares - - - - (25) (25) - (25)
Allotted in respect of share option schemes 2 2 - - (2) 2 - 2
Other adjustments - - - 1 2 3 - 3
Tax on items charged to equity - - - - (2) (2) - (2)
At 17 September 2022 670 1,408 568 1,189 4,094 7,929 - 7,929
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
£m £m £m £m £m £m £m £m
At 7 March 2021 (as previously reported) 637 1,173 568 847 3,131 6,356 248 6,604
Opening balance adjustment - - - - 97 97 - 97
At 7 March 2021 (restated) 637 1,173 568 847 3,228 6,453 248 6,701
Profit for the period (restated) - - - - 378 378 378
Other comprehensive income - - - 111 298 409 - 409
Tax relating to other comprehensive income - - - (42) (141) (183) - (183)
Total comprehensive income for the period ended 18 September 2021 (restated) - - - 69 535 604 - 604
Cash flow hedges gains and losses transferred to inventory - - - 24 - 24 - 24
Transactions with owners:
Dividends - - - - (165) (165) - (165)
Conversion of perpetual convertible bonds 26 216 - - (2) 240 (240) -
Repayment of perpetual convertible bonds - - - - - - (8) (8)
Share-based payment - - - - 28 28 - 28
Purchase of own shares - - - - (41) (41) - (41)
Allotted in respect of share option schemes 3 9 - - (1) 11 - 11
Other adjustments - - - 16 (16) - - -
Tax on items charged to equity - - - - 8 8 - 8
At 18 September 2021 (restated) 666 1,398 568 956 3,574 7,162 - 7,162
Group statement of changes in equity (unaudited)
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
£m £m £m £m £m £m £m £m
At 7 March 2021 637 1,173 568 847 3,228 6,453 248 6,701
Profit for the period - - - - 677 677 - 677
Other comprehensive income - - - 285 1,457 1,742 - 1,742
Tax relating to other comprehensive income - - - (87) (431) (518) - (518)
Total comprehensive income for the period ended 5 March 2022 - - - 198 1,703 1,901 - 1,901
Cash flow hedges gains and losses transferred to inventory - - - 28 - 28 - 28
Transactions with owners:
Dividends - - - - (238) (238) - (238)
Conversion of perpetual convertible bonds 26 216 - - (2) 240 (240) -
Share-based payment - - - - 60 60 - 60
Purchase of own shares - - - - (48) (48) - (48)
Allotted in respect of share option schemes 5 17 - - (1) 21 - 21
Repayment of perpetual convertible bonds - - - - - - (8) (8)
Other adjustments - - - 16 (13) 3 - 3
Tax on items charged to equity - - - - 3 3 - 3
At 5 March 2022 668 1,406 568 1,089 4,692 8,423 - 8,423
The notes on pages 22 to 53 form an integral part of these Condensed
Consolidated Interim Financial Statements.
Refer to note 2 for details of prior year restatement.
Notes to the Condensed Consolidated Interim Financial Statements (unaudited)
1. General information
J Sainsbury plc is a public limited company (the 'Company') incorporated in
the United Kingdom, whose shares are publicly traded on the London Stock
Exchange. The Company is domiciled in the United Kingdom and its registered
address is 33 Holborn, London EC1N 2HT, United Kingdom.
The Condensed Consolidated Interim Financial Statements are unaudited but have
been reviewed by the auditors whose report is set out on page 56. The
financial information presented herein does not amount to statutory accounts
within the meaning of Section 434 of the Companies Act 2006. The Annual Report
and Financial Statements 2022 have been filed with the Registrar of Companies.
The Independent Auditor's report on the Annual Report and Financial Statements
2022 was unqualified and did not contain a statement under Section 498 of the
Companies Act 2006.
The financial period represents the 28 weeks to 17 September 2022 (comparative
financial period 28 weeks to 18 September 2021; prior financial year 52 weeks
to 5 March 2022). The financial information comprises the results of the
Company and its subsidiaries (the 'Group') and the Group's interests in joint
ventures and associates.
The Group's principal activities are Food, General Merchandise & Clothing
Retailing and Financial Services.
2. Basis of preparation and accounting policies
2.1 Basis of preparation
The Interim Results, comprising the Condensed Consolidated Interim Financial
Statements and the Interim Management Report, have been prepared in accordance
with the Disclosure and Transparency Rules of the UK's Financial Conduct
Authority and with the requirements of UK adopted IAS 34 'Interim Financial
Reporting'.
The financial information contained in the Interim Results is presented in
sterling, rounded to the nearest million (£m) unless otherwise stated.
The financial information contained in the Condensed Consolidated Interim
Financial Statements should be read in conjunction with the Annual Report and
Financial Statements 2022, which were prepared in accordance with UK adopted
international accounting standards in conformity with the requirements of the
Companies Act 2006.
The annual financial statements of the Group for the period to 4 March 2023
will be prepared in accordance with UK adopted international accounting
standards.
Sainsbury's Bank plc and its subsidiaries have been consolidated for the six
months to 31 August 2022 (18 September 2021: six months to 31 August 2021; 5
March 2022: twelve months to 28 February 2022). The only significant
transaction which occurred between this date and the Group's balance sheet
date was in relation to the issuance and redemption of Tier 2 Notes of an
equivalent amount, which had a £nil impact (refer to note 16). Therefore, no
adjustments have been made to reflect the difference in balance sheet dates.
Prior period restatement
Business rates within property provisions
The Condensed Consolidated Interim Financial Statements include a prior year
restatement in relation to the treatment of business rates within property
provisions. Where the Group no longer operates from a leased property, onerous
property contract provisions are recognised for the least net cost of exiting
from the contract. Unless a separate exit agreement with a landlord has
already been agreed, the Group's policy is that this onerous contract
provision includes all unavoidable costs of meeting the obligations of the
contract - these include service charges and insurance, and have also
historically included business rates.
There was apparent mixed practice across companies concerning the treatment of
business rates in onerous contract provisions. However following additional
guidance published last year by accounting advisory firms, the Group has
reassessed its policy in this area, and concluded that business rates are a
statutory obligation rather than a contractual one, and should be recognised
as a periodic cost in line with IFRIC 21 "Levies".
Prior period comparatives for the 28 weeks to 18 September 2021 have therefore
been restated in accordance with IAS 8: 'Accounting Policies, Changes in
Accounting Policies and Errors' by removing business rates from previously
recognised property provisions. Prior period comparatives for the 52 weeks to
5 March 2022 were restated in the Group's 2022 Annual Report and Financial
Statements. The impacts to the primary financial statements are as follows:
2. Basis of preparation and accounting policies
Income statement
For the 28 weeks to 18 September 2021 Before non-underlying items Non-underlying items Total
As previously reported Business rates adjustment As restated As previously reported Business rates adjustment As restated As previously reported Business rates adjustment As restated
£m £m £m £m £m £m £m £m £m
Revenue 15,724 - 15,724 - - - 15,724 - 15,724
Cost of sales (14,476) - (14,476) (14) (14) (28) (14,490) (14) (14,504)
Gross profit/(loss) 1,248 - 1,248 (14) (14) (28) 1,234 (14) 1,220
Administrative expenses (725) - (725) (31) (1) (32) (756) (1) (757)
Other income 19 - 19 184 - 184 203 - 203
Operating profit/(loss) 542 - 542 139 (15) 124 681 (15) 666
Finance income - - - 36 - 36 36 - 36
Finance costs (171) - (171) (5) 1 (4) (176) 1 (175)
Profit/(loss) before tax 371 - 371 170 (14) 156 541 (14) 527
Income tax (expense)/credit (98) - (98) (54) 3 (51) (152) 3 (149)
Profit/(loss) for the financial period 273 - 273 116 (11) 105 389 (11) 378
Basic earnings 17.3 (0.5) 16.8
Diluted earnings 16.6 (0.5) 16.1
Balance sheet
As at 18 September 2021 As previously reported Business rates adjustment As restated
£m £m £m
Current liabilities
Taxes payable (174) (20) (194)
Provisions (113) 8 (105)
Total current liabilities (10,672) (12) (10,684)
Net current liabilities (3,500) (12) (3,512)
Non-current liabilities
Provisions (269) 98 (171)
Total liabilities (18,600) 86 (18,514)
Net assets 7,076 86 7,162
Equity
Retained earnings 3,488 86 3,574
Total equity before perpetual securities 7,076 86 7,162
Total equity 7,076 86 7,162
Cash flow statement
For the 28 weeks to 18 September 2021 As previously reported Business rates adjustment As restated
£m £m £m
Cash flows from operating activities
Profit/(loss) before tax 541 (14) 527
Net finance costs 140 (1) 139
Operating profit 681 (15) 666
Operating cash flows before changes in working capital 1,345 (15) 1,330
Changes in working capital
(Decrease)/increase in provisions and other liabilities (91) 15 (76)
Cash generated from operations 1,091 - 1,091
Net cash generated from operating activities 913 - 913
Net cash used in investing activities (281) - (281)
Net cash used in financing activities (673) - (673)
Net decrease in cash and cash equivalents (41) - (41)
2. Basis of preparation and accounting policies
2.2 Going concern
The Directors are satisfied that the Group has sufficient resources to
continue in operation for a period of at least 12 months from the date of
approval. Accordingly, they continue to adopt the going concern basis in
preparing the financial statements. The assessment period for the purposes of
considering going concern is the 16 months to 2 March 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 long-term maturities and maintaining sufficient levels of
standby liquidity via the Revolving Credit Facility. This seeks to minimise
liquidity risk by maintaining a suitable level of undrawn additional funding
capacity.
The Revolving Credit Facility is split into two Facilities, a £300 million
Facility (A) and a £1,094 million Facility (B). Facility A has a final
maturity of April 2025 and Facility B has a final maturity of October 2024. As
at 17 September 2022, both Facility (A) and Facility (B) were undrawn.
Additionally, an unsecured term facility for £575m was entered into in
October 2022, with an ultimate maturity date of 30 November 2024.
In assessing going concern, scenarios in relation to the Group's principal
risks have been considered in line with those disclosed at year-end by
overlaying them into the corporate plan and assessing the impact on cash
flows, net debt and funding headroom. These severe but plausible scenarios
included modelling inflationary pressures on both food margins and general
recession-related risks, the impact of any regulatory fines, failure to
deliver planned cost savings and the failure of future property transactions.
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.
2.3 Accounting judgements and estimates
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates.
In preparing these Condensed Consolidated Interim Financial Statements, the
significant judgements made by management in applying the Group's accounting
policies and the key sources of estimation uncertainty were the same as those
that applied to the Consolidated Financial Statements for the year ended 5
March 2022 unless otherwise stated.
2.4 New standards, interpretations and amendments adopted by
the Group
The Group has considered the following amendments to published standards that
are effective for the Group for the financial year beginning 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
2. Basis of preparation and accounting policies continued
- 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.
2.5 Alternative performance measures (APMs)
In the reporting of financial information, the Directors use various APMs.
These APMs are defined and reconciled on pages 57 to 63, and should be
considered in addition to, and are not intended to be a substitute for, IFRS
measurements. As they are not defined by International Financial Reporting
Standards, they may not be directly comparable with other companies' APMs.
3. Profit before non-underlying items
In order to provide shareholders with additional insight into the underlying
performance of the business, an adjusted measure of profit (underlying profit
before tax) is provided to supplement the reported IFRS numbers, and reflects
how the business measures performance internally. Underlying results exclude
items recognised in reported profit or loss before tax which, if included,
could distort comparability between periods.
