TIDMSBRY
RNS Number : 8092W
Sainsbury(J) PLC
28 April 2021
28 April 2021 J Sainsbury plc
Preliminary Results for the 52 weeks ended 6(th) March 2021
Delivering against our plan to put food back at the heart of
Sainsbury's
Financial highlights
-- Strong operating performance, with grocery sales up 7.8%,
general merchandise sales up 8.3% and digital sales up 102%, offset
on a statutory basis by materially reduced fuel sales; changes we
have made through the pandemic are creating good momentum as we
move into the new financial year
-- Underlying profit before tax down 39% to GBP356 million, with
benefits from strong sales growth (excluding fuel) more than offset
by GBP485 million of direct COVID-19 costs. Statutory loss before
tax of GBP261 million predominantly reflects one-off costs and
impairments associated with strategic changes announced in
November
-- Strong Retail free cash flow of GBP784 million, with
significant working capital inflow more than offsetting lower
profits
-- Upgrading four-year net debt reduction target from GBP750
million to at least GBP950 million despite short term expectation
of some working capital reversal. Expect to generate average Retail
cash flow of at least GBP500 million per year over the three years
to March 2025
-- Proposed final dividend of 7.4 pence, full year dividend
10.6(1) pence, reflecting strong cash generation and consistent
with our commitment to protect shareholder income from the full
impact of COVID-19 on profits
-- Continue to expect underlying profit before tax in the
financial year to March 2022 to exceed March 2020 level (GBP586
million); comfortable with consensus forecasts of around GBP620
million(2)
Strategic highlights
We have made good early progress with the plan we announced in
November to put food back at the heart of Sainsbury's. We are
changing at pace, making bold decisions and investing in the areas
that matter to customers, underpinned by an accelerated cost saving
programme. Throughout the pandemic we have remained focused on
delivering against this plan and have built good momentum:
-- Adapted at pace to COVID-19, prioritising customer and
colleague safety, supporting communities and helping to feed the
nation. Record customer satisfaction scores for friendliness and
speed of checkout and rated best for customer safety throughout the
pandemic(3)
-- Improved the value of our food ranges, lowering the prices of
the products that matter most to customers and extending our Price
Lock price commitment. Also launched Sainsbury's Quality, Aldi
Price Match and customers are responding by spending more with us,
more often
-- Changing our ways of working and our supplier relationships;
will triple our levels of new product innovation to 1,900 products
in the year ahead
-- Profitably grown Groceries Online from eight per cent of
grocery sales in 2019/20 to 17 per cent in 2020/21 and gained more
market share than key competitors(4) . Argos digital sales
increased by 68 per cent, while also improving profitability
-- 7.4 million digital Nectar users, up from 4.5 million last year
-- Financial Services returned to profit in H2; remain committed
to doubling profit contribution and returns by March 2024(5)
-- Building on our existing Net Zero by 2040 commitment,
announced new target to reduce our absolute greenhouse gas
emissions by 30 per cent by 2030, signing up to Science Based
Targets. Principal Partner of COP26, the UN Climate Change
Conference taking place in November this year
-- Made a strong start to the transformation of Argos, which
will improve product availability and deliver a lower cost to
serve
-- Transformed the reach of Habitat, making it our leading furniture and home brand
1 Excluding the Special dividend announced in November 2020 of
7.3 pence, as this relates to 2019/20.
2 Analyst consensus published on our website as at 9 February
2021
3 Sainsbury's came first in a supermarket safety survey
conducted by the UK's leading consumer champion. This is
corroborated by Sainsbury's own internal data
4 Nielsen panel market share data, 4 weekly report, FY18/19 vs
FY20/21
Financial summary
2020/21 2019/20 Variance
====================================================================================
Statutory performance
====================================================================================
Group revenue (excl. VAT, inc. fuel) GBP29,048m GBP28,993m 0.2%
(Loss)/profit before tax GBP(261)m GBP255m N/A
=========================================== =========== =========== =============
(Loss)/profit after tax GBP(280)m GBP152m N/A
Basic (loss)/earnings per share (13.0)p 5.8p N/A
=========================================== =========== =========== =============
Business performance
====================================================================================
Group sales (inc. VAT) GBP32,285m GBP32,394m (0.3)%
Retail sales (inc. VAT, excl. fuel) GBP28,837m GBP26,868m 7.3%
=========================================== =========== =========== =============
Digital sales GBP12.1bn GBP6.0bn 102%
Underlying profit before tax GBP356m GBP586m (39)%
=========================================== =========== =========== =============
Underlying basic earnings per share 11.7p 19.8p (41)%
Interim dividend per share 3.2p 3.3p (3)%
=========================================== =========== =========== =============
Proposed Final dividend per share 7.4p - N/A
Special dividend per share (5) - 7.3p N/A
=========================================== =========== =========== =============
Proposed Full-year dividend per share (6) 10.6p 10.6p -
Net debt (including perpetual securities) GBP6,469m GBP6,947m Down GBP478m
=========================================== =========== =========== =============
Non-lease net debt GBP640m GBP1,179m Down GBP539m
Return on capital employed 5.5% 7.4% (190)bps
=========================================== =========== =========== =============
5 On a Group contribution basis by FY23/24
6 Special dividend in 2020/21 paid in lieu of final dividend for
2019/20 following the deferral of dividend decision. The total
dividend paid in respect of each year is equal at 10.6p per share,
with a final dividend of 7.4p paid in 20/21
Simon Roberts, Chief Executive of J Sainsbury plc, said :
"Above all else, I want to recognise the extraordinary job that
my colleagues have done over the last 12 months. Their efforts have
been nothing short of heroic as our entire team went above and
beyond every day for our customers and communities. I am enormously
grateful to the whole team for the way they have risen to the huge
challenges this year and so selflessly looked after our customers
and each other.
"We have put our colleagues and customers first every step of
the way and, as a result, delivered industry-leading safety in our
stores and record levels of customer satisfaction. In a year like
no other, our industry has stepped up and worked tirelessly across
food supply chains to feed the nation and we are very proud of the
part Sainsbury's has played. I also want to especially recognise
our suppliers for all their support and partnership throughout this
year in keeping goods flowing for our customers. They have done a
fantastic job.
"This year's financial results have been heavily influenced by
the pandemic. Food and Argos sales are significantly higher, but
the cost of keeping colleagues and customers safe during the
pandemic has been high. Our full-year direct COVID-19 costs were
GBP485 million, leading to a 39 per cent decrease in full-year
underlying profit. We are pleased to propose a full-year dividend
which is in line with last year, protecting shareholder income from
the full impact of COVID-19 on profits.
"We have a bold three-year plan to put food back at the heart of
Sainsbury's and drive improved performance. We are transforming the
way we work and I am encouraged by how all of our teams have
responded and the early momentum and performance towards our
plan.
"We have accelerated our digital transformation this year as we
focus on serving customers however they want to shop with us. We
have more than doubled our online grocery sales and have done this
while improving profitability. Argos digital sales grew almost 70
per cent and our Argos transformation plan is on track to improve
customer availability while reducing our costs.
"Like our customers, we are all looking forward to things
feeling more normal over the coming months and getting excited
about a summer of celebration, but we are also cautious about the
economic outlook. While there is much that we cannot predict in the
year ahead, we are absolutely focused on delivering for our
customers and shareholders."
Our response to COVID-19
Throughout the pandemic, we prioritised: keeping our colleagues
and customers safe, supporting our communities, particularly the
most vulnerable and helping to feed the nation. We have:
-- Invested GBP485 million, particularly to help keep our
colleagues and customers safe and we have outperformed our main
competitors in customer satisfaction for supermarket shopping
overall(7)
-- Delivered over 12 million online orders for elderly and
vulnerable customers, prioritising them from day one
-- Paid all colleagues that were required to shield in full for
each shielding period and supported colleagues who needed to
self-isolate
-- Increased the hourly rate of pay for Sainsbury's and Argos
store colleagues to GBP9.50 and awarded three special recognition
payments for their extraordinary efforts, a total investment of
more than GBP100 million in our frontline colleagues
-- Raised GBP35 million for good causes, including donations to
Comic Relief and FareShare and the creation of an additional GBP1
million local community fund for stores in January this year
-- Supported suppliers in distress with vital cash flow and
started paying nearly 1,500 small businesses earlier
-- Forgone business rates relief on all Sainsbury's stores
7 Competitor Benchmark Survey 12-week trended data to
06/03/21
Like-for-like sales growth 2020/21
2019/20
----------------------------------
Q3 Q4 Q1 Q2 H1 Q3 Q4 H2 FY
------- ----- ------- ------- ------- ----- ------ ----- -----
Like-for-like sales (excl. fuel) (0.7)% 1.3% 8.2% 5.1% 6.9% 8.6% 11.3% 9.5% 8.1%
------- ----- ------- ------- ------- ----- ------ ----- -----
Like-for-like sales (inc. fuel) (1.1)% 1.3% (2.3)% (0.5)% (1.6)% 3.2% 3.2% 3.2% 0.7%
------- ----- ------- ------- ------- ----- ------ ----- -----
Total sales growth 2019/20 2020/21
-------------------------------------
Q3 Q4 Q1 Q2 H1 Q3 Q4 H2 FY
------- ------- -------- ------- -------- ------- ------ ------ -------
Grocery 0.4% 2.0% 10.5% 5.1% 8.2% 7.4% 7.1% 7.3% 7.8%
------- ------- -------- ------- -------- ------- ------ ------ -------
General Merchandise (3.9)% (1.3)% 7.2% 7.6% 7.4% 6.0% 17.6% 9.2% 8.3%
------- ------- -------- ------- -------- ------- ------ ------ -------
Of which GM (Argos) 0.4% 10.7% 10.9% 10.8% 8.4% 18.1% 11.1% 10.9%
------- ------- -------- ------- -------- ------- ------ ------ -------
Of which GM (Sainsbury's
Supermarkets) (8.1)% (9.3)% (6.9)% (8.2)% (5.4)% 14.8% 0.3% (3.8)%
------- ------- -------- ------- -------- ------- ------ ------ -------
Clothing 4.4% 2.5% (26.7)% (7.5)% (18.3)% 0.4% 4.2% 1.5% (8.5)%
------- ------- -------- ------- -------- ------- ------ ------ -------
Total Retail (excl. fuel) (0.7)% 1.3% 8.5% 5.2% 7.1% 6.8% 9.2% 7.6% 7.3%
------- ------- -------- ------- -------- ------- ------ ------ -------
Total Retail (inc. fuel) (0.9)% 1.9% (2.1)% (0.4)% (1.4)% 1.7% 1.6% 1.7% 0.1%
------- ------- -------- ------- -------- ------- ------ ------ -------
Outlook
We have carried good underlying trading momentum into the new
financial year and started the year strongly. However, we have
tough comparables ahead as customer behaviour normalises and we are
prudent about prospects for the year. We continue to expect
underlying profit before tax (UPBT) in the financial year to March
2022 to exceed that reported in the year to March 2020 (GBP586
million) and we are comfortable with consensus forecasts of around
GBP620 million(8) . Within this we expect Financial Services to
return to a full year profit.
Reflecting a strong cash performance in the year and our
strengthening confidence in underlying cash generation, we now
expect to reduce net debt by at least GBP950 million over the four
years to March 2023, against previous guidance of GBP750 million.
We expect to generate average Retail cash flow of at least GBP500
million per year over the three years to March 2025.
Dividend
The Board has proposed a final dividend of 7.4 pence per share.
This brings the full year dividend to 10.6 pence per share, which
is in line with last year (when treating the Special dividend
announced in November 2020 of 7.3 pence as part of 2019/20),
despite lower underlying profits. This diverges from our policy of
a dividend covered 1.9x by underlying earnings, reflecting strong
underlying cash generation and consistent with the commitment the
Board made in November to protect shareholder income from the full
impact of COVID-19 on profits.
Notes
Certain statements made in this announcement are forward-looking
statements. Such statements are based on current expectations and
are subject to a number of risks and uncertainties that could cause
actual events or results to differ materially from any expected
future events or results referred to in these forward-looking
statements. They appear in a number of places throughout this
announcement and include statements regarding our intentions,
beliefs or current expectations and those of our officers,
directors and employees concerning, amongst other things, our
results of operations, financial condition, liquidity, prospects,
growth, strategies and the business we operate. Unless otherwise
required by applicable law, regulation or accounting standard, we
do not undertake any obligation to update or revise any
forward-looking statements, whether as a result of new information,
future developments or otherwise.
A webcast presentation will be available to view on our website
at 07:30 (BST). The webcast can be accessed at the following link:
https://webcasts.sainsburys.co.uk/sainsbury161
Following the release of the webcast, a Q&A conference call
will be held at 09:30 (BST). This will be available to listen to on
our website at the following link:
https://webcasts.sainsburys.co.uk/sainsbury160
A recorded copy of the webcast and Q&A call, alongside
slides and a transcript of the presentation will be available at
www.about.sainsburys.co.uk/investors/results-reports-and-presentations
following the event
Sainsbury's will issue its 2021/22 First Quarter Trading
Statement at 07:00 (BST) on 6 July 2021.
8 Analyst consensus published on our website as at 9 February
2021
S
Enquiries
Investor Relations Media
James Collins Rebecca Reilly
+44 ( 0) 7801 813 074 +44 (0) 20 7695 7295
Strategy Review: Driven by our passion for food, together we
serve and help every customer
In November we set out a plan to transform our business over the
next three years. We are clear on our priorities. We are putting
food back at the heart of Sainsbury's, building on the changes we
have made as we have adapted our business during the pandemic. We
are raising our ambitions and speeding up the pace of change,
simplifying our operations and accelerating our cost savings
programmes so we can invest more in food quality, choice,
innovation and consistently lower prices for our customers. Our
portfolio brands are supporting our core food business, delivering
for customers and shareholders in their own right. As we look
forward, we will pursue partnerships or outsource where faster and
where they will make a positive impact for our customers.
We are reducing complexity, aiming to reduce our retail
operating costs to sales ratio by at least 200 basis points and are
focused on robust profit delivery and consistent dependable cash
flow. By delivering for our customers we will drive stronger
financial outcomes.
Food First
Our clear priority is to build on our strong brand heritage and
reputation for quality, range and innovation while lowering prices
and offering more consistent value. We will offer high quality,
great value food wherever and however customers want to shop with
us. This is what putting food back at the heart of Sainsbury's
means. Collaborating and simplifying how we work with suppliers
will create buying benefits, drive innovation and lower our cost to
serve.
We are making good early progress against our plan, building on
a year in which grocery sales grew 7.8 per cent and we grew our
volume market share(9) .
We are investing in value and have improved our price position
relative to competitors on the products that matter most to
customers. We are seeing a good customer response and price
perception has improved. Where we have invested in price across key
meat, fish and poultry products, volumes have grown by 15 per
cent(10) . To help customers feel confident they are getting good
value, we launched our bold Sainsbury's Quality, Aldi Price Match
campaign on around 250 great quality, entry level and everyday
products. The campaign complements our biggest ever Price Lock
commitment on largely branded products. We increased the number of
products on Price Lock in January to over 2,500 everyday items and
held these prices for over eight weeks.
We have been selective in introducing new entry price point
products under our owned brands, including Stamford Street ready
meals and Mary Ann's yoghurts, bringing customers a greater choice
of products and price points. We also launched our Imperfectly
Tasty range, offering more choice and reducing food waste.
We have put foundations in place to deliver a faster and
stronger pipeline of innovative product development. We have
committed to tripling the number of new products and increasing
their speed to market by at least 30 per cent. Working closely with
our suppliers, we plan to launch 1,900 new products and improve
almost 2,000 more in the next 12 months.
With customers making the most of being at home, we had our
biggest ever Valentine's Day, Shrove Tuesday, Mother's Day and
Easter. Customers treated themselves and our Taste the Difference
sales grew 12.8 per cent as a result, while SO Organic grew 11.1
per cent. Innovative seasonal products that performed particularly
well included oysters for Valentine's Day, Taste the Difference
Chateaubriand and whole salmon at Easter, which we sold in the
aisle for the first time following the closure of our meat, fish
and deli counters.
We have invested in Groceries Online this year to support its
outstanding growth through unprecedented customer demand for home
delivery and Click & Collect. We have grown sales by 120 per
cent and we are now able to fulfil more than 850,000 online orders
a week. We have gained significant market share in the year to
become the UK's second largest online grocery retailer. 17 per cent
of our grocery sales are now online, compared with eight per cent
in 2019/20. Our Groceries Online business is increasingly
profitable, with profit contribution four times higher than last
year and we doubled the online profit contribution margin versus
last year. In-store pick rates are now back to pre-pandemic levels
and new Saver Slots are enabling delivery efficiencies. We have
rapidly rolled out super-fast grocery deliveries. We have rolled
out Chop Chop to 17 cities and towns and extended our partnerships
with Uber Eats and Deliveroo to over 200 stores. We have rolled out
SmartShop self-scan to over 1,200 stores and it now accounts for 30
per cent of sales in stores with handsets, helping to increase
customer satisfaction scores for ease and speed of checkout by
nearly 13 per cent year-on-year.
We have a strong and well-located store portfolio. We have
opened one new supermarket and invested in 273 supermarkets across
the year with new initiatives such as fresh fruit and vegetable
'Food Markets' and improved general merchandise and clothing
sections. Our Beauty Transformation programme is performing well
and we are outperforming the Beauty market(11) . We offer customers
an expanded range of beauty products in 236 supermarkets. Sushi
remains popular with customers and we now have Sushi Gourmet
counters in 145 stores. We will open between 25-30 convenience
stores per year over the next three years, including 18
'Neighbourhood Hub' convenience stores. These are larger format
convenience stores that offer a broader range of locally tailored
products and services across food, beauty, clothing, seasonal and
general merchandise. We now have five of these stores open and
trading. They are very popular with customers and are delivering
high returns. Reflecting our strategy to flex the size and format
of our stores to suit local needs, we also opened one new 'On the
Go' store in Leicester Square in London this year.
Brands that Deliver
We are refocusing the role of our portfolio brands to ensure
that they contribute positively in their own right. Argos, Habitat,
Tu, Nectar and Sainsbury's Bank are all delivering for their
customers and we are on track to drive strong, sustainable
profitable growth to support our core food business.
Nectar supports our plan by rewarding customers for their
loyalty. It is performing ahead of target with 7.4 million
downloads of the app to date. Over 150,000 customers signed up to
our new partnership with British Airways in the first seven weeks.
We also continue to make good progress with Nectar360, our
marketing services business. We launched a retail media platform
that helps brands and advertising agencies reach and engage
shoppers more effectively on our Groceries Online website,
delivering a more personalised experience for customers and
stronger returns for brands.
Argos digital sales grew 68 per cent in the year, with 90 per
cent of sales starting online. Argos's strength in digital and our
leading Fast Track delivery has helped us adapt quickly to the
changes in the way people wanted to shop through the pandemic.
While standalone Argos stores were closed for much of the year
during lockdowns, home delivery sales increased significantly and
collection from Sainsbury's stores was popular. Over the year we
welcomed over three million new customers to Argos and sales were
boosted by particularly strong growth in home and office furniture,
garden essentials and home entertainment, including games consoles
such as the new PlayStation 5 and Xbox.
We are making good progress transforming Argos, focusing on
improving customer availability while reducing our costs. We have
closed 170 standalone Argos stores as well as the six Argos stores
in Homebase stores, as part of our plan to reduce the number to
around 100 over the next three years(12) , reducing our operating
costs by GBP105 million by March 2024. We have opened 30 new Argos
stores in Sainsbury's stores, 35 collection points and one new
standalone store. This is part of our plan to reach 430-460 Argos
stores in Sainsbury's and reach 450-500 collection points by March
2024. As at 6 March 2021, Argos had 737 stores, of which 336 are
stores in Sainsbury's. Customers can also pick up products from 306
collection points in Sainsbury's stores. We have also started work
on our first Local Fulfilment Centre (LFC) in Bristol, which will
open in June. This is the first of 32 LFCs that will become our new
distribution network, offering customers improved availability and
quicker delivery and collection options.
