TIDMSBRY

RNS Number : 1422F

Sainsbury(J) PLC

03 November 2022

3 November 2022

J Sainsbury PLC

Interim Results for the 28 weeks ended 17 September 2022

Strategy delivering for customers, colleagues, communities and shareholders

Simon Roberts, Chief Executive of J Sainsbury plc, said: " Two years ago we launched our plan to put food back at the heart of Sainsbury's. We committed to improve shareholder returns by creating a simpler business and reducing costs to invest in lower prices, food innovation and maintaining colleague and customer satisfaction. We have grown market share in both grocery and general merchandise and investment in our stores and colleagues is supporting leading supermarket customer satisfaction and availability. Profits are significantly higher than pre-Covid levels and we are generating strong cash flow, supporting debt reduction and dividend payments.

"We really get how tough it is for millions of households right now. Customers are watching every penny and every pound and we know that they are relying on us to keep food prices as low as we can. We will have invested more than GBP500 million by March 2023 in keeping prices lower by cutting our costs at a faster rate than our competitors(1) , meaning we have more firepower to battle inflation. Over the past year and a half we have consistently passed on less price inflation than our competitors and I am confident we have never been better value. Argos is also performing well in a market where customers are looking for reassurance that they are getting great value and availability.

"We were the first supermarket to give our colleagues a second pay rise this year and have invested GBP150 million to support them and drive outstanding service. I want to thank all my colleagues for their hard work and dedication and for everything they are doing to deliver for our customers. Our strong results are testament to the outstanding commitment and contribution from every member of our team."

Financial Highlights

-- Grocery sales up 0.2 per cent in H1. Strong growth in Q2 of 3.8 per cent as lockdown comparatives eased, market price inflation accelerated, customers responded well to the strength of our offer and we benefited from warm weather. Grocery sales were 9.3 per cent higher than H1 19/20

-- General merchandise sales down 6.1 per cent across H1 but up 1.2 per cent in Q2, driven by improved availability, favourable summer weather and strong market share gains. Growth was driven by categories such as consumer electronics and seasonal products

-- Statutory Group sales (excluding VAT) up 4.4 per cent, with fuel sales up 39.5 per cent. Like-for-like sales (excluding fuel) down 0.8 per cent, with Q2 up 3.7 per cent after a decline of 4.0 per cent in Q1

-- Retail operating profit down 9 per cent, reflecting our investment in value, reduced grocery and general merchandise volumes post-pandemic and higher operating costs, partially offset by a higher fuel contribution

-- Underlying profit before tax of GBP340 million, down 8 per cent; Financial Services operating profit of GBP19 million, flat year-on-year, and finance costs 9 per cent lower. UPBT up 43 per cent versus H1 19/20

-- Statutory profit before tax of GBP376 million, down 29 per cent, reflecting higher exceptional income in the prior year from settlement of legal disputes

-- H1 net funds balance GBP361 million. Strong retail free cash flow of GBP759 million, up 37 per cent, reflecting higher grocery sales and more typical seasonal working capital inflows against last year's impact of Covid unwind. On track to deliver guidance of at least GBP500 million free cash flow in FY22/23

   --    Interim dividend of 3.9 pence 

-- Guidance unchanged: continue to expect FY22/23 underlying profit before tax of between GBP630 million and GBP690 million

Strategic highlights

-- Food First: Strong grocery volume market share performance and only full choice supermarket to grow volume share versus pre-pandemic(2) . As customer shopping habits return to normal, online sales are down, but we are gaining overall grocery market share as online customers return to shop in our stores(3)

o Value: Consistently inflating behind the market(4) , driven by more than GBP500 million investment over two years to keep prices low. Continuing to strengthen value position versus competitors; value index versus Aldi has improved by 400 basis points in the past 12 months(5)

o Our mix and basket size trends are proving more resilient than competitors and we are seeing less switching to Aldi and Lidl than all other full choice supermarkets(6) , reflecting the strength of our brand and customer base

o Innovation: Launched over 600 new products and on track to launch 1,200 new products by the end of this year. Sales of new Summer Editions products exceeded expectations, over 70 per cent more products in our Autumn Editions range this year. Launching 300 new Christmas products, over 50 per cent of which are Taste the Difference. Taste the Difference is outperforming the market(7) with H1 sales are up 14 per cent versus pre-pandemic, as customers choose to treat themselves at home

o Service: GBP150 million annual investment in colleague pay and benefits to support colleagues with the cost of living and drive outstanding service. We have given hourly paid colleagues two pay rises this year, as well as free food during shifts and offered all colleagues improved discounts. We are making significant investments to enhance our stores, which are attracting more customers as shopping behaviours normalise post-pandemic, driving strong satisfaction scores in supermarkets ahead of competitors(8)