In determining which items to exclude from underlying profit, the Group
considers items which are significant either by virtue of their size and/or
nature, or that are non-recurring. The same assessment is applied consistently
to any reversals of prior non-underlying items. More details on each item
excluded from underlying profit are included further below.
Underlying profit is not an IFRS measure and therefore not directly comparable
to other companies.
28 weeks to 17 September 2022
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 (5) 25
Restructuring and integration
Restructuring programmes (39) (4) 10 - (33) 5 (28)
Total restructuring and integration (39) (4) 10 - (33) 5 (28)
Property, finance, pension and acquisition adjustments
Property related transactions - (8) - - (8) 2 (6)
Non-underlying finance and fair value movements 28 - - (5) 23 (5) 18
IAS 19 pension income - 5 - 30 35 (8) 27
Acquisition adjustments - (11) - - (11) 2 (9)
Total property, finance, pension and acquisition adjustments 28 (14) - 25 39 (9) 30
Tax adjustments
Revaluation of deferred tax balances and changes in law - - - - - (1) (1)
Capital loss recognition - - - - - (1) (1)
Total adjustments (11) (18) 40 25 36 (11) 25
Income recognised in relation to legal disputes
During the prior period 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 subsequent to the interim balance sheet
date and thus has not been included within the cashflow statement.
3. Profit before non-underlying items
Restructuring programmes
Costs/(gains) have been recognised during the period in relation to the
restructuring programmes announced in the year ended 6 March 2021 as follows:
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021 (restated)
5 March
2022
£m £m £m
Write downs of property, plant and equipment (a) 2 - 6
Write downs of leased assets (a) 13 1 3
Write down of intangible assets (a) 5 - -
Closure costs (b) 8 5 24
Accelerated depreciation of assets (c) 12 20 33
Redundancy provisions (d) 5 21 40
Consultancy costs - 8 18
Gain on lease terminations (e) (1) (5) (9)
Profit on disposal of properties (f) (11) (13) (12)
Recognition of sub-lease debtor - - (11)
Restructuring programmes 33 37 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.
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 has been announced and a
valid expectation raised with the affected colleagues.
e) Gains on lease terminations relate to sites impaired in a prior year
for which it has been negotiated to exit the leases before the contractual end
date.
f) Profit on disposal of properties relates to profits recognised in the
period as sites previously impaired as part of the restructuring programmes
have been 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.
The restructuring programme is a multi-year activity which began in the
financial period ended 6 March 2021. Total cumulative costs including
impairment costs to 17 September 2022 are £673 million. Total expected costs
are still in the range of £900 million to £1 billion, with total expected
cash outflows of around £300 million.
Property, finance, pension and acquisition adjustments
· Property related transactions include a write-off of a loan of
£(8) million relating to a property transaction. These are excluded from
underlying profit as such losses are not related to the ongoing operating
activities of the Group.
· Defined benefit pension interest and expenses comprises pension
finance income of £30 million, settlement credit of £8 million and scheme
expenses of £(3) million (see note 18). 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.
3. Profit before non-underlying items
· Non-underlying finance and fair value movements for the financial
period comprised £23 million for the Group. These include fair value
remeasurements on derivatives not in a hedging relationship. 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. Included within cost of sales is £28 million of income in
relation to favourable movements on long-term, fixed price power purchase
arrangements (PPAs) with independent producers. These are accounted for as
derivative financial instruments, however are not designated in hedging
relationships, therefore gains and losses are recognised in the income
statement. Increases in electricity forward prices in the period have led to
gains on the related derivative financial instruments. In the interim period
comparative, this income was classified as finance income, however for the
full year comparative this income was reclassified to cost of sales as this
better reflects the nature of the costs associated with the financial
instruments and thus the gains recognised. This reclassification has no impact
on the carrying value of the derivatives, underlying profit before tax, or
statutory profit before tax, and therefore the prior interim period
comparatives have not been restated. 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 £(5) million within finance income and costs are
analysed further in note 7.
· Acquisition adjustments of £(11) million reflect the unwind of
non-cash fair value adjustments arising from Home Retail Group (HRG) 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:
28 weeks to 17 September 2022 28 weeks to 18 September 2021 52 weeks to 5 March 2022
HRG Nectar Total Group HRG Nectar Total Group HRG Nectar Total Group
£m £m £m £m £m £m £m £m £m
Cost of sales 1 - 1 - - - - - -
Depreciation - - - 1 - 1 3 - 3
Amortisation (9) (3) (12) (10) (2) (12) (18) (5) (23)
(8) (3) (11) (9) (2) (11) (15) (5) (20)
Comparative information
28 weeks to 18 September 2021 (restated)
Cost of sales Administrative expenses Other income Net finance income Total adjustments before tax Tax Total adjustments
£m £m £m £m £m £m £m
Income recognised in relation to legal disputes - 13 168 - 181 (34) 147
Restructuring and integration
Restructuring programmes (28) (22) 13 - (37) 5 (32)
Financial Services transition and other - (10) - - (10) 2 (8)
Total restructuring and integration (28) (32) 13 - (47) 7 (40)
Property, finance, pension and acquisition adjustments
Profit on disposal of properties - - 3 - 3 - 3
Non-underlying finance and fair value movements - - - 24 24 (4) 20
IAS 19 pension (expenses) / income - (2) - 8 6 (1) 5
Acquisition adjustments - (11) - - (11) 2 (9)
Total property, finance, pension and acquisition adjustments - (13) 3 32 22 (3) 19
Tax adjustments
Under provision in prior years - - - - - (5) (5)
Revaluation of deferred tax balances and changes in law - - - - - (20) (20)
Capital loss recognition - - - - - 4 4
Total adjustments (28) (32) 184 32 156 (51) 105
3. Profit before non-underlying items
52 weeks to 5 March 2022
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) / income - (4) - 15 11 (2) 9
Acquisition adjustments - (20) - - (20) 4 (16)
Total property, finance, pension and acquisition adjustments 78 (24) 7 7 68 (11) 57
Tax adjustments
Over provision in prior years - - - - - (2) (2)
Revaluation of deferred tax balances - - - - - 9 9
Other tax adjustments - - - - - (7) (7)
Total adjustments 9 (78) 186 7 124 (23) 101
Financial Services transition and other
In prior years these predominantly comprised Financial Services transition
costs and were incurred in transitioning to new banking platforms as part of
the previously announced New Bank Programme. The programme ended in the 2022
financial year.
Software as a service accounting adjustment
In the second half of the prior year, the Group revised its accounting policy
in relation to upfront configuration and customisation costs incurred in
implementing software as a service (SaaS) arrangement. This was in response to
the IFRS Interpretations Committee (IFRIC) agenda decision clarifying its
interpretation of how current accounting standards apply to these types of
arrangements. Costs capitalised prior to the period ended 5 March 2022
totalling £21 million were written off in the prior year as a non-underlying
expense. In addition, £14 million of prior year spend that would have been
capitalised to intangible assets under the Group's previous accounting policy
was recognised within prepayments (£6 million) and underlying profit (£8
million). Had the change in accounting policy been implemented in the first
half of the prior year, £7 million of first half spend that would have been
capitalised to intangible assets under the Group's previous accounting policy
would have been recognised within prepayments (£3 million) and underlying
profit (£4 million).
Cash flow statement
The table below shows the impact of non-underlying items on the Group cash
flow statement:
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021
5 March 2022
£m £m £m
Cash flows from operating activities
IAS 19 pension expenses (3) (2) (7)
Financial Services transition and other - (11) (13)
Restructuring programmes (33) (70) (114)
ATM Rates reimbursement - 13 14
Net income recognised in relation to legal disputes - 27 93
Cash used in operating activities (36) (43) (27)
Cash flows from investing activities
Proceeds from property disposals(1) 28 39 46
Cash generated from investing activities 28 39 46
Net cash flows (8) (4) 19
(1) £26 million of the current period proceeds from property disposals are a
result of restructuring programmes.
Refer to Note 2 for details of the prior year restatement.
4. Revenue
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021
5 March 2022
£m £m £m
Grocery, General Merchandise and Clothing (GM&C) 13,314 13,475 25,440
Fuel 2,840 2,036 4,023
Total retail sales 16,154 15,511 29,463
Financial Services interest receivable (using effective interest rate method) 183 161 322
Financial Services fees and commission 71 52 110
Total Financial Services income 254 213 432
Total revenue 16,408 15,724 29,895
5. Segment reporting
Management has determined the operating segments based on the information
provided to the Operating Board (the Chief Operating Decision Maker for the
Group) to make operational decisions on the management of the Group. Three
operating segments were identified as follows:
· Retail - Food;
· Retail - General Merchandise & Clothing;
· Financial Services (Sainsbury's Bank plc and Argos Financial
Services entities)
Management has considered the economic characteristics, in particular average
gross margin, similarity of products, production processes, customers, sales
methods and regulatory environment of its two Retail segments. In doing so it
has been concluded that they should be aggregated into one 'Retail' segment in
the financial statements. This aggregated information provides users the
financial information needed to evaluate the business and the environment in
which it operates.
The Operating Board assesses the performance of all segments on the basis of
underlying profit before tax. Underlying profit before tax is an APM as
described in note 2.5. All material operations and assets are in the UK.
a. Income statement and balance sheet
Retail Financial Services Group
28 weeks to 17 September 2022 £m £m £m
Segment revenue
Retail sales to external customers 16,154 - 16,154
Financial Services to external customers - 254 254
Revenue 16,154 254 16,408
Underlying operating profit 477 19 496
Underlying finance income 5 - 5
Underlying finance costs (161) - (161)
Underlying profit before tax 321 19 340
Non-underlying income (note 3) 36
Profit before tax 376
Income tax expense (note 8) (91)
Profit for the financial period 285
Assets 20,078 7,013 27,091
Investment in joint ventures and associates 3 - 3
Segment assets 20,081 7,013 27,094
Segment liabilities (13,042) (6,123) (19,165)
a. Income statement and balance sheet
Retail (restated) Financial Services Group (restated)
28 weeks to 18 September 2021 £m £m £m
Segment revenue
Retail sales to external customers 15,511 - 15,511
Financial Services to external customers - 213 213
Revenue 15,511 213 15,724
Underlying operating profit 523 19 542
Underlying finance costs (171) - (171)
Underlying profit before tax 352 19 371
Non-underlying expense (note 3) 156
Profit before tax 527
Income tax expense (note 8) (149)
Profit for the financial period 378
Assets 18,847 6,824 25,671
Investment in joint ventures and associates 5 - 5
Segment assets 18,852 6,824 25,676
Segment liabilities (12,601) (5,913) (18,514)
Retail Financial Services Group
52 weeks to 5 March 2022 £m £m £m
Segment revenue
Retail sales to external customers 29,463 - 29,463
Financial Services to external customers - 432 432
Revenue 29,463 432 29,895
Underlying operating profit 1,001 38 1,039
Underlying finance income 3 - 3
Underlying finance costs (312) - (312)
Underlying profit before tax 692 38 730
Non-underlying expense (note 3) 124
Profit before tax 854
Income tax expense (note 8) (177)
Profit for the financial period 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)
Refer to Note 2 for details of the prior year restatement.