We have made great progress integrating Habitat with Argos and
Sainsbury's. We launched Habitat as our main home and furniture
brand and we have adapted our home and furniture ranges, increasing
customer choice and making prices more accessible. We now have one
global team that sources products for Sainsbury's, Habitat and
Argos, maximising our scale positions with suppliers and driving
efficiencies within our own business. We are also using the same
website infrastructure for Habitat and Argos, ensuring a consistent
shopping experience for customers while reducing costs. Habitat had
three stores which were closed for lockdown at year end but
re-opened on 12 April.
While Tu clothing sales were down 18.3 per cent in the first
half of the year, they recovered in the second half, increasing by
1.5 per cent and we continue to gain clothing market share. Tu
online performed strongly throughout the year, with sales up 65 per
cent and full price sales up 15 per cent as customers stocked up on
pyjamas, loungewear and childrenswear.
We continue to make good progress reshaping, strengthening and
simplifying our Financial Services business. This has helped us to
mitigate the impact of COVID-19. In line with our guidance at
Interims, the Bank returned to profit in the second half of the
year with an underlying operating profit of GBP34 million, to
deliver a Financial Services underlying operating loss of GBP21
million for the full year. The underlying loss reflects the changed
economic environment driven by COVID-19 where we have seen
significantly reduced demand across consumer credit, combined with
increased bad debt provisions and less activity in our fee-based
products, particularly Travel Money.
Over 90 per cent of product sales now start online and we
continue to improve customers' ability to self-serve online. We are
making good strategic progress to be a simple, mobile-led Financial
Services business for loyal Sainsbury's and Argos customers. We
remain committed to doubling profit contribution and returns in our
Financial Services business in the next five years to March
2024.(13) The Bank has a strong balance sheet and a significant
surplus capital position.
9 Nielsen panel volume growth, total FMCG 52 weeks to 6 March 2021
10 LFL volume growth of Q3 invested SKUs, pre vs
post-investment, 8 weeks of post-launch data
11 Nielsen IQ EPOS Data
12 Excluding Republic of Ireland
13 On a Group contribution basis by FY23/24
Save to Invest
We will 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
accelerating our cost saving plans to unlock new opportunities in
order to fund the improvement of our food offer and to ensure we
can meet the growth in customers shopping across a broad range of
channels.
We are on track with our plan to reduce our retail operating
costs to sales ratio by at least 200 basis points, delivering major
structural cost savings to support investment in our core customer
offer and deliver improved financial returns.
Transforming our approach to costs and radically simplifying our
organisation is delivering results at pace. We have achieved this
by reducing the number of Argos standalone stores, closing our
meat, fish and deli counters, simplifying our store management
structures, reducing 500 roles in our Store Support Centres and
cutting office space. We are also consulting with colleagues on
plans to close our Online Fulfilment Centre in Bromley-by-Bow to
drive online efficiency and profitability.
In addition, we are accelerating the integration of the
Sainsbury's, Argos and Habitat supply chain and logistics networks
and creating an operating model which will save GBP150 million over
the next three years and deliver working capital benefits.
Our property rationalisation programme is progressing well and
our Argos transformation programme, which includes the changes we
are making to our Argos store estate, will reduce our cost to serve
by GBP105 million.
We are proud of our strong relationships with suppliers and are
working closely with them to drive value and simplify processes.
This means we can buy better and lower our cost to serve.
Net Zero
We have committed to investing GBP1 billion over twenty years
towards becoming a Net Zero business across our own operations by
2040, aligned to the highest ambitions of the Paris Climate Change
Agreement. We are implementing a programme of change, focusing on
reducing carbon emissions, food waste, plastic packaging and water
usage and increasing recycling, biodiversity and healthy and
sustainable eating.
This year we have taken our ambitious plan further with the
addition of a Scope 3 target, which covers indirect emissions that
occur throughout our value chain.
We worked with the Carbon Trust to define an ambitious Scope 3
target which requires the reduction of absolute greenhouse gas
(GHG) emissions by 30 per cent by 2030, to align to a well below
2degC scenario. The baseline is 26,663,081 tC02e (2018/19). We have
also committed to working closely with our supplier base to help
them develop and then meet their own targets.
The impact of the pandemic on our emissions has been
substantial. We have seen a reduction of energy usage due to the
closure of cafes, counters and all of our office space. We have
seen more fuel usage due to the rise of online shopping and an
increase in the number of products going through our supply chain.
Overall, we have reduced our absolute GHG emissions within our
operations to 819,862 tCO2e, a reduction of three per cent
year-on-year and 14 per cent from our 2018/19 baseline, keeping us
on course for our headline target.
We committed to reduce our use of plastic packaging by 50 per
cent by 2025. COVID-19 has had a significant impact on our usage
this year due to an increase in sales volume which has led to an
increase in plastic packaging used overall. To keep customers and
colleagues safe we also re-introduced plastic bags for our
Groceries Online orders during the height of the pandemic.
Therefore progress made in plastic weight reductions this year has
been outweighed by the challenges of the pandemic. Year-on-year the
tonnage has increased by 3,496 tonnes to 117,959 tonnes, which puts
us behind our target trajectory. Overall there has been a 1.7 per
cent reduction in our food plastic packaging from our 2018
baseline. We have a strong plan for the year ahead.
We know that food that is better for us is also better for the
planet. This is why we have committed to develop and deliver
healthy, sustainable diets for all. In November 2020, we reported
on the volume of 'healthy' sales relative to total sales. Moving
forward, we believe reporting the tonnage of healthy sales relative
to total sales is a more credible way to reflect the weight of
plate from healthy choices, similar to the approach of the Eatwell
Guide, and therefore this is how we will be defining a future
target. Our current position is 55.3 per cent healthy sales
tonnage, remaining the same year-on-year.
We continue to reformulate and innovate to launch healthier
products. We have been trialling influencing customer behaviour by
incentivising customers with better value fruit and vegetables and
additional Nectar points, including our discounted 60 pence fruit
and vegetable campaign and The Great Big Fruit & Veg
Challenge.
We have committed to reducing food waste by 50 per cent across
the whole value chain by 2030. This year we reduced the food waste
we send to anaerobic digestion in our own operations by over 5,000
tonnes, a reduction of 16 per cent year-on-year, which puts us
ahead of our target trajectory.
Financial Review of the year results for the 52 weeks to 6 March
2021
In the 52 weeks to 6 March 2021 the Group generated a loss
before tax of GBP(261) million (2019/20: GBP255 million profit) and
underlying profit before tax of GBP356 million (2019/20: GBP586
million)
Summary income statement(1) 52 weeks to 52 weeks to
06 March 07 March Change
2021 2020
GBPm GBPm %
Underlying Group sales (including VAT) 32,285 32,394 (0.3)
Underlying Retail sales (including VAT) 31,854 31,825 0.1
Underlying Retail sales (excluding fuel, including VAT) 28,837 26,868 7.3
Underlying Group sales (excluding VAT) 29,048 28,993 0.2
Underlying Retail sales (excluding VAT) 28,617 28,424 0.7
Underlying operating profit/(loss)
Retail 730 938 (22)
Financial services (21) 48 N/A
--------------------------------------------------------- ------------ ------------ -------
Total underlying operating profit 709 986 (28)
Underlying net finance costs(2) (353) (400) 12
Underlying profit before tax 356 586 (39)
Items excluded from underlying results (617) (331) (86)
--------------------------------------------------------- ------------ ------------ -------
(Loss)/Profit before tax (261) 255 N/A
Income tax expense (19) (103) 82
--------------------------------------------------------- ------------ ------------ -------
(Loss)/Profit for the financial period (280) 152 284
--------------------------------------------------------- ------------ ------------ -------
Underlying basic earnings per share 11.7p 19.8p (41)
Basic loss/(earnings) per share (13.0)p 5.8p N/A
Interim Dividend per share 3.2p 3.3p (3)
Final Dividend per share 7.4p - N/A
Special Dividend per share(3) - 7.3p N/A
Total Dividend per share(3) 10.6p 10.6p -
--------------------------------------------------------- ------------ ------------ -------
1 Please note 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 3 on page 26 for
further information.
2 Net finance costs including perpetual securities coupons
before non-underlying finance movements.
3 Special dividend paid in lieu of final dividend for 2019/20
following the deferral of dividend decision. The total dividend
paid in respect of each year is equal at 10.6p per share
In a year shaped by the COVID-19 pandemic, the business
demonstrated its flexibility in responding to changing customer
demand and lockdown regulations. Groceries Online capacity was
rapidly expanded to help feed the nation, whilst Argos operated as
an online first proposition for large parts of the year, leveraging
the Sainsbury's estate for convenient customer collection.
COVID-19 resulted in GBP485 million of direct incremental retail
costs. These costs resulted from areas such as paying vulnerable
colleagues who were isolating, absence costs, protecting customers
& colleagues, increasing marshalling in stores and recognising
the exceptional effort of colleagues with special recognition
payments. However, both the strong sales performance and continued
savings delivery helped to mitigate the impact on our underlying
profitability despite the decision to forgo business rates relief
in Sainsbury's.
Group sales
Group sales (including VAT, including fuel) decreased by 0.3 per
cent year-on-year. Retail sales (including VAT, excluding fuel)
increased by 7.3 per cent, driven by strong Grocery and General
Merchandise demand through the Covid-19 pandemic. This was offset
by a 39.1 per cent decline in fuel sales and 24.3 per cent decline
in Financial Services sales.
Total sales 52 weeks to 52 weeks to
performance by
category
06 March 2021 07 March 2020 Change
GBPbn GBPbn %
-------------------- ------------------------------- ----------------------------- --------------------------------
Grocery 21.1 19.5 7.8
General Merchandise 6.9 6.4 8.3
Clothing 0.9 1.0 (8.5)
-------------------- ------------------------------- -----------------------------
Retail (exc. fuel) 28.8 26.9 7.3
-------------------- ------------------------------- ----------------------------- --------------------------------
Fuel sales 3.0 4.9 (39.1)
Retail (inc. fuel) 31.9 31.8 0.1
-------------------- ------------------------------- ----------------------------- --------------------------------
The COVID-19 pandemic had a significant impact on sales in the
year. Grocery sales grew by 7.8 per cent year-on-year as eating
occasions moved in-home. Sales were strongest in quarter one,
benefitting from stock-piling during the first national lockdown,
but remained strongly positive throughout the year.
Clothing sales declined in the first half but recovered well in
the second half. Online sales were particularly strong, growing by
64.6 per cent for the full year, helping to partially offset an
in-store decline of 16.0 per cent.
General Merchandise sales grew 8.3 per cent, supported by the
availability of Argos stores and collection points in Sainsbury's
which limited the impact of store closures during lockdowns. Strong
Argos sales were offset by decline in Sainsbury's general
merchandise sales, particularly in the first half when customers
and stores focussed on food replenishment. Growth was driven by
increased customer demand in areas like home entertainment, home
office and garden furniture.
Fuel sales decreased by 39.1 per cent, reflecting significantly
reduced demand through the year and the impact of the lower oil
price on the sales price.
Total sales performance by channel 52 weeks to 52 weeks to
06 March 2021 07 March 2020
------------------------------------------------ -------------- --------------
Supermarkets (inc Argos stores in Sainsbury's) 2.5% (0.1)%
Convenience (9.4)% 1.3%
Groceries Online 119.6% 7.6%
------------------------------------------------- -------------- --------------
Supermarket sales, excluding Groceries Online, grew by 2.5 per
cent, including sales from Argos store in Sainsbury's. Convenience
sales fell by 9.4 per cent as many urban sites were impacted by
reduced footfall, whilst neighbourhood locations benefited from
customers shopping locally. Groceries Online sales grew by 119.6
per cent. Responding to the increased demand we rapidly grew
capacity to help feed the nation through the COVID-19 pandemic,
prioritising elderly and vulnerable customers. We increased order
slots to over 850,000 per week by the end of the year and Click
& Collect orders grew by over 850 per cent in the year.
Retail like-for-like sales performance 52 weeks to 52 weeks to
06 March 2021 07 March 2020
Like-for-like sales (exc. fuel) 8.1% (0.6)%
Like-for-like sales (inc. fuel) 0.7% (0.5)%
----------------------------------------- --------------
Retail like-for-like ('LFL') sales, excluding fuel, increased by
8.1 per cent (2019/20: 0.6 per cent decrease), due to increased
demand and supported by successful sales transfer to online both
for grocery and Argos. The impact of stores temporarily closed due
to COVID-19 have been included within LFL sales, with only
permanently closed sites treated as not LFL.
Space
In 2020/21, Sainsbury's opened 1 new supermarket and closed 11
(2019/20: opened 2 new supermarkets and closed 2). There were 15
new Convenience stores opened in the year and 9 were closed
(2019/20: 14 opened and 27 stores closed).
During the period 30 new Argos stores in Sainsbury's were
opened. 170 standalone Argos stores and the 6 Argos in Homebase
stores were closed, in line with the update given in our interim
results. The number of Argos collection points in Sainsbury's
stores increased from 281 to 306. As at 6 March 2021, Argos had 737
stores including 336 stores in Sainsbury's. Habitat had 3 stores
which were closed for lockdown at year end, but re-opened on April
12(th) .
Store numbers and retailing space
As at As at
----------- --------------------- ----------------------------
07 March 06 March
Extensions / refurbishments
2020 New stores Disposals / closures / downsizes 2021
------------------------------ --------- ----------- --------------------- ---------------------------- ---------
Supermarkets 608 1 (11) - 598
Supermarkets area '000 sq.
ft. 21,167 18 (193) (170) 20,822
Convenience 807 15 (9) - 813
Convenience area '000 sq. ft. 1,898 44 (18) 5 1,929
Sainsbury's total store
numbers 1,415 16 (20) - 1,411
------------------------------ --------- ----------- --------------------- ---------------------------- ---------
Argos stores 570 1 (170) - 401
Argos stores in Sainsbury's 306 30 - - 336
Argos in Homebase 6 - (6) - -
Argos total store numbers 882 31 (176) - 737
Argos collection points 281 35 (10) - 306
Habitat 16 - (13) - 3
------------------------------ --------- ----------- --------------------- ---------------------------- ---------
In FY 2021/22, we expect to open 4 supermarkets and around 25
new convenience stores, and to close around 5 supermarkets and
around 25 convenience stores.
In FY 2021/22, we expect to open around 70 Argos stores inside
Sainsbury's, and close around 70 Argos standalone stores.
In the UK, the standalone Argos store estate will reduce to
around 100 stores by March 2024, while we expect to have 430-460
Argos stores inside Sainsbury's supermarkets as well as 450-500
collection points.
Retail underlying operating profit
Retail underlying operating profit decreased by 22.2 per cent to
GBP730 million (2019/20: GBP938 million). Retail underlying
operating margin reduced by 75 basis points year-on-year to 2.55
per cent (2019/20: 3.30 per cent). The reduction was driven by
GBP485m of COVID-19 costs, partially offset by strong sales, whilst
savings programmes more than offset underlying inflation in the
business.
We invested significantly in our estate to ensure the safety of
our customers and colleagues during the pandemic. We implemented
protective measures in store such as checkout screens, personal
protective equipment and increased cleaning. We supported our
colleagues through absence caused by COVID-19 and saw an overall
increase in labour hours as a result of social distancing,
marshalling and the increase in online demand. We also incurred
additional costs due to the pandemic within our Groceries Online
channel from lower picking speeds as a result of social distancing
measures and the reintroduction of bags as a COVID-19 precaution.
We made three special recognition payments to our colleagues,
awarded for their exceptional efforts responding to the
pandemic.
We were able to more than offset cost inflation with savings
programmes. This was partly driven by improvements to our central
operating model, which delivered efficiencies within a number of
areas, including Logistics and Distribution through the
introduction of a single freight management system. Changes to our
store estate continue to bring our businesses together, lowering
costs and providing a better integrated customer offer. We also
achieved in store efficiencies through initiatives such as
SmartShop and the Stock Replenishment App for colleagues. These
investments in technology provide a more convenient shopping
experience for our customers whilst simultaneously lowering our
cost to serve. In line with our commitment to reduce operating
costs as a percentage of sales by 200 basis points to fuel
investment in the customer proposition, we expect to accelerate
cost saving programmes in 2021/22 through the Argos store
transformation, continued delivery of our supply chain &
logistics savings and further actions across the cost-base.
Retail underlying operating profit
52 weeks to 52 weeks to Change at
06 March 07 March constant fuel
2021 2020 Change prices
Retail underlying operating profit (GBPm) 730 938 (22.2)%
Retail underlying operating margin (%)(1) 2.55 3.30 (75)bps (78)bps
Retail underlying EBITDA (GBPm)(2) 1,909 2,135 (10.6)%
Retail underlying EBITDA margin (%)(3) 6.67 7.51 (84)bps (91)bps
------------------------------------------- ------------ ------------ -------- --------------
1 Retail underlying operating profit divided by underlying retail sales excluding VAT.
2 Retail underlying operating profit before underlying
depreciation and amortisation of GBP1,179 million. Following the
adoption of IFRS16, EBITDA and EBITDAR are broadly consistent
measures and so we are now disclosing EBITDA only in this table.
Non IFRS 16 rental expense was GBP5 million in 2020/21 and GBP10
million in the prior year.
3 Retail underlying EBITDA divided by underlying retail sales excluding VAT.
In 2021/22, Sainsbury's expects a depreciation and amortisation
charge of around GBP1,200 million, including around GBP500 million
right of use asset depreciation.
Financial Services
Financial Services results
12 months to 28 February 2021
2021 2020 Change
--------------------------------------------
Underlying revenue (GBPm) 431 569 (24)%
Interest and fees payable (GBPm) (90) (125) (28)%
Total income (GBPm) 341 444 (23)%
Underlying operating (loss)/profit (GBPm) (21) 48 (144)%
-------------------------------------------- ------ ------ -------
Cost:income ratio (%) 74 71 300bps
Active customers (m) - Bank 1.8 2.1 (14)%
Active customers (m) - AFS 2.2 2.2 -
Net interest margin (%)(1) 3.5 3.4 10bps
Bad debt as a percentage of lending (%)(2) 1.8 1.1 70bps
Tier 1 capital ratio (%)(3) 17.6 14.1 350bps
Total capital ratio (%)(4) 20.2 17.0 320bps
Customer lending (GBPbn)(5) 5.4 7.4 (27)%
Customer deposits (GBPbn) (5.1) (6.3) (19)%
-------------------------------------------- ------ ------ -------
1 Net interest receivable divided by average interest-bearing assets.
2 Bad debt expense divided by average net lending.
3 Common equity Tier 1 capital divided by risk-weighted assets.
4 Total capital divided by risk-weighted assets.
5 Amounts due from customers at the Balance Sheet date in
respect of loans, mortgages, credit cards and store cards net of
provisions. The prior year comparative is as at the Year End
balance sheet date.
In line with guidance at the interim results, the Bank returned
to profit in the second half of the year with an underlying
operating profit of GBP34 million, to deliver a Financial Services
underlying operating loss of GBP21 million for the full year. The
underlying loss reflects the changed economic environment driven by
COVID-19 where we have seen significantly reduced demand across
consumer credit, and less activity in our fee-based products,
particularly Travel Money. In the first half, we made a significant
provision in anticipation of future credit losses. This has
remained sufficient to cover our current projections for credit
losses, resulting in reduced costs in the second half. In addition,
our return to profit has been aided by management action taken
during the year, particularly funding and costs, as well as the
benefit of a one off debt sale.
Financial Services total income of GBP341 million has declined
year-on-year (2019/20: GBP444 million). The fall in interest income
reflects a significant contraction in lending balances of 27 per
cent due to lower consumer demand, a tightening of credit appetite
for new customers and more customers repaying their balances early.
Fee income has dropped markedly due to the closure of Travel Money
Bureaux for most of the year, and a decline in ATM income due to
lower cash usage, particularly during lockdown.
The Financial Services cost:income ratio increased 300 basis
points to 74 per cent (2019/20: 71 per cent) and is reflective of
the material drop in income in the year. We have reduced costs by
GBP49 million for the full year (16 per cent), with cost savings
being delivered through management actions including reducing
headcount, digitising and improving customer journeys together with
reducing fraud costs due to enhanced fraud detection controls.