-- Brands that Deliver: We are building brands that deliver both for our customers and for our shareholders. Argos is considerably more profitable versus pre-pandemic and over 10 million customers are now registered with the Nectar app. Habitat is growing strongly and Tu's great value fashion continues to win customers. Sainsbury's Bank is delivering on its strategic objectives, focused on providing financial services products for Sainsbury's and Argos customers

o Argos delivered market outperformance(9) and is more resilient than competitors. Argos sales grew 1.6 per cent in Q2. By focusing on investing in our brands and developing core capabilities, we have improved availability and range. Hot weather supported sales of seasonal and electronic goods over the Summer

o Tu clothing full price sales remain above pre-pandemic levels. Womenswear dress sales up 40 per cent

o Continued focus on building the Habitat brand with strong sales growth in Habitat Kids and improved customer satisfaction scores(10)

o Over 10 million customers have downloaded the Nectar app; My Nectar Prices is helping customers save over GBP100 a year. We now expect Nectar360 to deliver incremental profits of at least GBP90 million by March 2026, up from previous guidance of GBP60-70 million

o Good progress against plan to simplify and strengthen Financial Services reflected in solid performance despite challenging market conditions

-- Save to Invest: Strong delivery of structural cost savings. We expect to deliver over GBP1.3 billion of cost savings in the three years to FY23/24, doubling the run rate from the three years to FY19/20. This is helping mitigate higher than expected operating cost inflation.

-- Plan for Better: We are making good progress on our Plan for Better. We have removed 'best before' dates from 100 more products and, as part of our commitment to Help Everyone Eat Better, at least 75 per cent of products price matched to Aldi are a healthy choice. We have distributed over six million meals in partnership with Neighbourly in the last year and introduced refreshed Human Rights commitments. We have reduced greenhouse gas emissions within our own operations by 44.5 per cent year-on-year, supporting our accelerated commitment to be Net Zero by 2035

 
H1 Financial Summary                      2022/23      2021/22       YoY 
Statutory performance 
Group revenue (excl. VAT, inc. 
 fuel)                                 GBP16,408m   GBP15,724m      4.4% 
Profit before tax                         GBP376m      GBP527m     (29%) 
Profit after tax                          GBP285m      GBP378m     (25%) 
Basic earnings per share                    12.3p        16.8p     (27%) 
 
Business performance 
Group sales (inc. VAT)                 GBP18,338m   GBP17,528m      4.6% 
Retail sales (inc. VAT, excl. fuel)    GBP14,674m   GBP14,871m    (1.3%) 
Underlying profit before tax              GBP340m      GBP371m      (8%) 
Underlying basic earnings per share         11.2p        12.2p      (8%) 
Interim dividend per share                   3.9p         3.2p       22% 
Net debt (inc. lease liabilities)     GBP(6,165)m  GBP(6,345)m  +GBP180m 
Non-lease net funds / (debt)              GBP361m     GBP(27)m  +GBP388m 
Return on capital employed                   7.7%         6.3%    140bps 
 
 
Like-for-like                            2021/22                     2022/23 YoY 
 sales performance 
                            ---------------------------------  ----------------------- 
                              Q1      Q2       Q3       Q4       Q1       Q2      H1 
                                    -------  -------  -------  -------  ------ 
Like-for-like sales 
 (excl. fuel)                1.6%   (1.4%)   (4.5%)   (5.6%)   (4.0%)    3.7%   (0.8%) 
                            ------  -------  -------  -------  -------  ------  ------ 
Like-for-like sales 
 (incl. fuel)                8.4%    3.0%     0.6%     2.7%     2.9%     7.7%    4.9% 
                            ------  -------  -------  -------  -------  ------  ------ 
 
