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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Sainsbury (j) Plc | LSE:SBRY | London | Ordinary Share | GB00B019KW72 | ORD 28 4/7P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
1.20 | 0.45% | 265.40 | 266.80 | 267.00 | 268.00 | 264.00 | 265.60 | 5,275,554 | 16:35:14 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Grocery Stores | 32.7B | 137M | 0.0581 | 45.92 | 6.29B |
TIDMSBRY
RNS Number : 6179J
Sainsbury(J) PLC
28 April 2022
28 April 2022 J Sainsbury PLC
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
Preliminary Results for the 52 weeks ended 5 March 2022
Delivering for customers, colleagues, communities and shareholders
Simon Roberts, Chief Executive of J Sainsbury plc, said: "In a year of unprecedented change we have been relentlessly focused on putting customers and colleagues first while delivering the first year of our plan to put food back at the heart of Sainsbury's. We said we would invest in value, innovation and service and that's exactly what we're doing. We have outperformed key competitors on both a one and two-year basis(1) while also delivering strong underlying profit growth, improved returns and consistent retail free cash flow. This gives us a strong foundation to keep building momentum in the year ahead.
"We know just how much everyone is feeling the impact of inflation, which is why we are so determined to keep delivering the best value for customers. We have been able to drive more investment into lowering food prices funded by our comprehensive cost savings plans. As a result, we continue to inflate behind competitors on the products customers buy most often. Last week we announced the next bold phase of investment, lowering prices across 150 of our highest volume fresh products.
"As our colleagues are feeling the impact of inflation too we prioritised investment of over GBP100 million into colleague pay. All Sainsbury's and Argos retail colleagues now earn the Living Wage wherever they work in the UK, we were the first major supermarket to make this happen. I want to thank every one of my colleagues for the outstanding job you've done every day. I am immensely proud of our entire team.
"I would also like to thank our suppliers for all their support throughout the last year. Partnership and collaboration through these times of significant industry challenge and change have never been more important.
"The dreadful situation in Ukraine continues to have a profound impact. We're doing everything we can to help with the humanitarian effort, and are working to manage the supply chain impacts.
"We have a clear long term focus on keeping prices low and we remain committed to helping everyone eat better, whatever the external environment may bring."
Financial highlights
-- Retail sales inc. fuel up 3.4%, ex. fuel sales down 2.6%. Ex. VAT Group sales up 2.9%
o Grocery sales up 7.6% versus FY 2019/20, broadly flat versus FY 2020/21, reflecting sustained COVID-19-driven demand and strong volume market share performance over one and two years
o General Merchandise sales down 4.6% versus FY 2019/20, reflecting availability challenges in key product areas and our focus on profitable sales. Down 11.9% versus FY 2020/21
-- Underlying profit before tax(2) of GBP730 million, up 25% versus FY 2019/20 and up 104% versus FY 2020/21, which included substantial COVID-19 costs
o Reflects elevated grocery sales and lower finance charges, with significant investment in core grocery funded by cost savings, fuel and a more profitable general merchandise and clothing business
-- Statutory profit before tax of GBP854 million versus GBP278 million(3) in FY 2019/20 and a loss of GBP164 million(3) in FY 2020/21
o Reflects lower restructuring and impairment costs and exceptional income from settling legal disputes
-- Financial Services GBP38 million profit versus FY 2020/21 GBP21 million loss and GBP48 million profit in FY 2019/20
o We expect further profit improvement in FY 2022/23
o Following the year end, the Bank has paid its first ever dividend to the Group, of GBP50 million
-- Strong Retail Free Cash Flow of GBP503 million(2) . Average Free Cash Flow in three years to March 2022 GBP633 million
-- Non-lease Net Debt down GBP1,381 million in three years to March 2022, ahead of target GBP950 million+ over four years
-- Proposed final dividend of 9.9 pence, full-year dividend of 13.1 pence, up 24%
-- Capital allocation framework updated. Initial commitment to increase dividend payout ratio to around 60%
-- Outlook: The year ahead will be impacted by significant external pressures and uncertainties. At this early stage of the year we expect FY 2022/23 underlying profit before tax(2) of between GBP630 million and GBP690 million
Strategic highlights
-- Food First: We are focused on giving customers better value and improved innovation and customer service.
o Significant investment in grocery prices, funded by our cost saving programme, has driven a strong grocery volume market share performance over one and two years(1)
o We are inflating behind the market on the highest volume products(4) . By investing ahead of competitors, with a clear focus on fresh food, our prices are improving
o We have more than tripled product innovation in the year and have grown Taste the Difference sales by 15% versus FY 2019/20. Customer satisfaction scores performed ahead of competitors in our supermarkets and online customer satisfaction improved relative to peers(5)
o 39 per cent of our sales came through digital channels, versus 23 per cent in FY 2019/20. Groceries Online accounted for 17 per cent of overall Grocery sales
-- Brands that Deliver: Nectar, Argos, Habitat, Tu and Sainsbury's Bank are delivering for our customers and our shareholders and supporting investments in our wider customer offer.
o The Argos transformation programme is on track and Argos is a more profitable business. 80 per cent of Argos sales now originate online
o Sainsbury's Bank is making good progress with its strategic plan and has paid the Group a dividend for the first time, of GBP50 million
o Nectar has 9.3 million digital users, with over one million customers regularly benefitting from personalised promotions through My Nectar Prices and Nectar360 revenues are ahead of plan
o Tu Clothing is now a GBP1 billion brand, with sales growth of 3.1% versus FY 2019/20, underpinned by good online sales, up 49%
-- Save to Invest: We are making good progress with our cost saving programme.
o We reduced our cost: sales ratio by 83 basis points versus FY 2019/20 and continue to target reducing our cost: sales ratio by 200 basis points despite significantly higher inflationary pressures
o Transforming our eat-in, takeaway and delivery food and drink and bakery offer as well as hot food counter closures will save GBP125-150 million over three years and integrating the Sainsbury's, Argos and Habitat supply chain and logistics operations will save at least GBP250 million when complete
o The cost savings programme is fuelling investment in our grocery value and our broader customer offer
-- Plan for Better: This year we have accelerated our sustainability goals.
o As a Principal Partner of COP26, we brought forward our commitment to be Net Zero in our own operations by 2035, five years ahead of our original target. We have also committed to reduce our Scope 3 emissions by 30% by 2030.
o We are proud to support our communities and raised over GBP6 million for Comic Relief as part of this year's Red Nose Day and have already donated a further GBP2 million to Comic Relief to support the humanitarian crisis in Ukraine
o Through our partnership with Neighbourly, we donated over 2.5 million meals between August and March - the equivalent of GBP4.8 million - to charities and community groups(6) , additionally supporting our target to reduce food waste by 50% by 2030
Financial Summary 2021/22 2020/21 2019/20 YoY Yo2Y ------------------------------- ----------- ----------- ----------- ------------- --------------- Statutory performance Group revenue (excl. VAT, inc. fuel) GBP29,895m GBP29,048m GBP28,993m 2.9% 3.1% ------------------------------- ----------- ----------- ----------- ------------- --------------- Profit/(loss) before tax(3) GBP854m GBP(164)m GBP278m N/A 207% ----------- ----------- ----------- --------------- Profit/(loss) after tax(3) GBP677m GBP(201)m GBP170m N/A 298% ------------------------------- ----------- ----------- ----------- ------------- --------------- Basic earnings/(loss) per share(3) 29.8p (9.4)p 6.7p N/A 367% ------------- Business performance Group sales (inc. VAT) GBP33,355m GBP32,285m GBP32,394m 3.3% 3.0% ------------------------------- ----------- ----------- ----------- ------------- --------------- Retail sales (inc. VAT, excl. fuel) GBP28,095m GBP28,837m GBP26,868m (2.6)% 4.6% ----------- ----------- ----------- ------------- --------------- Digital sales GBP10.8bn GBP12.1bn GBP6.0bn (11)% 80% ------------------------------- ----------- ----------- ----------- ------------- --------------- Underlying profit before tax (2, 3) GBP730m GBP357m GBP586m 104% 25% ----------- ----------- ----------- ------------- --------------- Underlying basic earnings per share (2, 3) 25.4p 11.7p 19.8p 117% 28% ------------------------------- ----------- ----------- ----------- ------------- --------------- Interim dividend per share 3.2p 3.2p 3.3p 0% (3.0)% ------------------------------- ----------- ----------- ----------- ------------- --------------- Proposed Final dividend
per share(7) 9.9p 7.4p 7.3p 34% 36% ------------------------------- ----------- ----------- ----------- ------------- --------------- Proposed Full-year dividend per share(7) 13.1p 10.6p 10.6p 24% 24% ------------------------------- ----------- ----------- ----------- ------------- --------------- Net debt(2) GBP6,759m GBP6,469m GBP6,947m Up GBP290m Down GBP188m ------------------------------- ----------- ----------- ----------- ------------- --------------- Non-lease net debt GBP141m GBP640m GBP1,179m Down GBP499m Down GBP1,038m ------------------------------- ----------- ----------- ----------- ------------- --------------- Return on capital employed(2) 8.4% 5.6% 7.4% Up 280bps Up 100bps ------------------------------- ----------- ----------- ----------- ------------- ---------------
Like-for-like sales performance
2020/21 2021/22 YoY ---------------------------- ----------------------------------------------- Q3 Q4 Q1 Q2 Q3 Q4 FY -------- -------- ------- -------- -------- -------- -------- Like-for-like sales (exc. fuel) 8.6% 11.3% 1.6% (1.4)% (4.5)% (5.6)% (2.3)% -------- -------- ------- -------- -------- -------- -------- Like-for-like sales (inc. fuel) 3.2% 3.2% 8.4% 3.0% 0.6% 2.7% 3.6% -------- -------- ------- -------- -------- -------- -------- Total sales performance 2020/21 2021/22 YoY 2021/22 Yo2Y ----------------------------------------------- -------------------------------------------------- Q3 Q4 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY ---------------------------- -------- -------- ------- -------- -------- -------- -------- -------- -------- -------- ---------- -------- Grocery 7.4% 7.1% 0.8% 0.8% (1.1)% (1.6)% (0.2)% 11.3% 6.0% 6.6% 4.7% 7.6% -------- -------- ------- -------- -------- -------- -------- -------- -------- -------- ---------- -------- General Merchandise 6.0% 17.6% (1.4)% (11.4)% (16.0)% (21.1)% (11.9)% 5.6% (4.7)% (11.0)% (5.8)% (4.6)% -------- -------- ------- -------- -------- -------- -------- -------- -------- -------- ---------- -------- GM (Argos) 8.4% 18.1% (3.7)% (12.0)% (16.1)% (20.4)% (12.5)% 6.7% (2.4)% (9.1)% (4.7)% (3.0)% -------- -------- ------- -------- -------- -------- -------- -------- -------- -------- ---------- -------- GM (Sainsbury's Supermarkets) (5.4)% 14.8% 11.2% (8.0)% (15.7)% (24.1)% (8.6)% 0.9% (14.4)% (20.0)% (10.9)% (12.0)% -------- -------- ------- -------- -------- -------- -------- -------- -------- -------- ---------- -------- Clothing 0.4% 4.2% 57.6% 9.2% (2.7)% (9.3)% 12.7% 15.5% 1.0% (1.7)% (6.8)% 3.1% -------- -------- ------- -------- -------- -------- -------- -------- -------- -------- ---------- -------- Total Retail (excl. fuel) 6.8% 9.2% 1.6% (1.7)% (5.3)% (6.2)% (2.6)% 10.3% 3.4% 1.4% 2.2% 4.6% -------- -------- ------- -------- -------- -------- -------- -------- -------- -------- ---------- -------- Fuel (29.0)% (38.5)% 95.1% 36.1% 47.5% 80.1% 60.0% (14.4)% (3.8)% 3.6% 11.7% (2.6)% -------- -------- ------- -------- -------- -------- -------- -------- -------- -------- ---------- -------- Total Retail (inc. fuel) 1.7% 1.6% 8.5% 2.7% (0.1)% 2.2% 3.4% 6.2% 2.2% 1.7% 3.7% 3.5% -------- -------- ------- -------- -------- -------- -------- -------- -------- -------- ---------- --------
Outlook
We start this year in a good position financially, with continued operating momentum and sharp execution supporting our strong competitive position.
The year ahead will be impacted by significant external pressures and uncertainties, including higher operating cost inflation and cost of living pressures impacting customers' disposable incomes.
In that context we are determined to continue our consistent improvement in grocery value, innovation and customer service, funded by our comprehensive cost savings programme and we expect to continue our strong grocery volume market share performance.
At this early stage of the financial year we expect underlying profit before tax will be between GBP630 million and GBP690 million in FY 2022/23. This is below the GBP730 million reported in FY 2021/22, a year which benefited by an estimated GBP100 million from elevated COVID-19 driven grocery volumes, but significantly ahead of the GBP586 million reported in FY 2019/20.
We continue to expect to generate retail free cash flow of at least GBP500 million in FY 2022/23. Together with our strong balance sheet, this is reflected in our commitment to return a higher proportion of underlying profits to shareholders, initially through an increased payout ratio.
Capital Allocation
Cash flow and Leverage
We have had another year of strong free cash flow generation, with retail free cash flow of GBP503 million despite some reversal of last year's exceptional working capital inflows.
Over the last three years we have generated average retail free cash flow of GBP633 million, ahead of our target of at least GBP500 million.
Strong cash generation, disciplined spending and a GBP240 million benefit from convertible bond redemptions have enabled us to reduce non-lease net debt by over GBP1.8 billion, from GBP2 billion five years ago to GBP141 million in FY 2021/22. We have hit our four-year GBP950 million+ net debt reduction target a year ahead of schedule and our net debt to EBITDA leverage ratio now stands at 3.1x.
We have achieved this deleverage while simultaneously paying a broadly stable dividend per share to shareholders, a total of GBP1.1 billion over five years and propose a full-year dividend per share this year of 13.1p, a 24 per cent increase year on year and the highest dividend per share we have paid since 2015. This will return around GBP300 million of cash to shareholders.
Capital Allocation
-- Looking forward, we will continue to invest in the business to support and accelerate our strategy, including the Save to Invest programme and the ongoing transition to a more digital future
-- We expect capital expenditure to remain in the range of GBP700 million to GBP750 million and expect to continue to generate retail free cash flow of at least GBP500 million per year
-- We will use some of this retail free cash flow to deleverage further, targeting a solid investment grade balance sheet consistent with target leverage of net debt to EBITDA of 3.0x - 2.4x
-- We are focused on delivering strong dividends and will return a higher proportion of underlying earnings to shareholders, in the first instance through the ordinary dividend, where we will increase the dividend payout ratio from around 53 per cent of underlying earnings to around 60 per cent
-- We expect leverage to move below 3x over time, helped by a reduced impact of lease liabilities relating to property currently in the Highbury and Dragon property investment pools. Once leverage is comfortably within our target range, we expect to be able to return more cash to shareholders through higher dividends and/or share buybacks
Capital allocation priorities
1. Invest in the business to support and accelerate our strategy 2. A solid investment grade balance sheet, targeting leverage of 3.0x-2.4x net debt/EBITDA
3. Deliver strong ordinary dividends for shareholders, with a payout ratio of around 60 per cent of underlying net earnings
4. Selectively invest in projects where commercially interesting/NPV positive opportunities exist, such as lease buy-ins
5. Return surplus cash to shareholders through higher dividends and/or share buybacks
Dividend
The Board has proposed a final dividend of 9.9 pence per share. This brings the full-year dividend to 13.1 pence per share, a 24% increase, reflecting the strong growth in earnings per share and covered 1.9 times by underlying earnings.
Notes
Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward-looking statements. They appear in a number of places throughout this announcement and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. Unless otherwise required by applicable law, regulation or accounting standard, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.
A webcast presentation will be available to view on our website at 7.30am (BST). The webcast can be accessed at the following link: https://webcasts.sainsburys.co.uk/sainsbury167
Following the release of the webcast, a Q&A conference call will be held at 9.30am (BST). This will be available to listen to on our website at the following link: https://webcasts.sainsburys.co.uk/sainsbury168
A recorded copy of the webcast and Q&A call, alongside slides and a transcript of the presentation will be available at www.about.sainsburys.co.uk/investors/results-reports-and-presentations following the event.
Sainsbury's will issue its 2022/23 First Quarter Trading Statement at 07:00 (BST) on 5 July 2022.
SEnquiries
Investor Relations Media James Collins Rebecca Reilly +44 ( 0) 7801 813 074 +44 (0) 20 7695 7295
Strategy Review: Driven by our passion for food, together we serve and help every customer
We are one year into our three-year plan to transform Sainsbury's and put food back at the heart of our business. We are simplifying our operations at pace and accelerating our cost saving programmes in order to invest in consistently delivering value to customers, improving food quality and increasing innovation. Our brands that deliver - Argos, Habitat, Tu, Nectar and Sainsbury's Bank - support our core food business, delivering for customers and shareholders in their own right. We will continue to pursue partnerships and to outsource where appropriate, where a partnership model can help us improve our customer offer and make our business more efficient and simpler.
Food First
We are putting food back at the heart of Sainsbury's. This means we are focused on lowering prices, launching new products and improving service. We have gained grocery volume market share from our key supermarket competitors on both a one and two-year basis(1) and grocery sales are up 7.6 per cent on a two-year basis.
Value
We are making good progress to improve the value of our food. We know that the current cost of living situation is challenging for everyone and we are relentlessly focused on delivering consistent long-term value by offering customers great quality, tasty food at low prices. As a result of being bold in our cost savings plan, we are able to drive investment back into lower food prices and we are consistently inflating behind competitors on the products customers buy most often - including milk, eggs, potatoes, bread, vegetables, fish and meat. As a result, our relative price position has remained strong throughout the year - improving 310 basis points against Aldi, year on year(9) , leading to more customers shopping with us. By focusing on fresh and high-volume lines we are offering customers better value, improving price perception and delivering strong volume market performance.
Through the year our Price Lock promotion fixed the price of up to 2,000 items for a minimum of at least eight weeks. Customers can be assured that prices will not rise on those products, helping them to plan and budget. Through Price Lock we are holding down the prices of more products than our competitors.
We have also increased the number of entry price point products on offer for customers, including Greengrocer fruit & vegetables, J. James meat and poultry and Stamford Street ready meals offer customers a wide choice of products.
Innovation
We have delivered our plan to triple the number of new lines we sell, launching over 1,900 products across all our food brands. We developed our 'Inspired to Cook' range in response to the shift towards eating at home and cooking from scratch, launching a range of over 200 products across Grocery and Fresh Foods which make home cooking simple and tasty for customers. In March we launched 350 new branded World Food products, our biggest investment into this category to date and in the first six weeks sales are up significantly.