Net interest margin increased by 10 basis points year-on-year to
3.5 per cent (2019/20: 3.4 per cent) with significant reduction in
savings rates offsetting changes in customer behaviour,
particularly in terms of spend and retention.
Bad debt expense as a percentage of lending increased by 70
basis points year-on-year to 1.8 per cent (2019/20: 1.1 per cent),
mainly to account for the expected future unemployment increases
partly offset by a lower underlying impairment charge as a result
of balance sheet contraction. Arrears levels are lower than the
prior year.
The number of Bank active customers reduced by 14 per cent
year-on-year to 1.8 million due to higher customer repayments and
lower acquisition of new business, particularly on Cards and Loans,
whilst Argos Financial Services customers remain flat at 2.2
million.
The Bank offered payment holidays across all of its lending
products to support customers who were impacted by COVID-19. Over
71,000 payment holidays were granted at a value of GBP455m, and to
date 90% have returned to normal payment schedules or fully repaid
the loan after the expiry of their payment holiday.
The capital position is strong with the CET 1 capital ratio
increasing by 350 basis points since February 2020 to 17.6 per cent
(2019/20: 14.1 per cent) with the capital released as a result of
the contraction in balances more than offsetting the loss. Customer
deposits decreased by 19 per cent to GBP5.1 billion, reflecting the
reduced funding required due to the decline in lending and the
strategic decision to cease mortgage new business.
We have made good progress with our Financial Services
transformation plan and have streamlined our product offering. We
still expect to double the profit contribution of our Financial
Services business in the 5 years to 2023/24, despite the challenges
of the current environment. We expect lending balances will recover
as we follow our strategy and the market normalises. We have a
significant capital surplus and strong liquidity and we remain
confident that Financial Services will not require capital
injections from the Group. We expect Financial Services will return
to full year profit in 2021/22.
Underlying net finance costs
Underlying net finance costs reduced by 12 per cent to GBP353
million (2019/20: GBP400 million). These costs include GBP60
million of net non-lease interest (2019/20: GBP77 million). The
reduction of net non-lease interest is driven by the repayment of
the GBP450 million Convertible Bond in November 2019, and the
redemption of the GBP250 million perpetual subordinated capital
securities in July 2020. The interest costs on lease liabilities
have reduced to GBP293 million (2019/20: GBP323 million) due to
lower interest rates on new leases.
Sainsbury's expects underlying net finance costs in 2021/22 of
between GBP340 million - GBP350 million, including around GBP290
million - GBP300 million lease interest.
Items excluded from underlying results
In order to provide shareholders with insight into the
underlying performance of the business, items recognised in
reported profit or loss before tax which, by virtue of their size
and or nature, do not reflect the Group's underlying performance
are excluded from the Group's underlying results and shown in the
table below.
Items excluded from underlying results 52 weeks to 52 weeks to
06 March 2021 07 March 2020
GBPm GBPm
----------------------------------------------- -------------- --------------
Restructuring programmes (423) (202)
Impairment charges (220) (126)
Financial Services transition and other (17) (29)
ATM business rates reimbursement 42 -
IAS 19 pension income 6 19
Property, finance and acquisition adjustments (5) 7
Items excluded from underlying results (617) (331)
----------------------------------------------- -------------- --------------
- An updated plan was announced in November 2020 in which it was
communicated that the structural integration of Sainsbury's and
Argos would be accelerated, as well as further streamlining the
Argos business model. The closure of around 420 Argos stores was
announced as well as plans to simplify the logistics network and
other areas of the business. Restructuring programme costs of
GBP423 million have therefore been recognised that relate to store
closures and asset write downs.
- The Group concluded that the combination of COVID-19 and the
accelerated integration programme was an impairment indicator,
following which impairment charges of GBP220 million were
recognised in addition to the closure costs above. GBP105 million
relates to Financial Services and GBP115 million in relation to
Retail assets.
- 2019/20 restructuring charges of GBP202 million and impairment
of GBP126 million primarily relate to store closures and asset
write downs announced at our Capital Markets Day in September
2019.
- Financial Services transition and other costs of GBP17 million
(2019/20: GBP29 million) were predominantly the previously
announced costs incurred in transitioning to a new banking platform
and write-downs of ATMs.
- ATM income of GBP42 million (2019/20: GBPnil) arises following
the Supreme Court's ruling that ATMs outside stores should not be
assessed for additional business rates on top of normal store
rates. By year end GBP27 million had been received in cash.
- IAS 19 Pension income of GBP6 million (2019/20: GBP19 million)
comprises pension finance income of GBP19 million and scheme
expenses of GBP13 million.
- Other movements of GBP5 million cost (2019/20: income of GBP7
million) relate to property profits and acquisition
adjustments.
- Cash outflows relating to restructuring programmes, impairment
and financial services transition were GBP54 million, lower than
previously guided due to the timing of dilapidations payments
relating to the property strategy announcements. Total cash
outflows were GBP61 million. This was offset by GBP54m of cash
inflows driven by the ATM business rates reimbursement and property
disposal proceeds.
Including costs taken this year, we still expect that we will
incur one off costs from these infrastructure, operating model and
structure changes announced in November 2020 of GBP900 million to
GBP1 billion in the period to March 2024 (approximately GBP300
million cash). We expect to incur the remaining costs evenly over
the next 3 years, including GBP125m of restructuring cash costs in
2021/22.
Taxation
The tax charge was GBP19 million (2019/20: GBP103 million). The
underlying tax rate was 29.5 per cent (2019/20: 25.4 per cent) and
the effective tax rate is (7.3) per cent (2019/20: 40.4 per
cent).
The underlying tax rate is higher than the prior year. The
underlying tax rate is adversely impacted by a year on year
reduction in the underlying profit before tax, which increases the
relative weighting of non-deductible property charges which were
flat year on year.
The effective tax rate is lower than the prior year but is
distorted by the fact there is an accounting loss before tax for
2020/21. The factors driving the effective tax rate in 2020/21 are
the impact of non-tax deductible non-underlying costs, including
the impairment of fixed assets and the partial derecognition of
capital losses which are partially offset by the tax impact of
property disposals.
Sainsbury's expects an underlying tax rate in 2021/22 of around
25 per cent.
Earnings per share
Underlying basic earnings per share decreased to 11.7 pence
(2019/20: 19.8 pence) driven by the decrease in underlying
earnings. Basic loss per share was (13.0) pence (2019/20: 5.8 pence
earning per share).
Dividends
As guided when Sainsbury's announced its decision to forgo
business rates relief in December 2020, the Board believes
shareholders should not bear the full short-term impact of the
effect of COVID-19 on the business and so have proposed a final
dividend of 7.4 pence per share. This brings the full year dividend
to 10.6p per share, which is flat year on year (when treating the
Special Dividend announced in November 2020 of 7.3p as part of
2019/20).
This represents an exception to our normal dividend policy of
1.9 times cover by full year underlying earnings, reflecting the
Board's commitment to prioritise dividend payments ahead of net
debt reduction and its confidence in the strength of underlying
cash generation. The full year dividend is covered 1.5 times by
underlying earnings.
This final dividend will be paid on 16 July 2021 to shareholders
on the Register of Members at the close of business on 11 June
2021. Sainsbury's has a Dividend Reinvestment Plan (DRIP), which
allows shareholders to reinvest their cash dividends in our shares.
The last date that shareholders can elect for the DRIP is 25 June
2021
Sainsbury's plans to return to paying a full-year dividend
covered 1.9 times by full-year underlying earnings from
2021/22.
Net debt and retail cash flows
As at 6 March 2021, net debt was GBP6,469 million (7 March 2020:
GBP6,947 million), a decrease of GBP478 million (2019/20: GBP399
million reduction). Excluding the impact of lease liabilities on
net debt, Sainsbury's reduced net debt by GBP539 million in the
year. Sainsbury's now expects to reduce non lease net debt by at
least GBP950 million over a four-year period compared to 2018/19
year end net debt excluding lease liabilities of GBP1,522 million,
GBP200m more than previous guidance. Free cash flow will be
unusually low in 2021/22 due to partial reversal of working capital
benefits but we expect average annual free cash flow for the three
years to March 2022 to be at least GBP500m and this is consistent
with the free cash flow guidance we have reiterated for the three
years to March 2025. Over the 2 years to March 2022, the group will
have delivered strong net debt reduction, despite the impact of
reduced profits in 2020/21 due to COVID-19.
Group net debt includes the impact of capital injections into
Sainsbury's Bank, but excludes Financial Services' own net debt
balances. Financial Services balances are excluded because they are
part of the daily operating cycle of the Bank rather than for
financing purposes.
Net debt includes lease liabilities under IFRS 16 of GBP5,829
million (2019/20: GBP5,768 million) and the perpetual securities of
GBP248 million (2019/20: GBP496 million).
Summary cash flow statement (1) Retail Retail
52 weeks to 52 weeks to
06 March 2021 07 March 2020
GBPm GBPm
---------------------------------------------------------------------------- -------------- --------------
Retail underlying operating profit 730 938
---------------------------------------------------------------------------- -------------- --------------
Adjustments for:
Retail underlying depreciation and amortisation 1,179 1,197
Share based payments and other 26 34
Retail non-underlying operating cash flows (excluding pensions) (12) (49)
Adjusted retail operating cash flow before changes in working capital(2,3) 1,923 2,120
---------------------------------------------------------------------------- -------------- --------------
Decrease/(increase) in working capital(3) 453 (97)
Net interest paid(3) (372) (405)
Pension cash contributions (101) (52)
Corporation tax paid (94) (113)
-------------- --------------
Net cash generated from operating activities 1,809 1,453
---------------------------------------------------------------------------- -------------- --------------
Cash capital expenditure (568) (599)
Repayments of obligations under leases (499) (419)
Initial direct costs on right-of-use assets (7) (13)
Proceeds from disposal of property, plant and equipment 27 81
Bank capital injections - (35)
Dividends and distributions received(3) 22 143
Retail free cash flow 784 611
---------------------------------------------------------------------------- -------------- --------------
Dividends paid on ordinary shares (232) (247)
Repayment of borrowings(3) (539) (379)
Other(3) (13) (3)
Net increase/(decrease) in cash and cash equivalents - (18)
---------------------------------------------------------------------------- -------------- --------------
Decrease in Debt 1,038 798
Other non-cash and net interest movements(4) (560) (381)
Movement in net debt 478 399
---------------------------------------------------------------------------- -------------- --------------
Opening net debt (6,947) (7,346)
----------------------------------------------------------------------------
Closing net debt (6,469) (6,947)
---------------------------------------------------------------------------- -------------- --------------
of which
Lease Liabilities (5,829) (5,768)
---------------------------------------------------------------------------- -------------- --------------
Net Debt Excluding Lease Liabilities (640) (1,179)
---------------------------------------------------------------------------- -------------- --------------
1 See note 5 for a reconciliation between Retail and Group cash flow.
2 Excludes working capital and pension contributions.
3 Refer to the Alternative Performance Measures on pages 59 to 64 for reconciliation.
4 Other non-cash includes new leases and lease modifications and
fair value movements on derivatives used for hedging long term
borrowings.
Adjusted retail operating cash flow before changes in working
capital decreased by GBP197 million year-on-year to GBP1,923
million (2019/20: GBP2,120 million). Working Capital decreased by
GBP453 million (2019/20: GBP97 million increase), as a result of
the strong trading performance driving increased payables balances
despite the impact of lower fuel sales and moving to reduced
payment terms to support smaller suppliers. In addition, challenges
sourcing stock on certain product ranges have further reduced
inventory in our non-food business.
Cash capital expenditure was GBP568 million (2019/20: GBP599
million). There were no capital injections to the Bank this year
(2019/20: GBP35 million).
Dividends and distributions received of GBP22 million (2019/20:
GBP143 million) reduced to normal levels, with the prior year
benefitting from the proceeds of the sale of properties held in a
joint venture with British Land.
Retail free cash flow increased by GBP173 million year-on-year
to GBP784 million (2019/20: GBP611 million), driven by the working
capital reduction. Free cash flow was used to fund dividends and
reduce borrowings.
Dividends of GBP232 million were paid in the year, which were
covered 3.3 times by free cash flow (2019/20: 2.5 times).
The Group held undrawn committed credit facilities of GBP1,450
million and undrawn uncommitted facilities of GBP195 million as at
6 March 2021.
Capital expenditure
Core retail cash capital expenditure was GBP568 million
(2019/20: GBP599 million).
Sainsbury's expects core retail cash capital expenditure
(excluding Financial Services) to be around GBP700-GBP750 million
per annum over the next three years, reflecting investment in
high-returning supply chain, logistics and infrastructure projects
including the Argos transformation.
Financial Ratios
Key financial ratios 52 weeks to 52 weeks to
06 March 2021 07 March 2020
Return on capital employed (%) (1) 5.5 7.4
Net debt to EBITDA (2) 3.4 times 3.2 times
Fixed charge cover (3) 2.2 times 2.7 times
------------------------------------ -------------- --------------
1 ROCE: Return is defined as a 52 week rolling underlying profit
before interest and tax. Capital employed is defined as group net
assets excluding the pension deficit/surplus less net debt
(excluding perpetual securities). This is calculated using the
average of 14 datapoints - the prior year closing capital employed,
the current year closing capital employed and 12 intra-year periods
as this more closely aligns to the recognition of profit /
loss.
2 Net debt of GBP6,469 million includes lease obligations under
IFRS 16 and perpetual securities treated as debt, divided by Group
underlying EBITDA of GBP1,911 million.
3 Group underlying EBITDA divided by rent (both capital and
interest) and net underlying finance costs, where interest on
perpetual securities is treated as an underlying finance cost.
Property value
As at 6 March 2021, Sainsbury's estimated market value of
properties, with values based on a 25 year lease with RPI
increases, including our share of properties held within property
joint ventures or investment vehicles, was GBP10.1 billion (7 March
2020: GBP9.9 billion), with the increase driven by a small
reduction in property yields.
Defined benefit pensions
The Pension Scheme is valued on different bases for different
purposes. For the corporate annual accounts, the value of the
retirement benefit is calculated under IAS19 while the funding of
the Scheme is determined by the Trustee's triennial valuation.
At 6 March 2021, the net defined benefit surplus under IAS19 for
the Group was GBP744 million (excluding deferred tax). The GBP375
million reduction from 7 March 2020 was primarily driven by lower
than expected asset returns and increased inflation
expectations.
For 2021/22, total pension scheme cash contributions and are
expected to be GBP76 million.