b. Segmented cash flow statement
28 weeks to 17 September 2022 28 weeks to 18 September 2021 (restated)
APM Retail Financial Services Group Retail Financial Services Group
reference
£m £m £m £m £m £m
Profit before tax 357 19 376 520 7 527
Net finance costs 131 - 131 139 - 139
Operating profit 488 19 507 659 7 666
Adjustments for:
Depreciation and amortisation expense 634 16 650 649 10 659
Net impairment charge on property, plant and equipment, right-of-use assets, 20 - 20 1 - 1
and intangible assets
Non-cash adjustments arising from acquisitions (1) - (1) - - -
Financial Services impairment losses on loans and advances - 23 23 - 35 35
Profit on sale of properties and early termination of leases (12) - (12) (22) - (22)
Non-underlying fair value movements (28) - (28) - - -
Share-based payments expense 34 3 37 27 1 28
Defined benefit scheme (income)/expenses (5) - (5) 2 - 2
Cash contributions to defined benefit schemes (23) - (23) (39) - (39)
Operating cash flows before changes in working capital 1,107 61 1,168 1,277 53 1,330
Movements in working capital 318 277 595 (44) (195) (239)
Cash generated/(used) from operations 1,425 338 1,763 1,233 (142) 1,091
Interest paid a (161) - (161) (173) (5) (178)
Corporation tax paid (32) (2) (34) - - -
Net cash generated/(used) from operating activities 1,232 336 1,568 1,060 (147) 913
Cash flows from investing activities
Purchase of property, plant and equipment (201) (1) (202) (154) - (154)
Initial direct costs on new leases (9) - (9) (1) - (1)
Purchase of intangible assets (96) (10) (106) (144) (21) (165)
Proceeds from disposal of property, plant and equipment 28 - 28 39 - 39
Dividends and distributions received/(paid) e 50 (50) - - - -
Net cash used in investing activities (228) (61) (289) (260) (21) (281)
Cash flows from financing activities
Proceeds from issuance of ordinary shares d 2 - 2 11 - 11
Repayment of borrowings c (22) - (22) (223) - (223)
Repayment of perpetual capital securities c - - - (8) - (8)
Purchase of own shares d (25) - (25) (41) - (41)
Repayment of capital element of lease obligations b (245) (1) (246) (242) (1) (243)
Dividends paid on ordinary shares (229) - (229) (165) - (165)
Dividends paid on perpetual securities a - - - (4) - (4)
Net cash used in financing activities (519) (1) (520) (672) (1) (673)
Net increase/(decrease) in cash and cash equivalents 485 274 759 128 (169) (41)
b. Segmented cash flow statement
52 weeks to 5 March 2022
APM Retail Financial Services Group
reference
£m £m £m
Profit before tax 833 21 854
Net finance income/(costs) 304 (2) 302
Operating profit 1,137 19 1,156
Adjustments for:
Depreciation and amortisation expense 1,197 23 1,220
Net impairment charge on property, plant and equipment, right-of-use assets 8 1 9
and intangible assets
Financial Services impairment losses on loans and advances - 19 19
Profit on sale of properties and early termination of leases (6) - (6)
Non-underlying fair value movements (76) - (76)
Share-based payments expense 53 5 58
Non-cash defined benefit scheme expenses 4 - 4
Cash contributions to defined benefit scheme (71) - (71)
Operating cash flows before changes in working capital 2,246 67 2,313
Movements in working capital (306) (646) (952)
Cash generated/(used) from operations 1,940 (579) 1,361
Interest paid a (319) (10) (329)
Corporation tax paid (23) - (23)
Net cash generated/(used) from operating activities 1,598 (589) 1,009
Cash flows from investing activities
Purchase of property, plant and equipment (416) - (416)
Initial direct costs on new leases (3) - (3)
Purchase of intangible assets (229) (49) (278)
Proceeds from disposal of property, plant and equipment 46 - 46
Dividends and distributions received e 2 - 2
Net cash used in investing activities (600) (49) (649)
Cash flows from financing activities
Proceeds from issuance of ordinary shares d 21 - 21
Repayment of borrowings c (248) - (248)
Repayment of perpetual capital securities c (8) - (8)
Purchase of own shares d (48) - (48)
Repayment of capital element of obligations under lease liabilities b (491) (2) (493)
Dividends paid on ordinary shares (238) - (238)
Dividends paid on perpetual securities a (4) - (4)
Net cash used in financing activities (1,016) (2) (1,018)
Net decrease in cash and cash equivalents (18) (640) (658)
6. Supplier arrangements
Supplier incentives, rebates and discounts, collectively known as 'supplier
arrangements', represent a material deduction to cost of sales and directly
affect the Group's reported margin.
The types of supplier arrangements applicable to the Group are as follows:
· Discounts and supplier incentives - these represent the
majority of all supplier arrangements and are linked to individual unit sales.
The incentive is typically based on an agreed sum per item sold on promotion
for a period and therefore is considered part of the purchase price of that
product.
· Fixed amounts - these are agreed with suppliers primarily
to support in-store activity including promotions, such as utilising specific
space.
· Supplier rebates - these are typically agreed on an
annual basis, aligned with the Group's financial year. The rebate amount is
linked to pre-agreed targets such as sales volumes.
· Marketing and advertising income - advertising income
from suppliers through the Group's subsidiary Nectar 360 Services LLP and
online marketing and advertising campaigns within Argos.
Amounts recognised in the income statement during the period for fixed
amounts, volume-based rebates and marketing and advertising income are shown
below. Discounts and supplier incentives are not shown as they are deemed to
be part of the cost price of inventory.
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021
5 March 2022
£m £m £m
Fixed amounts 81 103 208
Supplier rebates 47 33 94
Marketing and advertising income 41 45 79
Total supplier arrangements 169 181 381
6. Supplier arrangements
Of the above amounts, the following was outstanding and held on the balance
sheet at the period-end:
28 weeks to 17 September 2022 28 weeks to 18 September 2021 52 weeks to
5 March 2022
£m £m £m
Within inventory (4) (5) (4)
Within current trade receivables
Supplier arrangements due 33 30 39
Accrued supplier arrangements 47 49 37
Within current trade payables
Supplier arrangements due 25 23 47
Accrued supplier arrangements 1 2 2
Deferred income due (1) (1) -
Total supplier arrangements 101 98 121
7. Finance income and finance costs
28 weeks to 17 September 2022 28 weeks to 18 September 2021 (restated) 52 weeks to 5 March 2022
Underlying Non-Underlying Total Underlying Non-Underlying Total Underlying Non-Underlying Total
£m £m £m £m £m £m £m £m £m
Interest on bank deposits and other financial assets 4 - 4 - - - 1 - 1
Fair value measurements - - - - 28 28 - 2 2
IAS 19 pension financing income - 30 30 - 8 8 - 15 15
Finance income on net investment in leases 1 - 1 - - - 2 - 2
Finance Income 5 30 35 - 36 36 3 17 20
Secured borrowings (20) - (20) (22) - (22) (40) - (40)
Unsecured borrowings (1) - (1) (1) - (1) (2) - (2)
Lease liabilities (140) (5) (145) (149) (4) (153) (271) (10) (281)
Provisions - amortisation of discount - - - - - - (1) - (1)
Interest capitalised - qualifying assets - - - 1 - 1 2 - 2
Finance costs (161) (5) (166) (171) (4) (175) (312) (10) (322)
Fair value remeasurements relate to net fair value movements on derivative
financial instruments not designated in a hedging relationship. Refer to note
3 for further details.
Refer to Note 2 for details of the prior year restatement.
8. Income tax expense
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021
5 March 2022
(restated)
£m £m £m
Current year UK tax 72 82 131
Current year overseas tax 2 3 6
(Under)/over provision in prior years (1) 4 5
Total current tax expense 73 89 142
Origination and reversal of temporary differences 16 30 52
Over/(under) provision in prior years - 3 (35)
Adjustment from changes in tax rates 1 31 23
Derecognition/(recognition) of capital losses 1 (4) (5)
Total deferred tax expense 18 60 35
Total income tax expense in income statement 91 149 177
Analysed as:
Underlying tax 80 98 154
Non-underlying tax 11 51 23
Total income tax expense in income statement 91 149 177
Underlying tax rate 23.5% 26.4% 21.1%
Effective tax rate 24.2% 28.3% 20.7%
Tax charged within the 28 weeks ended 17 September 2022 has been calculated by
applying the effective rate of tax which is expected to apply to the Group for
the period ending 4 March 2023 using rates substantively enacted by 17
September 2022 as required by IAS 34 'Interim Financial Reporting'.
8. Income tax expense
The effective tax rate of 24.2 per cent (28 weeks to 18 September 2021
(restated): 28.3 per cent) is higher than the standard rate of corporation tax
in the UK of 19 per cent. This is largely a result of the impact of
non-deductible expenses, particularly in respect of non-deductible capital
expenditure and prior year adjustments.
It was announced in the UK Government's Budget on 3 March 2021 that the main
UK corporation tax rate will increase to 25% from 1 April 2023. This change
was enacted during the prior accounting period and remains enacted at the
balance sheet date. As a result, existing temporary differences on which
deferred tax has been provided have been revalued, where appropriate, to
reflect the fact that they will unwind at 25%.
Finance Act 2020 included legislation restricting the amount of chargeable
gains that a company can relieve with its carried-forward capital losses from
previous accounting periods. Broadly, from 1 April 2020 a company is only able
to offset up to 50 per cent of chargeable gains using carried forward capital
losses. The Group has considered the expected impact of the tax law in respect
of the utilisation of carried-forward tax losses. Accordingly, approximately
£197 million of the Group's carried forward unrestricted capital losses (5
March 2022: £194 million) have not been recognised as at 17 September 2022.
9. Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable
to ordinary shareholders by the weighted average number of ordinary shares in
issue during the year, excluding those held by the Employee Share Ownership
Plan trusts, which are treated as cancelled.
The weighted average number of ordinary shares in issue is adjusted to assume
conversion of all potentially dilutive ordinary shares. These represent share
options granted to employees where the exercise price is less than the average
market price of the Company's ordinary shares during the year and the number
of shares that would be issued if all senior convertible bonds and perpetual
subordinated convertible bonds are assumed to be converted.
Underlying earnings per share is provided by excluding the effect of any
non-underlying items as defined in note 3. This alternative measure of
earnings per share is presented to reflect the Group's underlying trading
performance. All operations are continuing for the periods presented.
17 September 18 September 5 March 2022
2022
2021 (restated)
million million million
Weighted average number of shares in issue 2,314.3 2,245.4 2,271.8
Weighted average number of dilutive share options 35.9 34.8 39.6
Weighted average number of dilutive subordinated perpetual convertible bonds - 69.3 39.6
Total number of shares for calculating diluted earnings per share 2,350.2 2,349.5 2,351.0
£m £m £m
Profit for the financial period (net of tax) 285 378 677
Profit for the financial period attributable to ordinary shareholders 285 378 677
Diluted earnings for calculating diluted earnings per share 285 378 677
Profit for the financial period attributable to ordinary shareholders of the 285 378 677
parent
Adjusted for non-underlying items (note 3) (36) (156) (124)
Tax on non-underlying items 11 51 23
Underlying profit after tax attributable to ordinary shareholders of the 260 273 576
parent
Diluted underlying profit after tax attributable to ordinary shareholders of 260 273 576
the parent
Pence per share Pence per share Pence per share
Basic earnings 12.3 16.8 29.8
Diluted earnings 12.1 16.1 28.8
Underlying basic earnings 11.2 12.2 25.4
Underlying diluted earnings 11.1 11.6 24.5
Refer to note 2 for details of prior year restatement.
10. Dividends
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021
5 March
2022
Amounts recognised as distributions to ordinary shareholders in the year:
Dividend per share (pence) 9.9 7.4 10.6
Total dividend charge (£m) 229 165 238
An interim dividend of 3.9 pence per share (18 September 2021: 3.2 pence per
share), has been approved by the Board of Directors for the financial year
ending 4 March 2023, resulting in an interim dividend of £90 million (18
September 2021: £74 million). The interim dividend was approved by the Board
on 2 November 2022 and as such has not been included as a liability at 17
September 2022.