Our premium Taste the Difference range continues to perform well, particularly at key seasonal and celebratory moments when people want to trade up, such as Christmas and Easter. We have grown sales by 15 per cent versus two years ago.
In March we began our food hall transformation programme. We have rolled out our successful Beauty Hall format in more stores, improved the layout of our fresh ranges to make it easier for customers to shop, increased our popular World Foods ranges and improved our in-store bakeries. We have also simplified some of our ranges and provided a greater breadth of products across others, delivering more choice for customers on the products they really want.
Service
We are committed to rewarding our colleagues and all Sainsbury's and Argos retail colleagues now receive a base rate of pay of GBP10 per hour, above both the National Living Wage and the Living Wage. In March we increased inner London pay from GBP10.10 to GBP11.05 in line with the London Living Wage. We have announced that from 1 May 2022 the outer London rate will also be moving to GBP11.05, from GBP10.50. This means that all Sainsbury's and Argos retail colleagues earn the Living Wage wherever they are in the UK. We were the first supermarket among the big four to make this happen.
Alongside competitive pay we also offer a comprehensive benefits package, including year-round colleague discount of 10 per cent, increased to 15 per cent for five days around every pay day, pension contributions and an improved family leave policy.
We improved customer service scores in supermarkets(5) and are adapting our Sainsbury's store estate to offer more new and innovative products. This year we opened four new supermarkets and as part of our drive to offer a broader range of distinctive food to customers in-store, on the move and at home, we announced bold new plans to transform our eat-in, takeaway and home delivery offer. Through a partnership with Boparan Restaurant Group we have developed "The Restaurant Hub" format, a food hall style offer with different brands which we will roll out across 30 stores in the next year, with more to come in the future. We will also open 30 Starbucks cafés in Sainsbury's stores in the next year, bringing the total number to 60. We took the decision to close 200 underperforming cafés in the Spring.
Our Convenience business grew 9 per cent driven by more people returning to the workplace, with sales now broadly back at pre-pandemic levels. We opened 19 convenience stores and closed 23. We are making progress with our plan to open more Neighbourhood Hub stores which give customers a larger, more convenient local store with a wider produce range, more choice and better services.
39 per cent of our overall business now comes through digital channels, versus 23 per cent in FY 2019/20. We are seeing a normalisation of pre-COVID-19 shopping patterns as customers are returning to shopping in stores and demand for Groceries Online, non-food home delivery and Click & Collect has stabilised, although it remains more than double pre-pandemic levels.
Groceries Online accounted for 17 per cent of grocery sales with an average of 690,000 orders per week. In FY 2021/22 we grew our Groceries Online market share to become the second largest online grocery retailer, up from fourth before the pandemic(8) . This scale gives us advantage. We have improved profitability by enhancing picking rates and van utilisation. We are exploring new ways to make our delivery services better for customers and more efficient and initiatives include one-hour saver slots and changes to our delivery pass model. Customer satisfaction in Online is improving relative to competitors(5) .
We relaunched our same day groceries service in 284 stores and we continue to grow our On Demand grocery offer. In the fourth quarter we averaged 130,000 weekly orders from over 580 stores in as little as 30 minutes through our Chop Chop service and partnerships with Deliveroo and Uber Eats.
Brands that Deliver
Our brands that deliver - Nectar, Argos, Habitat, Tu and Sainsbury's Bank - are delivering for our customers and our shareholders and supporting investments in our wider customer offer.
Argos sales were down 12.5 per cent year on year against last year's high sales during the pandemic. Sales were down three per cent over two years and were impacted by availability issues caused by supply chain disruptions and the strategic decisions we made to reduce promotions and exit less profitable categories. Reflecting this focus, household and home and furniture sales grew while sales of toys, consumer electronics and technology categories declined. We have grown our furniture market share over the past two years, driven by Habitat, Sainsbury's and Argos's main home and furniture brand. Following a relaunch in September, Habitat products are now available in 600 Sainsbury's stores and online via the Argos and Habitat websites. We are growing our digital presence to ensure that we are well placed to serve customers who increasingly want to buy online. 80 per cent of Argos sales are now online, up from 63 per cent two years ago.
Nectar supports our ambitions in food by giving customers personalised rewards for their loyalty. 9.3 million digital Nectar users can benefit from personalised offers with us and with our Nectar partners. This year we launched My Nectar Prices - an innovative data-led tool which gives customers discounted prices that are personal to them, delivering even more value for loyal customers. Over one million customers are benefitting from lower prices and we will develop the proposition further. Nectar360, our marketing services business, is making good progress and we are on track to hit our 2026 plan on profit.
Tu clothing delivered sales growth of 12.7 per cent over one year and 3.1 per cent over two years and delivers over GBP1 billion in sales. We are selling more clothing at full price - with full priced sales participation now at 89 per cent compared with 65 per cent two years ago - and running fewer promotions, which improves profitability and supports increased investment in our core food business.
We continue to make good progress reshaping, strengthening and simplifying our Financial Services business, with profits of GBP38 million versus a loss of GBP21 million in FY 2020/21. This compares with GBP48 million in FY 2019/20. FY 2020/21 was impacted by COVID-19 where we saw significantly reduced demand across consumer credit, combined with increased bad debt provisions and less activity in our fee-based products, particularly Travel Money. Reflecting the Bank's progress, following the year end, it has paid dividend to the Group for the first time, of GBP50 million.
We have continued to improve our digital capability with the launch of the Argos Monthly Payment Plan, which allows customers to spread the cost of a purchase across fixed monthly repayments for a period of their choice. We have transformed the Sainsbury's Bank loan application journey for single and joint applicants with a fully digital onboarding experience that can transfer funds to accounts in just minutes. We have also improved the application journey for savings customers.
Save to Invest
We are making good progress with our cost saving programme, making bold decisions and prioritising what really matters to customers. By reducing our retail operating costs, we are able to invest more into our core food business, delivering better value, increasing our innovation and improving customer service. Our retail operating costs to sales ratio has reduced by 83 basis points versus FY 2019/20 and we continue to target reducing the ratio by at least 200 basis points by the end of FY 2023/24, despite cost inflation being significantly higher than was anticipated when this target was set.
We are working at pace to integrate the Sainsbury's, Argos and Habitat supply chain and logistics networks, which will save at least GBP250 million over the programme, improve overall efficiency and deliver a better service to our customers. Our property rationalisation programme is on track and this year we closed four underperforming supermarkets and 23 convenience stores. We are also working to improve the efficiency of Groceries Online, moving stores to a new, more efficient routing system and improving pick rates, which will save the business around GBP50 million overall. In addition, we are investing to improve the checkout experience for customers and colleagues which will drive around GBP50 million of cost efficiencies. This includes trialling improvements to the layout of self-service areas, making it easier for colleagues to help customers, reducing queuing times and creating additional space for shoppers with trolleys, increasing participation.
We are making good progress in Argos's end-to-end transformation programme, which will save GBP105 million over three years. We have opened five Local Fulfilment Centres (LFCs) and as a result, our customers are benefitting from improved availability, faster delivery and more collection options; we plan to open nine more LFCs this year. In line with improving availability and convenience for customers whilst reducing costs, this year we opened 64 Argos stores inside Sainsbury's supermarkets plus 62 in-store collection points. We have closed 73 standalone Argos stores this year. As of 5 March 2022, Argos has 728 stores, of which 400 are inside Sainsbury's supermarkets.
We partner with third parties and outsource where necessary to deliver for our customers, whilst supporting our own cost saving programme and our focus on food. The changes we are making to our cafes, hot food counters and bakeries will create GBP125-150 million of savings over three years and we will continue to explore ways to work with partners to drive value and improve service for our customers.
We are proud of our strong relationships with suppliers and are continuing to work closely with them to drive value and simplify processes, enabling us to lower our cost to serve and buy better, as well as minimising the impact of rising inflation as much as possible for customers.
Plan for Better
This year we have accelerated our sustainability goals, as set out in our Plan for Better. We have made good progress against our programme of change and have announced a more ambitious target towards becoming a Net Zero business.
Better for the planet
We are strengthening our commitment to tackle the climate crisis by accelerating our target to become Net Zero in our operations by 2035, five years earlier than our initial ambition and in alignment with the UN's own goal to limit global warming. Outside of our operations, we also have introduced an ambitious Scope 3 target, which requires the reduction of absolute GHG (greenhouse gas) emissions by 30 per cent by 2030, to align to well below the 2degC scenario of the Paris Agreement. The target includes reducing emissions from purchased goods, upstream transport and distribution, services sold and our customers' use and consumption of the products we sell. By delivering against our Scope 3 targets by 2030, we will help customers make more sustainable product choices.
Overall, we have reduced our absolute GHG emissions within our operations to 762,119 tCO2e, a reduction of 7 per cent year-on-year and 20 per cent from our 2018/19 baseline, keeping us on course for our new 2035 target. We have hit some key milestones in our plan, including the roll out of LED lighting across 100 per cent of our supermarket estate and transitioning to 100 per cent renewable electricity. We have also committed to the long-term purchasing of renewable energy from new wind farms and solar projects, significantly reducing our reliance on fossil fuels. For the eighth consecutive year we were awarded an A rating for climate change by CDP, an environmental impact disclosure system, and are the only UK retailer to have achieved this.
We were proud to be the Principal Supermarket Partner of COP26 in Glasgow in November. Alongside announcing our commitment to becoming Net Zero five years ahead of schedule, we joined other retailers to sign WWF's Retailers' Commitment For Nature, pledging to come together to halve the environmental impact of the UK food sector by 2030.
We have introduced measures to reduce the amount of plastic packaging we use. We no longer sell plastic straws, equating to the removal of 18.5 million plastic straws from circulation and reducing plastic by 6.6 tonnes. We have also introduced flexible plastic recycling collection points at all of our supermarkets to make it easier for our customers to recycle.
Better for Everyone
In line with our commitment to reduce food waste by 50 per cent by 2035, we have increased our food distribution to people by 119 per cent year on year. In August, we partnered with Neighbourly and from August to March we donated over 2.5 million meals, which is equivalent to a GBP4.8 million saving to charities and community groups(6) .
Supply chain transparency is one our highest priorities and having previously published our Tier 1 clothing sites, this year we also published our Tier 1 food sites. This provides even greater transparency across our categories and we have committed to publishing additional lists of our General Merchandise and Goods Not for Resale sites this year.
Reflecting our drive for inclusivity, this year our ethnically diverse colleague network 'I AM ME' was recognised in the Top 10 Network Groups at the UK Ethnicity Awards and we joined the Black British Network to help improve representation even further across the business. We also committed GBP1 million in donations to Black charities and community groups supporting education, social mobility, Black businesses and food insecurity, areas which our colleagues and customers identified as especially important to them.
This year we raised over GBP6 million for Comic Relief, in addition to the GBP2 million we donated as a business to support the humanitarian crisis in Ukraine, followed by an additional GBP600,000 raised by our customers. We are proud to support the communities we serve and this year have raised a total of GBP38.4 million for good causes.
Better for You
Our Better for You pillar prioritises delivering healthy and sustainable diets for all. As the cost of living rises, we are more committed than ever to supporting healthy diets by keeping prices low on every day, staple items, including fresh and produce.
As part of our target to measure healthy and sustainable diets, we announced our goal to achieve at least 83.1 per cent of 'healthy' and 'better for you' sales by 2025. We are currently flat year on year at 80 per cent. We also disclosed our protein sales, with 72 per cent of protein sales being plant based and meat-free products, of which 12 per cent is entirely plant based.
To encourage customers to follow a healthy diet, we continued to support the government's Healthy Start vouchers. During the six-month programme, we topped up these vouchers to a higher value than any other retailer and helped over 17,000 customers take home an additional 1.2 million portions of fruit and vegetables.
(1) NielsenIQ Panel volume growth YoY and Yo2Y. Total FMCG (excluding Kiosk & Tobacco), 52 weeks to March 2022. Market Universe: Total Outlets
(2) Refer to alternative performance measures for definitions and reconciliation to statutory measures
(3) Results for 2021 and 2020 have been restated to remove business rates from onerous contract provisions in line with IFRIC 21. Refer to note 2 of financial statements
(4) Nielsen panel data, Top 100 SKUs by retailer. Average Selling Price YoY growth to March 2022
(5) Competitor Benchmarking survey, supermarket and online customer satisfaction
(6) Based on GBP1.90 per meal
(7) Special dividend is included against FY 2019/20 to aid comparability
(8) NielsenIQ Panel online value share. Total FMCG (excluding Kiosk & Tobacco), 52 weeks to March 2022. Market Universe: Total Outlets
(9) Edge by Ascential data, internal modelling
Financial Review of the year results for the 52 weeks to 5 March 2022
In the 52 weeks to 5 March 2022, the Group generated profit before tax of GBP854 million (2020/21: loss before tax of GBP164 million; 2019/20: profit before tax of GBP278 million) and an underlying profit before tax of GBP730 million (2020/21: GBP357 million; 2019/20: GBP586 million). COVID-19 caused significant distortions to trading, operating costs and timing of business rates costs in 2020/21. Therefore in some cases commentary has been provided versus the pre-COVID-19 2019/20 financial year.
A number of Alternative Performance Measures ('APMs') have been adopted by the Directors to provide additional information on the underlying performance of the Group. These measures are intended to supplement, rather than replace the measures provided under IFRS. Please see pages 50 to 54 for further information
Summary income statement 52 weeks to 52 weeks to 05 March 06 March Change 2022 2021(1) GBPm GBPm % Group sales (including VAT) 33,355 32,285 3.3 Retail sales (including VAT) 32,924 31,854 3.4 Retail sales (excluding fuel, including VAT) 28,095 28,837 (2.6) Group sales (excluding VAT) 29,895 29,048 2.9 Retail sales (excluding VAT) 29,463 28,617 3.0 Underlying operating profit/(loss) Retail 1,001 731 37 Financial services 38 (21) N/A ---------------------------------------------- ------------ ------------ ------- Total underlying operating profit 1,039 710 46 Underlying net finance costs (309) (353) 12 Underlying profit before tax 730 357 104 Items excluded from underlying results 124 (521) N/A ---------------------------------------------- ------------ ------------ ------- Profit/(Loss) before tax 854 (164) N/A Income tax expense (177) (37) 378 ---------------------------------------------- ------------ ------------ ------- Profit/(Loss) for the financial period 677 (201) N/A ---------------------------------------------- ------------ ------------ ------- Underlying basic earnings per share 25.4p 11.7p 117 Basic earnings/(loss) per share 29.8p (9.4)p N/A Interim Dividend per share 3.2p 3.2p - Final Dividend per share 9.9p 7.4p 34 Total Dividend per share 13.1p 10.6p 24 ---------------------------------------------- ------------ ------------ -------
1 The prior year results have been restated to reflect the removal of business rates from onerous property contract provisions. Refer to note 2 of the accounts for further information.
Underlying profit before tax is up GBP373 million, and up GBP144 million compared to 2019/20, driven by continued elevated sales despite much lower COVID-19 costs, falling finance costs, and the delivery of the Argos Transformation programme, offset by increased variable pay. We have made strong progress on our Save to Invest plans, with an 83bps reduction in operating costs allowing for considerable investments to improve value for customers.
Group sales
Group sales (including VAT, including fuel) increased by 3.3 per cent year-on-year. Retail sales (including VAT, excluding fuel) decreased by 2.6 per cent, as General Merchandise sales moderated, but remained ahead of 2019/20. Fuel sales increased by 60.0 per cent and Financial Services sales increased by 0.2 per cent.
Total sales performance by category 52 weeks to 52 weeks to 52 weeks to YoY Yo2Y 05 March 2022 06 March 2021 07 March 2020 Change Change GBPbn GBPbn GBPbn % % Grocery 21.0 21.1 19.5 (0.2)% 7.6% General Merchandise 6.1 6.9 6.4 (11.9)% (4.6)% Clothing 1.0 0.9 1.0 12.7% 3.1% Retail (exc. fuel) 28.1 28.8 26.9 (2.6)% 4.6% Fuel sales 4.8 3.0 4.9 60.0% (2.6)% Retail (inc. fuel) 32.9 31.9 31.8 3.4% 3.5% ------------------------------------- -------------- -------------- -------------- -------- -------
Grocery sales remained significantly above pre-pandemic levels reflecting a sustained shift of consumption in-home. In line with the reduction of government restrictions during the period, sales were stronger in the first half, and moderated in the second half, albeit at a level still higher than 2019/20. We delivered a strong volume market share performance, supported by our value investments for customers. We inflated prices behind the market and key competitors on high volume lines supported by our Sainsbury's Quality, Aldi Price Match programme and other value initiatives.
General Merchandise sales declined, reflecting tough comparators and availability challenges driven by both product supply and freight availability. Clothing recovered strongly from a year of suppressed demand with growth driven by full price sales and increased in-store sales.
Fuel sales increased by 60.0 per cent, driven by both increased demand as traffic volumes recovered and inflation in the market driven by higher oil prices, but remained below pre COVID-19 levels.
Total sales performance by channel 52 weeks to 52 weeks to 05 March 2022 06 March 2021 -------------- -------------- Total Sales fulfilled by Supermarket stores (2.0)% 11.4% Supermarkets (inc Argos stores in Sainsbury's) (1.8)% 2.5% Groceries Online (4.7)% 119.6% Convenience 8.8% (9.4)% ------------------------------------------------------ -------------- --------------
Overall sales served from our Supermarkets fell by 2.0 per cent after rising 11.4 per cent in the prior year. Within this, Supermarket sales including Argos stores in Sainsbury's fell by 1.8 per cent. Groceries Online sales decreased by 4.7 per cent, as COVID-19 restrictions ended and demand moderated through the year after rapid growth of almost 120 per cent in the previous year. Convenience sales grew by 8.8 per cent, driven by the recovery of sales in urban sites most impacted by reduced footfall in the previous year.
Retail like-for-like sales performance 52 weeks to 52 weeks to 05 March 2022 06 March 2021 ---------------------------------------- -------------- -------------- Like-for-like sales (exc. fuel) (2.3)% 8.1% Like-for-like sales (inc. fuel) 3.6% 0.7% ----------------------------------------- --------------
Retail like-for-like ('LFL') sales, excluding fuel, decreased by 2.3 per cent (2020/21: 8.1 per cent increase), reflecting lower General Merchandise sales, but showed strong growth versus 2019/20 led by Grocery sales. The impact of stores temporarily closed due to COVID-19 have been included within LFL sales, with only permanently closed sites treated as not LFL.
Space
In 2021/22, Sainsbury's opened four new supermarkets and closed four (2020/21: opened one new supermarket and closed 11 ). There were 19 new Convenience stores opened in the year and 23 were closed (2020/21: 15 opened and nine stores closed).