Retirement benefit obligations
Sainsbury's Argos Group Group
as at as at as at as at
06 March 06 March 06 March 07 March
2021 2021 2021 2020
GBPm GBPm GBPm GBPm
Present value of funded obligations (8,808) (1,410) (10,218) (10,335)
Fair value of plan assets 9,596 1,404 11,000 11,491
Pension surplus/(deficit) 788 (6) 782 1,156
Present value of unfunded
obligations (21) (17) (38) (37)
--------------------------------------- ------------ --------- --------- ---------
Retirement benefit obligations 767 (23) 744 1,119
Deferred income tax (liability)/asset (178) (14) (192) (214)
--------------------------------------- ------------ --------- --------- ---------
Net retirement benefit obligations 589 (37) 552 905
--------------------------------------- ------------ --------- --------- ---------
Consolidated income statement
for the 52 weeks to 6 March 2021
52 weeks to 6 March 52 weeks to 7 March
2021 2020
------------------- ----- -------------------------------------------- --------------------------------------------
Before Non-underlying Total Before Non-underlying Total
non-underlying items non-underlying items
items (Note items (Note
4) 4)
Note GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ----- ---------------- --------------- --------- ---------------- --------------- ---------
Revenue 29,048 - 29,048 28,993 - 28,993
Cost of sales (26,871) (412) (27,283) (26,699) (278) (26,977)
Gross
profit/(loss) 2,177 (412) 1,765 2,294 (278) 2,016
Administrative
expenses (1,480) (238) (1,718) (1,345) (114) (1,459)
Other income 12 1 13 37 56 93
------------------- ----- ---------------- --------------- --------- ---------------- --------------- ---------
Operating
profit/(loss) 709 (649) 60 986 (336) 650
Finance income 7 3 29 32 4 28 32
Finance costs 7 (356) 3 (353) (404) 6 (398)
Share of post-tax
loss
from joint
ventures and
associates - - - - (29) (29)
------------------- ----- ---------------- --------------- --------- ---------------- --------------- ---------
Profit/(loss)
before tax 356 (617) (261) 586 (331) 255
Income tax
(expense)/credit 8 (105) 86 (19) (149) 46 (103)
------------------- ----- --------- ---------
Profit/(loss) for
the financial
period 251 (531) (280) 437 (285) 152
------------------- ----- ---------------- --------------- --------- ---------------- --------------- ---------
(Loss)/earnings
per share 9 pence pence
------------------- ----- ---------------- --------------- --------- ---------------- --------------- ---------
Basic
(loss)/earnings (13.0) 5.8
Diluted
(loss)/earnings (13.0) 5.8
------------------- ----- ---------------- --------------- --------- ---------------- --------------- ---------
Consolidated statement of comprehensive income/(loss)
for the 52 weeks to 6 March 2021
52 weeks 52 weeks
to 6 to 7
March March
2021 2020
----- --------- ---------
Note GBPm GBPm
----- --------- ---------
(Loss)/profit for the financial year (280) 152
--------------------------------------------------------- ----- --------- ---------
Items that will not be reclassified subsequently
to the income statement
----- --------- ---------
Remeasurement on defined benefit pension schemes 19 (482) 89
-----
Movements on financial assets at fair value through
other comprehensive income 55 17
Cash flow hedges fair value movements - inventory
hedges (60) -
Current tax relating to items not reclassified 44 -
Deferred tax relating to items not reclassified 8 9 (18)
(434) 88
--------------------------------------------------------- ----- --------- ---------
Items that may be reclassified subsequently to the
income statement
-----
Currency translation differences (5) -
-----
Movements on financial assets at fair value through
other comprehensive income 2 4
-----
Cash flow hedges fair value movements - non-inventory
hedges (1) (1)
-----
Items reclassified from cash flow hedge reserve 13 (19)
-----
Deferred tax on items that may be reclassified 8 10 3
-----
19 (13)
-----
Total other comprehensive (loss)/income for the
year (net of tax) (415) 75
Total comprehensive (loss)/income for the year (695) 227
--------------------------------------------------------- ----- --------- ---------
Consolidated balance sheet
At 6 March 2021 and 7 March 2020
7 March
6 March 2020
2021 Restated
Note GBPm GBPm
----------------------------------------------- ----- --------- ----------
Non-current assets
Property, plant and equipment 11 8,587 8,949
Right of use assets 12 4,747 4,826
Intangible assets 13 914 974
Investments in joint ventures and associates 5 9
Financial assets at fair value through other
comprehensive income 754 972
Trade and other receivables 50 43
Amounts due from Financial Services customers 2,280 3,453
Derivative financial assets 8 6
Net retirement benefit surplus 19 744 1,119
----------------------------------------------- ----- --------- ----------
18,089 20,351
----------------------------------------------- ----- --------- ----------
Current assets
Inventories 1,625 1,732
Trade and other receivables 725 811
Amounts due from Financial Services customers 3,127 3,951
Financial assets at fair value through other
comprehensive income 90 82
Derivative financial assets 5 12
Cash and cash equivalents 16 1,477 994
----------------------------------------------- ----- ----------
7,049 7,582
Assets held for sale 24 4
----------------------------------------------- ----- ----------
7,073 7,586
----------------------------------------------- ----- --------- ----------
Total assets 25,162 27,937
----------------------------------------------- ----- --------- ----------
Current liabilities
Trade and other payables (4,488) (4,275)
Amounts due to Financial Services customers
and other deposits (6,086) (6,890)
Borrowings 18 (258) (48)
Lease liabilities 12 (524) (510)
Derivative financial liabilities (93) (53)
Taxes payable (59) (163)
Provisions 15 (209) (108)
----------------------------------------------- ----- ----------
(11,717) (12,047)
----------------------------------------------- ----- --------- ----------
Net current liabilities (4,644) (4,461)
----------------------------------------------- ----- --------- ----------
Non-current liabilities
Other payables (20) (11)
Amounts due to Financial Services customers
and other deposits (203) (1,204)
Borrowings 18 (748) (1,248)
Lease liabilities 12 (5,310) (5,264)
Derivative financial liabilities (44) (36)
Deferred income tax liability 8 (255) (265)
Provisions 15 (261) (89)
(6,841) (8,117)
----------------------------------------------- ----- --------- ----------
Total liabilities (18,558) (20,164)
----------------------------------------------- ----- --------- ----------
Net assets 6,604 7,773
----------------------------------------------- ----- --------- ----------
Equity
Called up share capital 637 634
Share premium 1,173 1,159
Merger reserve 568 568
Capital redemption reserve 680 680
Other reserves 167 168
Retained earnings 3,131 4,068
----------------------------------------------- ----- ----------
Total equity before perpetual securities 6,356 7,277
Perpetual capital securities - 248
Perpetual convertible bonds 248 248
----------------------------------------------- ----- ----------
Total equity 6,604 7,773
----------------------------------------------- ----- --------- ----------
Consolidated cash flow statement
for the 52 weeks to 6 March 2021
52 weeks to 6 March 2021 52 weeks to 7 March 2020
Note GBPm GBPm
--------------------------------------------------- ----------- ------------------------- -------------------------
Cash flows from operating activities
(Loss)/Profit before tax (261) 255
Net finance costs 321 366
Share of post-tax loss from joint ventures - 29
Operating profit 60 650
Adjustments for:
Depreciation expense 11, 12 1,113 1,127
Amortisation expense 13 136 129
Net impairment loss on property, plant and
equipment, right of use assets, intangible
assets 11, 12, 13 321 263
Non-cash adjustments arising from acquisitions (1) (2)
Financial Services impairment losses on loans
and advances 85 80
Loss/(profit) on sale of properties and early
termination of leases (17) (56)
Share-based payments expense 29 37
Defined benefit scheme expenses 19 13 9
Cash contributions to benefit schemes 19 (101) (52)
Operating cash flows before changes in working
capital 1,638 2,185
Changes in working capital
Decrease in inventories 117 197
Decrease/(increase) in financial assets at fair
value through other comprehensive income 267 (177)
Decrease/(increase) in trade and other
receivables 62 (129)
Decrease/(increase) in amounts due from
Financial Services customers and other deposits 1,912 (499)
Increase/(decrease) in trade and other payables 321 (195)
(Decrease)/increase in amounts due to Financial
Services customers and other deposits (1,805) 492
Increase/(decrease) in provisions and other
liabilities 273 (8)
Cash generated from operations 2,785 1,866
Interest paid (349) (384)
Corporation tax paid (93) (110)
Net cash generated from operating activities 2,343 1,372
--------------------------------------------------- ----------- ------------------------- -------------------------
Cash flows from investing activities
Purchase of property, plant and equipment (423) (519)
Initial direct costs on new leases (7) (13)
Purchase of intangible assets (172) (120)
Proceeds from disposal of property, plant and
equipment 27 81
Interest received - 2
Dividends and distributions received 22 143
Net cash used in investing activities (553) (426)
--------------------------------------------------- ----------- ------------------------- -------------------------
Cash flows from financing activities
Proceeds from issuance of ordinary shares 17 15
Proceeds from borrowings - 250
Proceeds from short term borrowings 660 -
Repayment of borrowings (289) (169)
Repayment of short term borrowings (660) -
Repayment upon maturity of convertible bonds - (450)
Repayment of perpetual capital securities (250) -
Purchase of own shares (30) (18)
Repayment of capital element of lease obligations (501) (420)
Repayment of capital element of obligations under
hire purchase arrangements - (10)
Dividends paid on ordinary shares 10 (232) (247)
Dividends paid on perpetual securities (23) (23)
Net cash used in financing activities (1,308) (1,072)
--------------------------------------------------- ----------- ------------------------- -------------------------
Net increase/(decrease) in cash and cash
equivalents 482 (126)
Opening cash and cash equivalents 994 1,120
Closing cash and cash equivalents 16 1,476 994
--------------------------------------------------- ----------- ------------------------- -------------------------
Consolidated statement of changes in equity
for the 52 weeks to 6 March 2021
Total
Called Capital equity
up Share redemption before Perpetual Perpetual
share premium Merger and other Retained perpetual capital convertible Total
capital account reserve reserves earnings securities securities bonds equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 8 March 2020 634 1,159 568 848 4,068 7,277 248 248 7,773
----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Loss/(profit)
for the period - - - - (287) (287) - 7 (280)
-----
Other
comprehensive
income/(loss) - - - 4 (482) (478) - - (478)
-----
Tax relating to
other
comprehensive
income/(loss) - - - (4) 67 63 - - 63
-----
Total
comprehensive
income/(loss)
for the period
ended 6 March
2021 - - - - (702) (702) - 7 (695)
---------------- ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Cash flow
hedges gains
and losses
transferred to
inventory - - - (1) - (1) - - (1)
---------------- ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Transactions
with owners:
Dividends 10 - - - - (232) (232) - - (232)
---------------- -----
Distribution
to holders
of perpetual
securities - - - - - - - (7) (7)
---------------- -----
Share-based
payment - - - - 29 29 - - 29
---------------- -----
Purchase of
own shares - - - - (30) (30) - - (30)
---------------- -----
Allotted in
respect of
share option
schemes 3 14 - - - 17 - - 17
---------------- -----
Redemption of
perpetual
capital
securities - - - - (2) (2) (248) - (250)
-----
At 6 March 2021 637 1,173 568 847 3,131 6,356 - 248 6,604
---------------- ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
At 10 March
2019 630 1,147 568 852 4,089 7,286 248 248 7,782
----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Profit for the
period - - - - 129 129 16 7 152
-----
Other
comprehensive
income - - - 1 89 90 - - 90
-----
Tax relating to
other
comprehensive
income/(loss) - - - - (15) (15) - - (15)
-----
Total
comprehensive
income/(loss)
for the period
ended 7 March
2020 - - - 1 203 204 16 7 227
---------------- ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Transactions
with owners:
Dividends - - - - (247) (247) - - (247)
---------------- -----
Distribution
to holders
of perpetual
securities - - - - - - (16) (7) (23)
---------------- -----
Amortisation
of
convertible
bond equity
component - - - (5) 5 - - - -
---------------- -----
Share-based
payment - - - - 37 37 - - 37
---------------- -----
Purchase of
own shares - - - - (18) (18) - - (18)
---------------- -----
Allotted in
respect of
share option
schemes 4 12 - - (1) 15 - - 15
---------------- -----
Tax on items
charged to
equity - - - - - - - - -
-----
At 7 March 2020 634 1,159 568 848 4,068 7,277 248 248 7,773
---------------- ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Notes to the consolidated financial statements
1 General information
The financial information, which comprises the Group income
statement, Group statement of comprehensive income, Group balance
sheet, Group cash flow statement, Group statement of changes in
equity and related notes, is derived from the full Group financial
statements for the 52 weeks to 6 March 2021 and does not constitute
full accounts within the meaning of section 435 (1) and (2) of the
Companies Act 2006.
The Group Annual Report and Financial Statements 2021 on which
the auditors have given an unqualified report and which does not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006, will be delivered to the Registrar of Companies in due
course, and made available to shareholders in June 2021.
J Sainsbury plc is a public limited company (the 'Company')
incorporated in the United Kingdom, whose shares are publicly
traded on the London Stock Exchange. The Company is domiciled in
the United Kingdom and its registered address is 33 Holborn, London
EC1N 2HT, United Kingdom.
The financial year represents the 52 weeks to 6 March 2021
(prior financial year: 52 weeks to 7 March 2020). The consolidated
financial statements for the 52 weeks to 6 March 2021 comprise the
financial statements of the Company and its subsidiaries (the
'Group') and the Group's share of the post-tax results of its joint
ventures and associates.
The Group's principal activities are Food, General Merchandise
and Clothing retailing and Financial Services.
2 Significant accounting policies
2.1 Basis of preparation
The Group's financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRSs)
adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in
the European Union, and also in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006.
The financial statements are presented in sterling, rounded to
the nearest million ('GBPm') unless otherwise stated. They have
been prepared under the historical cost convention, except for
derivative financial instruments, defined benefit pension scheme
assets and financial assets at fair value through other
comprehensive income that have been measured at fair value.
Sainsbury's Bank Plc and its subsidiaries have been consolidated
for the twelve months to 28 February 2021 being the Bank's year-end
date (prior financial year: 29 February 2020). There have been no
significant transactions or events that occurred between this date
and the Group's balance sheet date, and therefore no adjustments
have been made to reflect the difference in year-end dates.
Unless otherwise stated, significant accounting policies have
been applied consistently to all periods presented in the financial
statements.
Presentational changes
In accordance with IAS 1 'Presentation of Financial Statements',
within the consolidated statement of comprehensive income the Group
presents separately items that will not be subsequently
reclassified to the income statement and items that may be
subsequently reclassified to the income statement, which includes
the fair value movements on effective cash flow hedges. In
accordance with IFRS 9 'Financial Instruments', cash flow hedge
gains and losses in relation to inventory purchases are recognised
as part of the cost of inventory, and therefore the carrying value
of inventory is adjusted for the accumulated gains or losses
recognised directly in other comprehensive income (a basis
adjustment), and then recognised in the income statement when the
inventory is sold.
2 Significant accounting policies continued
This basis adjustment is not part of other comprehensive income.
The Group has therefore separately presented effective fair value
movements on inventory hedges and non-inventory hedges within the
consolidated statement of comprehensive income and shown the
inventory basis adjustments as a separate line within the statement
of changes in equity. Comparative period amounts have not been
adjusted on the grounds of materiality.
2.2 Going concern
The Directors are satisfied that the Group has sufficient
resources to continue in operation for a period of at least 12
months from the date of approval. Accordingly, they continue to
adopt the going concern basis in preparing the financial
statements. The assessment period for the purposes of considering
going concern is the 12 months to 28 April 2022.
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 most recent corporate plan was prepared
in October 2020, and refreshed in March 2021 as part of normal
budgeting process. This was reviewed by the Operating Board and
ultimately by the PLC Board with involvement throughout from both
the Chief Financial Officer and Chief Executive.
The Group manages its financing by diversifying funding sources,
structuring core borrowings with long-term maturities and
maintaining sufficient levels of standby liquidity via the
Revolving Credit Facility. This seeks to minimise liquidity risk by
maintaining a suitable level of undrawn additional funding
capacity.
The Revolving Credit Facility is split into two Facilities, a
GBP300 million Facility (A) and a GBP1,150 million Facility (B).
Facility A has a final maturity of April 2025 and Facility B has a
final maturity of October 2024. As at 6 March 2021, the Revolving
Credit Facility was undrawn. In addition, the Group maintains
uncommitted facilities of GBP195 million to provide additional
capacity to fund short term working capital requirements. The
uncommitted facilities were undrawn at 6 March 2021.
In assessing going concern, scenarios in relation to the Group's
principal risks have been considered in line with those disclosed
in the viability statement (included in the Group's annual report)
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 the ongoing impact of
COVID-19, recognising the degree of uncertainty that continues to
exist, the impact of any regulatory fines, failure to deliver
planned cost savings and the impact of the UK's withdrawal from the
EU on the Group's Northern Ireland operations where trade flows
have proved more difficult.
In performing the above analysis, the Directors have made
certain assumptions around the availability and effectiveness of
the mitigating actions available to the Group. These include
reducing any non-essential capital expenditure and operating
expenditure on projects, bonuses and dividend payments.
As a consequence of the work performed, the Directors considered
it appropriate to adopt the going concern basis in preparing the
Financial Statements with no material uncertainties to
disclose.
2 Significant accounting policies continued
2.3 Amendments to published standards
Effective for the Group and Company in these financial
statements:
The Group has considered the following amendments to published
standards that are effective for the Group for the financial year
beginning 8 March 2020 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 References to Conceptual Framework in IFRS Standards
- Amendments to IFRS 3 'Business Combinations' on the definition of a business
- Amendments to IAS 1 'Presentation of Financial Statements' and
IAS 8 'Accounting Policies, Changes in Accounting Estimates and
Errors' on the definition of material
- Amendments to IFRS 9 'Financial Instruments', IAS 39
'Financial Instruments: Recognition and Measurement' and IFRS 7
'Financial Instruments: Disclosures' on the Interest Rate Benchmark
Reform
The Group has noted the exemption granted in the
'COVID-19-related rent concessions' amendment to IFRS 16 'Leases'.
This exemption applies for periods commencing on or after 1 June
2020, with an option to early adopt. The Group has elected not to
apply the exemption granted as the Group has not received material
COVID-19-related rent concessions as a lessee.
Standards and revisions effective for future periods:
The following standards and revisions will be effective for
future periods:
- Amendments to IFRS 3 'Business Combinations' with reference to the Conceptual Framework
- Amendments to IAS 37 'Provisions, Contingent Liabilities and
Contingent Assets' on Onerous Contracts - Cost of Fulfilling a
Contract
- Amendments to IAS 16 'Property, Plant and Equipment' on Proceeds before Intended Use
- Amendments to IAS 1 'Presentation of Financial Statements' on
the classification of liabilities as current or non-current
- IFRS 17 'Insurance Contracts'
The Group has considered the impact of the remaining above
standards and revisions and have concluded that they will not have
a significant impact on the Group's financial statements.
Interest Rate Benchmark Reform
The Group applied the Phase 1 amendments to IFRS 9, IAS 39, IFRS
7, IFRS 4 and IFRS 16 which became effective from 1 January 2020
and early adopted the Phase 2 amendments from 8 March 2020
retrospectively. However, in accordance with exceptions provided in
the Phase 2 amendments, the Group has elected not to restate the
prior period to reflect the application of these amendments,
including not providing additional disclosures for 2020. There is
no impact on opening equity balances as a result of retrospective
application.
Both Phase 1 and Phase 2 are relevant to the Group because it
applies hedge accounting to its interest rate benchmark exposures.
The Group has no variable lease payments that are linked to
LIBOR.
The Phase 1 amendments provided reliefs that may otherwise have
resulted in the Group no longer being able to apply hedge
accounting for certain hedge relationships as a result of
uncertainties arising from the LIBOR benchmark reform. As a result
of the reliefs the Group was able to continue existing hedge
accounting whilst implementing its LIBOR to SONIA transition
project.
2 Significant accounting policies continued
The Phase 2 amendments to IFRS 9 provide a series of reliefs
from certain hedge accounting requirements when a change required
by interest rate benchmark reform occurs to a hedged item and/or
hedging instrument and consequently the hedge relationship can be
continued without any interruption.
3 Alternative Performance Measures (APMs)
In the reporting of financial information, the Directors use
various APMs. These APMs should be considered in addition to, and
are not intended to be a substitute for, IFRS measurements. As they
are not defined by International Financial Reporting Standards,
they may not be directly comparable with other companies' APMs.
3.1 Purpose of APMs
The Directors believe that these APMs provide additional useful
information for understanding the financial performance and health
of the Group. They are also used to enhance the comparability of
information between reporting periods (such as like-for-like sales
and underlying profit) by adjusting for non-recurring or
uncontrollable factors which affect IFRS measures, to aid users in
understanding the Group's performance.
Consequently, APMs are used by the Directors and management for
performance analysis, planning, reporting and incentive setting
purposes.
The APMs that the Group has focused on in the period are
detailed on page 59. All of the APMs relate to the current period's
results and comparative periods.
3.2 Changes to APMs
The following APMs have been updated during the period:
-- Like-for-like sales: The impact on sales of stores which were
temporarily closed due to COVID-19 have been included within
like-for-like sales. During the year due to temporary store
closures as a result of the COVID-19 pandemic there has been a
material increase in digital sales. It is not possible to calculate
the exact transfer of sales from temporarily closed stores to
online as a result of the pandemic therefore the like-for-like
definition has been adjusted to include temporary store closures as
a result of COVID-19 . Only permanently closed sites and those
temporarily closed for non COVID-19 related reasons are excluded
from like-for-like sales.
-- Net cash generated from retail operations (per Financial
Review): The presentation of the summary cashflow statement on page
61 has been modified to provide useful additional information of
the build from Retail Underlying Operating Profit.
-- Earnings before interest, tax, depreciation and amortisation
(EBITDA): Following the adoption of IFRS16, EBITDA and EBITDAR
(earnings before interest, tax, depreciation, amortisation and
rent) are broadly consistent measures. Therefore EBITDA is now
being disclosed instead of EBITDAR.
4 Profit before non-underlying items
In order to provide shareholders with additional insight into
the underlying performance of the business, certain items are
excluded from the Group's underlying results and presented as
'profit before non-underlying items' on the face of the income
statement. This is consistent with how the performance of the Group
is reviewed by management. Determining which items are to be
adjusted requires judgement, and considers both the nature and
scale of the item, as well as the circumstances surrounding it.
Reversals of prior non-underlying items are considered based on the
same criteria.
Profit before non-underlying items is not defined by
International Financial Reporting Standards and is one of the APMs
used by the Group (see page 59). Therefore, it may not be directly
comparable with adjusted measures of other companies.
4 Profit before non-underlying items continued
The most significant non-underlying items in the current year
relate to restructuring programmes, impairment charges and income
relating to the Supreme Court ruling on ATM business rates. More
details on each are included further below.
The Group has also excluded the following items from underlying
profit:
-- Financial Services transition - multi-year costs incurred in
transitioning to a new, more flexible banking platform as part of
the previously announced New Bank Programme. These principally
comprise contractor and service provider costs relating to the
migration of data and other services to the Bank's new
infrastructure and operating model.
-- Profit or loss on disposal of properties - such disposals are
not part of the Group's underlying business.
-- Investment property fair value movements - these reflect the
difference between the fair value of an investment property at the
reporting date and its carrying amount at the previous reporting
date and are held within the property JVs. The valuations are
impacted by external market factors and can therefore vary
significantly year-on-year.
-- Perpetual securities coupons - these are accounted for as
equity in line with IAS 32 'Financial instruments: Presentation',
however are accrued on a straight-line basis and included as an
expense within underlying profit as they are included by management
when assessing Group borrowings.
-- Non-underlying finance movements - these include fair value
remeasurements on derivatives not in a hedging relationship. The
fair value measurements are impacted by external market factors and
can fluctuate significantly year-on-year. Lease interest on
impaired non-trading sites, including site closures, is excluded
from underlying profit as those sites do not contribute to the
underlying business.
-- IAS 19 pension interest and expenses include the financing
element and scheme expenses of the Group's defined benefit scheme.
These are reported outside underlying profit as they no longer
relate to the Group's on-going activities following closure of the
scheme to future accrual.
-- Acquisition adjustments - these reflect the adjustments
arising from acquisitions including the fair value unwind and
amortisation of acquired intangibles.
The Group has not included any additional costs incurred or
credits received directly in relation to the impacts of COVID-19
within non-underlying items. Whilst some items (such as additional
expenses incurred protecting colleagues and customers) are discrete
and can be separately quantified, others, such as incremental food
sales cannot be reliably disaggregated from the Group's underlying
performance. The Group has therefore concluded that presenting some
movements as underlying and others as non-underlying would give an
imbalanced view that is not easily comparable to past and
subsequent periods. In addition, the repayment of business rates
relief announced in December 2020 has also been treated as
underlying, due to being a cost that would have been incurred in an
ordinary trading year.