11. Property, plant and equipment
28 weeks to 52 weeks to 28 weeks to
17 September 2022
5 March 2022
18 September 2021
£m £m £m
Net book value
At the beginning of the period 8,402 8,587 8,587
Additions 199 417 151
Disposals (14) (5) -
Depreciation charge (310) (591) (321)
Impairment charge (2) (6) -
Transfer to assets classified as held for sale (3) - -
At the end of the period 8,272 8,402 8,417
The net book value of property, plant and equipment comprises land &
buildings of £6,794 million (5 March 2022: £6,776 million; 18 September
2021: £6,831 million); and fixtures & fittings of £1,478 million (5
March 2022: £1,626 million; 18 September 2021: £1,586 million).
At 17 September 2022, capital commitments contracted, but not provided for by
the Group, amounted to £159 million (5 March 2022: £108 million; 18
September 2021: £165 million).
At each reporting date, the Group reviews the carrying amounts of its
non-financial assets to determine whether there is any indication that those
assets have suffered an impairment loss. The Group has considered whether
there have been any indicators of impairment during the 28 weeks ended 17
September 2022 and subsequently recognised an impairment of £2 million in
relation to Argos stores (5 March 2022: £6 million in relation to in-store
cafe assets; 18 September 2021: £nil).
12. Leases
Set out below are the carrying amounts of right-of-use assets and the
movements during the period:
28 weeks to 52 weeks to 28 weeks to
17 September 2022
5 March 2022
18 September 2021
£m £m £m
At the beginning of the period 5,560 4,747 4,747
New leases and modifications 163 1,294 736
Impairment charge (13) (3) (1)
Depreciation charge (254) (478) (260)
At the end of the period 5,456 5,560 5,222
Included within the above are land and buildings with a net book value of
£5,164 million (5 March 2022: £5,266 million; 18 September 2021: £4,916
million), and equipment with a net book value of £292 million (5 March 2022:
£294 million; 18 September 2021: £306 million).
At each reporting date, the Group reviews the carrying amounts of its
non-financial assets to determine whether there is any indication that those
assets have suffered an impairment loss. The Group has considered whether
there have been any indicators of impairment during the 28 weeks ended 17
September 2022 and subsequently recognised an impairment of £13 million in
relation to Argos stores (5 March 2022: £3 million in relation to in-store
cafe assets; 18 September 2021: £1 million in relation to in-store cafe
assets).
Set out below are the carrying amounts of lease liabilities and the movements
during the period:
Lease Liability
28 weeks to 52 weeks to 28 weeks to
17 September 2022
5 March 2022
18 September 2021
£m £m £m
At the beginning of the period 6,621 5,834 5,834
New leases and modifications 153 1,280 731
Interest expense 145 281 153
Payments (391) (774) (396)
At the end of the period 6,528 6,621 6,322
Current 1,536 526 558
Non-current 4,992 6,095 5,764
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. The Group has now reached an
agreement on an acquisition price for these 21 supermarkets, and thus this
acquisition price has been used to remeasure the lease liabilities.
Income statement disclosures
The following are the amounts recognised in profit or loss:
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021
5 March 2022
£m £m £m
Depreciation of right-of-use assets (254) (260) (478)
Impairment of right-of-use assets (13) (1) (3)
Interest on lease liabilities (145) (153) (281)
Variable lease payments not included in the measurement of lease liabilities (1) (1) -
Finance income from sub-leasing of right-of-use assets 1 - 2
Operating sublet income 32 29 56
Expenses relating to short term leases (14) (18) (32)
Expenses relating to leases of low value assets (1) (1) (2)
Total amount recognised in profit or loss (395) (405) (738)
Total cash outflow for leases (excluding sublease income) (407) (416) (808)
Maturity analysis
28 weeks to 52 weeks to 28 weeks to
17 September 2022
5 March 2022
18 September 2021
£m £m £m
Contractual undiscounted cash flows
Less than one year 1,775 773 826
One to two years 707 1,683 1,303
Two to three years 655 627 649
Three to four years 611 575 594
Four to five years 570 542 564
Total less than five years 4,318 4,200 3,936
Five to ten years 2,533 2,416 2,443
Ten to fifteen years 2,016 2,005 2,065
More than fifteen years 3,215 3,338 3,500
Total undiscounted lease liability 12,082 11,959 11,944
Lease liabilities included in the statement of financial position 6,528 6,621 6,322
Current 1,536 526 558
Non-current 4,992 6,095 5,764
13. Intangible assets
28 weeks to 52 weeks to 28 weeks to
17 September 2022
5 March 2022
18 September 2021
£m £m £m
Net book value
At the beginning of the period 1,006 914 914
Additions 106 278 165
Disposals - (35) -
Amortisation charge (86) (151) (78)
Impairment charge (5) - -
At the end of the period 1,021 1,006 1,001
The net book value of goodwill and intangible assets predominantly comprises
goodwill of £366 million (5 March 2022: £366 million; 18 September 2021:
£366 million), software assets of £584 million (5 March 2022: £556 million;
18 September 2021: £541 million), acquired brands of £70 million (5 March
2022: £82 million; 18 September 2021: £91 million) and customer
relationships of £1 million (5 March 2022: £2 million; 18 September 2021:
£3 million).
Refer to note 3 for details of the impairment recognised in the period.
14. Financial instruments
a. Financial assets and liabilities by category
Set out below are the accounting classifications of each class of financial
assets and liabilities:
Amortised cost Fair value through OCI Fair value through profit or loss Total
£m £m £m £m
At 17 September 2022
Cash and cash equivalents 1,580 - - 1,580
Trade and other receivables 592 - - 592
Amounts due from Financial Services customers and banks 5,288 - - 5,288
Financial assets at fair value through other comprehensive income - 771 - 771
Trade and other payables (4,626) - - (4,626)
Current borrowings (52) - - (52)
Non-current borrowings (687) - - (687)
Amounts due to Financial Services customers and banks (5,732) - - (5,732)
Derivative financial instruments - - 490 490
Lease liabilities (6,528) - - (6,528)
(10,165) 771 490 (8,904)
Amortised cost Fair value through OCI Fair value through profit or loss Total
£m £m £m £m
At 5 March 2022
Cash and cash equivalents 825 - - 825
Trade and other receivables 552 - - 552
Amounts due from Financial Services customers 5,189 - - 5,189
Financial assets at fair value through other comprehensive income - 800 - 800
Trade and other payables (4,218) - - (4,218)
Borrowings (761) - - (761)
Amounts due to Financial Services customers and banks (5,259) - - (5,259)
Derivative financial instruments - - 259 259
Lease liabilities (6,621) - - (6,621)
(10,293) 800 259 (9,234)
Amortised cost Fair value through OCI Fair value through profit or loss Total
£m £m £m £m
At 18 September 2021
Cash and cash equivalents 1,636 - - 1,636
Trade and other receivables 589 - - 589
Amounts due from Financial Services customers 5,022 - - 5,022
Financial assets at fair value through other comprehensive income - 752 - 752
Trade and other payables (4,227) - - (4,227)
Current borrowings (261) - - (261)
Non-current borrowings (722) - - (722)
Amounts due to Financial Services customers and banks (5,614) - - (5,614)
Derivative financial instruments - - 13 13
Lease liabilities (6,322) - - (6,322)
(9,899) 752 13 (9,134)
b. Carrying amount versus fair value
Set out below is a comparison of the carrying amount and the fair value of
financial instruments that are carried in the financial statements at a value
other than fair value. The fair value of financial assets and liabilities are
based on prices available from the market on which the instruments are traded.
Where market values are not available, the fair values of financial assets and
liabilities have been calculated by discounting expected future cash flows at
prevailing interest rates. The fair values of short-term deposits, trade
receivables, overdrafts and payables are assumed to approximate to their book
values.
Carrying amount Fair value
At 17 September 2022 £m £m
Financial assets
Amounts due from Financial Services customers and banks 5,288 5,252
Financial liabilities
Loans due 2031 (558) (594)
Tier 2 Capital (178) (177)
Amounts due to Financial Services customers and banks (5,732) (5,729)
Carrying amount Fair value
At 5 March 2022 £m £m
Financial assets
Amounts due from Financial Services customers and banks 5,189 5,216
Financial liabilities
Loans due 2031 (575) (717)
Tier 2 Capital (179) (180)
Amounts due to Financial Services customers and banks (5,259) (5,260)
Carrying amount Fair value
At 18 September 2021 £m £m
Financial assets
Amounts due from Financial Services customers and banks 5,022 5,037
Financial liabilities
Loans due 2031 (602) (693)
Tier 2 Capital (180) (181)
Amounts due to Financial Services customers and banks (5,614) (5,617)
c. Fair value measurements recognised in the balance sheet
The following table provides an analysis of financial instruments that are
recognised at fair value, grouped into Levels 1 to 3 based on the degree to
which the fair value is observable:
· Level 1 fair value measurements are derived from quoted market
prices (unadjusted) in active markets for identical assets or liabilities at
the balance sheet date. This level includes listed equity securities and debt
instrument on public exchanges;
· Level 2 fair value measurements are derived from inputs other
than quoted prices included within Level 1 that are observable for the asset
or liability, either directly (i.e. as prices) or indirectly (i.e. derived
from prices). The fair value of financial instruments is determined by
discounting expected cash flows at prevailing interest rates; and
· Level 3 fair value measurements are derived from valuation
techniques that include inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
Level 1 Level 2 Level 3 Total
At 17 September 2022 £m £m £m £m
Financial instruments at fair value through other comprehensive income
Other financial assets - 376 - 376
Investment securities 395 - - 395
Derivative financial assets - 314 232 546
Derivative financial liabilities - (56) - (56)
Level 1 Level 2 Level 3 Total
At 5 March 2022 £m £m £m £m
Financial instruments at fair value through other comprehensive income
Other financial assets - 15 367 382
Investment securities 418 - - 418
Derivative financial assets - 111 180 291
Derivative financial liabilities - (32) - (32)
Level 1 Level 2 Level 3 Total
At 18 September 2021 £m £m £m £m
Financial instruments at fair value through other comprehensive income
Interest bearing financial assets - 1 - 1
Other financial assets - 17 329 346
Investment securities 405 - - 405
Derivative financial assets - 29 35 64
Derivative financial liabilities - (51) - (51)
Level 3 Financial assets
Details of the determination of Level 3 fair value measurements are set out
below:
Commodity derivatives Total
£m £m
At 6 March 2022 180 180
In cost of sales in the Group income statement 28 28
In other comprehensive income 24 24
At 17 September 2022 232 232
Financial instruments at FVTOCI Commodity derivatives Total
£m £m £m
At 7 March 2021 291 6 297
In cost of sales in the Group income statement - 76 76
In other comprehensive income 76 98 174
At 5 March 2022 367 180 547
Financial instruments at FVTOCI Commodity derivatives Total
£m £m £m
At 7 March 2021 291 6 297
In finance income in the Group income statement - 29 29
In other comprehensive income 38 - 38
At 18 September 2021 329 35 364
Of the commodity derivative financial assets, as at 17 September 2022, £123
million is designated in a cash flow hedge relationship (5 March 2022: £99
million; 18 September 2021: £nil); and £109 million is not in a hedge
relationship (5 March 2022: £81 million; 18 September 2021: £35 million).