During the period 64 new Argos stores in Sainsbury's were opened and 73 standalone Argos stores were closed, in line with our Argos Transformation plan. The number of Argos collection points in Sainsbury's stores increased from 306 to 335. As at 5 March 2022, Argos had 728 stores including 400 stores in Sainsbury's.
Store numbers and retailing space As at As at ----------- --------------------- ---------------------------- 06 March 05 March Extensions / refurbishments 2021 New stores Disposals / closures / downsizes 2022 ------------------------------ --------- ----------- --------------------- ---------------------------- --------- Supermarkets 598 4 (4) 65 598 Supermarkets area '000 sq. ft. 20,822 134 (78) (75) 20,803 Convenience 813 19 (23) 1 809 Convenience area '000 sq. ft. 1,929 42 (54) 1 1,918 Sainsbury's total store numbers 1,411 23 (27) 66 1,407 ------------------------------ --------- ----------- --------------------- ---------------------------- --------- Argos stores 401 - (73) - 328 Argos stores in Sainsbury's 336 64 - - 400 Argos in Homebase - - - - - Argos total store numbers 737 64 (73) - 728 Argos collection points 306 62 (33) - 335 Habitat 3 - - - 3 ------------------------------ --------- ----------- --------------------- ---------------------------- ---------
In 2022/23, we expect to open one supermarket and around 20 new convenience stores, and to close around two supermarkets and five convenience stores. In addition, we expect to open around 25 Argos stores inside Sainsbury's, and close around 60 Argos standalone stores.
In the UK, the standalone Argos store estate will reduce to around 100 stores by March 2024, while we expect to have 430-460 Argos stores inside Sainsbury's supermarkets as well as 450-500 collection points.
Retail underlying operating profit
52 weeks to 52 weeks to 52 weeks to YoY Yo2Y 05 March 06 March 07 March 2022 2021(1) 2020(1) Change Change Retail underlying operating profit (GBPm)(2) 1,001 731 938 36.9% 6.7% Retail underlying operating margin (%)(3) 3.40 2.55 3.30 85bps 10bps Retail underlying EBITDA (GBPm)(4) 2,145 1,910 2,135 12.3% 0.5% Retail underlying EBITDA margin (%)(5) 7.28 6.67 7.51 61bps (23)bps ---------------------------------------------- ------------ ------------ ------------ ------- --------
1 The prior year results have been restated to reflect the removal of business rates from onerous property contract provisions. Refer to note 2 of the accounts for further information.
2 Retail underlying earnings before interest, tax and Sainsbury's underlying share of post-tax profit from joint ventures.
3 Retail underlying operating profit divided by retail sales excluding VAT.
4 Retail underlying operating profit before underlying depreciation and amortisation of GBP1,144 million.
5 Retail underlying EBITDA divided by retail sales excluding VAT.
Retail underlying operating profit increased by 36.9 per cent to GBP1,001 million (2020/21: GBP731 million) and retail underlying operating margin increased by 85 basis points year-on-year to 3.40 per cent (2020/21: 2.55 per cent). COVID-19 costs reduced materially year on year to GBP82 million (2020/21: GBP485 million).
Retail underlying operating profit was up 6.7 per cent versus two years ago (2019/20: GBP938 million), reflecting sales growth and a retail underlying operating margin improvement of 10bps. Our Save to Invest programme delivered an 83bps reduction in operating costs as a percentage of sales versus 2019/20. We have invested much of this benefit, as well as benefits from fuel and more profitable clothing and general merchandise sales into lower grocery prices, targeted at key products for customers, driving strong volume growth.
Savings were delivered across the business, with significant contributions from our retail operating model work, both for in Store and Online where annualisation of rapid growth in the prior year allowed material efficiencies. Argos transformation continued to deliver savings as we integrate the two businesses and reduce occupancy and store operational costs . Savings from our Logistics Transformation programme helped to mitigate the significant cost pressures felt.
In 2022/23, Sainsbury's expects a retail underlying depreciation and amortisation charge of around GBP1.2 billion, including around GBP500 million right of use asset depreciation.
Financial Services
Financial Services results 12 months to 28 February 2022 2022 2021 Change -------------------------------------------- Underlying revenue (GBPm) 432 431 0% Interest and fees payable (GBPm) (57) (90) (37)% Total income (GBPm) 375 341 10% Underlying operating profit/(loss) (GBPm) 38 (21) N/A -------------------------------------------- ------ ------ --------- Net interest margin (%)(1) 4.5 3.5 100bps Cost:income ratio (%) 74 74 - Bad debt as a percentage of lending (%)(2) 1.2 1.8 60bps Active customers (m) - Bank 1.8 1.8 - Active customers (m) - AFS 2.1 2.2 (4)% Tier 1 capital ratio (%)(3) 15.6 17.6 (200)bps Total capital ratio (%)(4) 18.1 20.2 (210)bps Unsecured lending (GBPbn) 4.3 4.1 5% Secured lending (GBPbn) 0.8 1.3 (38)% Customer deposits (GBPbn) (4.2) (5.1) (18)% -------------------------------------------- ------ ------ --------- 1 Net interest receivable divided by average interest-bearing assets. 2 Bad debt expense divided by average net lending.
3 Common equity Tier 1 capital divided by risk-weighted assets. Reflects impact of dividend declared.
4 Total capital divided by risk-weighted assets.
Financial Services returned to profit with underlying operating profit of GBP38 million (2020/21: loss of GBP21 million). This reflects both a reduction in credit provisioning as the unemployment outlook improved, a release of some COVID-19 related bad debt provisions made in 2020/21 and improvements in net interest margin. Unsecured lending balances were lower on average through the year, but recovered well in the second half and ended the year up 5 per cent.
Financial Services total income of GBP375 million increased by 10 per cent year-on-year (FY 2020/21: GBP341 million). Net interest margin recovery is reflective of management action to reduce interest payable through savings rates alongside improvements in unsecured asset margins and a lower mix of secured lending (following our decision to cease new mortgage lending in 2019). Fee income has risen as activity post lockdown increased, with ATMs and Card fees both recovering, whilst Travel Money remains subdued but is higher than last year.
The Financial Services cost:income ratio is flat at 74.0 per cent (FY 2020/21: 74.0 per cent). Of the GBP27 million increase in costs, GBP17m reflects higher royalty payments to Argos, therefore the ratio is down on a group contribution basis.
Bad debt expense as a percentage of lending decreased 60 basis points year-on-year to 1.2 per cent (FY 2020/21: 1.8 per cent), driven by stable arrears and the improving economic outlook. We released GBP12 million of our COVID provision, reflecting the more positive economic outlook, particularly in relation to forecast unemployment.
In line with the group strategic priority Brands that Deliver, and reflecting the Bank's strong capital position, a GBP50 million dividend has been paid. This is a key milestone as we start to deliver on our commitment that Financial Services will be cash generative for the Group. The Bank remains well capitalised with a CET1 ratio of 15.6 per cent, a decrease from 17.6 per cent last year driven by this dividend payment.
We expect a further improvement in Financial Services underlying operating profit in the year ahead.
Underlying net finance costs
Underlying net finance costs reduced by 12 per cent to GBP309 million (2020/21: GBP353 million). These costs include GBP40 million of net non-lease interest (2020/21: GBP60 million). The reduction of net non-lease interest is driven by the repayment of the GBP200m Green loan in August 2021 and redemption of the perpetual convertible bonds in July 2021. The net interest costs on lease liabilities have reduced to GBP269 million (202/21: GBP293 million), mainly due to lower interest rates on new leases.
Sainsbury's expects underlying net finance costs in 2022/23 of between GBP315 million - GBP325 million, including around GBP270 million - GBP280 million lease interest.
Items excluded from underlying results
In order to provide shareholders with insight into the underlying performance of the business, items recognised in reported profit or loss before tax which, by virtue of their size and or nature, do not reflect the Group's underlying performance are excluded from the Group's underlying results and shown in the table below.
Items excluded from underlying results 52 weeks to 52 weeks to 05 March 2022 06 March 2021(1) GBPm GBPm ------------------------------------------------- -------------- ----------------- Restructuring and integration programmes (103) (345) Impairment charges - (220) ------------------------------------------------- -------------- ----------------- Restructuring, impairment and integration (103) (565) Income recognised in relation to legal disputes 182 42 Software as a service accounting adjustment (21) - IAS 19 pension income 11 6 Property, finance and acquisition adjustments 55 (4) Items excluded from underlying results 124 (521) ------------------------------------------------- -------------- -----------------
1 The prior year results have been restated to reflect the removal of business rates from onerous property contract provisions. Refer to note 2 of the accounts for further information.
- Restructuring, impairment and integration costs of GBP103 million (2020/21: GBP565 million) include GBP92 million (2020/21: GBP548 million) relating to the programme announced in November 2020 for the structural integration of Sainsbury's and Argos. We expect that we will incur one off costs from these infrastructure, operating model and structure changes of GBP900 million to GBP1 billion, with cash costs of around GBP300m million, with the majority in the period to March 2024. In line with IFRIC 21 "Levies", business rates are now recognised as a periodic cost as incurred and as such we expect approximately GBP40 million of business rates associated with leased properties in the restructuring programme to be recognised after the year ended March 2024. Refer to note 2 for further details. Cash costs in the year were GBP114 million (2020/21: GBP39 million). To date we have incurred costs of GBP640 million and cash costs of GBP153 million. In 2022/23 we expect to incur cash costs of around GBP100 million in relation to this programme.
- Income recognised in relation to legal disputes of GBP182 million (2020/21: GBP42 million) primarily relates to two settlements for overcharges from payment card processing fees. GBP75 million of cash was received in prior financial years and held as deferred income, with GBP93 million of cash received in the year net of legal fees. The prior year relates to ATM business rates reimbursement, and GBP14 million of cash was received in the year in relation to these.
- Software as a service accounting policy change resulted in a non-cash cost of GBP21 million (2020/21: Nil) following the IFRS interpretations committee clarification of how these costs should be treated. These costs represent the prior year impacts of this change.
- IAS 19 Pension income of GBP11 million (2020/21: GBP6 million) comprises pension finance income of GBP15 million and scheme expenses of GBP4 million.
- Other movements of GBP55 million income (2020/21: cost of GBP4 million) relate to property profits, acquisition adjustments and non-underlying financing costs. The positive movement year on year is driven by a gain on energy derivatives of GBP76 million driven by higher energy prices. The energy derivatives relate to long-term, fixed price power purchase arrangements (PPAs) with independent producers. These are accounted for as derivative financial instruments, however are not designated in hedging relationships, therefore gains and losses are recognised in the income statement. Increases in electricity forward prices in the year have led to gains on the related derivative financial instruments. During the year, the Group entered into an additional PPA, however have designated this in a formal hedging relationship, with gains and losses being recognised within other comprehensive income.
Taxation
The tax charge was GBP177 million (2020/21: GBP37 million). The underlying tax rate (UTR) was 21.1 per cent (2020/21: 29.4 per cent) and the effective tax rate (ETR) was 20.7 per cent (2020/21: (22.6) per cent).
The UTR is lower than the prior year, with the higher underlying profit resulting in a smaller percentage impact from non-qualifying deprecation and the impact of accounting for the rate change on the recognition of deferred tax. Unlike previous periods, there is a positive impact on the UTR of prior year adjustments for corporation tax, reflecting the release of historic provisions held in respect of now agreed tax returns.
The ETR is significantly higher than the prior year, primarily due to the accounting loss in FY21. The major impact on the ETR in the current year relates to the non-deductibility of non-underlying costs and the impact of prior year adjustments to non-underlying items.
Sainsbury's expects an underlying tax rate in 2022/23 of around 25 per cent.
Earnings per share
Underlying basic earnings per share increased to 25.4 pence (2020/21: 11.7 pence) driven by the increase in underlying earnings, partially offset by a higher share count. Basic earnings per share was 29.8 pence (2020/21: (9.4) pence loss per share).
Dividends
The Board has recommended a final dividend of 9.9 pence per share (2020/21: 7.4 pence). This will be paid on 15(th) July 2022 to shareholders on the Register of Members at the close of business on 10(th) June 2022. In line with the Group's policy to keep the dividend covered 1.9 times by underlying earnings, this will result in an increased full-year dividend of 13.1 pence (2020/21: 10.6 pence), an increase of 24 per cent.
Sainsbury's has a Dividend Reinvestment Plan (DRIP), which allows shareholders to reinvest their cash dividends in our shares. The last date that shareholders can elect for the DRIP is 24(th) June 2022.
We have laid out a capital allocation framework, signalling that we will prioritise the right level of investment to support our strategy and an investment grade balance sheet but that we expect to pay a higher proportion of underlying net earnings to shareholders, in the first instance through an increase in the dividend pay-out ratio to around 60 per cent from around 53 per cent.
Net debt and retail cash flows
As at 5 March 2022, net debt was GBP6,759 million (6 March 2021: GBP6,469 million), an increase of GBP290 million (2020/21: GBP478 million reduction). Excluding the impact of lease liabilities on net debt, Sainsbury's reduced net debt by GBP499 million in the year of which GBP240 million results from the conversion of the perpetual convertible bond in July 2021. Non lease net debt is now GBP1,381 million lower than at 2018/19 year end, exceeding the four-year GBP950 million non lease net debt reduction target we had communicated with a year to spare, even excluding the impact of the perpetual convertible bond. Sainsbury's expects to generate retail free cashflow of at least GBP500 million per annum on average for the next three years.
Group net debt includes the impact of capital injections into Sainsbury's Bank, less dividends received, but excludes Financial Services' own net debt balances. Financial Services balances are excluded because they are part of the daily operating cycle of the Bank rather than for financing purposes.
Net debt includes lease liabilities under IFRS 16 of GBP6,618 million (2020/21: GBP5,829 million). Lease liabilities increased by GBP789 million, primarily reflecting the impact of exercising purchase options on 21 leased supermarkets held by property investment pools in which the Group holds an interest. Following the exercise of the options, the lease liabilities have been remeasured based on the estimated purchase price of the stores.
Summary cash flow statement (1) Retail Retail 52 weeks to 52 weeks to 05 March 2022 06 March 2021 GBPm GBPm ------------------------------------------------------------------------- --------------------------- -------------- Retail underlying operating profit 1,001 731 ------------------------------------------------------------------------- --------------------------- -------------- Adjustments for: Retail underlying depreciation and amortisation 1,144 1,179
Share based payments and other 54 26 Retail exceptional operating cash flows (excluding pensions) (3) (12) Adjusted retail operating cash flow before changes in working capital(2) 2,196 1,924 ------------------------------------------------------------------------- --------------------------- -------------- (Increase)/decrease in working capital(3) (185) 452 ------------------------------------------------------------------------- --------------------------- -------------- Net interest paid(3) (323) (372) Pension cash contributions (71) (101) Corporation tax paid (23) (94) --------------------------- -------------- Net cash generated from operating activities(3) 1,594 1,809 ------------------------------------------------------------------------- --------------------------- -------------- Cash capital expenditure(3) (645) (568) Repayments of obligations under leases(3) (491) (499) Initial direct costs on right-of-use assets (3) (7) Proceeds from disposal of property, plant and equipment 46 27 Dividends and distributions received(3) 2 22 Retail free cash flow(3) 503 784 ------------------------------------------------------------------------- --------------------------- -------------- Dividends paid on ordinary shares (238) (232) Repayment of borrowings(3) (256) (539) Other(3) (27) (13) Net (decrease)/increase in cash and cash equivalents (18) 0 ------------------------------------------------------------------------- --------------------------- -------------- Decrease in Debt 747 1,038 Conversion of perpetual convertible bond(4) 240 - Other non-cash and net interest movements(5) (1,259) (560) Movement in net debt (290) 478 ------------------------------------------------------------------------- --------------------------- -------------- Opening net debt (6,469) (6,947) ------------------------------------------------------------------------- Closing net debt (6,759) (6,469) ------------------------------------------------------------------------- --------------------------- -------------- of which Lease Liabilities (6,618) (5,829) ------------------------------------------------------------------------- --------------------------- -------------- Net Debt Excluding Lease Liabilities (141) (640) ------------------------------------------------------------------------- --------------------------- --------------
1 See note 6 for a reconciliation between Retail and Group cash flow. The prior year results have been restated to reflect the removal of business rates from onerous property contract provisions. Refer to note 2 of the accounts for further information.
2 Excludes working capital and pension contributions. 3 Refer to the Alternative Performance Measures on pages 50 to 54 for reconciliation.
4 GBP242 million of the GBP250 million perpetual convertible bond converted. Given a carrying value of GBP248 million this resulted in a GBP240 million reduction in net debt.
5 Other non-cash includes new leases and lease modifications and fair value movements on derivatives used for hedging long term borrowings.
Adjusted retail operating cash flow before changes in working capital increased by GBP272 million year-on-year to GBP2,196 million (2020/21: GBP1,924 million). Retail non underlying operating cashflows of GBP3 million cost (2020/21: GBP12 million cost) reflected legal disputes income offsetting restructuring costs. Working capital increased by GBP185 million (2020/21: GBP452 million decrease), in line with expectations as our working capital position normalised compared to a prior year where both our stock and payables positions were heavily impacted by COVID-19 trading patterns.
Corporation tax paid decreased to GBP23 million (2020/21: GBP94 million) reflecting payments made in the prior year before the decision to forego business rates relief which subsequently impacted taxable profits. Proceeds from disposals of GBP46 million (2020/21: GBP27 million) resulted from disposals of non-trading sites.
Retail free cash flow decreased by GBP281 million year-on-year to GBP503 million (2020/21: GBP784 million), driven by the working capital reduction in the prior year with some of this reversing in the current year. Retail Free cash flow was used to fund dividends and reduce borrowings.
Dividends of GBP238 million were paid in the year, which were covered 2.1 times by free cash flow (2020/21: 3.3 times).
The Group held undrawn committed credit facilities of GBP1,394 million and undrawn uncommitted facilities of GBP245 million as at 5 March 2022.
Capital expenditure
Core retail cash capital expenditure was GBP645 million (2020/21: GBP568 million). This was lower than expected due to a number of projects being delayed due to COVID-19.
Sainsbury's expects core retail cash capital expenditure (excluding Financial Services) to be around 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 05 March 2022 06 March 2021(1) Return on capital employed (%) (2) 8.4 5.6 Net debt to EBITDA (3) 3.1 times 3.4 times Fixed charge cover (4) 2.8 times 2.2 times ------------------------------------ -------------- -----------------
1 The prior year results have been restated to reflect the removal of business rates from onerous property contract provisions. Refer to note 2 of the accounts for further information.
2 ROCE: Return is defined as a 52 week rolling underlying profit before interest and tax. Capital employed is defined as group net assets excluding the pension deficit/surplus less net debt (excluding perpetual securities). This is calculated using the average of 14 datapoints - the prior year closing capital employed, the current year closing capital employed and 12 intra-year periods as this more closely aligns to the recognition of profit / loss.