4 Profit before non-underlying items continued
Cost Administrative Other Net finance Total Tax Total
of expenses income income/(costs) adjustments adjustments
sales before
tax
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ------- --------------- -------- ---------------- ------------- ----- -------------
Restructuring programmes (342) (81) - - (423) 76 (347)
Impairment of
non-financial
assets (112) (108) - - (220) 33 (187)
Financial Services
transition
and other - (17) - - (17) 3 (14)
Total restructuring,
impairment
and integration (454) (206) - - (660) 112 (548)
Property, finance, pension
and acquisition
adjustments
ATM business rates
reimbursement 42 - - - 42 (8) 34
Profit on disposal of
properties - - 1 - 1 7 8
Perpetual securities
coupons - - - 14 14 - 14
Non-underlying finance
movements - - - (1) (1) - (1)
IAS 19 pension (expenses)
/ income - (13) - 19 6 (1) 5
Acquisition adjustments - (19) - - (19) 4 (15)
Total property, finance,
pension and acquisition
adjustments 42 (32) 1 32 43 2 45
Tax adjustments
Derecognition of capital
losses - - - - - (28) (28)
Total adjustments (412) (238) 1 32 (617) 86 (531)
--------------------------- ------- --------------- -------- ----------------
Restructuring programmes
During the financial period, it has been agreed to accelerate
the structural integration of Sainsbury's and Argos and further
simplify the Argos business model. As a result, around 420 Argos
stores will be closed by March 2024, leaving the total number of UK
standalone stores at around 100. To support this, a total of 32
Local Fulfilment Centres will be built across the UK that will
operate the Group's fast track delivery operations, delivering to
customers' homes and to Argos stores and collection points across
the country.
In addition, the Group is creating a new supply chain and
logistics operating model, moving to a single integrated supply
chain and logistics network across Sainsbury's and Argos. As a
result of this, a number of existing depots are closing. Further,
the Group has reviewed its Store Support Centre ways of working and
as a result is reducing its office space.
Further opportunities to rationalise the Group's supermarkets,
convenience estate have been identified, building on last year's
property strategy programme that was announced at the Capital
Markets Day in September 2019. At that time it was communicated
that 10 to 15 supermarkets and 30 to 40 convenience stores would
close. It is now expected that 15 to 20 supermarkets and 55 to 65
convenience stores will close or be sold.
Costs totalling GBP423 million have been recognised in the
period in relation to the above and comprise the following:
GBPm
---------------------------------------------- -----
Write downs of property, plant and equipment 26
Write downs of leased assets 72
Write downs of intangible assets 3
Closure provisions 240
Accelerated depreciation of assets 27
Redundancy provisions 61
Consultancy costs 10
Gain on lease terminations (16)
423
---------------------------------------------- -----
4 Profit before non-underlying items continued
Closure provisions relate to onerous contract costs,
dilapidations and strip out costs on leased sites. Onerous contract
costs have been recognised where sites are forecast to close before
the end of the contractual lease term, and relate to the
unavoidable costs that the business will incur by virtue of
remaining in a lease, such as service charges, insurance and
security.
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.
Gains on lease terminations relate to sites impaired in the
prior year for which it has been negotiated to exit the leases
before the contractual end date.
With regards to the above restructuring and impairment charges,
the costs incurred arise as a result of implementing changes for
the future to evolve and reshape the business. They are therefore
different in nature to the COVID-19-related income and costs that
were incurred to maintain business as usual activity and which have
been reported within underlying profit.
As the costs incurred facilitate future underlying cost savings,
it was considered whether it was appropriate to report these costs
within underlying profit. Whilst they arise from changes in the
Group's underlying operations, they can be separately identified,
are material in size and do not relate to ordinary in-year trading
activity. In addition, the areas being closed or restructured no
longer relate to the Group's remaining underlying operations and
their exclusion provides meaningful comparison between financial
years.
Impairment of non-financial assets
In addition to the above, in line with IAS 36 'Impairment of
non-financial assets', the Group is required to assess whether
there is any indication that an asset (or cash generating unit
(CGU)) may be impaired (i.e. its carrying amount may be higher than
its recoverable amount).
The COVID-19 pandemic has resulted in changes to customer
shopping habits, patterns and sources of finance. Despite this, the
Group has proved resilient through the pandemic, with higher
grocery sales growth helping to offset the additional in-store
costs. However the changes in customer behaviour have led to an
acceleration of the Group's structural integration of Sainsbury's
and Argos during the period and through this, a review of the
economic performance of the Group's assets has been performed as a
result of store rationalisation, changes in channel mix, and
changes in customer borrowing and cash usage behaviour. This has
been deemed an indicator of impairment and a full impairment review
has therefore been performed covering both Retail and Financial
Services non-financial assets.
An impairment charge of GBP220 million has been recognised in
the period and comprises:
GBPm
--------------------------------------------- -----
Impairment of property, plant and equipment 62
Impairment of leased assets 65
Impairment of intangible assets 93
220
--------------------------------------------- -----
4 Profit before non-underlying items continued
Of the total charge of GBP220 million, GBP105 million is in
relation to assets within the Financial Services segment, with the
remaining GBP115 million within the Retail segment. Further details
of the impairment charge are included within note 14.
Financial Services transition
These predominantly comprise Financial Services transition costs
and were incurred in transitioning to new banking platforms as part
of the previously announced New Bank Programme. These principally
comprise contractor and service provider costs relating to the
migration of data and other services to the Bank's new
infrastructure and operating model.
ATM business rates reimbursement
GBP42 million of income is due to be received (of which GBP27
million has been received as at 6 March 2021) from the Valuation
Office following the Supreme Court's ruling that ATMs outside
stores should not be assessed for additional business rates on top
of normal store rates.
Property, finance, pension and acquisition adjustments
-- Profit on disposal of properties for the financial period
comprised GBP1 million for the Group and GBPnil for the joint
ventures.
-- The coupons on the perpetual subordinated capital securities
and the perpetual subordinated convertible bonds are accounted for
as equity in line with IAS 32 'Financial Instruments:
Presentation', however are accrued on a straight-line basis and
included as an expense within underlying profit before tax. During
the year, the perpetual capital securities were redeemed.
-- Non-underlying finance movements for the financial year
comprised GBP(1) million for the Group and GBPnil for the joint
ventures. These are presented separately in note 7.
-- Defined benefit pension interest and expenses comprises
pension finance income of GBP19 million and scheme expenses of
GBP(13) million (see note 19).
-- Acquisition adjustments of GBP(19) million reflect the unwind
of non-cash fair value adjustments arising from Home Retail Group
and Nectar UK acquisitions and are recognised as follows:
52 weeks to 6 March 52 weeks to 7 March
2021 2020
--------------- ------------------------ ------------------------
Argos Nectar Total Argos Nectar Total
Group Group
GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ------ ------- ------- ------ ------- -------
Cost of sales 1 - 1 2 - 2
Depreciation 4 - 4 (2) - (2)
Amortisation (18) (6) (24) (18) (8) (26)
(13) (6) (19) (18) (8) (26)
--------------- ------ ------- ------- ------ ------- -------
4 Profit before non-underlying items continued
Comparative information
Cost Administrative Other Net finance Share Total Tax Total
of expenses income income/(costs) of adjustments adjustments
sales loss before
from tax
JVs
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ------- --------------- -------- ---------------- ------ ------------- ----- -------------
Property strategy
programme (255) (41) - - - (296) 28 (268)
Retail
restructuring
programme (21) (11) - - - (32) 6 (26)
Financial Services
transition
and other (2) (27) - - - (29) 4 (25)
------------------- ------- --------------- -------- ---------------- ------ ------------- ----- -------------
Total strategic
programmes (278) (79) - - - (357) 38 (319)
Property, finance, pension and acquisition
adjustments
Profit/(loss) on
disposal
of properties - - 56 - (21) 35 3 38
Investment
property fair
value movements - - - - (3) (3) - (3)
Perpetual
securities
coupons - - - 23 - 23 (4) 19
Non-underlying
finance movements - - - (17) (5) (22) 3 (19)
IAS 19 pension
expenses - (9) - 28 - 19 (4) 15
Acquisition
adjustments - (26) - - - (26) 5 (21)
------------------- ------- --------------- -------- ---------------- ------ ------------- ----- -------------
Total property,
finance,
pension and
acquisition
adjustments - (35) 56 34 (29) 26 3 29
Tax adjustments
Over provision in
prior years - - - - - - 8 8
Revaluation of
deferred tax
balances - - - - - - (3) (3)
Total adjustments (278) (114) 56 34 (29) (331) 46 (285)
------------------- ------- --------------- -------- ---------------- ------ ------------- ----- -------------
Prior year property strategy programme
During the prior year, the Group identified an impairment
indicator following an approved programme of store closures. This
programme was initially announced at the Capital Markets Day in
September 2019. It was subsequently revisited during the second
half of the prior-financial year resulting in additional planned
closures. Impairment charges and closure costs were therefore
recognised in the prior year as follows:
Property Impairment
strategy review
programme
GBPm GBPm
--------------------------------------------- ----------- -----------
Impairment of property, plant and equipment 70 84
Impairment of leased assets 51 29
Impairment of intangible assets 5 13
Store closure provisions 41 -
Redundancy provisions 3 -
--------------------------------------------- ----------- -----------
170 126
--------------------------------------------- ----------- -----------
Prior year retail restructuring programme
Restructuring costs of GBP(32) million in the prior year mostly
comprise redundancy payments following changes to the Group's store
management structure, responding to changing customer shopping
habits and reducing costs throughout the store estate, as well as
the closure of one Argos distribution centre, prior to the wider
store closure programme announced at the Capital Markets Day. Also
included costs incurred following announced head-office
restructures during the year.
4 Profit before non-underlying items continued
Cash flow statement
The table below shows the impact of non-underlying items on the
Group cash flow statement:
52 weeks 52 weeks
to 6 March to 7 March
2021 2020
GBPm GBPm
-------------------------------------------- ------------ ------------
Cash flows from operating activities
IAS 19 pension expenses (7) (9)
Financial Services transition and other (15) (22)
Argos integration costs - (2)
Restructuring programmes (39) (34)
ATM Rates reimbursement 27 -
Transaction costs relating to the proposed
merger with Asda - (13)
Cash used in operating activities (34) (80)
Cash flows from investing activities
Proceeds from property disposals 27 81
Cash generated from investing activities 27 81
Net cash flows (7) 1
--------------------------------------------- ------------ ------------
5 Segment reporting
Background
Management has determined the operating segments based on the
information provided to the Operating Board (the Chief Operating
Decision Maker for the Group) to make operational decisions on the
management of the Group. Three operating segments were identified
as follows:
- Retail - Food
- Retail - General Merchandise and Clothing
- Financial Services
Management has considered the economic characteristics, in
particular average gross margin, similarity of products, production
processes, customers, sales methods and regulatory environment of
its two Retail segments. In doing so it has been concluded that
they should be aggregated into one 'Retail' segment in the
financial statements. This aggregated information provides users
the financial information needed to evaluate the business and the
environment in which it operates.
The Operating Board assesses the performance of all segments on
the basis of underlying profit before tax. Underlying profit before
tax is an APM as described in note 4. All material operations and
assets are in the UK.
Segment results, assets and liabilities include items directly
attributable to a segment as well as those that can be allocated on
a reasonable basis. Segment capital expenditure is the total cost
incurred during the period to acquire segment assets that are
expected to be used for more than one period.
Segment revenue presents a disaggregation of revenue from
customers consistent with the Group's primary revenue streams.
5 Segment reporting continued
Income statement and balance sheet
Retail Financial Group
Services
52 weeks to 6 March 2021 GBPm GBPm GBPm
--------------------------------------------- --------- ---------- ---------
Segment revenue
Retail sales to external customers 28,617 - 28,617
Financial Services to external customers - 431 431
Revenue 28,617 431 29,048
--------------------------------------------- --------- ---------- ---------
Underlying operating profit/(loss) 730 (21) 709
Underlying finance income 3 - 3
Underlying finance costs (356) - (356)
Underlying share of post tax profit from
joint ventures and associates - - -
Underlying profit/(loss) before tax 377 (21) 356
Non-underlying expense (note 4) (617)
Loss before tax (261)
Income tax expense (note 8) (19)
Loss for the financial period (280)
--------------------------------------------- --------- ----------
Assets 17,637 7,520 25,157
Investment in joint ventures and associates 5 - 5
Segment assets 17,642 7,520 25,162
Segment liabilities (11,940) (6,618) (18,558)
--------------------------------------------- --------- ----------
Other segment items
Additions to non-current assets
Property, plant and equipment 419 - 419
Intangible assets 145 27 172
Right-of-use assets 542 - 542
Depreciation expense(1)
Property, plant and equipment 627 2 629
Right-of-use assets 483 1 484
Amortisation expense(2)
Intangible assets 116 20 136
Impairment charges 216 105 321
Restructuring charges 322 - 322
Share based payments 26 3 29
--------------------------------------------- --------- ---------- ---------
(1) Depreciation within the Retail segment includes a GBP(4)
million reduction in relation to the unwind of fair value
adjustments recognised on acquisition of HRG.
(2) Amortisation expense within the Retail segment includes
GBP24 million charge in relation to the unwind of fair value
adjustments recognised on acquisition of HRG and Nectar UK.
5 Segment reporting continued
Financial
Retail Services Group
52 weeks to 7 March 2020 GBPm GBPm GBPm
--------------------------------------------- --------- ---------- ---------
Segment revenue
Retail sales to external customers 28,424 - 28,424
Financial Services to external customers - 569 569
---------------------------------------------- --------- ---------- ---------
Underlying revenue 28,424 569 28,993
---------------------------------------------- --------- ---------- ---------
Revenue 28,424 569 28,993
---------------------------------------------- --------- ---------- ---------
Underlying operating profit 938 48 986
Underlying finance income 4 - 4
Underlying finance costs (404) - (404)
Underlying share of post-tax profit from
joint ventures and associates - - -
--------------------------------------------- --------- ---------- ---------
Underlying profit before tax 538 48 586
Non-underlying expense (note 4) (331)
---------------------------------------------- --------- ---------- ---------
Profit before tax 255
Income tax expense (note 8) (103)
---------------------------------------------- --------- ---------- ---------
Profit for the financial period 152
---------------------------------------------- --------- ---------- ---------
Assets 18,463 9,465 27,928
Investment in joint ventures and associates 9 - 9
---------------------------------------------- --------- ---------- ---------
Segment assets 18,472 9,465 27,937
---------------------------------------------- --------- ---------- ---------
Segment liabilities (11,738) (8,426) (20,164)
---------------------------------------------- --------- ---------- ---------
Other segment items
Additions to non-current assets
Property, plant and equipment 527 1 528
Intangible assets 88 36 124
Right-of-use assets 406 - 406
Depreciation expense(1)
Property, plant and equipment 627 7 634
Right-of-use assets 492 1 493
Amortisation expense(2)
Intangible assets 106 23 129
Impairment charges 257 6 263
Restructuring charges 44 - 44
Share based payments 34 3 37
---------------------------------------------- --------- ---------- ---------
(1) Depreciation within the Retail segment includes a GBP2
million charge in relation to the unwind of fair value adjustments
recognised on acquisition of HRG and Nectar UK.
(2) Amortisation expense within the Retail segment includes
GBP26 million charge in relation to the unwind of fair value
adjustments recognised on acquisition of HRG and Nectar UK.
Geographical segments
The Group trades predominantly in the UK and the Republic of
Ireland and consequently the majority of revenues, capital
expenditure and segment net assets arise there. The profits,
turnover and assets of the businesses in the Republic of Ireland
are not material to the Group.
5 Segment reporting continued
Cash flow
52 weeks to 6 March 2021 52 weeks to 7 March 2020
APM Retail Financial Services Group Retail Financial Services Group
reference
GBPm GBPm GBPm GBPm GBPm GBPm
(Loss)/Profit before tax (114) (147) (261) 235 20 255
---------------------------------- --------------------- --------------------- --------------------- --------------------- --------------------- ---------------------
Net finance costs 321 - 321 363 3 366
Share of post-tax loss from joint
ventures and associates - - - 29 - 29
---------------------
Operating profit 207 (147) 60 627 23 650
Adjustments for:
Depreciation and amortisation
expense 1,226 23 1,249 1,225 31 1,256
Net impairment charge on
property, plant and equipment,
right-of-use assets and
intangible
assets 216 105 321 257 6 263
Non-cash adjustments arising from
acquisitions (1) - (1) (2) - (2)
Financial Services impairment
losses on loans and advances - 85 85 - 80 80
(Profit)/loss on sale of
properties and early termination
of leases (19) 2 (17) (56) - (56)
Share-based payments expense 26 3 29 34 3 37
Non-cash defined benefit scheme
expenses 13 - 13 9 - 9
Cash contributions to defined
benefit scheme (101) - (101) (52) - (52)
Operating cash flows before
changes in working capital 1,567 71 1,638 2,042 143 2,185
Movements in working capital 708 439 1,147 (71) (248) (319)
Cash generated from operations 2,275 510 2,785 1,971 (105) 1,866
Interest paid a (349) - (349) (384) - (384)
Corporation tax (paid)/received (94) 1 (93) (113) 3 (110)
Net cash generated/(used) from
operating activities 1,832 511 2,343 1,474 (102) 1,372
---------------------------------- --------------------- --------------------- --------------------- --------------------- --------------------- ---------------------
Cash flows from
investing activities
Purchase of property, plant and
equipment (423) - (423) (517) (2) (519)
Initial direct costs on new
leases (7) - (7) (13) - (13)
Purchase of intangible assets (145) (27) (172) (82) (38) (120)
Proceeds from disposal of
property, plant and equipment 27 - 27 81 - 81
Interest received a - - - 2 - 2
Dividends and
distributions
received e 22 - 22 143 - 143
Net cash used in investing
activities (526) (27) (553) (386) (40) (426)
---------------------------------- --------------------- --------------------- --------------------- --------------------- --------------------- ---------------------
Cash flows from
financing activities
Proceeds from
issuance of
ordinary shares d 17 - 17 15 - 15
Proceeds from
borrowings c - - - 250 - 250
Proceeds from short
term borrowings c 660 - 660 - - -
Repayment of
borrowings c (289) - (289) (169) - (169)
Repayment of short
term borrowings c (660) - (660) - - -
Repayment upon
maturity of
convertible bonds c - - - (450) - (450)
Repayment of
perpetual capital
securities c (250) - (250) - - -
Purchase of own
shares d (30) - (30) (18) - (18)
Repayment of capital
element of
obligations under
lease liabilities b (499) (2) (501) (419) (1) (420)
Repayment of capital
element of
obligations under
hire purchase
agreements c - - - (10) - (10)
Dividends paid on ordinary shares (232) - (232) (247) - (247)
Dividends paid on
perpetual
securities a (23) - (23) (23) - (23)
Net cash used in financing
activities (1,306) (2) (1,308) (1,071) (1) (1,072)
---------------------------------- --------------------- --------------------- --------------------- --------------------- --------------------- ---------------------
Bank capital injections - - - (35) 35 -
Net cash (used in)/generated from
intra group funding - - - (35) 35 -
---------------------------------- --------------------- --------------------- --------------------- --------------------- --------------------- ---------------------
Net increase/(decrease) in cash
and cash equivalents - 482 482 (18) (108) (126)
---------------------------------- --------------------- --------------------- --------------------- --------------------- --------------------- ---------------------
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.
Income is recognised when earned by the Group when all
obligations per the terms of the contract have been performed. Any
supplier arrangements which are linked to inventory purchases are
included within the cost of the related inventory, and therefore
recognised within cost of sales once the inventory is sold. Unpaid
amounts relating to supplier arrangements are recognised within
trade and other receivables, unless there is a legal right of
offset, in which case it is recognised within trade and other
payables.
The types of supplier arrangements applicable to the Group are
as follows:
- Discounts and supplier incentives - these represent the
majority of all supplier arrangements and are linked to individual
unit sales. The incentive is typically based on an agreed sum per
item sold on promotion for a period and therefore is considered
part of the purchase price of that product.
- Fixed amounts - these are agreed with suppliers primarily to
support in-store activity including promotions, such as utilising
specific space. Income is recognised as the obligations per the
terms of the agreement have been satisfied. These involve a degree
of judgement and estimation in ensuring the appropriate cut-off for
fixed amounts which span a period-end, however the agreements are
sufficiently detailed which significantly reduces the degree of
estimation required to be applied.