Level 3 other financial assets
Other financial assets categorised as Level 3 in the prior year of £367
million relate to the Group's beneficial interest in a property investment
pool. Given the Group has reached an agreement on an acquisition price for the
properties within this investment pool during the period (see note 12 for
further details), these financial assets have been reclassified to Level 2.
Level 3 derivative financial assets - power purchase agreement
The Group has entered into several long-term fixed-price power purchase
agreements with independent producers. Included within derivative financial
instruments is a net asset of £232 million relating to these agreements at 17
September 2022 (at 18 September 2021: £35 million; at 6 March 2022: £180
million). The Group values its power purchase agreements as the net present
value of the estimated future usage at the contracted fixed price less the
market implied forward energy price discounted back at the prevailing swap
rate. The Group also makes an assumption regarding expected energy output
based on the historical performance and the producer's estimate of expected
electricity output. The sensitivity of this balance to changes of 20 per cent
in the assumed rate of energy output and 20 per cent in the implied forward
energy prices holding other assumptions constant is shown below:
Not in a hedge relationship
17 September 2022 5 March 2022
Change in volume Change in electricity forward price Change in volume Change in electricity
+/- 20.0% +/- 20.0% +/- 20.0% forward price
+/- 20.0%
£m £m £m £m
Derivative financial instruments 29(29) 22/(22) 23/(23) 16/(16)
18 September 2021
Change in volume Change in electricity
+/- 20.0% forward price
+/- 20.0%
£m £m
Derivative financial instruments 7/(7) 14/(14)
Designated in a cash flow hedge relationship
17 September 2022 5 March 2022
Change in volume Change in electricity forward price Change in volume Change in electricity
+/- 20.0% +/- 20.0% +/- 20.0% forward price
+/- 20.0%
£m £m £m £m
Derivative financial instruments 35/(35) 24/(24) 32/(32) 20/(20)
18 September 2021
Change in Change in electricity
volume forward price
+/- 20.0% +/- 20.0%
£m £m
Derivative financial instruments N/A N/A
d. Financial Services expected credit loss (ECL)
Loans and advances are initially recognised at fair value and subsequently
held at amortised cost, using the effective interest method, less provision
for impairment and recognised on the balance sheet when cash is advanced:
17 September 2022 5 March 18 September 2021
2022
£m £m £m
Non-current
Loans and advances to customers 2,065 2,069 2,100
Impairment of loans and advances (52) (43) (51)
2,013 2,026 2,049
Current
Loans and advances to customers 3,329 3,202 3,094
Loans and advances to banks 120 121 71
Impairment of loans and advances (174) (160) (192)
3,275 3,163 2,973
Loan commitment provisions (19) (19) (16)
Total impairment provisions for loans and advances to customers and loan (245) (222) (259)
commitments
Impairment provisions as a percentage of loans and advances to customers 4.5% 4.2% 5.0%
The ECL models utilise four scenarios including a 'base case' scenario
considered to be the most likely outcome together with an upside, downside
and severe downside scenario. The base case has been assigned a probability
weighting of 45% with the upside, downside and severe downside scenarios
weighted 35%, 15%, 5% respectively. These scenarios were updated in August
2022 to reflect the prevailing inflationary pressures and impacts of the cost
of living crisis. The weighted economic measures from the scenarios are as
follows:
At 17 September 2022
5-year average Base Upside Downside Severe Downside
Unemployment rate 4.9 4.1 5.8 7.4
Consumer price growth 5.4 5.0 5.8 6.4
GDP 1.2 1.6 0.8 0.3
Mortgage debt as a percentage of household income 98.9 96.5 101.5 104.8
Real household disposable income 0.5 1.1 (0.2) (1.0)
Probability weighting 45 35 15 5
At 5 March 2022
5-year average Base Upside Downside Severe
Downside
Unemployment rate 4.0 3.9 4.7 6.2
Consumer price growth 2.7 2.8 2.6 2.5
GDP 1.8 2.2 1.5 1.0
Mortgage debt as a percentage of household income 102.8 101.7 104.3 105.9
Real household disposable income 1.0 1.3 0.7 0.4
Probability weighting 45 35 15 5
At 18 September 2021
5-year average Base Upside Downside Severe
Downside
Unemployment rate 4.6 4.2 5.7 7.5
Consumer price growth 2.2 2.3 2.1 1.9
GDP 3.2 3.7 2.8 2.3
Mortgage debt as a percentage of household income 102.1 101.1 103.3 104.3
Real household disposable income 2.2 2.3 1.9 1.6
Probability weighting 40 30 25 5
Like many other banks, our ECL models were not developed under a high
inflationary environment and as a result exhibit volatility not well
calibrated to the current economic situation. We have therefore retained the
inflation outlook at the year ended 5 March 2022 in our models, supplemented
with a new economic overlay calculated by referencing our updated consumer
price growth scenarios.
ECL sensitivity
The economic conditions impact the probability of default of the customers.
The impact of 100% weighting of each of the economic scenarios is outlined as
follows:
Impact on the loss allowance
17 September 2022 5 March 2022 18 September 2021
£m £m £m
Closing ECL allowance 245 222 259
Base scenario - (4) (3)
Upside scenario (9) (7) (9)
Downside scenario 12 10 12
Severe Downside scenario 38 30 30
Our ECL models have been upgraded to cope with much of the anticipated
economic forecasts arising from the COVID-19 pandemic, and as a result the
associated post model adjustment (PMA) held as at 5 March 2022 of £10 million
has been partially reduced accordingly (PMA at 18 September 2021 was £33
million). However, other world events have severely impacted the UK's
economic outlook with a high inflation cost-of-living crisis and recession on
the horizon requiring introduction of a new economic PMA. The aggregate amount
of economic PMA now held at 17 September 2022 is £8 million.
15. Analysis of net (debt)/funds
The Group's definition of net debt includes the capital injections to
Sainsbury's Bank, but excludes the net debt of Sainsbury's Bank and its
subsidiaries (Financial Services). Financial Services' net debt balances are
excluded because they are required as part of the business as usual operations
of a bank, as opposed to specific forms of financing for the Group. The
Group's definition of net debt includes lease liabilities as recognised under
IFRS 16 and perpetual securities, and excludes derivatives that are not used
to hedge borrowings.
A reconciliation of opening to closing net debt is included below. Balances
and movements for the total Group and Financial Services are shown in addition
to Retail to enable reconciliation between the Group balance sheet and Group
cash flow statement.
Financial assets at fair value through other comprehensive income exclude
equity related financial assets which predominantly relate to the Group's
beneficial interest in a commercial property investment pool. Derivatives
exclude those not used to hedge borrowings, and borrowings exclude bank
overdrafts as they are disclosed separately.
Cash Movements Non-Cash Movements
6 March 2022 Cash flows excluding interest Net interest (received) / paid Accrued Interest Other non-cash movements Changes in fair value 17 September 2022
£m £m £m £m £m £m £m
Retail
Net derivative financial instruments 5 - - 1 - (1) 5
Borrowings (excluding overdrafts) (575) 22 16 (21) - - (558)
Lease liabilities (6,618) 245 145 (145) (153) - (6,526)
Arising from financing activities (7,188) 267 161 (165) (153) (1) (7,079)
Cash and cash equivalents 436 481 - - - - 917
Bank overdrafts (7) 4 - - - - (3)
Retail net debt (6,759) 752 161 (165) (153) (1) (6,165)
Financial Services
Net derivative financial instruments 4 - - - - (3) 1
Borrowings (excluding overdrafts) (179) - - - 1 - (178)
Lease liabilities (3) 1 - - - - (2)
Arising from financing activities (178) 1 - - 1 (3) (179)
Financial assets at fair value through other comprehensive income 418 (22) - - - (1) 395
Cash and cash equivalents 389 274 - - - - 663
Financial services net funds 629 253 - - 1 (4) 879
Group
Net derivative financial instruments 9 - - 1 - (4) 6
Borrowings (excluding overdrafts) (754) 22 16 (21) 1 - (736)
Lease liabilities (6,621) 246 145 (145) (153) - (6,528)
Arising from financing activities (7,366) 268 161 (165) (152) (4) (7,258)
Financial assets at fair value through other comprehensive income 418 (22) - - - (1) 395
Cash and cash equivalents 825 755 - - - - 1,580
Bank overdrafts (7) 4 - - - - (3)
Group net debt (6,130) 1,005 161 (165) (152) (5) (5,286)
Retail net debt (6,759) 752 161 (165) (153) (1) (6,165)
Of which:
Leases (6,618) (6,526)
Net (debt)/funds excluding lease liabilities (141) 361
Other non-cash movements predominantly comprise new leases and lease
modifications.
Overdraft balances are included within borrowings in the Group balance sheet,
and within cash and cash equivalents in the Group cash flow statement.
Cash Movements Non-Cash Movements
7 March 2021 Cash flows excluding interest Net interest (received) / paid Accrued Interest Other non-cash movements Changes in fair value 18 September 2021
£m £m £m £m £m £m £m
Retail
Net derivative financial instruments (14) - 5 (6) 6 8 (1)
Borrowings (excluding overdrafts) (826) 223 15 (14) - - (602)
Lease liabilities (5,829) 242 153 (153) (731) - (6,318)
Arising from financing activities (6,669) 465 173 (173) (725) 8 (6,921)
Financial assets at fair value through other comprehensive income 1 - - - - - 1
Cash and cash equivalents 546 230 - - - - 776
Bank overdrafts (99) (102) - - - - (201)
Retail net debt (excluding perpetual securities) (6,221) 593 173 (173) (725) 8 (6,345)
Financial Services
Net derivative financial instruments - - - - - 1 1
Borrowings (excluding overdrafts) (179) - 5 (5) (1) (180)
Lease liabilities (5) 1 - - - - (4)
Arising from financing activities (184) 1 5 (5) (1) 1 (183)
Financial assets at fair value through other comprehensive income 537 (130) - - - (2) 405
Cash and cash equivalents 1,029 (169) - - - - 860
Financial services net funds 1,382 (298) 5 (5) (1) (1) 1,082
Group
Net derivative financial instruments (14) - 5 (6) 6 9 -
Borrowings (excluding overdrafts) (1,005) 223 20 (19) (1) - (782)
Lease liabilities (5,834) 243 153 (153) (731) - (6,322)
Arising from financing activities (6,853) 466 178 (178) (726) 9 (7,104)
Financial assets at fair value through other comprehensive income 538 (130) - - - (2) 406
Cash and cash equivalents 1,575 61 - - - - 1,636
Bank overdrafts (99) (102) - - - - (201)
Group net debt (excluding perpetual securities) (restated) (4,839) 295 178 (178) (726) 7 (5,263)
Retail net debt (excluding perpetual securities) (6,221) 593 173 (173) (725) 8 (6,345)
Perpetual convertible bonds (248) 8 - - 240 - -
Retail net debt (including perpetual securities) (6,469) 601 173 (173) (485) 8 (6,345)
Of which:
Leases (5,829) (6,318)
Net debt excluding lease liabilities (640) (27)
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 funds 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) (restated) (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 Retail net debt
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021
5 March 2022
£m £m £m
Opening net debt (6,759) (6,469) (6,469)
Cash flow movements
Net increase/(decrease) in cash and cash equivalents (including overdrafts) 759 (41) (658)
Elimination of Financial Services movement in cash and cash equivalents (274) 169 640
Repayment of perpetual capital securities - 8 8
Repayment of Retail borrowings 22 223 248
Repayment of Retail lease obligations 245 242 491
Net interest paid on components of Retail net debt 161 173 319
Changes in net debt resulting from cash flow 913 774 1,048
Non-cash movements
Accrued interest (165) (173) (316)
Retail fair value and other non-cash movements (154) (477) (1,022)
Changes in net debt resulting from non-cash movements (319) (650) (1,338)
Movement in net debt 594 124 (290)
Closing net debt (6,165) (6,345) (6,759)
16. Borrowings
28 weeks to 17 September 2022 52 weeks to 5 March 2022
Current Non-current Total Current Non-current Total
£m £m £m £m £m £m
Loan due 2031 46 512 558 44 531 575
Bank overdrafts 3 - 3 7 - 7
Sainsbury's Bank Tier 2 Capital 3 175 178 3 176 179
Total borrowings 52 687 739 54 707 761
28 weeks to 18 September 2021
Current Non-current Total
£m £m £m
Loan due 2031 57 545 602
Bank overdrafts 201 - 201
Sainsbury's Bank Tier 2 Capital 3 177 180
Total borrowings 261 722 983
Available facilities
The Revolving Credit Facility is split into two Facilities, a £300 million
Facility (A) and a £1,094 million Facility (B). Facility A has a final
maturity of April 2025 and Facility B has a final maturity of October 2024. As
at 17 September 2022, the Revolving Credit Facility was undrawn (5 March 2022:
nil; 18 September 2021: nil).