3 Net debt of GBP6,759 million includes lease obligations under IFRS 16 and perpetual securities treated as debt, divided by Group underlying EBITDA of GBP2,206 million.
4 Group underlying EBITDA divided by rent (both capital and interest) and net underlying finance costs, where interest on perpetual securities is treated as an underlying finance cost.
All three metrics saw significant improvements due to the recovery of profit and EBITDA following a prior year heavily impacted by COVID-19. Our net debt to EBITDA metric showed a smaller improvement as net debt increased, with the increase in lease liabilities more than offsetting significant non lease net debt reduction.
Property value
As at 5 March 2022, Sainsbury's estimated market value of properties, with values based on a 25 year lease with RPI increases, including our share of properties held within property joint ventures or investment vehicles, was GBP10.9 billion (6 March 2021: GBP10.1 billion), with the increase primarily driven by a reduction in property yields.
Defined benefit pensions
The Pension Scheme is valued on different bases for different purposes. For the corporate annual accounts, the value of the retirement benefit is calculated under IAS19 while the funding of the Scheme is determined by the Trustee's triennial valuation. The last triennial valuation, as at 30 September 2018, showed a deficit of GBP538 million. The Trustee is currently carrying out the latest triennial valuation as at 30 September 2021.
At 5 March 2022, the net defined benefit surplus under IAS19 for the Group was GBP2,283 million (excluding deferred tax). The GBP1,539 million increase from 6 March 2021 was driven by both changes in financial assumptions which resulted in a net gain, an adjustment to mortality assumptions and updated experience which lowered liabilities, in addition to gains on plan assets.
During the year, the Sainsbury's section of the Scheme reached full funding on the stronger, secondary funding target agreed as part of the 2018 triennial valuation. This has resulted in one of the three streams of contributions payable to the Scheme under the Asset Backed Contributions funding framework switching off and another stream switching to the Argos section, until that section is also fully funded. Total contributions to the Scheme will therefore reduce by GBP15 million a year.
For 2022/23, total pension scheme cash contributions are expected to be GBP62 million.
Retirement benefit obligations Sainsbury's Argos Group Group as at as at as at as at 05 March 2022 05 March 2022 05 March 2022 06 March 2021 GBPm GBPm GBPm GBPm Present value of funded obligations (8,060) (1,313) (9,373) (10,218) Fair value of plan assets 10,158 1,535 11,693 11,000 Pension surplus 2,098 222 2,320 782 Present value of unfunded obligations (20) (17) (37) (38) --------------------------------------- -------------- -------------- -------------- -------------- Retirement benefit surplus 2,078 205 2,283 744 Deferred income tax liability (562) (78) (640) (192) --------------------------------------- -------------- -------------- -------------- -------------- Net retirement benefit surplus 1,516 127 1,643 552 --------------------------------------- -------------- -------------- -------------- --------------
Consolidated income statement
for the 52 weeks to 5 March 2022
52 weeks to 5 March 52 weeks to 6 March 2022 2021 (Restated) ------------------- ----- -------------------------------------------- -------------------------------------------- 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 5 29,895 - 29,895 29,048 - 29,048 Cost of sales (27,538) 9 (27,529) (26,870) (333) (27,203) Gross profit/(loss) 2,357 9 2,366 2,178 (333) 1,845 Administrative expenses (1,352) (78) (1,430) (1,480) (222) (1,702) Other income 34 186 220 12 1 13 ------------------- ----- ---------------- --------------- --------- ---------------- --------------- --------- Operating profit/(loss) 1,039 117 1,156 710 (554) 156 Finance income 8 3 17 20 3 29 32 Finance costs 8 (312) (10) (322) (356) 4 (352) --------- Profit/(loss) before tax 730 124 854 357 (521) (164) Income tax (expense)/credit 9 (154) (23) (177) (105) 68 (37) ------------------- ----- --------- --------- Profit/(loss) for the financial period 576 101 677 252 (453) (201) ------------------- ----- ---------------- --------------- --------- ---------------- --------------- --------- Earnings/(loss) per share 10 pence pence ------------------- ----- ---------------- --------------- --------- ---------------- --------------- --------- Basic earnings/(loss) 29.8 (9.4) Diluted earnings/(loss) 28.8 (9.4) ------------------- ----- ---------------- --------------- --------- ---------------- --------------- ---------
Refer to note 2 for details of prior year restatements.
Consolidated statement of comprehensive income/(loss)
for the 52 weeks to 5 March 2022
52 weeks to 6 March 2021 52 weeks to 5 March 2022 (Restated) ----- --------- ------------- Note GBPm GBPm ----- --------- ------------- Profit/(loss) for the financial year 677 (201) --------------------------------------------------------- ----- --------- ------------- Items that will not be reclassified subsequently to the income statement ----- --------- ------------- Remeasurement on defined benefit pension schemes 19 1,457 (482) ----- Movements on financial assets at fair value through other comprehensive income 76 55 Cash flow hedges fair value movements - inventory hedges 73 (60) Current tax relating to items not reclassified - 44 Deferred tax relating to items not reclassified (461) 9 --------------------------------------------------------- ----- --------- ------------- 1,145 (434) --------------------------------------------------------- ----- --------- ------------- Items that may be reclassified subsequently to the income statement ----- Currency translation differences (1) (5) ----- Movements on financial assets at fair value through other comprehensive income (5) 2 ----- Items reclassified from financial assets at fair value through other comprehensive income reserve 4 - ----- Cash flow hedges fair value movements - non-inventory hedges 131 (1) ----- Items reclassified from cash flow hedge reserve 7 13 ----- Deferred tax on items that may be reclassified (57) 10 --------------------------------------------------------- ----- --------- ------------- 79 19 Total other comprehensive income/(loss) for the year (net of tax) 1,224 (415) --------------------------------------------------------- ----- --------- ------------- Total comprehensive income/(loss) for the year 1,901 (616) --------------------------------------------------------- ----- --------- -------------
Refer to note 2 for details of prior year restatements.
Consolidated balance sheet
At 5 March 2022, 6 March 2021 and 7 March 2020
6 March 7 March 2021 2020 5 March 2022 (Restated) (Restated) Note GBPm GBPm GBPm ----------------------------------------------- ----- --------- ------------- ------------- Non-current assets Property, plant and equipment 12 8,402 8,587 8,949 Right of use assets 13 5,560 4,747 4,826 Intangible assets 14 1,006 914 974 Investments in joint ventures and associates 3 5 9 Financial assets at fair value through other comprehensive income 604 754 972 Trade and other receivables 65 50 43 Amounts due from Financial Services customers and other banks 2,026 2,280 3,453 Derivative financial assets 213 8 6 Net retirement benefit surplus 19 2,283 744 1,119 ----------------------------------------------- ----- --------- ------------- ------------- 20,162 18,089 20,351 ----------------------------------------------- ----- --------- ------------- ------------- Current assets Inventories 1,797 1,625 1,732 Trade and other receivables 683 725 811 Amounts due from Financial Services customers and other banks 3,163 3,127 3,951 Financial assets at fair value through other comprehensive income 196 90 82 Derivative financial assets 78 5 12 Cash and cash equivalents 16 825 1,575 994 ----------------------------------------------- ----- ------------- ------------- 6,742 7,147 7,582 Assets held for sale 8 24 4 ----------------------------------------------- ----- --------- ------------- ------------- 6,750 7,171 7,586 ----------------------------------------------- ----- --------- ------------- ------------- Total assets 26,912 25,260 27,937 ----------------------------------------------- ----- --------- ------------- ------------- Current liabilities Trade and other payables (4,546) (4,488) (4,275) Amounts due to Financial Services customers and other deposits (4,444) (6,086) (6,890) Borrowings 18 (54) (356) (48) Lease liabilities 13 (526) (524) (510) Derivative financial liabilities (29) (93) (53) Taxes payable (169) (83) (168) Provisions 15 (100) (199) (106) ----------------------------------------------- ----- ------------- ------------- (9,868) (11,829) (12,050) ----------------------------------------------- ----- --------- ------------- ------------- Net current liabilities (3,118) (4,658) (4,464) ----------------------------------------------- ----- --------- ------------- ------------- Non-current liabilities Other payables (24) (20) (11) Amounts due to Financial Services customers and other deposits (815) (203) (1,204) Borrowings 18 (707) (748) (1,248) Lease liabilities 13 (6,095) (5,310) (5,264) Derivative financial liabilities (3) (44) (36) Deferred income tax liability (806) (255) (265) Provisions 15 (171) (150) (68) (8,621) (6,730) (8,096) Total liabilities (18,489) (18,559) (20,146) ----------------------------------------------- ----- --------- ------------- ------------- Net assets 8,423 6,701 7,791 ----------------------------------------------- ----- --------- ------------- ------------- Equity Called up share capital 668 637 634 Share premium 1,406 1,173 1,159 Merger reserve 568 568 568 Capital redemption reserve 680 680 680 Other reserves 409 167 168 Retained earnings 4,692 3,228 4,086 ----------------------------------------------- ----- ------------- ------------- Total equity before perpetual securities 8,423 6,453 7,295 Perpetual securities - 248 496 ----------------------------------------------- ----- --------- ------------- ------------- Total equity 8,423 6,701 7,791 ----------------------------------------------- ----- --------- ------------- -------------
Refer to note 2 for details of restatements.
Consolidated cash flow statement
for the 52 weeks to 5 March 2022
52 weeks 52 weeks to 5 March to 6 2022 March 2021 (Restated) Note GBPm GBPm ---------------------------------------------------------- ------- -------------------------- -------------------- Cash flows from operating activities Profit/(loss) before tax 854 (164) Net finance costs 302 320 Operating profit 1,156 156 Adjustments for: 12, Depreciation expense 13 1,069 1,113 Amortisation expense 14 151 136 Net impairment loss on property, plant and equipment, 12,13, right of use assets, intangible assets 14 9 321 Non-cash adjustments arising from acquisitions - (1) Financial Services movement in loss allowance for loans and advances to customers 19 85 Loss/(profit) on sale of non-current assets and early termination of leases (6) (17) Non-underlying fair value movements 4 (76) - Share-based payments expense 58 29 Defined benefit scheme expenses 19 4 13 Cash contributions to benefit schemes 19 (71) (101) Operating cash flows before changes in working capital 2,313 1,734 Changes in working capital (Increase)/decrease in inventories (179) 117 Decrease in financial assets at fair value through
other comprehensive income 115 267 Decrease in trade and other receivables 33 62 Decrease in amounts due from Financial Services customers and other deposits 161 1,912 Increase in trade and other payables 28 321 (Decrease) in amounts due to Financial Services customers and other deposits (1,030) (1,805) (Decrease)/increase in provisions and other liabilities (80) 177 Cash generated from operations 1,361 2,785 Interest paid (329) (349) Corporation tax paid (23) (93) Net cash generated from operating activities 1,009 2,343 ---------------------------------------------------------- ------- -------------------------- -------------------- Cash flows from investing activities Purchase of property, plant and equipment (416) (423) Initial direct costs on new leases (3) (7) Purchase of intangible assets (278) (172) Proceeds from disposal of property, plant and equipment 46 27 Dividends and distributions received 2 22 Net cash used in investing activities (649) (553) ---------------------------------------------------------- ------- -------------------------- -------------------- Cash flows from financing activities Proceeds from issuance of ordinary shares 21 17 Proceeds from borrowings - 660 Repayment of borrowings (248) (289) Repayment of short term borrowings - (660) Repayment of perpetual capital securities (8) (250) Purchase of own shares (48) (30) Repayment of capital element of lease obligations (493) (501) Dividends paid on ordinary shares 11 (238) (232) Dividends paid on perpetual securities (4) (23) Net cash used in financing activities (1,018) (1,308) ---------------------------------------------------------- ------- -------------------------- -------------------- Net (decrease)/increase in cash and cash equivalents (658) 482 Opening cash and cash equivalents 1,476 994 Closing cash and cash equivalents 16 818 1,476 ---------------------------------------------------------- ------- -------------------------- --------------------
Refer to note 2 for details of prior year restatement.
Consolidated statement of changes in equity
for the 52 weeks to 5 March 2022
Capital Total Called redemption equity up Share and before Perpetual Perpetual share premium Merger 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 7 March 2021 (as previously reported) 637 1,173 568 847 3,131 6,356 - 248 6,604 ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ ------- Opening balance adjustment - - - - 97 97 - - 97 ---------------- ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ ------- At 7 March 2021 (restated) 637 1,173 568 847 3,228 6,453 - 248 6,701 ---------------- ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ ------- Profit for the period - - - - 677 677 - - 677 ----- Other comprehensive income - - - 285 1,457 1,742 - - 1,742 ----- Tax relating to other comprehensive income - - - (87) (431) (518) - - (518) ---------------- ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ ------- Total comprehensive income for the period ended 5 March 2022 - - - 198 1,703 1,901 - - 1,901 ---------------- ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ ------- Cash flow hedges gains and losses transferred to inventory - - - 28 - 28 - - 28 ---------------- ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ ------- Transactions with owners: Dividends 11 - - - - (238) (238) - - (238) ---------------- ----- Share-based payment - - - - 60 60 - - 60 ---------------- ----- Purchase of own shares - - - - (48) (48) - - (48) ---------------- ----- Allotted in respect of share option schemes 5 17 - - (1) 21 - - 21 ---------------- ----- Conversion of perpetual convertible bonds 26 216 - - (2) 240 - (240) - ----- Repayment of perpetual convertible bonds - - - - - - - (8) (8) ----- Other adjustments - - - 16 (13) 3 - - 3 ----- Tax on items charged to equity - - - - 3 3 - - 3 ---------------- ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ ------- At 5 March 2022 668 1,406 568 1,089 4,692 8,423 - - 8,423 ---------------- ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ ------- Capital Total Called redemption equity up Share and before Perpetual Perpetual share premium Merger other Retained perpetual capital convertible Total capital account reserve reserves earnings securities securities bonds equity GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm At 8 March 2020 (as previously reported) 634 1,159 568 848 4,068 7,277 248 248 7,773 ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ ------- Opening balance adjustment - - - - 18 18 - - 18 At 8 March 2020
(restated) 634 1,159 568 848 4,086 7,295 248 248 7,791 ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ ------- (Loss)/profit for the period - - - - (208) (208) - 7 (201) ----- Other comprehensive income/(loss) - - - 4 (482) (478) - - (478) ----- Tax relating to other comprehensive income/(loss) - - - (4) 67 63 - - 63 ---------------- ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ ------- Total comprehensive loss for the period ended 6 March 2021 - - - - (623) (623) - 7 (616) ---------------- ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ ------- Cash flow hedges gains and losses transferred to inventory - - - (1) - (1) - - (1) ---------------- ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ ------- Transactions with owners: Dividends - - - - (232) (232) - - (232) ---------------- ----- Distribution to holders of perpetual securities - - - - - - - (7) (7) ---------------- ----- Share-based payment - - - - 29 29 - - 29 ---------------- ----- Purchase of own shares - - - - (30) (30) - - (30) ---------------- ----- Allotted in respect of share option schemes 3 14 - - - 17 - - 17 ---------------- ----- Redemption of perpetual capital securities - - - - (2) (2) (248) - (250) ---------------- ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ ------- At 6 March 2021 637 1,173 568 847 3,228 6,453 - 248 6,701 ---------------- ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Refer to note 2 for details of prior year restatement.
Notes to the consolidated financial statements
1 General information
The financial information, which comprises the Group income statement, Group statement of comprehensive income, Group balance sheet, Group cash flow statement, Group statement of changes in equity and related notes, is derived from the full Group financial statements for the 52 weeks to 5 March 2022 and does not constitute full accounts within the meaning of section 435 (1) and (2) of the Companies Act 2006.
The Group Annual Report and Financial Statements 2022 on which the auditors have given an unqualified report and which does not contain a statement under section 498 (2) or (3) of the Companies Act 2006, will be delivered to the Registrar of Companies in due course, and made available to shareholders in June 2022.
J Sainsbury plc is a public limited company (the 'Company') incorporated in the United Kingdom, whose shares are publicly traded on the London Stock Exchange. The Company is domiciled in the United Kingdom and its registered address is 33 Holborn, London EC1N 2HT, United Kingdom.
The financial year represents the 52 weeks to 5 March 2022 (prior financial year: 52 weeks to 6 March 2021). The consolidated financial statements for the 52 weeks to 5 March 2022 comprise the financial statements of the Company and its subsidiaries (the 'Group') and the Group's share of the post-tax results of its joint ventures and associates.
The Group's principal activities are Food, General Merchandise and Clothing retailing and Financial Services.
2 Basis of preparation
The Group's financial statements have been prepared in accordance with UK-adopted international accounting standards.
The financial statements are presented in sterling, rounded to the nearest million ('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 2022 being the Bank's year-end date (prior financial year: 28 February 2021). There have been no significant transactions or events that occurred between this date and the Group's balance sheet date, and therefore no adjustments have been made to reflect the difference in year-end dates.
Unless otherwise stated, significant accounting policies have been applied consistently to all periods presented in the financial statements.
2.1 Prior period restatements
Business rates within property provisions
The consolidated financial statements include a prior year restatement in relation to the treatment of business rates within property provisions. Where the Group no longer operates from a leased property, onerous property contract provisions are recognised for the least net cost of exiting from the contract. Unless a separate exit agreement with a landlord has already been agreed, the Group's policy is that this onerous contract provision includes all unavoidable costs of meeting the obligations of the contract - these include service charges and insurance, and have also historically included business rates.
There is apparent mixed practice across companies concerning the treatment of business rates in onerous contract provisions. However following additional guidance published this year by accounting advisory firms, the Group has reassessed its policy in this area, and concluded that business rates are a statutory obligation rather than a contractual one, and should be recognised as a periodic cost in line with IFRIC 21 "Levies". Prior period comparatives have therefore been restated to remove business rates from previously recognised property provisions.
Notional cash pooling
The consolidated financial statements include a prior year restatement in relation to notional cash pooling arrangements where the intention to net settle cannot be clearly demonstrated, and therefore do not meet the requirements for offsetting in accordance with IAS 32: 'Financial Instruments: Presentation'. Prior period comparatives have been restated by grossing up cash and overdrafts (reported within current borrowings). There is no impact on the income statement, cash flow statement nor earnings and diluted earnings per share.