- Volume-based 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 and requires
estimates of the amount earned up to the balance sheet date, for
each relevant supplier contract. Where agreements span a financial
period-end, estimations are required of projected turnover and
judgement may also need to be applied to determine the rebate level
earned as agreements may involve multiple tiers. In order to
minimise any risk arising from estimation, agreements from
suppliers are obtained to agree the value to be recognised at
year-end, prior to it being invoiced. By aligning the agreements to
the Group's financial year, where possible, the estimates required
are minimised.
- Marketing and advertising income - relates to income which is
directly linked to the cost of producing the Argos catalogue as
well as advertising income from suppliers through the Group's
subsidiary Nectar 360 Services LLP. During the year it was
announced that production of the Argos catalogue would cease.
Income relating to the Argos catalogue is recognised once agreed
with the supplier and when the catalogue is made available to the
Group. Advertising income relating to Nectar 360 Services LLP is
recognised when the advertising campaign obligations are
fulfilled.
Amounts recognised in the income statement during the year for
fixed amounts, volume-based rebates and marketing and advertising
income are shown below. Discounts and supplier incentives are not
shown as they are deemed to be part of the cost price of
inventory.
52 weeks 52 weeks
to 6 March to 7 March
2021 2020
GBPm GBPm
---------------------------------- ------------ -------------------
Fixed amounts 236 278
Supplier rebates 55 68
Marketing and advertising income 83 105
Total supplier arrangements 374 451
----------------------------------- ------------ -------------------
6 Supplier arrangements continued
Of the above amounts, the following was outstanding and held on
the balance sheet at the period-end:
52 weeks 52 weeks
to 6 March to 7 March
2021 2020
GBPm GBPm
---------------------------------- ------------ --------------------
Within inventory (5) (7)
Within current trade receivables
Supplier arrangements due 49 44
Accrued supplier arrangements 37 38
Within current trade payables
Supplier arrangements due 32 12
Accrued supplier arrangements 5 -
Deferred income due (2) (2)
Total supplier arrangements 116 85
----------------------------------- ------------ --------------------
7 Finance income and finance costs
2021 2020
Underlying Non-Underlying Total Underlying Non-Underlying Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- ----------- --------------- ------ ----------- --------------- ------
Interest on bank deposits and
other financial assets 1 - 1 2 - 2
Fair value measurements - 10 10 - - -
IAS 19 pension financing income - 19 19 - 28 28
Finance income on net investment
in leases 2 - 2 2 - 2
Finance Income 3 29 32 4 28 32
Secured borrowings (49) - (49) (50) - (50)
Unsecured borrowings (1) - (1) (12) - (12)
Lease liabilities (295) (10) (305) (323) (9) (332)
Provisions - amortisation of
discount (1) (1) (2) - - -
Fair value measurements - - - - (8) (8)
Interest capitalised - qualifying
assets 4 - 4 4 - 4
Perpetual securities coupon (14) 14 - (23) 23 -
Finance costs (356) 3 (353) (404) 6 (398)
----------------------------------- ----------- --------------- ------ ----------- --------------- ------
Interest paid and interest received for the purpose of the cash
flow statement relates to retail only, with Financial Services
interest paid and interest received included in the net operating
cash flow.
The coupons on the perpetual capital securities and perpetual
convertible bonds are accounted for as dividends in accordance with
IAS 32 'Financial Instruments: Presentation' and hence are not a
finance cost. These are included as a finance cost in the
presentation of underlying results, but do not qualify as a finance
cost for IFRS statutory purposes.
Fair value remeasurements relate to net fair value movements on
derivative financial instruments not designated in a hedging
relationship.
8 Taxation
52 weeks to 52 weeks to
6 March 2021 7 March 2020
GBPm GBPm
--------------------------------------------------- -------------- --------------
Current year UK tax 16 96
Current year overseas tax 6 5
Over-provision in prior years (12) (13)
Total current tax expense 10 88
Origination and reversal of temporary differences (46) (2)
Under provision in prior years 27 17
Derecognition of capital losses 28 -
Total deferred tax expense 9 15
Total income tax expense in income statement 19 103
--------------------------------------------------- -------------- --------------
Analysed as:
Underlying tax 105 149
Non-underlying tax (86) (46)
Total income tax expense in income statement 19 103
--------------------------------------------------- -------------- --------------
Underlying tax rate 29.5% 25.4%
Effective tax rate (7.3)% 40.4%
--------------------------------------------------- -------------- --------------
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 Trusts, which are treated as
cancelled.
For diluted earnings per share, the earnings attributable to the
ordinary shareholders are adjusted by the coupons on the perpetual
subordinated convertible bonds (and also interest on the senior
convertible bonds (net of tax) in the prior year). 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 4. This
alternative measure of earnings per share is presented to reflect
the Group's underlying trading performance. All operations are
continuing for the periods presented.
2021 2020
million million
----------------------------------------------------------------- ----------- -----------
Weighted average number of shares in issue(1) 2,210.0 2,207.6
Weighted average number of dilutive share options(1) 21.7 24.1
Weighted average number of dilutive senior convertible
bonds(1) - 153.7
Weighted average number of dilutive subordinated perpetual
convertible bonds(1) 88.4 84.6
Total number of shares for calculating diluted earnings
per share 2,320.1 2,470.0
----------------------------------------------------------------- ----------- -----------
GBPm GBPm
----------------------------------------------------------------- ----------- -----------
(Loss)/profit for the financial period (net of tax) (280) 152
Less profit attributable to:
Holders of perpetual capital securities - (16)
Holders of perpetual convertible bonds (7) (7)
(Loss)/profit for the financial period attributable
to ordinary shareholders (287) 129
----------------------------------------------------------------- ----------- -----------
(Loss)/profit for the financial period attributable
to ordinary shareholders (287) 129
Add interest on senior convertible bonds (net of tax)(1) - 9
Add coupon on subordinated perpetual convertible bonds
(net of tax)(1) - 6
Diluted (loss)/earnings for calculating diluted (loss)/earnings
per share (287) 144
----------------------------------------------------------------- ----------- -----------
(Loss)/profit for the financial period attributable
to ordinary shareholders of the parent (287) 129
Adjusted for non-underlying items (note 4) 617 331
Tax on non-underlying items (86) (46)
Add back coupons on perpetual securities (net of tax)(2) 14 23
Underlying profit after tax attributable to ordinary
shareholders of the parent 258 437
Add interest on convertible bonds (net of tax) - 9
Add coupon on subordinated perpetual convertible bonds
(net of tax) 6 6
Diluted underlying profit after tax attributable to
ordinary shareholders of the parent 264 452
----------------------------------------------------------------- ----------- -----------
Pence Pence
per share per share
----------------------------------------------------------------- ----------- -----------
Basic (loss)/earnings (13.0) 5.8
Diluted (loss)/earnings (13.0) 5.8
Underlying basic earnings 11.7 19.8
Underlying diluted earnings 11.4 18.3
----------------------------------------------------------------- ----------- -----------
1 In accordance with IAS 33, 'Earnings per share', dilutive
share options and their respective earnings adjustments are
excluded from the calculation of diluted
earnings per share when the impact is anti-dilutive.
2 Underlying earnings per share calculation is based on
underlying profit after tax attributable to ordinary shareholders.
Therefore the perpetual securities coupons are added back.
10 Dividends
2021 2020 2021 2020
pence pence
per share per share GBPm GBPm
------------------------------------------------- ----------- ----------- ----- -----
Amounts recognised as distributions to ordinary
shareholders in the year:
Final dividend of prior financial year - 7.9 - 174
Interim dividend of current financial year 3.2 3.3 71 73
Special Dividend 7.3 - 161 -
10.5 11.2 232 247
------------------------------------------------- ----------- ----------- ----- -----
On 27 April 2021, after the balance sheet date, a final dividend
of 7.4 pence per share was proposed by the Directors in respect of
the 52 weeks to 6 March 2021. This results in a total final
proposed dividend of GBP164 million.
In the prior year, no final dividend was proposed. Given the
wide range of potential profit and cash flow outcomes of COVID-19
at the time, the Board believed it was prudent to defer any
dividend payment decisions until later in the financial year.
Accordingly, a special dividend of 7.3 pence per share (GBP161
million) was paid on 18 December 2020 along with the interim
dividend.
Subject to shareholders' approval at the Annual General Meeting,
the dividend will be paid on 16 July 2021 to the shareholders on
the register at 11 June 2021. The proposed final dividend has not
been included as a liability at 6 March 2021.
11 Property, plant and equipment
Land and Fixtures
buildings and equipment Total
GBPm GBPm GBPm
------------------------------------------ ----------- --------------- -------
Cost
At 8 March 2020 9,712 5,303 15,015
Adjustment to opening balance 3 22 25
Reclassification between intangibles and
PPE 1 37 38
------------------------------------------
At 8 March 2020 restated (refer below) 9,716 5,362 15,078
Additions 89 330 419
Disposals (59) (404) (463)
Transfer to asset held for sale (91) - (91)
At 6 March 2021 9,655 5,288 14,943
------------------------------------------ ----------- --------------- -------
Accumulated depreciation and impairment
At 8 March 2020 2,690 3,414 6,104
Adjustment to opening balance 3 22 25
At 8 March 2020 restated (refer below) 2,693 3,436 6,129
Depreciation expense for the year 173 456 629
Impairment loss for the year 26 62 88
Disposals (32) (391) (423)
Transfer to asset held for sale (67) - (67)
At 6 March 2021 2,793 3,563 6,356
------------------------------------------ ----------- --------------- -------
Net book value at 6 March 2021 6,862 1,725 8,587
------------------------------------------ ----------- --------------- -------
Capital work-in-progress included above 122 320 442
------------------------------------------ ----------- --------------- -------
Cost
At 10 March 2019 9,917 5,111 15,028
Additions 31 497 528
Disposals (245) (305) (550)
Transfer from asset held for sale 9 - 9
At 7 March 2020 9,712 5,303 15,015
------------------------------------------ ----------- --------------- -------
Accumulated depreciation and impairment
At 10 March 2019 2,644 3,191 5,835
Depreciation expense for the year 184 450 634
Impairment loss for the year 123 37 160
Disposals (269) (264) (533)
Transfer from asset held for sale 8 - 8
At 7 March 2020 2,690 3,414 6,104
------------------------------------------ ----------- --------------- -------
Net book value at 7 March 2020 7,022 1,889 8,911
------------------------------------------ ----------- --------------- -------
Capital work-in-progress included above 141 295 436
------------------------------------------ ----------- --------------- -------
The prior year cost and accumulated depreciation have been
restated, with no impact on the reported net book value of
property, plant & equipment. An adjustment had been erroneously
recorded against assets that had been disposed of across a number
of different reporting periods.
Refer to note 13 for details on the reclassifications between
property, plant & equipment and intangible assets.
12 Leases
Group as lessee
The Group's lease portfolio is principally comprised of property
leases of land and buildings in relation to stores, distribution
centres and support offices, but also includes other assets such as
motor vehicles . The leases have varying terms and often include
break clauses or options to renew beyond the non-cancellable
periods.
Set out below are the carrying amounts of right-of-use assets
recognised and the movements during the period.
Land and
Net book value buildings Equipment Total
GBPm GBPm GBPm
------------------------------ ----------- ---------- ------
At 8 March 2020 4,536 290 4,826
New leases and modifications 413 129 542
Depreciation charge (398) (86) (484)
Impairment charge (137) - (137)
At 6 March 2021 4,414 333 4,747
------------------------------ ----------- ---------- ------
At 10 March 2019 4,747 246 4,993
------------------------------ ----------- ---------- ------
New leases and modifications 285 121 406
Depreciation charge (416) (77) (493)
Impairment charge (80) - (80)
At 7 March 2020 4,536 290 4,826
------------------------------ ----------- ---------- ------
Refer to note 14 for further details over the impairment charge
recognised.
Set out below are the carrying amounts of lease liabilities and
the movements during the period:
Lease Liability
2021 2020
GBPm GBPm
----------------------------------- ------ ------
At 8 March 2020 and 10 March 2019 5,774 5,831
New leases and modifications(1) 561 373
Interest expense 305 332
Payments (806) (762)
At 6 March 2021 and 7 March 2020 5,834 5,774
----------------------------------- ------ ------
Current 524 510
Non-current 5,310 5,264
----------------------------------- ------ ------
1. Refer significant judgement section below
Significant judgement - lease terms
The inclusion of a lease extension period or lease break period
in the lease term is a key judgement for the Group and considers
all relevant factors that create an economic incentive for it to
exercise them. For leased properties, this includes the current and
expected profitability of the respective site, as well as the
length of time until the option can be exercised. Any changes to
the Group's judgement over lease terms will impact both the right
of use asset and lease liability.
The accelerated structural integration of Sainsbury's and Argos
which commenced in the prior year has led to changes in the IFRS 16
right of use asset and lease liability balances.
12 Leases continued
The judgements applied in the exercising of lease breaks have
changed. The store rationalisation programme is deemed a change in
circumstances within the control of the Group and means that lease
breaks will be exercised, whereas the judgement applied to these
leases on transition to IFRS 16 in 2020 was that the break would
not be exercised. The Group has also revisited its assumptions
about the way that lease breaks will be exercised across the
portfolio and made it more specific for each part of the store
estate. This acts to decrease the lease liability and right of use
asset by circa GBP200 million. With hindsight, the trigger for the
recognition of this modification was the Capital Markets Day in
September 2019 as this is the point at which the Group's first
stage of store rationalisation was announced.
In conjunction with store rationalisation, the Group has been
actively pursuing lease extension opportunities across
well-performing supermarket sites. This ensures key stores remain
in the portfolio as the Group seeks to open more Argos
store-in-stores, as well as increasing its online capacity through
its in-store picking model. The extensions act to increase the
lease liability and right-of-use asset as a result of committing to
future additional rental payments, as well as reflecting updated
discount rates which are typically lower than those previously
used. Certain extensions agreed in the prior year were not
reflected in lease modifications in the prior year. This acts to
increase the lease liability and right of use asset by circa
GBP415m.
The net impact of these items is an increase to lease liability
and right of use assets of circa GBP215m. The impact of the
adjustments, both quantitatively and qualitatively, was considered
in detail, and it was concluded that they were not sufficiently
material to warrant a restatement of the prior year accounts. The
adjustments are predominantly balance sheet in nature, with none of
them impacting KPIs or financial covenants, and the impact on the
2020 income statement is less than GBP2 million. The adjustments
have therefore been reported within the GBP561 million new leases
and modifications in the current period.
13 Intangible assets
Computer Acquired Customer
Goodwill software brands relationships Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------------- --------- ---------- --------- --------------- -----------
Cost
At 8 March 2020 400 494 231 32 1,157
Adjustment to opening balance - 293 - - 293
Reclassification between intangibles
and PPE - (38) - - (38)
--------------------------------------
At 8 March 2020 restated (refer
below) 400 749 231 32 1,412
Additions - 172 - - 172
Disposals (6) (22) (2) - (30)
At 6 March 2021 394 899 229 32 1,554
-------------------------------------- --------- ---------- --------- --------------- -----------
Accumulated amortisation and
impairment
At 8 March 2020 22 (12) 109 26 145
Adjustment to opening balance - 293 - - 293
--------------------------------------
At 8 March 2020 restated (refer
below) 22 281 109 26 438
Amortisation expense for the
year - 114 20 2 136
Impairment loss for the year 12 84 - - 96
Disposals (6) (22) (2) - (30)
At 6 March 2021 28 457 127 28 640
-------------------------------------- --------- ---------- --------- --------------- -----------
Net book value at 6 March 2021 366 442 102 4 914
-------------------------------------- --------- ---------- --------- --------------- -----------
Cost
At 10 March 2019 400 617 231 32 1,280
Additions - 124 - - 124
Disposals - (247) - - (247)
At 7 March 2020 400 494 231 32 1,157
-------------------------------------- --------- ---------- --------- --------------- -----------
Accumulated amortisation and
impairment
At 10 March 2019 4 122 89 22 237
Amortisation expense for the
year - 105 20 4 129
Impairment loss for the year 18 5 - - 23
Disposals - (244) - - (244)
At 7 March 2020 22 (12) 109 26 145
-------------------------------------- --------- ---------- --------- --------------- -----------
Net book value at 7 March 2020 378 506 122 6 1,012
-------------------------------------- --------- ---------- --------- --------------- -----------
Goodwill balances are detailed in note 14.
The prior year cost and accumulated amortisation have been
restated, with no impact on the reported net book value of
intangible assets. An adjustment had been erroneously recorded
against assets that had been disposed of across a number of
different reporting periods.
The reclassifications between intangible assets and property,
plant & equipment relate to work in progress originally
capitalised into intangibles that should have been recognised
within property, plant & equipment. The prior year balance
sheet has been restated to reflect this.
14 Impairment of non-financial assets
Goodwill
Goodwill is not subject to amortisation but is tested for
impairment annually or whenever there is an indication that the
asset may be impaired.
For the purposes of impairment testing, goodwill is allocated to
the Cash Generating Unit (CGU) or group of CGUs within the Retail
or Financial Services segments. The carrying value of the CGU
containing the goodwill is compared to the recoverable amount,
which is the higher of value in use and the fair value less costs
to dispose. If the recoverable amount of the cash-generating unit
is less than the carrying amount of the unit, the impairment loss
is allocated first to reduce the carrying amount of any goodwill
allocated to the CGU and then to the other assets of the unit
pro-rata on the basis of the carrying amount of each asset in the
unit. Impairment losses recognised for goodwill are not
subsequently reversed.
Property, plant and equipment, right-of-use assets, and finite
lived intangible assets
At each reporting date, the Group reviews the carrying amounts
of its property, plant and equipment (PPE), right-of-use assets,
and finite-lived intangible assets to determine whether there is
any indication that those assets have suffered an impairment loss.
If any such indication exists, the recoverable amount of the asset,
being the higher of its fair value less costs to dispose and its
value in use, is estimated in order to determine the extent of the
impairment loss. Where it is not possible to estimate the
recoverable amount of an individual asset, the Group estimates the
recoverable amount of the cash-generating unit to which the asset
belongs.
If the recoverable amount of an asset or cash-generating unit is
estimated to be less than its carrying amount, the carrying amount
of the asset or cash-generating unit is reduced to its recoverable
amount and an impairment loss is recognised immediately in the
income statement.
Where there has been a change in the estimates used to determine
the recoverable amount and an impairment loss subsequently
reverses, the carrying amount of the asset or cash-generating unit
is increased to the revised estimate of its recoverable amount, not
to exceed the carrying amount that would have been determined had
no impairment loss been recognised for the asset or cash-generating
unit in prior years. An impairment loss reversal is recognised
immediately in the income statement.
Identification of cash generating units
Retail
Cash generating units are deemed to be each trading store, store
pipeline development site or in certain cases for Argos, a cluster
of stores (see further details below).
PPE, intangible assets and right-of-use assets are allocated to
the store CGU they are associated with. For leased assets, the CGU
also includes corresponding lease liabilities as management has
concluded that lease liabilities need to be considered when
determining the recoverable amount of the CGU. For non-store
assets, including depots and IT assets, these are allocated to a
group of CGUs (i.e. the Sainsbury's or Argos store CGUs that they
support).
Goodwill recognised on acquisition of retail chains of stores
(Bells and Jacksons) is allocated to its respective store CGUs.
Goodwill arising on the purchase of Home Retail Group is allocated
to the Argos group of store and non-store CGUs. Nectar is a
separate CGU.
Change in Argos CGUs
Previously, Argos stores were clustered together and tested as
CGUs comprising a hub store (that holds and distributes inventory)
and spoke stores (that hold smaller amounts of inventory). Argos
clusters related to its multi-channel network that enabled
customers to source the most convenient pick-up point for a product
from a number of local stores, thus it was reasonable to consider
these group of stores as one overall CGU.
14 Impairment of non-financial assets continued
However, as a result of the Group's restructuring programme as
detailed in note 4, the Argos operating model has been re-assessed,
resulting in a reduction in Argos standalone stores and
optimisation of the Group's logistics network which will enable
stores to be supported by a smaller number of fulfilment centres
(non-store assets). As such, spoke stores are now deemed to be
their own individual CGU. The clustering approach is now only
deemed appropriate for hub stores which will hold and transfer
inventory to spokes as required, and therefore only hub stores are
clustered with the store CGUs they support.