The Revolving Credit Facility incurs commitment fees at market rates and
drawdowns bear interest at a margin above SONIA.
The Group maintains uncommitted facilities to provide additional capacity to
fund short-term working capital requirements. Drawdowns on these uncommitted
facilities bear interest at a margin. The uncommitted facilities were undrawn
at 17 September 2022 (5 March 2022: nil; 18 September 2021: nil).
Subsequent to the balance sheet date, an unsecured term facility for £575m
was entered into. Refer to note 21 for further details.
Sainsbury's Bank Tier 2 Capital
The Bank issued £120m of fixed rate reset callable subordinated Tier 2 notes
on 12 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 12 March 2028 at which time the interest rate will reset. The
Bank has the option to redeem these notes on 12 March 2028.
This was issued in conjunction with the repurchase and extinguishment of
£120m of the existing £175m subordinated Tier 2 notes that were issued on 23
November 2017. Subsequently on 19 October 2022, the Bank announced its
intention to redeem the remaining £55m in full on the call date 23 November
2022.
17. Cash and cash equivalents
Cash and cash equivalents comprise the following:
28 weeks to 52 weeks to 5 March 2022 28 weeks to 18 September 2021
17 September 2022
£m £m £m
Cash in hand and bank balances 586 566 508
Money market funds and deposits 602 25 579
Deposits at central banks 392 234 549
Cash and bank balances as reported in the Group balance sheet 1,580 825 1,636
Bank overdrafts (within current borrowings) (3) (7) (201)
Net cash and cash equivalents as reported in the Group cash flow statement 1,577 818 1,435
Of the above balance, £16 million (5 March 2022: £18 million; 18 September
2021: £19 million) was restricted as at the period-end. Of the £16 million
(5 March 2022: £18 million; 18 September 2021: £19 million) restricted cash,
£15 million (5 March 2022: £15 million; 18 September 2021: £16 million) is
held as a reserve deposit with the Bank of England in accordance with
statutory requirements. This deposit is not available for use in day-to-day
operations. A further £1 million (5 March 2022: £3 million; 18 September
2021: £2 million) is restricted for insurance purposes.
Reconciliation of cash flow items
Working capital
Inventories Financial assets at fair value through OCI Trade and other receivables Amounts due from Financial Services customers Trade and other payables Amounts due to Financial Services customers Provisions
£m £m £m £m £m £m £m
At 17 September 2022 1,891 771 803 5,288 (4,994) (5,732) (231)
At 5 March 2022 1,797 800 748 5,189 (4,570) (5,259) (271)
Balance sheet movement (94) 29 (55) (99) 424 473 (40)
Fair value movements - (7) - (35) - - -
Hedge adjustment to inventory 7 - - - - - -
Reclassification to other lines in the cash flow statement - - 4 - 24 - -
Financial Services ECL impairments - - - (23) - - -
Movement in capital accruals - - - - 3 - -
Other - - - (1) (13) (1) (1)
Movement shown in cash flow statement (87) 22 (51) (158) 438 472 (41)
Inventories Financial assets at fair value through OCI Trade and other receivables Amounts due from Financial Services customers Trade and other payables Amounts due to Financial Services customers Provisions
£m £m £m £m £m £m £m
At 18 September 2021 (restated) 1,682 752 779 5,022 (4,584) (5,614) (276)
At 6 March 2021 1,625 844 775 5,407 (4,508) (6,289) (470)
Balance sheet movement (57) 92 (4) 385 76 (675) (194)
Fair value movements - 38 - - - - -
Reclassification to other lines in the cash flow statement - - - - 15 - -
Financial Services ECL impairments - - - (35) - - -
Movement in capital accruals - - - - 4 - -
Business rates adjustment - - - - - - 106
Other - - (2) - - - 12
Movement shown in cash flow statement (57) 130 (6) 350 95 (675) (76)
Inventories Financial assets at fair value through OCI Trade and other receivables Amounts due from Financial Services customers Trade and other payables Amounts due to Financial Services customers Provisions
£m £m £m £m £m £m £m
At 5 March 2022 1,797 800 748 5,189 (4,570) (5,259) (271)
At 6 March 2021 1,625 844 775 5,407 (4,508) (6,289) (349)
Balance sheet movement (172) 44 27 218 62 (1,030) (78)
Fair value movements - 71 - (38) - - -
Hedge adjustments (7) - - - - - -
Interest in working capital - - - - (6) - -
Transfer of SaaS spend to prepayments - - 9 - - - -
Reclassification to other lines in the cash flow statement - - - - (28) - -
Financial Services ECL impairments - - - (19) - - -
Movement in capital accruals - - - - 1 - -
Amortisation of discount - - - - - - (1)
Other - - (3) - (1) - (1)
Movement shown in cash flow statement (179) 115 33 161 28 (1,030) (80)
Profit on the sale of properties and early termination of leases in the cash
flow statement is reconciled as follows:
28 weeks to 28 weeks to 52 weeks to 5 March 2022
17 September 2022
18 September 2021
£m £m £m
Profit on disposal of properties (note 3) - (3) (7)
Non underlying gain on early termination of leases (note 3) (1) (5) (9)
Profit on disposal of properties within restructuring programmes (note 3) (11) (13) (12)
Non-underlying SaaS adjustment (note 3) - - 21
Underlying gain on early termination of leases - (1) (3)
Loss on disposal of intangible assets - - 4
Profit on sale of non-current assets and early termination of leases (12) (22) (6)
18. Retirement benefit obligations
All retirement benefit obligations relate to the Sainsbury's Pension Scheme
plus two unfunded pension liabilities relating to former senior employees of
Sainsbury's and Home Retail Group.
The Sainsbury's Pension Scheme has two segregated sections: the Sainsbury's
Section and the Argos Section.
The unfunded pension liabilities are unwound when each employee reaches
retirement and takes their pension from the Group payroll or is crystallised
in the event of an employee retiring and choosing to take the provision as a
one-off cash payment.
Triennial valuation
The Trustee's triennial valuation is used to determine the contributions
required for the Scheme to pay all the benefits due, now and in the future.
The Trustee must allow for a level of prudence and so these assumptions
therefore place a relatively high value on the Scheme's liabilities. By
contrast, IAS 19 'Employee Benefits' requires all companies to value the
liabilities on a 'best estimate' basis which places a lower value on the
liabilities and therefore a more favourable financial position. As such, the
accounting value is different to the result obtained using the Trustee's
triennial valuation basis.
The Trustee completed a triennial actuarial valuation as at 30 September 2021,
resulting in an actuarial surplus of £130 million (Sainsbury's section was a
surplus of £231 million, Argos section was a deficit of £101 million), from
a deficit of £538 million in 2018. The asset backed contributions (ABC)
structure established by Sainsbury's in July 2019 continues to deliver as
planned. Under the ABC, properties with a value of £1.35 billion were
transferred into a property holding company, a wholly owned subsidiary of the
Group, and leased to other Group entities. Rental receipts facilitate payments
of interest and capital on loan notes issued to a Scottish Limited
Partnership, in which the Scheme holds an interest. The Scheme's interest in
the Partnership entitles it to annual distributions over up to 20 years.
The distributions were approximately £58 million per year until 2030, and
subsequently approximately £28 million a year for the remaining period
(increasing by 2% a year). The distributions are made through three payment
streams:
1. Payments to the Sainsbury's section
2. Payments to the Argos section
3. Switching payment stream, paid to either the Sainsbury's section or
Argos section
The payments to the Sainsbury's and Argos sections (streams 1 and 2) stop in
2030, or when the relevant section reaches its funding target, if earlier. The
third stream is initially paid to the Sainsbury's section.
As the Sainsbury's section reached its funding target in December 2021, stream
1 (£15 million a year) was permanently switched off and stream 3 (currently
£24 million a year) switched to the Argos section from March 2022. Stream 3
payments will continue until 2038 or until both sections have reached their
funding targets, if earlier. The Argos section also continues to receive the
stream 2 payments of £20 million a year.
The amounts recognised in the balance sheet are as follows:
17 September 2022 5 March 2022
Sainsbury's Argos Group Sainsbury's Argos Group
£m £m £m £m £m £m
Present value of funded obligations (5,836) (922) (6,758) (8,060) (1,313) (9,373)
Fair value of plan assets 7,176 1,064 8,240 10,158 1,535 11,693
Retirement benefit surplus 1,340 142 1,482 2,098 222 2,320
Present value of unfunded obligations (15) (12) (27) (20) (17) (37)
Retirement benefit surplus 1,325 130 1,455 2,078 205 2,283
18 September 2021
Sainsbury's Argos Group
£m £m £m
Present value of funded obligations (9,352) (1,488) (10,840)
Fair value of plan assets 10,394 1,574 11,968
Retirement benefit surplus 1,042 86 1,128
Present value of unfunded obligations (23) (18) (41)
Retirement benefit surplus 1,019 68 1,087
The principal actuarial assumptions used at the balance sheet date are as
follows:
17 September 5 March 18 September
2022 2022 2021
% % %
Discount rate 4.45 2.40 1.75
Inflation rate - RPI 3.45 3.60 3.40
Inflation rate - CPI 2.75 2.90 2.70
Future pension increases 2.30 - 3.35 2.30 - 3.45 2.25 - 3.30
The amounts recognised in the income statement in respect of the IAS 19
charges for the defined benefit schemes are as follows:
17 September 2022 5 March 2022 18 September 2021
£m £m £m
Excluded from underlying profit before tax:
Interest cost on pension liabilities (119) (197) (106)
Interest income on plan assets 149 212 114
Total included in finance income/(costs) 30 15 8
Defined benefit pension scheme expenses (3) (7) (2)
Past service cost - 3 -
Settlement gains 8 - -
Total excluded from underlying profit before tax 35 11 6
Total income statement credit 35 11 6
The movements in the net defined benefit surplus are as follows:
17 September 2022 5 March 2022 18 September 2021
£m £m £m
The movements in the Groups net defined benefit surplus is as follows:
At the beginning of the year 2,283 744 744
Net interest income 30 15 8
Remeasurement (losses)/gains (886) 1,457 298
Pension scheme expenses (3) (7) (2)
Contributions by employer 23 71 39
Past service charge - 3 -
Settlement gains 8 - -
At the end of the year 1,455 2,283 1,087
Cash contributions
Cash contributions for the full year are expected to be approximately £53
million.