Prior period comparatives
The prior period comparatives have been restated in accordance with IAS 8: 'Accounting Policies, Changes in Accounting Policies and Errors' and have impacted the primary financial statements as follows:
Income statement
For the 52 weeks to 6 March 2021
Before non-underlying Non-underlying items Total items ------------------ -------------------------------------- -------------------------------------- ----------------------------------- As Business As restated As Business As restated As Business As previously rates previously rates previously rates restated reported adjustment reported adjustment reported adjustment GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm ------------------ ----------- ----------- ------------ ----------- ----------- ------------ ----------- ----------- --------- Revenue 29,048 - 29,048 - - - 29,048 - 29,048 Cost of sales (26,871) 1 (26,870) (412) 79 (333) (27,283) 80 (27,203) Gross profit/(loss) 2,177 1 2,178 (412) 79 (333) 1,765 80 1,845 Administrative expenses (1,480) - (1,480) (238) 16 (222) (1,718) 16 (1,702) Other income 12 - 12 1 - 1 13 - 13 ------------------ ----------- ----------- ------------ ----------- ----------- ------------ ----------- ----------- --------- Operating profit/(loss) 709 1 710 (649) 95 (554) 60 96 156 Finance income 3 - 3 29 - 29 32 - 32 Finance costs (356) - (356) 3 1 4 (353) 1 (352) ------------ Profit/(loss) before
tax 356 1 357 (617) 96 (521) (261) 97 (164) - - - Income tax (expense)/credit (105) - (105) 86 (18) 68 (19) (18) (37) ------------------ ----------- ----------- ------------ ----------- ----------- ------------ ----------- ----------- --------- Profit/(loss) for the financial period 251 1 252 (531) 78 (453) (280) 79 (201) ------------------ ----------- ----------- ------------ ----------- ----------- ------------ ----------- ----------- --------- Earnings per share 11.7 - 11.7 (13.0) 3.6 (9.4) Diluted EPS 11.4 - 11.4 (13.0) 3.6 (9.4) ------------------ ----------- ----------- ------------ ----------- ----------- ------------ ----------- ----------- ---------
Balance sheets
As at 6 March 2021 As previously Notional Business As restated reported cash rates pooling adjustment adjustment GBPm GBPm GBPm GBPm Cash and cash equivalents 1,477 98 - 1,575 ------------------------------------------ -------------- ------------ ------------ ------------ Total assets 25,162 98 - 25,260 ------------------------------------------ -------------- ------------ ------------ ------------ Current liabilities Borrowings (258) (98) - (356) Taxes payable (59) - (24) (83) Provisions (209) - 10 (199) ------------------------------------------ -------------- ------------ ------------ Total current liabilities (11,717) (98) (14) (11,829) ------------------------------------------ -------------- ------------ ------------ ------------ Net current liabilities (4,644) - (14) (4,658) ------------------------------------------ -------------- ------------ ------------ ------------ Non-current liabilities Provisions (261) - 111 (150) Total liabilities (18,558) (98) 97 (18,559) ------------------------------------------ -------------- ------------ ------------ ------------ - Net assets 6,604 - 97 6,701 ------------------------------------------ -------------- ------------ ------------ ------------ Equity Retained earnings 3,131 - 97 3,228 ------------------------------------------ -------------- ------------ ------------ ------------ Total equity before perpetual securities 6,356 - 97 6,453 Total equity 6,604 - 97 6,701 ------------------------------------------ -------------- ------------ ------------ ------------ As at 7 March 2020 As previously Business As restated reported rates adjustment GBPm GBPm GBPm ------------------------------------------ -------------- ------------ ------------ Current liabilities Taxes payable (163) (5) (168) Provisions (108) 2 (106) ------------------------------------------ ------------ ------------ Total current liabilities (12,047) (3) (12,050) ------------------------------------------ -------------- ------------ ------------ Net current liabilities (4,461) (3) (4,464) ------------------------------------------ -------------- ------------ ------------ Non-current liabilities Provisions (89) 21 (68) Total liabilities (20,164) 18 (20,146) ------------------------------------------ -------------- ------------ ------------ - Net assets 7,773 18 7,791 ------------------------------------------ -------------- ------------ ------------ Equity Retained earnings 4,068 18 4,086 ------------------------------------------ -------------- ------------ ------------ Total equity before perpetual securities 7,277 18 7,295 Total equity 7,773 18 7,791 ------------------------------------------ -------------- ------------ ------------
Cash flow statement
For the 52 weeks to 6 March 2021
As previously Business As reported rates restated adjustment GBPm GBPm GBPm ---------------------------------------------------------- -------------- ------------ ---------- Cash flows from operating activities Profit/(loss) before tax (261) 97 (164) Net finance costs 321 (1) 320 ---------------------------------------------------------- Operating profit 60 96 156 ---------------------------------------------------------- Operating cash flows before changes in working capital 1,638 96 1,734 Changes in working capital - (Decrease)/increase in provisions and other liabilities 273 (96) 177 ---------------------------------------------------------- Cash generated from operations 2,785 - 2,785 ---------------------------------------------------------- Net cash generated from operating activities 2,343 - 2,343 ---------------------------------------------------------- -------------- ------------ ---------- Net cash used in investing activities (553) - (553) ---------------------------------------------------------- -------------- ------------ ---------- Net cash used in financing activities (1,308) - (1,308) ---------------------------------------------------------- -------------- ------------ ---------- Net (decrease)/increase in cash and cash equivalents 482 - 482 ---------------------------------------------------------- -------------- ------------ ----------
Change in accounting policy - Software as a Service (SaaS) arrangements
During the year, the Group revised its accounting policy in relation to upfront configuration and customisation costs incurred in implementing software as a service (SaaS) arrangements. This is in response to the IFRS Interpretations Committee (IFRIC) agenda decision clarifying its interpretation of how current accounting standards apply to these types of arrangements during the current financial year. Adjustments in relation to costs capitalised in prior years have therefore been recognised as follows:
GBPm --------------------------- ----- Intangible assets (30) Prepayments 9 ----------------------------- ----- Total assets / net assets (21) ----------------------------- ----- Administrative expenses (21) ----------------------------- ----- Profit before tax (21) ----------------------------- -----
The impact is not considered to have a material impact on the prior year balance sheet nor income statement, therefore the prior year results have not been restated. Given this is an out of period cost and could distort comparability between reporting periods, this has been included within non-underlying profit before tax. Intangible asset write-offs have been included within disposals.
In addition to the above, GBP14 million of current year spend that would have been capitalised to intangible assets under the Group's previous accounting policy has now been recognised within prepayments (GBP6 million) and underlying profit (GBP8 million). There is no impact on cash flows.
2.2 Going concern
The Directors are satisfied that the Group has sufficient resources to continue in operation for a period of at least 12 months from the date of approval. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. The assessment period for the purposes of considering going concern is the 12 months to 27 April 2023.
In assessing the Group's ability to continue as a going concern, the Directors have considered the Group's most recent corporate planning and budgeting processes. This includes an annual review which considers profitability, the Group's cash flows, committed funding and liquidity positions and forecasted future funding requirements over three years, with a further two years of indicative movements.
The Group manages its financing by diversifying funding sources, structuring core borrowings with long-term maturities and maintaining sufficient levels of standby liquidity via the Revolving Credit Facility. This seeks to minimise liquidity risk by maintaining a suitable level of undrawn additional funding capacity.
The Revolving Credit Facility is split into two Facilities, a GBP300 million Facility (A) and a GBP1,094 million Facility (B). Facility A has a final maturity of April 2025 and Facility B has a final maturity of October 2024. As at 5 March 2022, both Facility (A) and Facility (B) were undrawn.
In assessing going concern, scenarios in relation to the Group's principal risks have been considered by overlaying them into the corporate plan and assessing the impact on cash flows, net debt and funding headroom. These severe but plausible scenarios included modelling inflationary pressures on both food margins and general recession-related risks, the impact of any regulatory fines, and the failure to deliver planned cost savings.
In performing the above analysis, the Directors have made certain assumptions around the availability and effectiveness of the mitigating actions available to the Group. These include reducing any non-essential capital expenditure and operating expenditure on projects, bonuses and dividend payments.
The Group's most recent corporate planning and budgeting processes incorporates assumed cashflows to address climate change risks, including those associated with the Group's Plan for Better commitment which include reducing environmental impacts and meeting customer expectations in this area, notably through reducing packaging and energy usage across the estate. Climate-related risks do not result in any material uncertainties affecting the Group's ability to continue as a going concern.
Consideration was also given to the conflict in Ukraine which has continued to develop subsequent to the Group's balance sheet date. Inflationary pressures which may be caused by the conflict are already incorporated into the overall going concern assessment, as such the impact of the conflict in Ukraine does not impact the conclusions reached over going concern.
As a consequence of the work performed, the Directors considered it appropriate to adopt the going concern basis in preparing the Financial Statements with no material uncertainties to disclose.
2.3 Amendments to published standards
Effective for the Group and Company in these financial statements:
The Group has considered the following amendments to published standards that are effective for the Group for the financial year beginning 7 March 2021 and concluded that they are either not relevant to the Group or that they do not have a significant impact on the Group's financial statements other than disclosures.
- Amendments to IFRS 9 'Financial Instruments', IAS 39 'Financial Instruments: Recognition and Measurement' and IFRS 7 'Financial Instruments: Disclosures' on the Interest Rate Benchmark Reform - Phase 2
- Amendment to IFRS 16 'Leases' with regards to the exemption granted in the 'COVID-19-related rent concessions'
The Group early adopted the Interest Rate Benchmark Reform Phase 2 amendments in the financial year ended 6 March 2021. The Group has elected not to apply the exemption granted in the 'COVID-19-related rent concessions' as the Group has not received material COVID-19-related rent concessions as a lessee.
Standards and revisions effective for future periods:
The following standards and revisions will be effective for future periods:
- Amendments to IFRS 3 'Business Combinations' with reference to the Conceptual Framework
- Amendments to IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' on Onerous Contracts - Cost of Fulfilling a Contract
- Amendments to IAS 16 'Property, Plant and Equipment' on Proceeds before Intended Use
- Amendments to IAS 1 'Presentation of Financial Statements' on the classification of liabilities as current or non-current
- Amendments to IAS 1 'Presentation of Financial Statements' and IFRS Practice Statement 2 'Making Materiality Judgements' on the disclosure of accounting policies
- Amendments to IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors' on the definition of accounting estimates
- Amendments to IAS 12 'Income Taxes' on Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction
- IFRS 17 'Insurance Contracts'
The Group has considered the impact of the remaining above standards and revisions and have concluded that they will not have a significant impact on the Group's financial statements.
3 Alternative Performance Measures (APMs)
In the reporting of financial information, the Directors use various APMs. These APMs should be considered in addition to, and are not intended to be a substitute for, IFRS measurements. As they are not defined by International Financial Reporting Standards, they may not be directly comparable with other companies' APMs.
The Directors believe that these APMs provide additional useful information for understanding the financial performance and health of the Group. They are also used to enhance the comparability of information between reporting periods (such as like-for-like sales and underlying profit) by adjusting for non-recurring or uncontrollable factors which affect IFRS measures, to aid users in understanding the Group's performance. Consequently, APMs are used by the Directors and management for performance analysis, planning, reporting and incentive setting purposes.
The APMs that the Group has focused on in the period are defined and reconciled on page 50 to 54. All of the APMs relate to the current period's results and comparative periods.
4 Profit before non-underlying items
In order to provide shareholders with additional insight into the year-on-year performance of the business, an adjusted measure of profit (underlying profit before tax) is provided to supplement the reported IFRS numbers, and reflects how the business measures performance internally. This adjusted measure excludes items recognised in reported profit or loss before tax which, if included, could distort comparability between periods.
Determining which items are to be adjusted requires judgement, in which the Group considers items which are significant either by virtue of their size and/or nature, or that are non-recurring. The same assessment is applied consistently to any reversals of prior non-underlying items.
Underlying profit is not an IFRS measure and therefore not directly comparable to other companies.
The most significant non-underlying items in the current year relate to income received in relation to the settlement of legal disputes over interchange fees, and costs associated with restructuring programmes. More details on each are included further below.
The Group has not included any additional costs incurred or credits received directly in relation to the impacts of COVID-19 within non-underlying items. Whilst some items (such as additional expenses incurred protecting colleagues and customers) are discrete and can be separately quantified, others, such as incremental food sales cannot be reliably disaggregated from the Group's underlying performance. The Group has therefore concluded that presenting some movements as underlying and others as non-underlying would give an imbalanced view that is not easily comparable to past and subsequent periods.
Cost Administrative Other Net finance Total Tax Total of sales expenses income income/(costs) adjustments adjustments before tax GBPm GBPm GBPm GBPm GBPm GBPm GBPm ------------------------ ---------- --------------- -------- ---------------- ----- ------------- Income recognised in relation to legal disputes - 13 167 - 180 (35) 145 Restructuring and integration Restructuring programmes (69) (35) 12 - (92) 17 (75) Financial Services transition and other - (11) - - (11) 2 (9) Total restructuring and integration (69) (46) 12 - (103) 19 (84) Software as a service accounting adjustment - (21) - - (21) 4 (17) Property, finance, pension and acquisition
adjustments ATM business rates reimbursement 2 - - - 2 - 2 Profit on disposal of properties - - 7 - 7 - 7 Non-underlying finance and fair value movements 76 - - (8) 68 (13) 55 IAS 19 pension expenses - (4) - 15 11 (2) 9 Acquisition adjustments - (20) - - (20) 4 (16) Total property, finance, pension and acquisition adjustments 78 (24) 7 7 68 (11) 57 Tax adjustments Over provision in prior years - - - - - (2) (2) Revaluation of deferred tax balances - - - - - 9 9 Other tax adjustments - - - - - (7) (7) Total adjustments 9 (78) 186 7 124 (23) 101 ------------------------ ---------- --------------- -------- ---------------- -------------
Income recognised in relation to legal disputes
During the current period, agreements were reached and two legal cases settled in relation to overcharges from payment card processing fees, which largely reflect inter-bank "interchange fees". This has led to net income of GBP167 million being recognised. The Group has one ongoing legal case remaining.
Of the GBP167 million, cash of GBP75 million was received in a prior year and held as deferred income. Net cash of GBP93 million was received during the current financial year and GBP1 million of legal fees remains outstanding.
In addition, a provision for a legal claim totalling GBP13 million has been released as it was assessed during the financial period that a pay-out is no longer considered probable.
Restructuring programmes
In the prior year, the Group announced a restructuring programme to accelerate the structural integration of Sainsbury's and Argos and further simplify the Argos business; create a new supply chain and logistics operating model, moving to a single integrated supply chain and logistics network across Sainsbury's and Argos; and further rationalise / repurpose the Group's supermarkets and convenience estate. The programme also considered the Group's Store Support Centre ways of working.
The programme is a multi-year activity which began in the prior year and has continued into the current year. Total cumulative costs to 5 March 2022 are GBP(640) million split between GBP(548) million in the prior year and GBP(92) million in the current period as detailed in the table below. Total expected costs are still in the range of GBP900 million to GBP1 billion to March 2024, with the majority in the period to March 2024. In line with IFRIC 21 "Levies", business rates are now recognised as a periodic cost and as such approximately GBP40 million of business rates associated with leased properties in the restructuring programme will be recognised after the year ended March 2024. Refer to note 2 for further details.
(Costs)/gains recognised in the current year are as follows:
52 weeks to 52 weeks to 5 March 2022 6 March 2021 (Restated) GBPm GBPm ---------------------------------------------- -------------- -------------- Write downs of property, plant and equipment (a) (6) (26) Write downs of leased assets (a) (3) (72) Write downs of intangible assets - (3) Closure provisions (b) (24) (145) Accelerated depreciation of assets (c) (33) (27) Redundancy provisions (d) (40) (61) Consultancy costs (18) (10) Gain on lease terminations (e) 9 16 Property Profits (f) 12 - Recognition of sub lease debtor (g) 11 - ---------------------------------------------- -------------- -------------- Restructuring programmes (92) (328) Impairment of non-financial assets - (220) ---------------------------------------------- -------------- -------------- Total restructuring and impairment costs (92) (548) ---------------------------------------------- -------------- --------------
a) During the financial year, the Group announced the closure of 200 of its in-store cafes. Related assets have been written down as a result.
b) Closure provisions relate to onerous contract costs, dilapidations and strip out costs on leased sites that have been identified for closure. Upon initial recognition of closure provisions, management uses its best estimates of the relevant costs to be incurred as well as expected closure dates. Business rates on leased property where the Group no longer operates from are recognised in the period they are incurred.
c) The remaining useful economic lives of corresponding sites have been reassessed to align with closure dates, resulting in an acceleration in depreciation of these assets. The existing depreciation of these assets (depreciation that would have been recognised absent of a closure decision) is recognised within underlying expenses, whereas accelerated depreciation above this is recognised within non-underlying expenses.
d) Redundancy costs are recognised as the plan is announced and a valid expectation raised with the affected colleagues. The current year charge relates to redundancies announced as part of Argos store closures, depot closures, and café and food counter closures.
e) Gains on lease terminations relate to sites impaired in the prior year for which it has been negotiated to exit the leases before the contractual end date. This includes the release of any lease liabilities and right of use assets, as well as any closure provisions previously recognised.
f) Profit on disposal of properties relates to profits recognised in the period as sites previously impaired as part of the restructuring programmes have been disposed of.
g) During the year, the Group was able to negotiate a sub-lease on a previously impaired site for the duration of the remaining headlease. This resulted in the creation of a sub-lease debtor, with any difference between the lease receivable and right of use asset being recognised in the income statement.
As the costs incurred facilitate future underlying cost savings, it was considered whether it was appropriate to report these costs within underlying profit. Whilst they arise from changes in the Group's underlying operations, they can be separately identified, are material in size and do not relate to ordinary in-year trading activity. In addition, the areas being closed or restructured no longer relate to the Group's remaining underlying operations and their exclusion provides meaningful comparison between financial years.
Software as a service accounting adjustment
During the year, the Group revised its accounting policy in relation to upfront configuration and customisation costs incurred in implementing software as a service (SaaS) arrangements; refer to note 2.1 for further details. Costs capitalised in prior years totalling GBP21 million have been written off this year. Given this is an out of period cost and could distort comparability between reporting periods, this has been included within non-underlying profit before tax.
Financial Services transition and other
These comprise Financial Services transition costs of GBP(11) million and were incurred in transitioning to new banking platforms as part of the previously announced New Bank Programme. These principally comprise contractor and service provider costs relating to the migration of data and other services to the Bank's new infrastructure and operating model. These costs of integration do not reflect the business's trading performance and so are adjusted to ensure consistency between periods. The programme ended this financial year.
Property, finance, pension and acquisition adjustments
-- A further GBP2 million of ATM rates reimbursement income is due to be received from the Valuation Office following the Supreme Court's ruling that ATMs outside stores should not be assessed for additional business rates on top of normal store rates.
-- Profit on disposal of non-trading properties for the financial period comprised GBP(7) million for the Group. These are excluded from underlying profit as such profit is not related to the ongoing operating activities of the Group.