Financial Services
Cash generating units are deemed to be each respective product
or product group that is capable of generating cash flows
independent of other products. Non-product assets are reviewed
separately as collective CGUs with the products that they
support.
Goodwill arising on the purchase of Sainsbury's Bank plc is
allocated to the Financial Services collective CGUs.
Identification of a triggering event
The COVID-19 pandemic had resulted in changes to customer
shopping habits, patterns and sources of finance. This led to an
acceleration of the Group's structural integration of Sainsbury's
and Argos during the period and through this, a review of the
economic performance of the Group's assets has been performed as a
result of store rationalisation, changes in channel mix, and
changes in customer borrowing and cash usage behaviour. This was
deemed an indicator of impairment and a full impairment review was
therefore performed as at the interim reporting date of September
2020, covering both Retail and Financial Services non-financial
assets.
Approach and assumptions
The recoverable amounts for CGUs have been determined using
value in use calculations which are based on the cash flows
expected to be generated, derived from the latest budget and
forecast data which are reviewed by the Board. Budget and forecast
data reflect both past experience and future expectation of market
conditions. Where lease liabilities are included within the CGU, a
corresponding deduction is also made to the value in use
calculation. The key assumptions in the value in use calculation
are as follows:
Assumption Retail segment Financial Services segment
Cash flow
years / * Derived from Board approved cash flow projections for * Derived from Board approved cash flow projections for
assumptions five years and then extrapolated for a further 20 five years and then extrapolated over the remaining
years for supermarkets and 10 years for convenience useful lives of the assets being tested for
stores with no assumed growth rate, representing the impairment with no assumed growth rate.
typical time between refits.
* Where lease terms are shorter than this, the
remaining lease term has been used.
* In the case of properties identified for closure,
cash flows years relate to the remaining period that
the store will trade for.
* Online grocery sales are fulfilled by individual
stores and therefore these cash flows are allocated
to the individual store CGUs which fulfil the online
sales.
----------------------------------------------------------------- -----------------------------------------------------------------
Terminal
value * For owned sites and long leasehold sites, a terminal * No terminal value is applied within the Financial
value is included in the final cash flow year, Services segment, as cashflows are limited to the
representing the net cash flows expected to be period of the remaining useful lives of the assets
received for the disposal of the assets at the end of being tested for impairment.
their useful life.
* It is calculated using an assumed market rent for the
stores, with an investment yield based on similar
properties in the area.
----------------------------------------------------------------- -----------------------------------------------------------------
Discount
rate * A post-tax discount rate representing the Retail * A post-tax discount rate representing the Financial
segment's weighted average cost of capital (WACC), Services segment's weighted average cost of capital
subsequently grossed up to a pre-tax rate of 8 per (WACC), subsequently grossed up to a pre-tax rate of
cent (2020: pre-tax rate of 9 per cent). 13 per cent.
* The post-tax WACC been calculated using the capital * The post-tax WACC has been calculated using a
asset pricing model, the inputs of which include a combination of adjusted market analysis and the
risk-free rate for the UK, a UK equity risk premium, actual cost of debt on Tier 2 capital instruments.
levered debt premium and a risk adjustment using a 10
year average beta for the Group.
* This discount rate is applied consistently to all
individual product CGUs and the collective CGUs which
* This discount rate is applied consistently to all support the products.
individual store CGUs and the group of CGUs supported
by Sainsbury's or Argos stores.
----------------------------------------------------------------- -----------------------------------------------------------------
For store pipeline development sites, where there are plans to
develop the store, the carrying value of the asset is compared with
its value in use using a methodology consistent with the store CGU
approach described above. Future cash flows include the estimated
costs to completion. For sites where there is no plan to develop a
store, the recoverable amount is based on its fair value less costs
to dispose.
Year-end updates to impairment testing
At the year-end, the Group assessed whether there were further
impairment indicators that would require additional impairments
over and above those recognised at the interim date.
Following the UK's exit from the European Union, trade flows
have proved more difficult in the Group's Northern Ireland stores.
As a result additional costs were included in the short-term
forecasts to cover alternative sourcing of products which cannot be
delivered to Northern Ireland, additional logistics costs and
increased labelling / administration costs. Additional impairments
recognised as a result of this were not significant, and are
included within the overall impairment charges analysed below.
No further impairment indicators were noted.
14 Impairment of non-financial assets continued
Outputs and sensitivities
Impairment charges recognised in the Retail segment relate to
both sites identified for closure as part of the restructuring
programme, as well as other impairments on stores that will
continue to trade, but for which the cash flows no longer support
the carrying amount of assets. Impairment charges recognised in the
Financial Services segment relate to forecast cashflows reflecting
uncertain macro-economic environment and changes to customer
behaviour no longer supporting the carrying amount of underlying IT
systems and ATM assets. The overall charges are as follows:
Restructuring
programme Other impairments Total
GBPm GBPm GBPm
----------------------------------- -------------- ------------------ --------
Impairment of property, plant and
equipment 26 62 88
Impairment of leased assets 72 65 137
Impairment of intangible assets 3 93 96
101 220 321
-------------- ------------------ --------
Of the total impairment charge of GBP(321) million, GBP(216)
million is in relation to assets within the Retail segment, with
the remaining GBP(105) million within the Financial Services
segment.
Of the above assumptions, the value-in-use calculations are most
sensitive to changes in the discount rate, cash flows and rental
yield (inputs underpinning the terminal value for Retail stores).
The tables below set out the key sensitivities performed on the
value-in-use models. The sensitivity analysis performed considers
the reasonable possible changes in these assumptions, which
incorporates increased uncertainty caused by the COVID-19 pandemic.
The impact of changing one sensitivity does not have a
consequential impact on other sensitivities.
Retail segment
Sensitivity area Sensitivity Increase / (decrease) in
impairment
GBPm
---------------------------------- ------------- -------------------------
Increase of
Discount rate 1% 15
----------------------------------
Decrease of
1% (3)
------------------------------------------------ -------------------------
Increase of
Cash flows 5% (3)
----------------------------------
Decrease of
5% 6
------------------------------------------------ -------------------------
Rental yield (input for terminal Increase of
values) 1% 2
----------------------------------
Decrease of
1% (3)
------------------------------------------------ -------------------------
Financial Services segment
Sensitivity area Sensitivity Increase / (decrease) in
impairment
GBPm
------------------ ------------- -------------------------
Increase of
Discount rate 1% 10
------------------
Decrease of
1% (10)
-------------------------------- -------------------------
Increase of
Cash flows 5% (18)
------------------
Decrease of
5% 18
-------------------------------- -------------------------
14 Impairment of non-financial assets continued
Goodwill
Goodwill was separately tested at the year-end as required under
IAS 36. Goodwill comprises the following:
2021 2020
GBPm GBPm
------------------------- ----- -----
Jacksons Stores Limited 28 38
Home Retail Group 119 119
Sainsbury's Bank plc 45 45
Nectar 147 147
Bells Stores Limited 9 12
Other 18 18
366 378
------------------------- ----- -----
Jacksons Stores Limited and Bells Stores Limited goodwill
balances are allocated to individual store CGUs to which they
relate, within the Retail segment detailed above. Home Retail Group
goodwill is allocated to the collective Argos store and non-store
CGUs. Sainsbury's Bank plc goodwill is allocated to the Financial
Services collective CGUs, as noted above. Nectar is a separate
CGU.
Goodwill impairments of GBP10 million were recognised in the
year as part of the interim impairment review, detailed above. This
impairment was in relation to the store CGUs to which Jacksons
Stores Limited and Bells Stores Limited goodwill amounts are
allocated to. There was no impairment identified at the collective
CGU level for Argos nor Financial Services, thus there was nil
impairment in the Home Retail Group or Sainsbury's Bank plc
goodwill amounts. No impairments were recognised to Nectar
goodwill.
As required by IAS 36, all goodwill balances were tested
separately at the year-end balance sheet date. This was performed
consistently with the methodology described above. This resulted in
further impairments in goodwill of GBP2 million, in relation to the
store CGUs to which Jacksons Stores Limited goodwill amounts are
allocated to.
Sensitivity analysis on the impairment tests for each group of
cash-generating units to which goodwill has been allocated has been
performed. The valuations indicate sufficient headroom such that a
reasonably possible change to key assumptions would not result in
any impairment of goodwill. While goodwill impairments of GBP2
million were noted on certain store CGUs to which Jacksons Stores
Limited goodwill amounts are allocated to, any reasonable possible
changes in assumptions would not lead to changes in this impairment
amount of more or less than GBP1 million.
The headroom disclosed below for goodwill in Jacksons Stores
Limited and Bells Stores Limited relates to all store CGUs to which
these goodwill amounts are allocated. Overall, management are
satisfied that there are no reasonable possible changes to
assumptions that would lead to further impairments in Jacksons
Stores Limited, or impairments in any other goodwill.
14 Impairment of non-financial assets continued
Sensitivities (revised headroom)
------------------------------------------
Discount rate Cash flows
-------------------- --------------------
Decrease Increase Decrease Increase
Carrying amount Headroom of 1% of 1% of 5% of 5%
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ---------------- --------- --------- --------- --------- ---------
Jacksons Stores Limited 28 58 63 54 53 63
Home Retail Group 119 1,198 1,537 938 1,095 1,301
Sainsbury's Bank plc 45 232 272 198 210 254
Nectar UK 147 824 988 700 774 874
Bells Stores Limited 9 23 25 22 21 25
Other 18 54 58 49 49 58
------------------------- ---------------- --------- --------- --------- --------- ---------
15 Provisions
Financial
Property Insurance services related Other
provisions provisions Restructuring provisions provisions Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------------ ------------ -------------- ------------------ ------------ ------
At 8 March 2020 61 63 20 37 16 197
Additional provisions 245 33 61 7 32 378
Unused amounts
reversed (5) (2) - (2) - (9)
Utilisation of
provision (18) (27) (27) (16) (10) (98)
Amortisation of
discount 2 - - - - 2
At 6 March 2021 285 67 54 26 38 470
------------ ------------ -------------- ------------------ ------------ ------
Current 82 24 53 21 29 209
Non-current 203 43 1 5 9 261
----------------------- ------------ ------------ -------------- ------------------ ------------ ------
At 10 March 2019 34 71 22 57 20 204
Additional provisions 46 25 22 11 14 118
Unused amounts
reversed (4) (9) - (13) (10) (36)
Utilisation of
provision (15) (24) (24) (18) (8) (89)
At 7 March 2020 61 63 20 37 16 197
----------------------- ------------ ------------ -------------- ------------------ ------------ ------
Current 25 23 20 31 9 108
Non-current 36 40 - 6 7 89
----------------------- ------------ ------------ -------------- ------------------ ------------ ------
16 Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash
equivalents comprise the following:
2021 2020
GBPm GBPm
-------------------------------------------------- ------ -----
Cash in hand and bank balances 227 519
Money market funds and deposits 398 202
Deposits at central banks 852 273
Cash and bank balances as reported in the Group
balance sheet 1,477 994
-------------------------------------------------- ------ -----
Bank overdrafts (1) -
Net cash and cash equivalents as reported in the
Group cash flow statement 1,476 994
-------------------------------------------------- ------ -----
Of the above balance, GBP20 million (2020: GBP21 million) was
restricted as at year-end. Of the GBP20 million (2020: GBP21
million) restricted cash, GBP17 million (2020: GBP18 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 GBP3 million (2020: GBP2
million) is restricted for Insurance purposes.
17 Analysis of net debt
The Group's definition of net debt includes the following:
-- Cash
-- Borrowings and overdrafts
-- Lease liabilities
-- Perpetual securities
-- Financial assets at fair value through other comprehensive income
-- Derivatives
Net debt includes the capital injections to Sainsbury's Bank,
but excludes the net debt of Sainsbury's Bank and its subsidiaries.
Sainsbury's Bank's net debt balances are excluded because they are
part of the daily operating cycle of the Bank rather than for
financing purposes.
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.
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.
17 Analysis of net debt continued
Cash Movements Non-Cash Movements
---------------------------------------- ---------------------------------- --------
7 March Cash flows Net interest Accrued Other Changes 6 March
2020 excluding (received) Interest non-cash in fair 2021
interest / paid movements value
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Retail
Net derivative financial
instruments (15) - 6 (5) 5 (5) (14)
Bank overdrafts - (1) - - - - (1)
Borrowings (excluding
overdrafts) (1,116) 289 38 (37) - - (826)
Lease liabilities (5,768) 499 305 (305) (560) - (5,829)
Arising from financing
activities (6,899) 787 349 (347) (555) (5) (6,670)
Financial assets at
fair value through other
comprehensive income 1 - - - - - 1
Cash and cash equivalents 447 1 - - - - 448
Retail net debt (excluding
perpetual securities) (6,451) 788 349 (347) (555) (5) (6,221)
------------------------------ ----------- ------------- ---------- ----------- --------- --------
Financial Services
Net derivative financial
instruments 4 - - - - (4) -
Bank overdrafts - - - - - - -
Borrowings (excluding
overdrafts) (180) - - - - 1 (179)
Lease liabilities (6) 2 - - (1) - (5)
Arising from financing
activities (182) 2 - - (1) (3) (184)
Financial assets at
fair value through other
comprehensive income 802 (267) - - - 2 537
Cash and cash equivalents 547 482 - - - - 1,029
Financial services net
debt 1,167 217 - - (1) (1) 1,382
------------------------------ ----------- ------------- ---------- ----------- --------- --------
Group
Net derivative financial
instruments (11) - 6 (5) 5 (9) (14)
Bank overdrafts - (1) - - - - (1)
Borrowings (excluding
overdrafts) (1,296) 289 38 (37) - 1 (1,005)
Lease liabilities (5,774) 501 305 (305) (561) - (5,834)
Arising from financing
activities (7,081) 789 349 (347) (556) (8) (6,854)
Financial assets at
fair value through other
comprehensive income 803 (267) - - - 2 538
Cash and cash equivalents 994 483 - - - - 1,477
Group net debt (excluding
perpetual securities) (5,284) 1,005 349 (347) (556) (6) (4,839)
------------------------------ ----------- ------------- ---------- ----------- --------- --------
Retail net debt (excluding
perpetual securities) (6,451) 788 349 (347) (555) (5) (6,221)
Perpetual capital securities (248) 250 - - (2) - -
Perpetual convertible
bonds (248) - - - - - (248)
Retail net debt (including
perpetual securities) (6,947) 1,038 349 (347) (557) (5) (6,469)
------------------------------ ----------- ------------- ---------- ----------- --------- --------
Of which:
------------------------------ -------- ----------- ------------- ---------- ----------- --------- --------
Leases (5,768) (5,829)
Net debt excluding lease
liabilities (1,179) (640)
------------------------------ -------- ----------- ------------- ---------- ----------- --------- --------
Other non-cash movements relate to interest accruals and new
leases.
17 Analysis of net debt continued
Cash Movements Non-Cash Movements
-------------------------------------- --------
Cash
flows Net interest Changes
9 March excluding (received) Accrued Other non-cash in fair 7 March
2019 interest / paid Interest movements value 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBP
---------------------------- -------- ----------- ------------- ---------- --------------- --------- --------
Retail
Net derivative financial
instruments (9) - 4 (5) 5 (10) (15)
Bank overdrafts (1) 1 - - - - -
Borrowings (excluding
overdrafts and finance
leases) (1,483) 369 48 (50) - - (1,116)
Lease liabilities
and hire purchase
arrangements (5,824) 429 332 (332) (373) - (5,768)
---------------------------- -------- ----------- ------------- ---------- --------------- --------- --------
Arising from financing
activities (7,317) 799 384 (387) (368) (10) (6,899)
Financial assets
at fair value through
other comprehensive
income 1 - - - - - 1
Cash and cash equivalents 466 (19) (2) 2 - - 447
Retail net debt (excluding
perpetual securities) (6,850) 780 382 (385) (368) (10) (6,451)
---------------------------- ----------- ------------- ---------- --------------- --------- --------
Financial Services
Net derivative financial
instruments - - - - - 4 4
Bank overdrafts - - - - - - -
Borrowings (excluding
overdrafts and finance
leases) (176) - - - - (4) (180)
Lease liabilities
and hire purchase
arrangement (7) 1 - - - - (6)
Arising from financing
activities (183) 1 - - - - (182)
Financial assets
at fair value through
other comprehensive
income 622 177 - - - 3 802
Cash and cash equivalents 655 (108) - - - - 547
Financial Services
net debt 1,094 70 - - - 3 1,167
---------------------------- ----------- ------------- ---------- --------------- --------- --------
Group
Net derivative financial
instruments (9) - 4 (5) 5 (6) (11)
Bank overdrafts (1) 1 - - - - -
Borrowings (excluding
overdrafts and finance
leases) (1,659) 369 48 (50) - (4) (1,296)
Lease liabilities
and hire purchase
arrangements (5,831) 430 332 (332) (373) - (5,774)
---------------------------- -------- ----------- ------------- ---------- --------------- --------- --------
Arising from financing
activities (7,500) 800 384 (387) (368) (10) (7,081)
Financial assets
at fair value through
other comprehensive
income 623 177 - - - 3 803
Cash and cash equivalents 1,121 (127) (2) 2 - - 994
Group net debt (excluding
perpetual securities) (5,756) 850 382 (385) (368) (7) (5,284)
---------------------------- ----------- ------------- ---------- --------------- --------- --------
Retail net debt (excluding
perpetual securities) (6,850) 780 382 (385) (368) (10) (6,451)
Perpetual capital
securities (248) (248)
Perpetual convertible
bonds (248) (248)
---------------------------- -------- ----------- ------------- ---------- --------------- --------- --------
Retail net debt (including
perpetual securities) (7,346) 780 382 (385) (368) (10) (6,947)
Of which:
-------- ----------- ------------- ---------- --------------- --------- --------
Leases (5,824) (5,768)
Net debt excluding
lease liabilities (1,522) (1,179)
-------- ----------- ------------- ---------- --------------- --------- --------
17 Analysis of net debt continued
Reconciliation of net cash flow to movement in net debt
52 weeks 52 weeks
to to
6 March 7 March
2021 2020
GBPm GBPm
Opening net debt (6,947) (7,346)
Cash flow movements
Net increase/(decrease) in cash and cash
equivalents (including overdrafts) 482 (126)
Elimination of Financial Services movement
in cash and cash equivalents (482) 108
Repayment of perpetual capital securities 250 -
Decrease in Retail borrowings 289 369
Decrease in Retail lease obligations 499 429
Net interest paid on components of Retail
net debt 349 382
Changes in net debt resulting from cash
flow 1,387 1,162
Non-cash movements
Accrued interest (347) (385)
Retail fair value and other non-cash movements (562) (378)
Changes in net debt resulting from non-cash
movements (909) (763)
Movement in net debt 478 399
Closing net debt (6,469) (6,947)
18 Borrowings
2021 2020
Current Non-current Total Current Non-current Total
GBPm GBPm GBPm GBPm GBPm GBPm
Loan due 2031 55 572 627 45 622 667
Bank overdrafts 1 - 1 - - -
Bank loans due 2021 199 - 199 - 199 199
Bank loans due 2024 - - - - 250 250
Sainsbury's Bank Tier 2
Capital due 2023 3 176 179 3 177 180
258 748 1,006 48 1,248 1,296
Available facilities
The Revolving Credit Facility is split into two Facilities, a
GBP300 million Facility (A) and a GBP1,150 million Facility (B).
Facility A has a final maturity of April 2025 and Facility B has a
final maturity of October 2024. At 6 March 2021, the Revolving
Credit Facility was undrawn (2020: undrawn).
The Revolving Credit Facility charges commitment fees at market
rates and drawings bear interest at a margin over LIBOR.
The Group maintains uncommitted facilities to provide additional
capacity to fund short term working capital requirements. Drawings
under uncommitted facilities bear interest at a margin over LIBOR.
The uncommitted facilities were undrawn at 6 March 2021 (2020:
undrawn).
19 Retirement benefit obligations
Background
All retirement benefit obligations are related to the
Sainsbury's Pension Scheme plus three unfunded pension liabilities
relating to former senior employees of Sainsbury's and Home Retail
Group.