Valuation of pension assets
The Pension Scheme has circa £2 billion of private market assets, split
between private debt, private equity and property. These assets are held as
they are expected to deliver a greater risk/return profile vs public market
equivalents over the long term. The assets are illiquid (likely to be realised
over 5+ years) but the Pension Scheme holds sufficient liquid assets (cash,
gilts and other liquid securities) to be confident that it can meet its
pension and collateral obligations over time.
The valuation of these assets is based on the audited accounts of the funds,
where available, and net asset value statements from the investment managers
where recent accounts are not available. For many of the investments the
valuations provided are at 30 June. The Group therefore performs a
roll-forward for these valuations, adjusting for cash received or paid and
applying the changes seen in relevant liquid indices as follows:
Asset Class Returns
Global equity USD return (15.15)%
Global High Yield Debt USD return (7.35)%
US loans USD return (1.16)%
UK REITS GBP return (22.36)%
The roll-forward has reduced the valuation of illiquid assets by £15 million.
A 1% increase/decrease in the indices used would have caused a £18 million
increase/decrease in the adjustment.
Subsequent to the balance sheet date, there have been significant movements
within the pension market. Refer to note 21 for further details.
Sensitivities
The following sensitivities are based on management's best estimate of a
reasonably anticipated change. The sensitivities are calculated using the same
methodology used to calculate the retirement benefit obligation, by
considering the change in the retirement benefit obligation for a given change
in assumption. The net retirement benefit obligation is the difference between
the retirement benefit obligation and the fair value of plan assets. Changes
in the assumptions may occur at the same time as changes in the fair value of
plan assets. There has been no change in the calculation methodology since the
prior period.
Sainsbury's Argos Total
£m £m £m
An increase of 0.5% in the discount rate would decrease the present value of 420 75 495
funded obligations by
A decrease of 0.5% in the discount rate would increase the present value of 469 85 554
funded obligations by
An increase of 0.5% in the inflation rate would increase the present value of 266 68 334
funded obligations by
A decrease of 0.5% in the inflation rate would decrease the present value of 274 67 341
funded obligations by
An increase of 0.5% in the inflation rate for future pension increases in 142 39 181
payment only would increase the present value of funded obligations by
A decrease of 0.5% in the inflation rate for future pension increases in 161 42 203
payment only would reduce the present value of funded obligations by
Demographic sensitivities
An increase of one year to the life expectancy would increase the present 193 30 223
value of funded obligations by
Changing the 2020 and 2021 weighting parameters in CMI 2021 to 0% would 67 10 77
increase the present value of funded obligations by
Changing the 2020 and 2021 weighting parameters in CMI 2021 to 25% would 65 10 75
decrease the present value of funded obligations by
19. Related party transactions
The Group's related parties are its joint ventures and key management
personnel, comprising members of the J Sainsbury plc Board of Directors and
the Operating Board as disclosed in the Annual Report and Financial Statements
2022.
Transactions with joint ventures and associates
For the 28 weeks to 17 September 2022, the Group entered into various
transactions with joint ventures and associates as set out below:
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021
5 March 2022
£m £m £m
Services and loans provided to joint ventures
Dividends and distributions received - - 2
Rental expenses paid (3) (3) (8)
Balances arising from transactions with joint ventures and associates
17 September 2022 18 September 2021 5 March 2022
£m £m £m
Other payables (1) (1) (1)
20. Contingent liabilities
The Group has a number of contingent liabilities in respect of historic
guarantees, particularly in relation to disposed assets, which if the current
tenant and their ultimate parents become insolvent, may expose the Group to a
material liability. This is not expected to materialise.
Along with other retailers, the Group is currently subject to claims from
current and ex-employees in the Employment Tribunal for equal pay under the
Equality Act 2010 and/or the Equal Pay Act 1970. There are currently circa
10,500 equal pay claims from circa 6,300 claimants, in which the claimants are
alleging that their work within Sainsbury's stores is or was, of equal value
to that of colleagues working in Sainsbury's distribution centres, and that
differences in terms and conditions relating to pay are not objectively
justifiable. The claimants are seeking the differential back pay based on the
higher wages in distribution centres, and the equalisation of wages and terms
and conditions on an ongoing basis. The Group believes further claims will be
served.
There are three stages in the tribunal procedure for equal value claims of
this nature and the claimants will need to succeed in all three. The first
stage is whether store claimants have the legal right to make the comparison
with depot workers. Following European and Supreme Court decisions in other
similar litigation, Sainsbury's has conceded this point. The second stage is
the lengthy process to determine whether any of the claimants' roles are of
equal value to their chosen comparators. This process is likely to continue
for several more years. In the event that any of the claimants succeed at the
second stage there will be further hearings, in the years following, to
consider whether any pay differential is justified.
Given that the outcome of the second and third stages in the litigation
remains highly uncertain at this stage, the Group cannot make any assessment
of the likelihood nor quantum of any outcome. No provision has therefore been
recognised on the Group's balance sheet. There are substantial factual and
legal defences to these claims and the Group intends to defend them
vigorously.
21. Post balance sheet events
Retirement benefit obligations
Subsequent to the balance sheet date, there have been significant movements in
gilt markets. In particular the 'mini budget' announced by the government on
23rd September caused rapid sales of government bonds which further depressed
gilt markets. Although a temporary intervention by the Bank of England and
subsequent policy changes have stabilised the market, gilt yields remain
significantly higher than they were prior to the mini budget. This will have
resulted in a significant decrease in the value of the Group's pension
Scheme's assets, and also its liabilities.
The Group's pension Scheme adopts a collateral sufficiency framework which
ensures sufficient high quality liquid assets are maintained in order to meet
liquidity requirements, even in times of market stress. The scale and speed of
the increase in interest rate expectations since the 'mini budget', and
volatility within the markets, resulted in the Group deciding to put in place
a loan facility to the Scheme of £500m on 18th October. The purpose of this
facility was to further enhance the pensions Scheme's resilience in the event
of unexpected substantial further rises in interest rates. This facility will
remain in place for 3 months and as at the date of signing has not been drawn.
Borrowings
Subsequent to the balance sheet date, an unsecured term facility for £575m
was entered into in October 2022, with an ultimate maturity date of 30
November 2024. As at the date of signing the term facility was undrawn.
Principal risks and uncertainties
Risk is an inherent part of doing business. The J Sainsbury plc Board has
overall responsibility for the identification and management of the principal
risks, emerging risks and internal control of the Company. The Board has
identified the following principal potential risks to the successful operation
of the business. These risks, along with the events in the financial markets
and their potential impacts on the wider economy, remain those most likely to
affect the Group in the second half of the year.
· Business continuity, operational resilience and major incidents
response
· Business strategy and change
· Colleague engagement, retention and capability
· Customer
· Data security
· Environment and sustainability
· Financial and treasury
· Health and safety
· Political and regulatory environment
· Product safety and sourcing
· Sainsbury's Bank
· Trading environment and competitive landscape
The trading environment in which we are operating is directly impacted by
inflationary pressures, continued disruption in global macro environment and
the cost-of-living. We continue to monitor these external pressures and
respond accordingly whilst continuing to focus on delivery of our strategic
priorities. As such, the gross and net position of this risk have regressed.
Aside from the Trading environment and competitive landscape Principal Risk,
the others remain unchanged from those reported in the Group's Annual Report
and Financial Statements 2022. For more information on these risks, please
refer to pages 38 to 50 of the J Sainsbury plc Annual Report and Financial
Statements 2022, a copy of which is available on the Group's corporate website
www.j-sainsbury.co.uk (http://www.j-sainsbury.co.uk) .
Statement of Directors' responsibilities
The Directors confirm that this set of Condensed Consolidated Interim
Financial Statements has been prepared in accordance with UK adopted IAS 34
'Interim Financial Reporting' and the Disclosure and Transparency Rules of the
UK's Financial Conduct Authority, and that the Interim Management Report
herein includes a true and fair review of the information required by DTR
4.2.7R and DTR 4.2.8R, namely:
· that the report contains a fair review of important events that
have occurred during the first 28 weeks of the financial year, and their
impact on the condensed set of financial statements, and of the principal
risks and uncertainties for the remaining six months of the financial year;
and
· that the report contains a fair review of related party
transactions.
The Directors of J Sainsbury plc are listed in the J Sainsbury plc Annual
Report and Financial Statements 2022.
A list of current directors is maintained on the Group's website:
www.about.sainsburys.co.uk/about-us/our-management
(www.about.sainsburys.co.uk/about-us/our-management) .
By order of the Board
Simon Roberts
Chief Executive
2 November 2022
Kevin O'Byrne
Chief Financial Officer
2 November 2022
INDEPENDENT REVIEW REPORT TO J SAINSBURY PLC
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the interim financial report for the 28 week period ended 17
September 2022 which comprises the Group income statement, the Group statement
of comprehensive income, the Group balance sheet, the Group cash flow
statement and the Group statement of changes in equity and the related
explanatory notes. We have read the other information contained in the interim
financial report and considered whether it contains any apparent misstatements
or material inconsistencies with the information in the condensed set of
financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the interim
financial report for the 28 week period ended 17 September 2022 is not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34 and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with UK-adopted international accounting standards. The
condensed set of financial statements included in this interim financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the interim financial report in
accordance with the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the interim report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
interim financial report. Our conclusions, including our Conclusions Relating
to Going Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of this report.
Use of our report
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
2 November 2022
Alternative performance measures (APMs)
In the reporting of financial information, the Directors use various APMs
which they believe provide additional useful information for understanding the
financial performance and financial health of the Group. These APMs should be
considered in addition to, and are not intended to be a substitute for, IFRS
measurements. As they are not defined by International Financial Reporting
Standards, they may not be directly comparable with other companies who use
similar measures.
The Directors believe that these APMs provide additional useful information
for understanding the financial performance and health of the Group. They are
also used to enhance the comparability of information between reporting
periods (such as like-for-like sales and underlying profit) by adjusting for
non-recurring or uncontrollable factors which affect IFRS measures, to aid
users in understanding the Group's performance.
Consequently, APMs are used by the Directors and management for performance
analysis, planning, reporting and incentive setting purposes.
All of the following APMs relate to the current period's results and
comparative periods.
APM Closest equivalent IFRS measure Definition Purpose Reconciliation
Income statement - Revenue
Retail sales Revenue Group sales less Financial Services revenue. Shows the annual rate of growth in the Group's Retail business sales. A reconciliation of the measure is provided in note 4 of the financial
statements.
Like-for-like sales No direct equivalent Year-on-year growth in sales including VAT, excluding fuel, excluding The measure is used widely in the retail industry as an indicator of current
Financial Services, for stores that have been open for more than one year. trading performance and is useful when comparing growth between retailers that
The reported retail like-for-like sales decline of 0.8 per cent is based on a 28 weeks to 17 September 2022 28 weeks to 18 September 2021
have different profiles of expansion, disposals and closures. combination of Sainsbury's like-for-like sales and Argos like-for-like sales
for the 28 weeks to 17 September 2022. See movements below:
Retail like-for-like (exc. Fuel, inc. VAT) (0.8)% 0.3%
The relocation of Argos stores into Sainsbury's supermarkets are classified as Underlying net new space impact (0.5)% (0.1)%
new space, while the host supermarket is classified like-for-like. Retail sales (decline)/growth (exc. Fuel, inc. VAT) (1.3)% 0.2%
Fuel impact 5.7% 5.8%
Total retail sales growth (inc. fuel, inc. VAT) 4.4% 6.0%
VAT impact (0.3)% (0.6)%
Total retail sales growth 4.1% 5.4%
APM Closest equivalent IFRS measure Definition Purpose Reconciliation
Income statement - Profit
Retail underlying operating profit Profit before tax Underlying earnings before interest, tax, Financial Services operating profit 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.
associates.