-- Non-underlying finance and fair value movements for the financial period comprised GBP68 million for the Group. These include fair value remeasurements on derivatives not in a hedging relationship and lease interest on impaired non-trading sites, including site closures. The fair value movements are driven by external market factors and can significantly fluctuate year-on-year. They are therefore excluded to ensure consistency between periods. Lease interest on impaired, non-trading sites is excluded as they do not contribute to the operating activities of the Group. Included within cost of sales is GBP76 million of income in relation to favourable movements on long-term, fixed price power purchase arrangements (PPAs) with independent producers. These are accounted for as derivative financial instruments, however are not designated in hedging relationships, therefore gains and losses are recognised in the income statement. Increases in electricity forward prices in the year have led to gains on the related derivative financial instruments. During the year, the Group entered into an additional PPA, however have designated this in a formal hedging relationship, with gains and losses being recognised within other comprehensive income. The remaining movements of GBP(8) million within finance income and costs are analysed further in note 8.
-- Defined benefit pension interest and expenses comprises pension finance income of GBP15 million and scheme expenses of GBP(4) million (see note 19). Although a recurring item, the Group has chosen to exclude net retirement benefit income and costs from underlying profit as, following closure of the defined benefit scheme to future accrual, it is not part of the ongoing operating activities of the Group and its exclusion is consistent with how the Directors assess the performance of the business.
-- Acquisition adjustments of GBP(20) million reflect the unwind of non-cash fair value adjustments arising from Home Retail Group and Nectar UK acquisitions. The Group would not normally recognise these as assets outside of a business combination. Therefore the unwinds are classified as non-underlying and are recognised as follows:
52 weeks to 5 March 52 weeks to 6 March 2022 2021 -------------- ------------------------ ------------------------ Argos Nectar Total Argos Nectar Total Group Group GBPm GBPm GBPm GBPm GBPm GBPm -------------- ------ ------- ------- ------ ------- ------- Depreciation 3 - 3 5 - 5 Amortisation (18) (5) (23) (18) (6) (24) (15) (5) (20) (13) (6) (19) -------------- ------ ------- ------- ------ ------- -------
Comparative information (restated)
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 (263) (65) - - (328) 58 (270) Impairment of non-financial assets (112) (108) - - (220) 33 (187) Financial Services transition and other - (17) - - (17) 3 (14) Total restructuring, impairment and integration (375) (190) - - (565) 94 (471) Property, finance, pension and acquisition adjustments ATM business rates reimbursement 42 - - - 42 (8) 34 Profit on disposal of properties - - 1 - 1 7 8 Perpetual securities coupons - - - 14 14 - 14 Non-underlying finance - - - - movements - - - IAS 19 pension (expenses ) / income - (13) - 19 6 (1) 5 Acquisition adjustments - (19) - - (19) 4 (15) Total property, finance, pension and acquisition adjustments 42 (32) 1 33 44 2 46 Tax adjustments Derecognition of capital losses - - - - - (28) (28) Total adjustments (333) (222) 1 33 (521) 68 (453) --------------------------- ------- --------------- -------- ---------------- ----- -------------
Refer to note 2 for details of prior year restatements.
Cash flow statement
The table below shows the impact of non-underlying items on the Group cash flow statement
52 weeks 52 weeks to 5 March to 6 March 2022 2021 GBPm GBPm ------------------------------------------------- ------------ ------------ Cash flows from operating activities IAS 19 pension expenses (7) (7) Financial Services transition and other (13) (15) Restructuring programmes (114) (39) Income recognised in relation to legal disputes 93 - ATM rates reimbursement 14 27 -------------------------------------------------- ------------ ------------ Cash used in operating activities (27) (34) Cash flows from investing activities Proceeds from property disposals(1) 46 27 -------------------------------------------------- ------------ ------------ Cash generated from investing activities 46 27 Net cash flows 19 (7) -------------------------------------------------- ------------ ------------
1. GBP19 million of the current period proceeds from property disposals are a result of restructuring programmes.
5 Revenue
5 March 2022 6 March 2021 GBPm GBPm --------------------------------------------------- ------------- ------------- Grocery and General Merchandise & Clothing (GM&C) 25,440 26,103 Fuel 4,023 2,514 Total retail sales 29,463 28,617 Financial Services interest receivable 322 344 Financial Services fees and commission 110 87 Total Financial Services income 432 431 Total revenue 29,895 29,048 --------------------------------------------------- ------------- -------------
6 Segment reporting
Background
Management has determined the operating segments based on the information provided to the Operating Board (the Chief Operating Decision Maker for the Group) to make operational decisions on the management of the Group. Three operating segments were identified as follows:
- Retail - Food - Retail - General Merchandise and Clothing - Financial Services
Management has considered the economic characteristics, in particular average gross margin, similarity of products, production processes, customers, sales methods and regulatory environment of its two Retail segments. In doing so it has been concluded that they should be aggregated into one 'Retail' segment in the financial statements. This aggregated information provides users the financial information needed to evaluate the business and the environment in which it operates.
The Operating Board assesses the performance of all segments on the basis of underlying profit before tax. Underlying profit before tax is an APM as described in note 3. All material operations and assets are in the UK.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. Segment revenue presents a disaggregation of revenue from customers consistent with the Group's primary revenue streams.
Income statement and balance sheet
Retail Financial Group Services 52 weeks to 5 March 2022 GBPm GBPm GBPm --------------------------------------------- --------- ---------- --------- Segment revenue Retail sales to external customers 29,463 - 29,463 Financial Services to external customers - 432 432 Revenue 29,463 432 29,895 --------------------------------------------- --------- ---------- --------- Underlying operating profit 1,001 38 1,039 Underlying finance income 3 - 3 Underlying finance costs (312) - (312) Underlying profit before tax 692 38 730 Non-underlying expense (note 4) 124 Profit before tax 854 Income tax expense (note 9) (177) Profit for the financial year 677 --------------------------------------------- --------- ---------- Assets 20,368 6,541 26,909 Investment in joint ventures and associates 3 - 3 Segment assets 20,371 6,541 26,912 Segment liabilities (12,870) (5,619) (18,489) --------------------------------------------- --------- ---------- Other segment items Additions to non-current assets Property, plant and equipment 417 - 417 Intangible assets 229 49 278 Right-of-use assets 1,294 - 1,294 Depreciation expense(1) Property, plant and equipment 590 1 591 Right-of-use assets 477 1 478 Amortisation expense(2) Intangible assets 130 21 151 Impairment charges 8 1 9 Share based payments 53 5 58 --------------------------------------------- --------- ---------- ---------
1. Depreciation within the Retail segment includes a GBP(3) million credit in relation to the unwind of fair value adjustments recognised on acquisition of HRG.
2. Amortisation within the Retail segment includes a GBP23 million charge in relation to the unwind of fair value adjustments recognised on acquisition of HRG and Nectar UK.
Financial Retail Services Group 52 weeks to 6 March 2021 (Restated) 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) 731 (21) 710 Underlying finance income 3 - 3 Underlying finance costs (356) - (356) Underlying profit/(loss) before tax 378 (21) 357 Non-underlying expense (521) Loss before tax (164) Income tax expense (37) Loss for the financial year (201) --------------------------------------------- --------- ---------- --------- Assets 17,735 7,520 25,255 Investment in joint ventures and associates 5 - 5 Segment assets 17,740 7,520 25,260 --------------------------------------------- --------- ---------- --------- Segment liabilities (11,941) (6,618) (18,559) --------------------------------------------- --------- ---------- --------- Other segment items Additions to non-current assets Property, plant and equipment 419 - 419 Intangible assets 145 27 172 Right-of-use assets 542 - 542 Depreciation expense(1) Property, plant and equipment 627 2 629 Right-of-use assets 483 1 484 Amortisation expense(2) Intangible assets 116 20 136 Impairment charges 216 105 321 Restructuring charges 227 - 227 Share based payments 26 3 29 --------------------------------------------- --------- ---------- ---------
1. Depreciation within the Retail segment includes a GBP(5) million credit in relation to the unwind of fair value adjustments recognised on acquisition of HRG and Nectar UK. 2. Amortisation expense within the Retail segment includes GBP24 million charge in relation to the unwind of fair value adjustments recognised on acquisition of HRG and Nectar UK.
Refer to note 2 for details of prior year restatements.
Geographical segments
The Group trades predominantly in the UK and the Republic of Ireland and consequently the majority of revenues, capital expenditure and segment net assets arise there. The profits, turnover and assets of the businesses in the Republic of Ireland are not material to the Group.
Cash flow
52 weeks to 5 March 52 weeks to 6 March 2022 2021 (Restated) APM Retail Financial Group Retail Financial Group Services Services reference GBPm GBPm GBPm GBPm GBPm GBPm Profit/(loss) before tax 833 21 854 (17) (147) (164) ---------------------------------- --------------------- --------------------- --------------------- --------------------- --------------------- --------------------- Net finance costs 304 (2) 302 320 - 320 --------------------- --------------------- --------------------- Operating profit 1,137 19 1,156 303 (147) 156 Adjustments for: Depreciation and amortisation expense 1,197 23 1,220 1,226 23 1,249 Net impairment charge on property, plant and equipment, right-of-use assets and intangible assets 8 1 9 216 105 321 Non-cash adjustments arising from acquisitions - - - (1) - (1) Financial Services movement in loss allowance for loans and advances to customers - 19 19 - 85 85 (Profit)/loss on sale of non-current assets and early termination of leases (6) - (6) (19) 2 (17) Non-underlying fair value movements (76) - (76) - - - Share-based payments expense 53 5 58 26 3 29 Non-cash defined benefit scheme expenses 4 - 4 13 - 13 Cash contributions to defined benefit scheme (71) - (71) (101) - (101) Operating cash flows
before changes in working capital 2,246 67 2,313 1,663 71 1,734 Changes in working capital Movements in working capital (306) (646) (952) 612 439 1,051 Cash generated from operations 1,940 (579) 1,361 2,275 510 2,785 Interest paid a (319) (10) (329) (349) - (349) Corporation tax (paid)/received (23) - (23) (94) 1 (93) Net cash generated/(used) from operating activities 1,598 (589) 1,009 1,832 511 2,343 ---------------------------------- --------------------- --------------------- --------------------- --------------------- --------------------- --------------------- Cash flows from investing activities Purchase of property, plant and equipment (416) - (416) (423) - (423) Initial direct costs on new leases (3) - (3) (7) - (7) Purchase of intangible assets (229) (49) (278) (145) (27) (172) Proceeds from disposal of property, plant and equipment 46 - 46 27 - 27 Dividends and distributions received e 2 - 2 22 - 22 Net cash used in investing activities (600) (49) (649) (526) (27) (553) ---------------------------------- --------------------- --------------------- --------------------- --------------------- --------------------- --------------------- Cash flows from financing activities Proceeds from issuance of ordinary shares d 21 - 21 17 - 17 Proceeds from short term borrowings c - - - 660 - 660 Repayment of borrowings c (248) - (248) (289) - (289) Repayment of short term borrowings c - - - (660) - (660) Repayment of perpetual capital securities c (8) - (8) (250) - (250) Purchase of own shares d (48) - (48) (30) - (30) Repayment of capital element of obligations under lease liabilities b (491) (2) (493) (499) (2) (501) Dividends paid on ordinary shares (238) - (238) (232) - (232) Dividends paid on perpetual securities a (4) - (4) (23) - (23) Net cash used in financing activities (1,016) (2) (1,018) (1,306) (2) (1,308) ---------------------------------- --------------------- --------------------- --------------------- --------------------- --------------------- --------------------- Net (decrease)/increase in cash and cash equivalents (18) (640) (658) - 482 482 ---------------------------------- --------------------- --------------------- --------------------- --------------------- --------------------- ---------------------
Refer to note 2 for details of prior year restatements.
7 Supplier arrangements
Supplier incentives, rebates and discounts, collectively known as 'supplier arrangements', represent a material deduction to cost of sales and directly affect the Group's reported margin.
Income is recognised when earned by the Group when all obligations per the terms of the contract have been performed. Any supplier arrangements which are linked to inventory purchases are included within the cost of the related inventory, and therefore recognised within cost of sales once the inventory is sold. Unpaid amounts relating to supplier arrangements are recognised within trade and other receivables, unless there is a legal right of offset, in which case it is recognised within trade and other payables.
The types of supplier arrangements applicable to the Group are as follows:
-- Discounts and supplier incentives - these represent the majority of all supplier arrangements and are linked to individual unit sales. The incentive is typically based on an agreed sum per item sold on promotion for a period and therefore is considered part of the purchase price of that product.
-- Fixed amounts - these are agreed with suppliers primarily to support in-store activity including promotions, such as utilising specific space.
-- Supplier rebates - these are typically agreed on an annual basis, aligned with the Group's financial year. The rebate amount is linked to pre-agreed targets such as sales volumes.
-- Marketing and advertising income - advertising income from suppliers through the Group's subsidiary Nectar 360 Services LLP and online marketing and advertising campaigns within Argos.
Amounts recognised in the income statement during the year for fixed amounts, volume-based rebates and marketing and advertising income are shown below. Discounts and supplier incentives are not shown as they are deemed to be part of the cost price of inventory.
52 weeks 52 weeks to 5 March to 6 March 2022 2021 GBPm GBPm -------------------------------------- ------------ ------------------ Fixed amounts 208 236 Supplier rebates 94 55 Marketing and advertising income (1) 79 69 Total supplier arrangements 381 360 --------------------------------------- ------------ ------------------
1. The prior year has been restated. There is no impact to any of the primary statements.
Of the above amounts, the following was outstanding and held on the balance sheet at the period-end:
52 weeks 52 weeks to 5 March to 6 March 2022 2021 GBPm GBPm ---------------------------------- ------------ -------------------- Within inventory (4) (5) Within current trade receivables Supplier arrangements due 39 49 Accrued supplier arrangements 37 37 Within current trade payables Supplier arrangements due 47 32 Accrued supplier arrangements 2 5 Deferred income due - (2) Total supplier arrangements 121 116 ----------------------------------- ------------ --------------------
8 Finance income and finance costs
2022 2021 (restated) Underlying Non-Underlying Total Underlying Non-Underlying Total GBPm GBPm GBPm GBPm GBPm GBPm ----------------------------------- ----------- --------------- ------ ----------- --------------- ------ Interest on bank deposits and other financial assets 1 - 1 1 - 1 Fair value measurements - 2 2 - 10 10 IAS 19 pension financing income - 15 15 - 19 19 Finance income on net investment in leases 2 - 2 2 - 2 Finance Income 3 17 20 3 29 32 ----------------------------------- ----------- --------------- ------ ----------- --------------- ------ Secured borrowings (40) - (40) (49) - (49) Unsecured borrowings (2) - (2) (1) - (1) Lease liabilities (271) (10) (281) (295) (10) (305) Provisions - amortisation of discount (1) - (1) (1) - (1) Interest capitalised - qualifying assets 2 - 2 4 - 4 Perpetual securities coupon - - - (14) 14 - Finance costs (312) (10) (322) (356) 4 (352) ----------------------------------- ----------- --------------- ------ ----------- --------------- ------
Refer to note 2 for details of prior year restatements.
9 Taxation
52 weeks to 52 weeks to 5 March 2022 6 March 2021 (Restated) GBPm GBPm --------------------------------------------------- -------------- -------------- Current year UK tax 131 34 Current year overseas tax 6 6 Under/(over) provision in prior years 5 (12) Total current tax expense 142 28 Origination and reversal of temporary differences 52 (46) (Over)/under provision in prior years (35) 27 Adjustment from changes in tax rates 23 - Derecognition of capital losses (5) 28 Total deferred tax expense 35 9 Total income tax expense in income statement 177 37 --------------------------------------------------- -------------- -------------- Analysed as: Underlying tax 154 105 Non-underlying tax 23 (68) Total income tax expense in income statement 177 37 --------------------------------------------------- -------------- -------------- Underlying tax rate 21.1% 29.4% Effective tax rate 20.7% (22.6)% --------------------------------------------------- -------------- --------------
Refer to note 2 for details of prior year restatements.
10 Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, excluding those held by the Employee Share Ownership Trusts, which are treated as cancelled.
In calculating the diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares. These represent share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year and the number of shares that would be issued if all perpetual subordinated convertible bonds are assumed to be converted.
Underlying earnings per share is provided by excluding the effect of any non-underlying items as defined in note 4. This alternative measure of earnings per share is presented to reflect the Group's underlying trading performance. All operations are continuing for the periods presented.
2022 2021 (Restated) million million ----------------------------------------------------------------- ----------- ------------- Weighted average number of shares in issue 2,271.8 2,210.0 Weighted average number of dilutive share options 39.6 21.7 Weighted average number of dilutive subordinated perpetual convertible bonds 39.6 88.4 Total number of shares for calculating diluted earnings per share 2,351.0 2,320.1 ----------------------------------------------------------------- ----------- ------------- GBPm GBPm ----------------------------------------------------------------- ----------- ------------- Profit/(loss) for the financial period (net of tax) 677 (201) Less profit attributable to: Holders of perpetual convertible bonds - (7) Profit/(loss) for the financial period attributable to ordinary shareholders 677 (208) ----------------------------------------------------------------- ----------- ------------- Diluted earnings/(loss) for calculating diluted earnings/(loss) per share 677 (208) ----------------------------------------------------------------- ----------- ------------- Profit/(loss) for the financial period attributable to ordinary shareholders of the parent 677 (208) Adjusted for non-underlying items (note 4) (124) 521 Tax on non-underlying items 23 (68) Add back coupons on perpetual securities (net of tax) - 14 Underlying profit after tax attributable to ordinary shareholders of the parent 576 259 Add coupon on subordinated perpetual convertible bonds (net of tax) - 6 Diluted underlying profit after tax attributable to ordinary shareholders of the parent 576 265 ----------------------------------------------------------------- ----------- ------------- Pence Pence per share per share ----------------------------------------------------------------- ----------- ------------- Basic earnings/(loss) 29.8 (9.4) Diluted earnings/(loss)(1) 28.8 (9.4) Underlying basic earnings 25.4 11.7 Underlying diluted earnings 24.5 11.4 ----------------------------------------------------------------- ----------- -------------
1. Basic and diluted loss per share are the same in the prior year as the dilutive share options and their respective earnings adjustments are anti-dilutive.
Refer to note 2 for details of prior year restatements.
11 Dividends
2022 2021 2022 2021 pence pence per per share share GBPm GBPm ------------------------------------------------- ------- ------- ----- ----- Amounts recognised as distributions to ordinary shareholders in the year: Final dividend of prior financial year 7.4 - 164 - Interim dividend of current financial year 3.2 3.2 74 71 Special dividend of prior financial year - 7.3 - 161 10.6 10.5 238 232 ------------------------------------------------- ------- ------- ----- -----
After the balance sheet date on 27 April 2022 a final dividend of 9.9 pence per share (2021: 7.4 pence per share) was proposed by the Directors in respect of the 52 weeks to 5 March 2022. This results in a total final proposed dividend of GBP230 million (2021: GBP164 million).