On 20 March 2018, the Home Retail Group Pension Scheme was
merged into the Sainsbury's Pension Scheme. The Sainsbury's Pension
Scheme has two sections, the Sainsbury's Section which holds all
the Scheme assets and liabilities relating to members who were in
the original Sainsbury's Pension Scheme, and the Argos Section
which holds all the assets and liabilities relating to former
members of the Home Retail Group Pension Scheme. Each section's
assets are segregated by deed and ring fenced for the benefit of
the members of that section. The Scheme has nine Trustee
directors.
The retirement benefit obligations at the year-end have been
calculated by Isio, the actuarial advisers to the Group, using the
projected unit credit method and based on adjusting the position at
the date of the previous triennial valuations (see below) for known
events and changes in market conditions as allowed under IAS 19
'Employee Benefits'.
The amounts recognised in the balance sheet are as follows:
2021 2020
Sainsbury's Argos Group Sainsbury's Argos Group
GBPm GBPm GBPm GBPm GBPm GBPm
Present value of funded
obligations (8,808) (1,410) (10,218) (8,914) (1,421) (10,335)
Fair value of plan assets 9,596 1,404 11,000 10,025 1,466 11,491
Retirement benefit surplus/(deficit) 788 (6) 782 1,111 45 1,156
Present value of unfunded
obligations (21) (17) (38) (21) (16) (37)
Retirement benefit surplus/(deficit) 767 (23) 744 1,090 29 1,119
The movements in the Group's net defined benefit surplus are as
follows:
2021 2020
GBPm GBPm
As at the beginning of the year 1,119 959
Net interest income 19 28
Remeasurement (losses)/gains (482) 89
Pension scheme expenses (7) (9)
Contributions by employer 101 52
Past service charge (6) -
As at the end of the year 744 1,119
The principal actuarial assumptions used at the balance sheet
date are as follows:
2021 2020
% %
-------
Discount rate 1.95 1.6
Inflation rate - RPI 3.15 2.7
Inflation rate - CPI 2.45 1.7
Future pension increases 2.15 - 1.65 -
3.10 2.70
-------
19 Retirement benefit obligations continued
Discount rate
The discount rate for the Scheme is derived from the expected
yields on high quality corporate bonds over the duration of the
Group's pension scheme and extrapolated in line gilts with no
theoretical growth assumptions. High quality corporate bonds are
those for which at least one of the main ratings agencies considers
to be at least AA (or equivalent).
Inflation
On 25 November, the Government and UK Statistics Authority's
joint consultation response on RPI reform was published. This
confirmed their intention to amend the RPI calculation methodology
to be aligned to that already in use for the calculation of the CPI
(including housing) with effect from 2030.
As a result, the Group has reduced the post 2030 gap between RPI
and CPI to nil, effectively assuming RPI will be aligned with CPI
post 2030, resulting in a single weighted average RPI-CPI gap of
0.70% p.a. for the 6(th) March 2021 year-end. The RPI-CPI gap used
for the prior year was 1% p.a.
Mortality
The base mortality assumptions are based on the SAPS S2 tables,
with adjustments to reflect the Scheme's population. Future
mortality improvements are Continuous Mortality Improvement (CMI)
2019 projections with a long term rate of improvement of 1.25 per
cent p.a. at 2020 and CMI 2020 projections with a long term rate of
improvement of 1.25 per cent p.a. at 2021.
While Covid-19 has had an impact on mortality in 2020, the
impact on future mortality trends is currently unknown. All IAS 19
calculations use the (CMI) model, which measures potential changes
to future mortality trends. The Group's policy is to use the
available version as at the year-end (the 2020 results used the CMI
2018 model). The latest CMI model, CMI 2020, was released on 4(th)
March 2021.
The CMI 2020 model shows a significant reduction of 11.8 per
cent in the 2020 rates of longevity for the general population.
This is well outside the range of annual mortality changes in the
last 40 years.
As a result of this significant change in mortality, the CMI
modified the calibration process for CMI 2020 to allow choice on
the weighting placed on an individual year's data. For the Core
version of CMI 2020, a weight of 0% is applied to 2020 data and
weightings of 100 per cent for other years, so the potentially
exceptional 2020 experience is ignored when modelling future
improvements.
The Group has determined that putting a high weighting on the
impact of 2020 could undervalue the liability, and there is
currently insufficient information and data to be able to predict
with any certainty the impact of Covid-19 in future trends. A zero
per cent weighting has therefore been applied to the 2020 mortality
data. The impact of different weightings on the Scheme liabilities
is included in the sensitivities section within this note.
20 Contingent liabilities
The Group has a number of contingent liabilities in respect of
historic lease guarantees, particularly in relation to the disposal
of assets, which if the current tenant and their ultimate parents
become insolvent, may expose the Group to a material liability.
This liability decreases over time as the leases expire. The Group
has considered a number of factors, including past history of
default as well as the profitability and cash generation of the
current leaseholders, and has concluded that the likelihood of
payout is remote.
Along with other retailers, the Group is currently subject to
claims from current and ex-employees in the Employment Tribunal for
equal pay under the Equality Act 2010 and/or the Equal Pay Act
1970. There are currently circa 8,400 claims in which the claimants
are alleging that their work within Sainsbury's stores is of equal
value to that of colleagues working in Sainsbury's distribution
centres, and that differences in terms and conditions relating to
pay are not objectively justifiable. The claimants are seeking the
differential back pay based on the higher wages in distribution
centres, and the equalisation of wages and terms and conditions on
an ongoing basis. Typically, claims of this nature can take many
years to be determined. Given that the claims against the Group are
still at a relatively early stage and the outcome of such claims is
highly uncertain at this stage, the Group cannot make any
assessment of the likelihood nor quantum of any outcome. No
provision has therefore been recognised on the Group's balance
sheet. There are substantial factual and legal defences to these
claims and the Group intends to defend them vigorously.
Alternative performance measures (APMs)
In the reporting of financial information, the Directors use
various APMs which they believe provide additional useful
information for understanding the financial performance and
financial health of the Group. These APMs should be considered in
addition to, and are not intended to be a substitute for IFRS
measurements. As they are not defined by International Financial
Reporting Standards, they may not be directly comparable with other
companies who use similar measures.
All of the following APMs relate to the current period's results
and comparative periods where provided.
APM Closest Definition/ Purpose Reconciliation
equivalent
IFRS
measure
Income statement
- Revenue
Underlying Revenue A reconciliation of the measure is
Group * Total sales less acquisition fair value unwinds on provided in note 5 of the financial
sales Argos Financial Services. statements.
* This is the headline measure of revenue for the
Group. It shows the annual rate of growth in the
Group's sales and is considered a good indicator of
how rapidly the Group's core business is growing.
Underlying Revenue A reconciliation of the measure is
Retail * Underlying Group sales as above, less underlying provided in note 5 of the financial
sales Financial Services revenue. statements.
* Shows the annual rate of growth in the Group's Retail
business sales.
Like-for-like No direct The reported retail 52 52
sales equivalent like-for-like weeks weeks
sales (excluding fuel) to to
increase 6 March 7 March
of 8.1 per cent is based 2021 2020
on a combination of
Sainsbury's
like-for-like sales and
Argos like-for-like sales
for the 52 weeks to 6 March
2021. See movements below:
Underlying retail like-for-like
(exc. fuel) 8.1 (0.6)
Underlying net new space
impact (0.8) 0.2
Underlying total retail
sales growth (exc. fuel) 7.3 (0.4)
Fuel Impact (7.2) 0.3
Underlying total retail
sales growth (inc. fuel) 0.1 (0.1)
* Year-on-year growth in sales including VAT, excluding
fuel, excluding Financial Services, for stores that
have been open for more than one year.
* The relocation of Argos stores into Sainsbury's
supermarkets are classified as new space, while the
host supermarket is classified like-for-like.
* The impact on sales of stores which were temporarily
closed due to COVID-19 have been included within LFL
sales. Only permanently closed sites and those
temporarily closed for non-COVID-19 related reasons
are treated as non-LFL.
* The measure is used widely in the retail industry as
an indicator of current trading performance and is
useful when comparing growth between retailers that
have different profiles of expansion, disposals and
closures.
Income statement - Profit
Retail Profit 52 weeks 52 weeks
underlying before * Underlying earnings before interest, tax, Financial to 6 March to 7 March
operating tax Services operating profit and Sainsbury's underlying 2021 2020
profit share of post-tax profit from joint ventures and GBPm GBPm
associates. Group PBT (note
5) (261) 255
Add back Group non-underlying
items (note 5) 617 331
Group UPBT (note
5) 356 586
Financial Services
underlying operating
loss/(profit) (note
5) 21 (48)
Retail underlying
profit (note 5) 377 538
Net underlying finance
costs (note 7) 353 400
Retail underlying
operating profit
(note 5) 730 938
Alternative performance measures (APMs) continued
APM Closest Definition/ Reconciliation
equivalent Purpose
IFRS
measure
Underlying Profit Underlying profit before tax is bridged to
profit before * Profit or loss before tax excluding items which by statutory profit before tax in the income
before tax virtue of their size or nature may obscure statement and note 4 of the financial statements.
tax understanding of the Group's underlying performance. The adjusted items are as follows:
* Financial Services transition - multi-year costs
incurred in transitioning to a new, more flexible
banking platform as part of the previously announced
New Bank Programme. These principally comprise
contractor and service provider costs relating to the
migration of data and other services to the Bank's
new infrastructure and operating model.
* Profit on disposal of properties - such disposals are
not part of the Group's underlying business
* Investment property fair value movements - these
reflect the difference between the fair value of an
investment property at the reporting date and its
carrying amount at the previous reporting date and
are held within the property JVs. The valuations are
impacted by external market factors and can therefore
vary significantly year-on-year.
* Perpetual securities coupons - these are accounted
for as equity in line with IAS 32 'Financial
instruments: Presentation', however are accrued on a
straight-line basis and included as an expense within
underlying profit as they are included by management
when assessing Group borrowing.
* Non-underlying finance movements - these include fair
value remeasurements on derivatives not in a hedging
relationship. The fair value measurements are
impacted by external market factors and can fluctuate
significantly year-on-year. Lease interest on
impaired non-trading sites, including site closures,
is excluded from underlying profit as those sites do
not contribute to the underlying business.
* IAS 19 pension expenses include the financing element
and scheme expenses of the Group's defined benefit
scheme. These are reported outside underlying profit
as they no longer relate to the Group's ongoing
activities following closure of the scheme to future
accrual.
* Acquisition adjustments - these reflect the
adjustments arising from acquisitions including the
fair value unwind and amortisation of acquired
intangibles.
* Other - these are items which are material and
infrequent in nature and do not relate to the Group's
underlying performance and in the current year
include restructuring programmes, impairment charges
and income relating to the Supreme Court ruling on
ATM business rates.
Underlying Basic A reconciliation of the measure is provided
basic earnings * Earnings per share using underlying profit as in note 9 of the financial statements.
earnings per share described above.
per
share
Retail No direct 52 weeks
underlying equivalent * Retail underlying operating profit as above, before to 6 52 weeks
EBITDA depreciation and amortisation. March to 7 March
2021 2020
GBPm GBPm
Retail underlying operating
profit (note 5) 730 938
Add: Retail depreciation
and amortisation expense
(note 5) 1,226 1,225
Less: Non underlying depreciation
and amortisation (note
4) (47) (28)
1,909 2,135
Underlying Finance A reconciliation of this measure is included
net income * Net finance costs before any non-underlying items as in note 7 of the financial statements.
finance less defined above that are recognised within finance The adjusted items are as follows:
costs finance income / expenses * Fair value remeasurements on derivatives not in a
costs hedging relationship. The fair value measurements are
impacted by external market factors and can fluctuate
significantly year-on-year.
* Lease interest on impaired non-trading sites,
including site closures, is excluded from underlying
profit as those sites do not contribute to the
underlying business.
* The financing element of the Group's defined benefit
scheme. This is reported outside underlying profit as
it no longer relates to the Group's ongoing
activities following closure of the scheme to future
accrual.
* Perpetual securities coupons - these are accounted
for as equity in line with IAS 32 'Financial
instruments: Presentation', however are accrued on a
straight-line basis and included as an expense within
underlying profit as they are included by management
when assessing Group borrowing
Underlying Effective The tax on non-underlying items is included
tax tax rate * Tax on underlying items, divided by underlying profi in note 4 of the financial statements
rate t
before tax.
* Provides an indication of the tax rate across the
Group before the impact of non-underlying items.
Alternative performance measures (APMs) continued
APM Closest Definition/ Purpose Reconciliation
equivalent
IFRS measure
Cash flows and
net debt
Retail No direct 52 weeks
cash equivalent * To help the reader understand cash flows of the to 6 52 weeks
flow business a summarised cash flow statement is included March to 7 March
items within the Financial Review. 2021 2020
in GBPm GBPm
Financial Net interest paid a (372) (405)
Review Repayment of lease liabilities b (499) (419)
Repayment/proceedings
from borrowings c (539) (379)
Other d (13) (3)
Joint Ventures e 22 143
* As part of this a number of line items have been
combined. The cash flow in note 5 of the financial
statements includes a reference to show what has been
combined in these line items.
Retail Net cash 52 weeks 52 weeks
free generated * Net cash generated from retail operations, after to 6 to 7
cash from operating perpetual security coupons and cash capital March March
flow activities expenditure but before strategic capital expenditure, 2021 2020
and including payments of lease obligations, cash GBPm GBPm
flows Cash generated from
Retail activities 2,275 1,971
Net interest paid (372) (405)
Corporation Tax (94) (113)
Retail purchase of
property, plant and
equipment (423) (517)
Retail purchase of
intangible assets (145) (82)
Retail proceeds from
disposal of property,
plant and equipment 27 81
Initial direct costs
of RoU assets (7) (13)
Repayments of obligations
under leases (499) (419)
Dividends and distributions
received 22 143
Bank capital injections - (35)
Retail free cash flow 784 611
Alternative performance measures (APMs) continued
APM Closest Definition/Purpose Reconciliation
equivalent
IFRS
measure
Underlying No direct 52 weeks
working equivalent * To provide a reconciliation of the working capital 52 weeks to 7
capital movement in the Financial statements to the to 6 March March
movements underlying working capital movement in the Financial 2021 2020
review. GBPm GBPm
Retail working capital movements
per cash flow (note 5) 708 (71)
* Removes working capital and cash movements relating
to non-underlying items.
Adjustments for:
Retail non-underlying impairment
charges (per note 5) 216 257
Non-underlying restructuring
and impairment charges (per
note 4) (643) (328)
Accelerated depreciation
(per note 4) 27 -
Less Bank impairment charges
(per note 4) 105 -
Gains on early termination
of leases (16) -
ATM income (per note 4) 42 -
Other 2 (3)
Non-underlying working capital
movements before cash movements (267) (74)
Non-underlying cash movements:
Restructuring (per note
4) 39 34
ATM income (per note 4) (27) -
Argos integration costs
(per note 4) - 2
Transaction costs relating
to the proposed merger with
Asda (per note 4) - 13
Other - (1)
12 48
Total adjustments for non-underlying
working capital (255) (26)
Underlying working capital
movements 453 (97)
Net cash Cash 52 weeks 52 weeks
generated generated * This enables management to assess the cash generated to 6 to 7
from retail from from its core retail operations. March March
operations operations 2021 2020
(per Financial GBPm GBPm
Review) * A reconciliation between this and cash generated from Retail cash generated from
operations per the accounts is shown here: operating activities (per
note 7) 1,832 1,474
Perpetual security coupons (23) (23)
Interest received - 2
Net cash generated 1,809 1,453
Core retail No direct 52 weeks 52 weeks
capital equivalent * Capital expenditure excludes Sainsbury's Bank, befor to 6 March to 7 March
expenditure e 2021 2020
proceeds on disposals and before strategic capital GBPm GBPm
expenditure. Purchase of PPE (423) (517)
Purchase of intangibles (145) (82)
Cash capital expenditure
* This allows management to assess core retail capital (per note 5) (568) (599)
expenditure in the period in order to review the
strategic business performance.
* The reconciliation from the cash flow statement is
included here.
Alternative performance measures (APMs) continued
APM Closest Definition/Purpose Reconciliation
equivalent
IFRS
measure
Net Borrowings, A reconciliation of the measure is provided
debt cash, * Net debt includes the capital injections into in of the financial statements. In addition,
derivatives Sainsbury's Bank, but excludes the net debt of to aid comparison to the balance sheet,
, Sainsbury's Bank and its subsidiaries. reconciliations between financial assets
financial at FVTOCI and derivatives per the balance
assets sheet and Group net debt (i.e. including
at FVTOCI, * It is calculated as: financial assets at fair value Financial Services) is included below:,
lease through other comprehensive income (excluding equity 52 weeks
liabilities investments) + net derivatives to hedge borrowings + to 6 52 weeks
net cash and cash equivalents + loans + lease March to 7 March
obligations + perpetual securities. 2021 2020
GBPm GBPm
Financial instruments
* This shows the overall strength of the balance sheet at FVTOCI per Balance
alongside the liquidity and its indebtedness and Sheet 844 1,054
whether the Group can cover its debt commitments. Less equity-related securities (306) (251)
Financial instruments
at FVTOCI included in
Group Net Debt 538 803
Net derivatives per balance
sheet (124) (71)
Less derivatives not
used to hedge borrowings 110 60
Derivatives included
in Net Debt (14) (11)
Alternative performance measures (APMs) continued
APM Closest Definition/Purpose Reconciliation
equivalent
IFRS
measure
Other
Net debt/ No direct Group underlying EBITDA is reconciled within
underlying equivalent * Net debt divided by Group underlying EBITDA. the fixed charge cover analysis below.
EBITDA
* This helps management measure the ratio of the
business's debt to operational cash flow.
Return No direct Return is reconciled as follows:
on capital equivalent * Return on capital employed is calculated as return 52 weeks 52 weeks
employed divided by average capital employed. to 6 to 7 March
March 2020
2021
* Return is defined as 52 week rolling underlying GBPm GBPm
profit before interest and tax. Underlying profit before
tax 356 586
Add: Underlying net
* Capital employed is defined as Group net assets interest 353 400
excluding pension deficit/surplus, less net debt Return 709 986
(excluding perpetual securities). The average is
calculated on a 14 point basis.
Capital employed is reconciled as follows:
52 weeks 52 weeks
* The 14-point basis uses the average of 14 datapoints to 6 March to 7 March
- the prior year closing capital employed, the 2021 2020
current year closing capital employed and 12 GBPm GBPm
intra-year periods as this more closely aligns to the Group net assets 6,604 7,773
recognition of amounts in the income statement. Less: Pension surplus
(note 19) (744) (1,119)
Deferred tax on pension
* This represents the total capital that the Group has surplus 192 214
utilised in order to generate profits. Management use Less: net debt (ex-perpetual
this to assess the performance of the business. securities) (note 17) 6,221 6,451
Effect of in-year averaging 546 28
Capital employed 12,819 13,347
Return on capital employed 5.5% 7.4%
Fixed No direct 52 weeks
charge equivalent * Group underlying EBITDA divided by rent (representing to 6 52 weeks
cover capital and interest repayments on leases) and March to 7 March
underlying net finance costs, where interest on 2021 2020
perpetual securities is treated as an underlying GBPm GBPm
finance cost. All items are calculated on a 52 week Group underlying operating
rolling basis. profit (note 4) 709 986
Add: Group depreciation
and amortisation expense
* This helps assess the Group's ability to satisfy (note 5) 1,249 1,256
fixed financing expenses from performance of the Less: Non underlying
business. depreciation and amortisation
(note 5) (47) (28)
Other - (1)
Group underlying EBITDA 1,911 2,213
Repayment of capital
element of lease obligations
(note 5) (501) (420)
Underlying finance income
(note 7) 3 4
Underlying finance costs
(note 7) (356) (404)
Fixed charge (854) (820)
Fixed charge cover 2.2 2.7
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END
FR EADLPALFFEEA
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April 28, 2021 02:00 ET (06:00 GMT)
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