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021 (restated)
5 March 2022
£m £m £m
Group PBT (note 5a) 376 527 854
Less Group non-underlying items (note 3) (36) (156) (124)
Group UPBT 340 371 730
Financial Services underlying operating profit (19) (19) (38)
Retail underlying profit before tax 321 352 692
Net underlying finance costs 156 171 309
Retail underlying operating profit 477 523 1,001
Retail sales (note 5a) 16,154 15,511 29,463
Retail underlying operating margin 2.95% 3.37% 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 underlying 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 3 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 3 of the financial statements
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 9 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.
28 weeks to 28 weeks to
17 September 2022
18 September 2021
£m £m
Retail underlying operating profit 477 523
Add: Retail depreciation and amortisation expense 634 649
Less: Non-underlying depreciation and amortisation (24) (31)
Retail underlying EBITDA 1,087 1,141
Retail sales (note 5a) 16,154 15,511
Retail underlying EBITDA margin 6.73% 7.36%
Underlying profit before tax
Profit before tax
Underlying results exclude items recognised in reported profit or loss before
tax which, if included, could distort comparability between periods. In
determining which items to exclude from underlying profit, the Group considers
items which are significant either by virtue of their size and/or nature, or
that are non-recurring.
In order to provide shareholders with additional insight into the underlying
performance of the business, this adjusted measure of profit is provided to
supplement the reported IFRS numbers, and reflects how the business measures
performance internally.
Underlying profit before tax is bridged to statutory profit before tax in the
income statement and note 3 of the financial statements.
The adjusted items are as described in note 3 of the financial statements
Underlying basic earnings per share
Basic earnings per share
Earnings per share using underlying profit as described above.
This is a key measure to evaluate the performance of the business and returns
generated for investors.
A reconciliation of the measure is provided in note 9 of the financial
statements.
Retail underlying EBITDA
No direct equivalent
Retail underlying operating profit as above, before underlying depreciation,
and amortisation.
EBITDA is used to review the retail segment's profit generation and the
sustainability of ongoing capital reinvestment and finance costs.
28 weeks to 28 weeks to
17 September 2022
18 September 2021
£m £m
Retail underlying operating profit 477 523
Add: Retail depreciation and amortisation expense 634 649
Less: Non-underlying depreciation and amortisation (24) (31)
Retail underlying EBITDA 1,087 1,141
Retail sales (note 5a) 16,154 15,511
Retail underlying EBITDA margin 6.73% 7.36%
APM Closest equivalent IFRS measure Definition Purpose Reconciliation
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 7 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 and fair value 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 3 of the financial
non-underlying items. 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.
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021
As part of this a number of line items have been combined. The cash flow in 5 March 2022
note 5 of the financial statements includes a reference to show what has been Ref £m £m £m
combined in these line items. Net interest paid a (161) (177) (323)
Repayment of lease liabilities b (245) (242) (491)
Repayment of borrowings c (22) (231) (256)
Other d (23) (30) (27)
Dividends and distributions received e 50 - 2
Retail free cash flow Net cash generated from operating activities Net cash generated from retail operations, after perpetual security coupons This measures cash generation, working capital efficiency and capital
and cash capital expenditure but before strategic capital expenditure, and expenditure of the retail business
28 weeks to 28 weeks to 52 weeks to
including payments of lease obligations, cash flows from joint ventures and
associates and Sainsbury's Bank capital injections. 17 September 2022
18 September 2021
5 March 2022
£m £m £m
Cash generated from retail operations 1,425 1,233 1,940
Net interest paid (ref (a) above) (161) (177) (323)
Corporation Tax (32) - (23)
Retail purchase of property, plant and equipment (201) (154) (416)
Retail purchase of intangibles assets (96) (144) (229)
Retail proceeds from disposal of property, plant and equipment 28 39 46
Initial direct costs on right-of-use assets (9) (1) (3)
Repayments of obligations under leases (245) (242) (491)
Dividends and distributions received 50 - 2
Retail free cash flow 759 554 503
Retail free cash flow
Net cash generated from operating activities
Net cash generated from retail operations, after perpetual security coupons
and cash capital expenditure but before strategic 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
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021
5 March 2022
£m £m £m
Cash generated from retail operations 1,425 1,233 1,940
Net interest paid (ref (a) above) (161) (177) (323)
Corporation Tax (32) - (23)
Retail purchase of property, plant and equipment (201) (154) (416)
Retail purchase of intangibles assets (96) (144) (229)
Retail proceeds from disposal of property, plant and equipment 28 39 46
Initial direct costs on right-of-use assets (9) (1) (3)
Repayments of obligations under leases (245) (242) (491)
Dividends and distributions received 50 - 2
Retail free cash flow 759 554 503
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.
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021
5 March 2022
(restated)
£m £m £m
Retail working capital movements per cash flow (note 5) 318 (44) (306)
Adjustments for:
Retail non-underlying impairment charges (note 5) 20 1 8
Non-underlying restructuring and impairment charges (note 3) (33) (37) (92)
Accelerated depreciation (note 3) 12 20 33
Bank impairment charges (note 3) - - 7
Gains on early termination of leases (note 3) (1) (5) (9)
Profit on disposal of properties within restructuring programme (note 3) (11) (13) (12)
ATM income (note 3) - - 2
Income recognised in relation to legal disputes (note 3) 30 181 180
Property related transactions (note 3) (8) - -
Other - 2 1
Non-underlying working capital movements before cash movements 9 149 118
Non-underlying cash movements:
Restructuring (note 3) 33 70 114
Bank restructuring - - (4)
ATM income (note 3) - (13) (14)
Net income recognised in relation to legal disputes (note 3) - (27) (93)
Retail non-underlying operating cash flows (excluding pensions) 33 30 3
Total adjustments for non-underlying working capital 42 179 121
Underlying working capital movements 360 135 (185)
APM Closest equivalent IFRS measure Definition Purpose Reconciliation
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.
28 weeks to 28 weeks to 52 weeks to
securities) and pension cash contributions.
17 September 2022
18 September 2021
5 March 2022
£m £m £m
Retail cash generated from operating activities (note 5) 1,232 1,060 1,598
Perpetual security coupons - (4) (4)
Adjusted net cash generated from operating activities 1,232 1,056 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.
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021
5 March 2022
£m £m £m
Purchase of property, plant and equipment (201) (154) (416)
Purchase of intangibles (96) (144) (229)
Cash capital expenditure (297) (298) (645)
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 15 of the financial
the net debt of Sainsbury's Bank and its subsidiaries. and its indebtedness and whether the Group can cover its debt commitments. statements. In addition, to aid comparison to the balance sheet,
reconciliations between financial assets at FVTOCI and derivatives per the
balance sheet and Group net debt (i.e. including Financial Services) is
included below:
It is calculated as: financial assets at fair value through other
comprehensive income (excluding equity investments) + net derivatives to hedge
borrowings + net cash and cash equivalents + loans + lease obligations +
perpetual securities.
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021
5 March 2022
£m £m £m
Financial instruments at FVTOCI per balance sheet 771 752 800
Less: equity related securities (376) (346) (382)
Financial instruments at FVTOCI included in net debt 395 406 418
Net derivatives per balance sheet 490 13 259
Less: derivatives not used to hedge borrowings (484) (13) (250)
Derivatives included in net debt 6 - 9
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.
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021
5 March 2022
£m £m £m
Purchase of property, plant and equipment (201) (154) (416)
Purchase of intangibles (96) (144) (229)
Cash capital expenditure (297) (298) (645)
Net debt
Borrowings, cash, derivatives, financial assets at FVTOCI, lease liabilities
Net debt includes the capital injections into Sainsbury's Bank, but excludes
the net debt of Sainsbury's Bank and its subsidiaries.
It is calculated as: financial assets at fair value through other
comprehensive income (excluding equity investments) + net derivatives to hedge
borrowings + net cash and cash equivalents + loans + lease obligations +
perpetual securities.
This shows the overall strength of the balance sheet alongside the liquidity
and its indebtedness and whether the Group can cover its debt commitments.
A reconciliation of the measure is provided in note 15 of the financial
statements. In addition, to aid comparison to the balance sheet,
reconciliations between financial assets at FVTOCI and derivatives per the
balance sheet and Group net debt (i.e. including Financial Services) is
included below:
28 weeks to 28 weeks to 52 weeks to
17 September 2022
18 September 2021
5 March 2022
£m £m £m
Financial instruments at FVTOCI per balance sheet 771 752 800
Less: equity related securities (376) (346) (382)
Financial instruments at FVTOCI included in net debt 395 406 418
Net derivatives per balance sheet 490 13 259
Less: derivatives not used to hedge borrowings (484) (13) (250)
Derivatives included in net debt 6 - 9
APM Closest equivalent IFRS measure Definition Purpose Reconciliation
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 15. 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 52 weeks to 52 weeks to
business. 17 September 18 September 5 March
2022 2021 (restated) 2022
£m £m £m
Return is defined as 52 week rolling underlying profit before interest and Underlying profit before tax 699 426 730
tax. Add: Underlying net interest 294 325 309
Return 993 751 1,039
Capital employed is reconciled as follows:
52 weeks to 52 weeks to 52 weeks to
Capital employed is defined as Group net assets excluding pension 17 September 18 September 5 March
deficit/surplus, less net debt (excluding perpetual securities). The average 2022 2021 (restated) 2022
is calculated on a 14 point basis. £m £m £m
Group net assets 7,929 7,162 8,423
Less: Pension surplus (note 18) (1,455) (1,087) (2,283)
Deferred tax on pension surplus 454 367 640
The 14-point basis uses the average of 14 datapoints - the prior year closing Less: net debt (note 15) 6,165 6,345 6,759
capital employed, the current year closing capital employed and 12 intra-year Effect of in-year averaging (228) (792) (1,127)
periods as this more closely aligns to the recognition of amounts in the Capital employed 12,865 11,995 12,412
income statement.
Return on capital employed 7.7% 6.3% 8.4%
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.
24 weeks to 28 weeks to 52 weeks to 52 weeks to
perpetual securities is treated as an underlying finance cost. All items are
calculated on a 52 week rolling basis. 5 March
17 September 2022
17 September 2022
5 March 2022
2022
£m £m £m £m
Group underlying operating profit 497 496 993 1,039
Add: Group depreciation and amortisation expense 561 650 1,211 1,220
Less: Non-underlying depreciation and amortisation expense (22) (24) (46) (53)
Group underlying EBITDA 1,036 1,122 2,158 2,206
Repayment of capital element of lease obligations (250) (246) (496) (493)
Underlying finance income 3 5 8 3
Underlying finance costs (141) (161) (302) (312)
Fixed charges (388) (402) (790) (802)
Fixed charge cover 2.7 2.8 2.7 2.8
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.
24 weeks to 28 weeks to 52 weeks to 52 weeks to
5 March
17 September 2022
17 September 2022
5 March 2022
2022
£m £m £m £m
Group underlying operating profit 497 496 993 1,039
Add: Group depreciation and amortisation expense 561 650 1,211 1,220
Less: Non-underlying depreciation and amortisation expense (22) (24) (46) (53)
Group underlying EBITDA 1,036 1,122 2,158 2,206
Repayment of capital element of lease obligations (250) (246) (496) (493)
Underlying finance income 3 5 8 3
Underlying finance costs (141) (161) (302) (312)
Fixed charges (388) (402) (790) (802)
Fixed charge cover 2.7 2.8 2.7 2.8
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