Subject to shareholders' approval at the Annual General Meeting, the dividend will be paid on 15 July 2022 to the shareholders on the register at 10 June 2022. The proposed final dividend has not been included as a liability at 5 March 2022.
12 Property, plant and equipment
Land and Fixtures buildings and equipment Total GBPm GBPm GBPm ----------------------------------------- ----------- --------------- ------- Cost At 7 March 2021 9,655 5,288 14,943 Additions 87 330 417 Disposals (40) (330) (370) Transfer to asset held for sale (9) - (9) ----------------------------------------- ----------- --------------- ------- At 5 March 2022 9,693 5,288 14,981 ----------------------------------------- ----------- --------------- ------- Accumulated depreciation and impairment At 7 March 2021 2,793 3,563 6,356 Depreciation expense for the year 170 421 591 Impairment loss for the year - 6 6 Disposals (37) (328) (365) Transfer to asset held for sale (9) - (9) ----------------------------------------- ----------- --------------- ------- At 5 March 2022 2,917 3,662 6,579 ----------------------------------------- ----------- --------------- ------- Net book value at 5 March 2022 6,776 1,626 8,402 ----------------------------------------- ----------- --------------- ------- Capital work-in-progress included above 103 314 417 ----------------------------------------- ----------- --------------- ------- Cost At 8 March 2020 9,716 5,362 15,078 Additions 89 330 419 Disposals (59) (404) (463) Transfer to asset held for sale (91) - (91) ----------------------------------------- ------ ------ ------- At 6 March 2021 9,655 5,288 14,943 ----------------------------------------- ------ ------ ------- Accumulated depreciation and impairment At 8 March 2020 2,693 3,436 6,129 Depreciation expense for the year 173 456 629 Impairment loss for the year 26 62 88 Disposals (32) (391) (423) Transfer to asset held for sale (67) - (67) ----------------------------------------- ------ ------ ------- At 6 March 2021 2,793 3,563 6,356 ----------------------------------------- ------ ------ ------- Net book value at 6 March 2021 6,862 1,725 8,587 ----------------------------------------- ------ ------ ------- Capital work-in-progress included above 122 320 442 ----------------------------------------- ------ ------ -------
13 Leases
Group as lessee
The Group's lease portfolio is principally comprised of property leases of land and buildings in relation to stores, distribution centres and support offices, but also includes other assets such as motor vehicles. The leases have varying terms and often include break clauses or options to renew beyond the non-cancellable periods.
Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period:
Land and buildings Equipment Total Net book value GBPm GBPm GBPm --------------------------------- ----------- ---------- ------ At 7 March 2021 4,414 333 4,747 New leases and modifications(1) 1,244 50 1,294 Depreciation charge (389) (89) (478) Impairment charge (3) - (3) At 5 March 2022 5,266 294 5,560 --------------------------------- ----------- ---------- ------
(1) Includes new leases, terminations, modifications and reassessments
At 8 March 2020 4,536 290 4,826 --------------------------------- ------ ----- ------ New leases and modifications(1) 413 129 542 Depreciation charge (398) (86) (484) Impairment charge (137) - (137) At 6 March 2021 4,414 333 4,747 --------------------------------- ------ ----- ------
1. Includes new leases, terminations, modifications and reassessments
Set out below are the carrying amounts of lease liabilities and the movements during the period:
2022 2021 GBPm GBPm ---------------------------------- ------ ------ At 7 March 2021 and 8 March 2020 5,834 5,774 New leases and modifications 1,280 561 Interest expense 281 305 Payments (774) (806) At 5 March 2022 and 6 March 2021 6,621 5,834 ---------------------------------- ------ ------ Current 526 524 Non-current 6,095 5,310 ---------------------------------- ------ ------
The Group presents additions to lease liabilities and right-of-use assets in line with the disclosure requirements of IFRS 16 'Leases'. In doing so, additions to right-of-use assets and lease liabilities above include the net impact of new leases, terminations, modifications, and reassessments. This year includes the impact of exercising purchase options on 21 leased supermarkets held by a property investment pool in which the Group holds an interest. The purchase options were not included within the lease liabilities at inception of the lease as the Group was not reasonably certain to exercise them. Following the exercise of the options, the respective lease liabilities have been remeasured to include the assumed purchase price, leading to an increase in lease liabilities with a corresponding increase to the right-of-use asset. The purchases will be completed in the financial year ended 2 March 2024 when the existing leases end.
The purchase price is subject to negotiation and at the year-end had not yet been agreed. Therefore to remeasure the lease liability, the purchase price has been estimated based on up to date property valuations carried out by independent valuers not connected with the Group. The lease liabilities (and right-of-use assets) may be subsequently adjusted as the property valuations change, and when purchase prices are agreed. This is not considered a significant estimate in line with IAS 1 "Presentation of financial statements".
Guarantee in relation to property pool
When the properties are sold by the property investment pool in the financial year ended 2 March 2024, the proceeds will be used to settle bonds issued by the structure. The Group has previously issued a financial guarantee in relation to this, which is triggered if there is a shortfall in the property proceeds and the bonds cannot be fully repaid. The guarantee is up to GBP300 million.
The current property valuations indicate that there is significant headroom and therefore no shortfall.
In the event of a delay in the property negotiations, meaning the bond repayment is due before the properties have been sold, the guarantee will be called upon in full. In such an event, once the properties are sold, Sainsbury's will recover the guarantee payment in full from the property proceeds.
14 Intangible assets
Computer Acquired Customer Goodwill software brands relationships Total GBPm GBPm GBPm GBPm GBPm -------------------------------- --------- ---------- --------- --------------- ------ Cost At 7 March 2021 394 899 229 32 1,554 Additions - 278 - - 278 Disposals (1) (2) (100) - - (102) -------------------------------- --------- ---------- --------- --------------- ------ At 5 March 2022 392 1,077 229 32 1,730 -------------------------------- --------- ---------- --------- --------------- ------ Accumulated amortisation and impairment -------------------------------- At 7 March 2021 28 457 127 28 640 Amortisation expense for the year - 129 20 2 151 Disposals (2) (65) - - (67) -------------------------------- --------- ---------- --------- --------------- ------ At 5 March 2022 26 521 147 30 724
-------------------------------- --------- ---------- --------- --------------- ------ Net book value at 5 March 2022 366 556 82 2 1,006 -------------------------------- --------- ---------- --------- --------------- ------ Cost At 8 March 2020 400 749 231 32 1,412 Additions - 172 - - 172 Disposals (6) (22) (2) - (30) -------------------------------- --------- ---------- --------- --------------- ------ At 6 March 2021 394 899 229 32 1,554 -------------------------------- --------- ---------- --------- --------------- ------ Accumulated depreciation and impairment At 8 March 2020 22 281 109 26 438 Amortisation expense for the year - 114 20 2 136 Impairment loss for the year 12 84 - - 96 Disposals (6) (22) (2) - (30) -------------------------------- --------- ---------- --------- --------------- ------ At 6 March 2021 28 457 127 28 640 -------------------------------- --------- ---------- --------- --------------- ------ Net book value at 6 March 2021 366 442 102 4 914 -------------------------------- --------- ---------- --------- --------------- ------
1. Disposals include write offs of software-as-a-service balances as disclosed in note 2.
15 Provisions
Property provisions
Where the Group no longer operates from a leased property, onerous property contract provisions are recognised for the least net cost of exiting from the contract. Unless a separate exit agreement with a landlord has already been agreed, the Group's policy is that this onerous contract provision includes all unavoidable costs of meeting the obligations of the contract. The amounts provided are based on the Group's best estimates of the likely committed outflows and site closure dates. These provisions do not include rent in accordance with IFRS 16, however do include unavoidable costs related to the lease such as service charges and insurance. These provisions historically included business rates, however business rates are considered a statutory obligation rather than a contractual one, and are therefore now recognised as a periodic cost in line with IFRIC 21 "Levies". Prior period comparatives have been restated to remove business rates from previously recognised property provisions. Refer to note 2 for further details.
Property provisions also include provisions for dilapidations which are recognised where the Group has the obligation to make-good its leased properties. These provisions are recognised based on historically settled dilapidations which form the basis of the estimated future cash outflows. Any difference between amounts expected to be settled and the actual cash outflow will be accounted for in the period when such determination is made.
Where the Group is able to exit lease contracts before the expiry date or agree sublets, this results in the release of any associated property provisions. Such events are subject to the agreement of landlords, therefore the Group makes no assumptions on the ability to either exit or sublet a property until a position is agreed.
Insurance provisions
The provision relates to the Group's outstanding insurance claims liabilities in relation to public and employer's liability claims, and third party motor claims. Claims provisions are based on assumptions regarding past claims experience and on assessments by an independent actuary and are intended to provide a best estimate of the most likely or expected outcome.
Restructuring provisions
A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring.
The charge for the year mostly comprises redundancy payments as part of Argos store closures, depot closures, and café and food counter closures announced during the year as detailed in note 4.
Financial services related provisions
Financial services loan commitment provisions reflect expected credit losses modelled in relation to loan commitments not yet recognised on the balance sheet, including on credit cards and Argos store cards.
Other financial services related provisions are primarily in relation to Argos Financial Services customers in respect of potential redress payable arising from the historic sales of Payment Protection Insurance (PPI).
The eventual cost is dependent on response rates, uphold rates, complaint rates, redress costs and claim handling costs. The provision represents management's best estimate of future costs. These assumptions are inherently uncertain and the ultimate financial impact may differ from the amount provided.
Property Insurance Restructuring Financial Other Total provisions provisions services provisions related provisions GBPm GBPm GBPm GBPm GBPm GBPm ---------------------------- ------------ ------------ -------------- ------------ ------------ ------ At 7 March 2021 (restated) 164 67 54 26 38 349 Additional provisions 9 34 44 6 1 94 Unused amounts reversed (7) (5) (16) (3) (24) (55) Utilisation of provision (27) (34) (53) (3) (1) (118) Amortisation of discount 1 - - - - 1 At 5 March 2022 140 62 29 26 14 271 ------------ ------------ -------------- ------------ ------------ ------ Current 16 22 28 26 8 100 Non-current 124 40 1 - 6 171 ---------------------------- ------------ ------------ -------------- ------------ ------------ ------ At 8 March 2020 (restated) 38 63 20 37 16 174 Additional provisions 146 33 61 7 32 279 Unused amounts reversed (5 ) (2) - (2) - (9) Utilisation of provision (16 ) (27) (27) (16) (10) (96) Amortisation of discount 1 - - - - 1 At 6 March 2021 (restated) 164 67 54 26 38 349 ---------------------------- ------------ ------------ -------------- ------------ ------------ ------ Current 72 24 53 21 29 199 Non-current 92 43 1 5 9 150 ---------------------------- ------------ ------------ -------------- ------------ ------------ ------
16 Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise the following:
2022 2021 (restated) GBPm GBPm -------------------------------------------------- ----- ----------- Cash in hand and bank balances 566 325 Money market funds and deposits 25 398 Deposits at central banks 234 852 Cash and bank balances as reported in the Group balance sheet 825 1,575 -------------------------------------------------- ----- Bank overdrafts (7) (99) Net cash and cash equivalents as reported in the Group cash flow statement 818 1,476 -------------------------------------------------- -----
Of the above balance, GBP18 million (2021: GBP20 million) was restricted as at year-end. Of the GBP18 million (2021: GBP20 million) restricted cash, GBP15 million (2021: GBP17 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 (2021: GBP3 million) is restricted for Insurance purposes.
Refer to note 2 for details of restatement.
17 Analysis of net debt
The Group's definition of net debt includes the following:
-- Cash -- Borrowings and overdrafts -- Lease liabilities -- Perpetual securities -- Debt-related financial assets at fair value through other comprehensive income -- Derivatives used in hedging borrowings
Net debt includes the capital injections to Sainsbury's Bank, but excludes the net debt of Sainsbury's Bank and its subsidiaries (Financial Services). Financial Services' net debt balances are excluded because they are required as part of the business as usual operations of a bank, as opposed to specific forms of financing for the Group. Derivatives exclude those not used to hedge borrowings, and borrowings exclude bank overdrafts as they are disclosed separately.
A reconciliation of opening to closing net debt is included below. Balances and movements for the total Group and Financial Services are shown in addition to Retail to enable reconciliation between the Group balance sheet and Group cash flow statement.
Cash Movements Non-Cash Movements 7 March Cash flows Net Accrued Other Changes 5 March 2021 excluding interest Interest non-cash in fair 2022 interest (received) movements value / paid GBPm GBPm GBPm GBPm GBPm GBPm GBPm Retail Net derivative financial instruments (14) - 10 (10) 11 8 5 Borrowings (excluding overdrafts) (826) 248 28 (25) - - (575) Lease liabilities (5,829) 491 281 (281) (1,280) - (6,618) Arising from financing activities (6,669) 739 319 (316) (1,269) 8 (7,188) Financial assets at fair value through other comprehensive income 1 - - - - (1) - Cash and cash equivalents (restated) 546 (110) - - - - 436 Bank overdrafts (restated) (99) 92 - - - - (7) Retail net debt (excluding perpetual securities) (6,221) 721 319 (316) (1,269) 7 (6,759) Financial Services Net derivative financial instruments - - - - - 4 4 Borrowings (excluding overdrafts) (179) - 10 (11) - 1 (179) Lease liabilities (5) 2 - - - - (3) Arising from financing activities (184) 2 10 (11) - 5 (178) Financial assets at fair value through other comprehensive income 537 (115) - - - (4) 418 Cash and cash equivalents 1,029 (640) - - - - 389 Financial services net debt 1,382 (753) 10 (11) - 1 629 Group Net derivative financial instruments (14) - 10 (10) 11 12 9 Borrowings (excluding overdrafts) (1,005) 248 38 (36) - 1 (754) Lease liabilities (5,834) 493 281 (281) (1,280) - (6,621) Arising from financing activities (6,853) 741 329 (327) (1,269) 13 (7,366) Financial assets at fair value through other comprehensive income 538 (115) - - - (5) 418 Cash and cash equivalents (restated) 1,575 (750) - - - - 825 Bank overdrafts (restated) (99) 92 - - - - (7) Group net debt (excluding perpetual securities) (4,839) (32) 329 (327) (1,269) 8 (6,130) Retail net debt (excluding perpetual securities) (6,221) 721 319 (316) (1,269) 7 (6,759) Perpetual convertible bonds (248) 8 - - 240 - - Retail net debt (including perpetual securities) (6,469) 729 319 (316) (1,029) 7 (6,759) Of which: Leases (5,829) (6,618) Net debt excluding lease liabilities (640) (141)
Other non-cash movements relate to interest accruals and new leases. Refer to note 2 for details of restatement.
Cash Movements Non-Cash Movements 8 March Cash flows Net Accrued Other Changes 6 March 2020 excluding interest Interest non-cash in fair 2021 interest (received) movements value / paid GBPm GBPm GBPm GBPm GBPm GBPm GBPm Retail Net derivative financial instruments (15) - 6 (5) 5 (5) (14) Borrowings (excluding overdrafts) (1,116) 289 38 (37) - - (826) Lease liabilities (5,768) 499 305 (305) (560) - (5,829) Arising from financing activities (restated) (6,899) 788 349 (347) (555) (5) (6,669) Financial assets at fair value through other comprehensive income 1 - - - - - 1 Cash and cash equivalents (restated) 506 40 - - - - 546 Bank overdrafts (restated) (59) (40) - - - - (99) Retail net debt (excluding perpetual securities) (restated) (6,451) 788 349 (347) (555) (5) (6,221) Financial Services Net derivative financial instruments 4 - - - - (4) - Bank overdrafts - - - - - - - Borrowings (excluding overdrafts) (180) - - - - 1 (179) Lease liabilities (6) 2 - - (1) - (5) Arising from financing activities (182) 2 - - (1) (3) (184) Financial assets at fair value through other comprehensive income 802 (267) - - - 2 537 Cash and cash equivalents 547 482 - - - - 1,029 Financial services net debt 1,167 217 - - (1) (1) 1,382 Group Net derivative financial instruments (11) - 6 (5) 5 (9) (14) Borrowings (excluding overdrafts) (1,296) 289 38 (37) - 1 (1,005) Lease liabilities (5,774) 501 305 (305) (561) - (5,834) Arising from financing activities (restated) (7,081) 790 349 (347) (556) (8) (6,853) Financial assets at fair value through other comprehensive income 803 (267) - - - 2 538 Cash and cash equivalents (restated) 1,053 522 - - - - 1,575 Bank overdrafts (restated) (59) (40) - - - - (99) Group net debt (excluding perpetual securities) (restated) (5,284) 1,005 349 (347) (556) (6) (4,839) Retail net debt (excluding perpetual securities) (6,451) 788 349 (347) (555) (5) (6,221) Perpetual capital securities (248) 250 - - (2) - - Perpetual convertible bonds (248) - - - - - (248) Retail net debt (including perpetual securities) (6,947) 1,038 349 (347) (557) (5) (6,469) Of which:
Leases (5,768) (5,829) Net debt excluding lease liabilities (1,179) (640)
Refer to note 2 for details of restatement.
Reconciliation of net cash flow to movement in net debt
52 weeks to 52 weeks to 5 March 6 March 2022 2021 GBPm GBPm Opening net debt (6,469) (6,947) Cash flow movements Net (decrease)/increase in cash and cash equivalents (including overdrafts) (658) 482 Elimination of Financial Services movement in cash and cash equivalents 640 (482) Repayment of perpetual capital securities 8 250 Decrease in Retail borrowings 248 289 Decrease in Retail lease obligations 491 499 Net interest paid on components of Retail net debt 319 349 Changes in net debt resulting from cash flow 1,048 1,387 Non-cash movements Accrued interest (316) (347) Retail fair value and other non-cash movements (1,022) (562) Changes in net debt resulting from non-cash movements (1,338) (909) Movement in net debt (290) 478 Closing net debt (6,759) (6,469)
18 Borrowings
2022 2021 Current Non-current Total Current Non-current Total GBPm GBPm GBPm GBPm GBPm GBPm Loan due 2031 44 531 575 55 572 627 Bank overdrafts (restated) 7 - 7 99 - 99 Bank loans due 2021 - - - 199 - 199 Sainsbury's Bank Tier 2 Capital due 2027 3 176 179 3 176 179 54 707 761 356 748 1,104
Refer to note 2 for details of restatement.
a) Loan due 2031
The loan is secured against 48 (2021: 48) supermarket properties. This is an inflation linked amortising loan from the finance company Longstone Finance plc with an outstanding principal value of GBP566 million (2021: GBP614 million) fixed at a real rate of 2.36 per cent where principal and interest rate are uplifted annually by RPI subject to a cap at five per cent and a floor at nil per cent. The carrying value of the loan is GBP575 million (2021: GBP627 million) with a final repayment date of April 2031.
The Group has entered into inflation swaps to convert GBP490 million (2021: GBP490 million) of the GBP566 million (2021: GBP614 million) loan from RPI linked interest to fixed rate interest until April 2023. These transactions have been designated as cash flow hedges.
The principal activity of Longstone Finance plc is the issuing of commercial mortgage-backed securities and applying the proceeds towards the secured loans due 2031 with the Group as summarised above.
Intertrust Corporate Services Limited holds all the issued share capital of Longstone Finance Holdings Limited on trust for charitable purposes. Longstone Finance Holdings Limited beneficially owns all the issued share capital of Longstone Finance plc. As the Group has no interest, power or bears any risk over these entities they are not included in the Group consolidation.
b) Bank overdrafts
Bank overdrafts are repayable on demand and bear interest at a spread above Bank of England base rate.
c) Bank loan due 2021
On 6(th) August 2021 the Group repaid the secured GBP200m Green Loan and subsequently ensured the release of all security interests.
d) Sainsbury's Bank Tier 2 Capital due 2027
The Bank issued GBP175 million of fixed rate reset callable subordinated Tier 2 notes on 23 November 2017. The notes pay interest on the principal amount at a rate of six per cent per annum, payable in equal instalments semi-annually in arrears, until 23 November 2022 at which time the interest rate will reset. The Bank has the option to redeem these notes on 23 November 2022.
e) Short term borrowings
The Revolving Credit Facility is split into two Facilities, a GBP300 million Facility (A) and a GBP1,094 million Facility (B). Facility A has a final maturity of April 2025 and Facility B has a final maturity of October 2024. At 5 March 2022, the Revolving Credit Facility was undrawn (2021: undrawn).
The Revolving Credit Facility incurs commitment fees at market rates and drawdowns bear interest at a margin above SONIA.
The Group maintains uncommitted facilities to provide additional capacity to fund short-term working capital requirements. Drawdowns on these uncommitted facilities bear interest at a margin. The uncommitted facilities were undrawn at 5 March 2022 (2021: undrawn).
19 Retirement benefit obligations
Background
The retirement benefit obligations relate to the Sainsbury's Pension Scheme plus three unfunded pension liabilities for former senior employees of Sainsbury's and Home Retail Group.
The Sainsbury's Pension Scheme has two sections, the Sainsbury's Section which holds the assets and liabilities of the original Sainsbury's Pension Scheme, and the Argos Section which holds the assets and liabilities of the Home Retail Group Pension Scheme. Each section's assets are segregated by deed and ring fenced for the benefit of the members of that section. The Scheme is run by a corporate trustee with nine directors.
The Scheme is also used to pay life assurance benefits to current (including new) colleagues.
The retirement benefit obligations at the year-end have been calculated by Isio, the actuarial advisers to the Group, using the projected unit credit method and based on adjusting the position at the date of the previous triennial valuation for known events and changes in market conditions as allowed under IAS 19 'Employee Benefits'.
The amounts recognised in the balance sheet are as follows:
2022 2021 Sainsbury's Argos Group Sainsbury's Argos Group GBPm GBPm GBPm GBPm GBPm GBPm Present value of funded obligations (8,060) (1,313) (9,373) (8,808) (1,410) (10,218) Fair value of plan assets 10,158 1,535 11,693 9,596 1,404 11,000 Retirement benefit surplus/(deficit) 2,098 222 2,320 788 (6) 782 Present value of unfunded obligations (20) (17) (37) (21) (17) (38) Retirement benefit surplus/(deficit) 2,078 205 2,283 767 (23) 744
The retirement benefit surplus and the associated deferred income tax balance are shown within different line items on the face of the balance sheet.
The movements in the Group's net defined benefit surplus are as follows:
2022 2021 GBPm GBPm As at the beginning of the year 744 1,119 Net interest income 15 19 Remeasurement gains/(losses) 1,457 (482) Pension scheme expenses (7) (7) Contributions by employer 71 101 Past service credit/(charge) 3 (6) As at the end of the year 2,283 744
The principal actuarial assumptions used at the balance sheet date are as follows:
2022 2021 % % -------- Discount rate 2.40 1.95 Inflation rate - RPI 3.60 3.15 Inflation rate - CPI 2.90 2.45 Future pension increases 2.30 - 2.15 3.45 - 3.10 --------
20 Contingent liabilities and contingent assets
The Group has a number of contingent liabilities in respect of historic lease guarantees, particularly in relation to the disposal of assets, which if the current tenant and their ultimate parents become insolvent, may expose the Group to a material liability. This liability decreases over time as the leases expire. The Group has considered a number of factors, including past history of default as well as the profitability and cash generation of the current leaseholders, and has concluded that the likelihood of pay out is remote.
Along with other retailers, the Group is currently subject to claims from current and ex-employees in the Employment Tribunal for equal pay under the Equality Act 2010 and/or the Equal Pay Act 1970. There are currently circa 8,600 equal pay claims from circa 4,400 claimants, in which the claimants are alleging that their work within Sainsbury's stores is or was, of equal value to that of colleagues working in Sainsbury's distribution centres, and that differences in terms and conditions relating to pay are not objectively justifiable. The claimants are seeking the differential back pay based on the higher wages in distribution centres, and the equalisation of wages and terms and conditions on an ongoing basis. The Group believes further claims will be served.
There are three stages in the tribunal procedure for equal value claims of this nature and the claimants will need to succeed in all three. The first stage is whether store claimants have the legal right to make the comparison with depot workers. Following European and Supreme Court decisions in other similar litigation, Sainsbury's has conceded this point. The second stage is the lengthy process to determine whether any of the claimants' roles are of equal value to their chosen comparators. This process is likely to continue for several more years. In the event that any of the claimants succeed at the second stage there will be further hearings, in the years following, to consider whether any pay differential is justified.
Given that the outcome of the second and third stages in the litigation remains highly uncertain at this stage, the Group cannot make any assessment of the likelihood nor quantum of any outcome. No provision has therefore been recognised on the Group's balance sheet. There are substantial factual and legal defences to these claims and the Group intends to defend them vigorously.
As disclosed in note 4 to the financial statements, the Group had a number of ongoing legal cases in relation to overcharges arising from payment card interchange fees. During the year settlements have been reached in two of these cases, resulting in non-underlying income of GBP167 million being recognised. The last of these cases goes to trial for a final determination of quantum in early 2023. A range of possible outcomes is possible, including GBPnil. As the outcome and quantum of any award is not virtually certain no income has been recognised in accordance with IAS 37: 'Provisions, Contingent Liabilities and Contingent Assets'.
Alternative performance measures (APMs)
In the reporting of financial information, the Directors use various APMs which they believe provide additional useful information for understanding the financial performance and financial health of the Group. These APMs should be considered in addition to, and are not intended to be a substitute for IFRS measurements. As they are not defined by International Financial Reporting Standards, they may not be directly comparable with other companies who use similar measures.
All of the following APMs relate to the current period's results and comparative periods where provided.
APM Closest Definition Purpose Reconciliation equivalent IFRS measure Income statement - Revenue Retail Revenue Group sales Shows the A reconciliation of the measure is provided sales less Financial annual in note 5 of the financial statements. Services rate of revenue. growth in the Group's Retail business sales. Like-for-like No direct Year-on-year The measure sales equivalent growth is used The reported retail like-for-like in sales widely in sales decline of (2.3) per including VAT, the retail cent is based on a combination excluding industry as of Sainsbury's like-for-like fuel, an indicator sales and Argos like-for-like excluding of current sales for the 2022. See movements Financial trading below : 2022 2021 Services, performance Retail like-for-like (exc. for stores and is Fuel, inc. VAT) (2.3)% 8.1% that have useful when Underlying net new space impact (0.3)% (0.8)% been open for comparing Retail sales growth (exc. Fuel, more than growth inc. VAT) (2.6)% 7.3% one year. between Fuel impact 6.0% (7.2)% retailers Total retail sales growth (inc. The relocation that have fuel, inc. VAT) 3.4% 0.1% of Argos different VAT impact (0.4)% 0.6% stores into profiles of Total retail sales growth 3.0% 0.7% Sainsbury's expansion, supermarkets disposals are classified and as new space, closures. 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. Income statement - Profit Retail Profit Underlying This is the 2022 2021 (Restated) underlying before earnings lowest GBPm GBPm operating tax before level at which Group PBT (note 6) 854 (164) profit interest, tax, the (Less)/Add back Group non-underlying Financial retail segment items (note 4) (124) 521 Services can Group UPBT 730 357 operating be viewed from Financial Services underlying profit and a operating (profit)/loss (38) 21 Sainsbury's management Retail underlying profit underlying perspective, before tax 692 378 share of with finance Net underlying finance costs 309 353 post-tax costs Retail underlying operating profit from managed for profit 1,001 731 joint ventures the Group and as a whole. Retail sales (note 6) 29,463 28,617 associates. Retail underlying operating margin 3.40% 2.55% Underlying Profit Underlying In order to Underlying profit before tax is bridged to statutory profit before results provide profit before tax in the income statement and before tax exclude shareholders note 4 of the financial statements. tax items with recognised in additional The adjusted items are as described in note reported insight 4 of the financial statements profit or loss into the before tax year-on-year which, if performance of included, the could distort business, this comparability adjusted between measure of periods. In profit determining is provided to which items to supplement exclude the reported from IFRS underlying numbers and profit, reflects the Group how the considers business items which measures are performance significant internally. either by virtue of their size and/or nature, or that are non-recurring. APM Closest Definition Purpose Reconciliation equivalent IFRS measure Income statement - Profit Underlying Basic Earnings per This is a key A reconciliation of the measure is provided
basic earnings share using measure in note 10 of the financial statements. earnings per share underlying to evaluate per share profit as the described performance above. of the business and returns generated for investors. Retail No direct Retail EBITDA is used 2022 2021 (Restated) underlying equivalent underlying to GBPm GBPm EBITDA operating review the Retail underlying operating profit as above, retail profit 1,001 731 before segment's Add: Retail depreciation underlying profit and amortisation expense 1,197 1,226 depreciation, generation and Less: Non-underlying depreciation and the and amortisation (53) (47) amortisation. sustainability Retail underlying EBITDA 2,145 1,910 of ongoing Retail sales (note 6) 29,463 28,617 capital Retail underlying EBITDA reinvestment margin 7.28% 6.67% and finance costs. Underlying Finance Net finance This provides A reconciliation of this measure is included net income costs before shareholders in note 8 of the financial statements. finance less finance any with costs costs non-underlying additional The adjusted items are as follows: items insight as defined above into the * Perpetual securities coupons - these are accounted that are underlying for as equity in line with IAS 32 'Financial recognised net finance instruments: Presentation', however are accrued on a within finance costs straight-line basis and included as an expense within income / of the Group underlying profit as they are included by management expenses. by excluding when assessing Group borrowings. These are now GBPnil non-recurring following the redemption of the perpetual convertible one-off bond during the year. items. * Non-underlying finance movements - these include fair value remeasurements on derivatives not in a hedging relationship and lease interest on impaired non-trading sites, including site closures. The fair value movements are driven by external market factors and can significantly fluctuate year-on-year. They are therefore excluded to ensure consistency between periods. Lease interest on impaired, non-trading sites is excluded as they do not contribute to the operating activities of the Group. * IAS 19 pension interest. Although a recurring item, the Group has chosen to exclude net retirement benefit income and costs from underlying profit as, following closure of the defined benefit scheme to future accrual, it is not part of the ongoing operating activities of the Group and its exclusion is consistent with how the Directors assess the performance of the business. Underlying Effective Tax on Provides an The tax on non-underlying items is included tax rate tax rate underlying indication in note 4 of the financial statements items, of the tax divided by rate across underlying the Group profit before before tax. the impact of non-underlying items. APM Closest Definition Purpose Reconciliation equivalent IFRS measure Cash flows and net debt Retail No direct N/A To help the cash flow equivalent reader 5 March 6 March items understand 2022 2021 in Financial cash flows Ref GBPm GBPm Review of the Net interest paid a (323) (372) business a Repayment of lease liabilities b (491) (499) summarised Repayment of borrowings c (256) (539) cash flow Other d (27) (13) statement Dividends and distributions is included received e 2 22 within the Financial Review. As part of this a number of line items have been combined. The cash flow in note 6 of the financial statements includes a reference to show what has been combined in these line items. Retail Net cash Net cash This free cash generated generated measures 5 March 6 March flow from from retail cash 2022 2021 operating operations, generation, GBPm GBPm activities after working Cash generated from retail operations 1,940 2,275 perpetual capital Net interest paid (ref (a) above) (323) (372) security efficiency Corporation Tax (23) (94) coupons and capital Retail purchase of property, plant and cash expenditure and equipment (416) (423) capital of the Retail purchase of intangibles expenditure retail assets (229) (145) and business Retail proceeds from disposal
including of property, plant and equipment 46 27 payments Initial direct costs on right-of-use of lease assets (3) (7) obligations, Repayments of obligations under cash flows leases (491) (499) from Dividends and distributions received 2 22 joint Retail free cash flow 503 784 ventures and associates and Sainsbury's Bank capital injections. Adjusted Cash This presents This enables 5 March 6 March net cash generated retail management 2022 2021 generated from operating to assess GBPm GBPm from retail operations cash flows the cash Retail cash generated from operating operations adjusted generated activities (note 6) 1,598 1,832 (per Financial for movements from its Perpetual security coupons (4) (23) Review) in working core retail Adjusted net cash generated from capital, operations. operating activities 1,594 1,809 less net interest paid (including distributions on perpetual securities) and pension cash contributions . Core retail No direct Capital This allows 2022 2021 capital equivalent expenditure management GBPm GBPm expenditure excluding to assess Purchase of property, plant and Sainsbury's core retail equipment (416) (423) Bank. capital Purchase of intangibles (229) (145) expenditure Cash capital expenditure (645) (568) in the period in order to review the strategic business performance. APM Closest Definition Purpose Reconciliation equivalent IFRS measure Underlying No direct Removes To provide a 6 March working equivalent working reconciliation 5 March 2021 capital capital of the working 2022 (Restated) movements and cash capital GBPm GBPm movements movement Retail working capital movements relating to in the per cash flow (note 6) (306) 612 non-underlying Financial items. statements to Adjustments for: the underlying Retail non-underlying impairment working charges (note 6) 8 216 capital Non-underlying restructuring and movement in impairment charges (note 4) (92) (548) the Bank non-underlying restructuring Financial and impairment charges 7 105 review. Accelerated depreciation (note 4) 33 27 Gains on early termination of leases (note 4) (9) (16) Profit on disposal of properties within restructuring programme (note 4) (12) - ATM income (note 4) 2 42 Income recognised in relation to legal disputes (note 4) 180 - Other 1 2 Non-underlying working capital movements before cash movements 118 (172) Non-underlying cash movements: Restructuring (note 4) 114 39 Bank restructuring (4) - ATM income (note 4) (14) (27) Income recognised in relation to legal disputes (note 4) (93) - Retail non-underlying operating cash flows (excluding pensions) 3 12 Total adjustments for non-underlying working capital 121 (160) Underlying working capital movements (185) 452 APM Closest Definition Purpose Reconciliation equivalent IFRS measure Net debt Borrowings, Net debt includes This shows the A reconciliation of the measure is provided in note cash, the capital overall 17 of the financial statements. In addition, to derivatives, injections strength of aid comparison to the balance sheet, reconciliations financial into Sainsbury's the between financial assets at FVTOCI and derivatives assets Bank, balance sheet per the balance sheet and Group net debt (i.e. including at FVTOCI, but excludes the alongside Financial Services) is included below: lease net the liquidity liabilities debt of and 5 March 6 March Sainsbury's its 2022 2021 Bank and its indebtedness GBPm GBPm subsidiaries. and whether Financial instruments at FVTOCI the per balance sheet 800 844 It is calculated Group can Less: equity related securities (382) (306) as: cover Financial instruments at FVTOCI financial assets its debt included in net debt 418 538 at commitments. fair value through Net derivatives per balance sheet 259 (124) other Less: derivatives not used to comprehensive hedge borrowings (250) 110 income (excluding Derivatives included in net debt 9 (14) equity investments)
+ net derivatives to hedge borrowings + net cash and cash equivalents + loans + lease obligations + perpetual securities. Other Net debt/ No direct Net debt divided This helps Net debt as provided in note 17. Group underlying underlying equivalent by management EBITDA is reconciled within the fixed charge cover EBITDA Group underlying measure the analysis below. EBITDA. ratio of the business's debt to operational cash flow. Return No direct Return on capital This 52 weeks 52 weeks on capital equivalent employed is represents to 5 March to 6 March employed calculated the total 2022 2021 (Restated) as return divided capital GBPm GBPm by average capital that the Group Underlying profit before tax 730 357 employed. has Add: Underlying net interest 309 353 utilised in Return 1,039 710 Return is defined order as 52 week rolling to generate underlying profit profits. Capital employed is reconciled before interest Management use as follows: and this 52 weeks 52 weeks tax. to assess the to 5 March to 6 March performance 2022 2021 (Restated) Capital employed of the GBPm GBPm is business. Group net assets 8,423 6,701 defined as Group Less: Pension surplus (note 19) (2,283) (744) net Deferred tax on pension surplus 640 192 assets excluding Less: net debt (ex-perpetual securities) pension (note 17) 6,759 6,221 deficit/surplus, Effect of in-year averaging (1,127) 240 less Capital employed 12,412 12,610 net debt (excluding Return on capital employed 8.4% 5.6% perpetual securities). The average is calculated on a 14 point basis. The 14-point basis uses the average of 14 datapoints - the prior year closing capital employed, the current year closing capital employed and 12 intra-year periods as this more closely aligns to the recognition of amounts in the income statement. Fixed No direct Group underlying This helps 52 weeks 52 weeks charge equivalent EBITDA assess to 5 March to 6 March cover divided by rent the Group's 2022 2021 (Restated) (representing ability GBPm GBPm capital and to satisfy Group underlying operating interest fixed profit 1,039 710 repayments on financing Add: Group depreciation and leases) expenses amortisation expense 1,220 1,249 and underlying net from Less: Non-underlying depreciation finance costs, performance and amortisation expense (53) (47) where of the Group underlying EBITDA 2,206 1,912 interest on business. Repayment of capital element perpetual of lease obligations (493) (501) securities is Underlying finance income 3 3 treated Underlying finance costs (312) (356) as an underlying Fixed charges (802) (854) finance Fixed charge cover 2.8 2.2 cost. All items are calculated on a 52 week rolling basis.
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