Total sales performance                  2021/22                     2022/23 YoY              2022/23 Yo3Y 
                            ---------------------------------  ----------------------- 
                              Q1      Q2       Q3       Q4       Q1       Q2      H1      Q1       Q2       H1 
                                                               -------  ------  ------           -------  ------- 
Grocery                      0.8%    0.8%    (1.1%)   (1.6%)   (2.4%)    3.8%    0.2%    8.7%     10.1%    9.3% 
                            ------  -------  -------  -------  -------  ------  ------  -------  -------  ------- 
Total General Merchandise   (1.4%)  (11.4%)  (16.0%)  (21.1%)  (11.2%)   1.2%   (6.1%)  (6.2%)   (3.6%)   (5.0%) 
                            ------  -------  -------  -------  -------  ------  ------  -------  -------  ------- 
GM (Argos)                  (3.7%)  (12.0%)  (16.1%)  (20.4%)  (10.5%)   1.6%   (5.5%)  (4.5%)   (0.9%)   (2.9%) 
                            ------  -------  -------  -------  -------  ------  ------  -------  -------  ------- 
GM (Sainsbury's)            11.2%   (8.0%)   (15.7%)  (24.1%)  (14.6%)  (1.3%)  (9.1%)  (13.8%)  (15.5%)  (14.5%) 
                            ------  -------  -------  -------  -------  ------  ------  -------  -------  ------- 
Clothing                    57.6%    9.2%    (2.7%)   (9.3%)   (10.1%)  (0.2%)  (6.0%)   3.9%     0.8%     2.5% 
                            ------  -------  -------  -------  -------  ------  ------  -------  -------  ------- 
Total Retail (excl. 
 fuel)                       1.6%   (1.7%)   (5.3%)   (6.2%)   (4.5%)    3.1%   (1.3%)   5.4%     6.7%     5.9% 
                            ------  -------  -------  -------  -------  ------  ------  -------  -------  ------- 
Fuel                        95.1%    36.1%    47.5%    80.1%    48.3%   29.1%   39.5%    26.9%    24.2%    25.8% 
                            ------  -------  -------  -------  -------  ------  ------  -------  -------  ------- 
Total Retail (incl. 
 fuel)                       8.5%    2.7%    (0.1%)    2.2%     2.5%     7.2%    4.4%    8.9%     9.6%     9.2% 
                            ------  -------  -------  -------  -------  ------  ------  -------  -------  ------- 
 

Outlook

Trading momentum has remained strong in the first few weeks of the second half and we have continued to make volume market share gains. This reflects continued investment in our customer offer, supported by the strength of our financial position and cost savings programme.

We are well placed through the peak trading period and into next financial year to support customers as they manage further cost of living pressures. We are half way through a GBP1.3 billion cost saving programme that has doubled the run rate of previous years and we are confident in our competitive position in the face of macro challenges and operating cost inflation.

We continue to expect underlying profit before tax in FY22/23 to be between GBP630 million and GBP690 million and to generate retail free cash flow of at least GBP500 million.

Notes

Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward-looking statements. They appear in a number of places throughout this announcement and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. Unless otherwise required by applicable law, regulation or accounting standard, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

A webcast presentation and live Q&A will be held at 9:00 (GMT). This will be available to view on our website at the following link: https://sainsbury-s-q2-interim-results-presentation.open-exchange.net/registration

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 Third Quarter Trading Statement at 07:00 (GMT) on 11 January 2023.

Enquiries

 
  Investor Relations      Media 
  James Collins           Rebecca Reilly / Victoria 
                           Durman 
  +44 (0) 7801 813 074    +44 (0) 20 7695 7295 
 

Food First

We are focused on building on our strong brand heritage and reputation for quality, range and innovation while lowering prices and offering consistent value for money in an inflationary environment. Our strategy is delivering; we are improving the value we provide for customers, there are more new products on our shelves and our colleagues are delivering improved customer service. We are winning market share and growing our grocery sales.

Value

-- We have consistently inflated prices behind competitors, both overall and on the best-selling items that are most important to customers(11) . Our value position across the whole basket continues to improve versus competitors, including improving by 400 basis points versus Aldi in the last 12 months(5) . We announced our biggest ever September investment in food of GBP60 million as part of our commitment to invest GBP500 million by March 2023

-- We are matching Sainsbury's quality with Aldi prices on 240 of our most popular products and we recently increased the number of own-brand products in Price Lock by 20 per cent as more customers switch from branded to own-brand products

-- We have improved the visibility in store and online of our Special Offers and increased our meal bundles, driving improved customer satisfaction with our promotional offer

-- Our mix and basket size trends are proving more resilient than competitors and we are seeing less switching to the limited choice supermarkets than the other full choice supermarkets, reflecting our improving value position and the strength of our brand and customer base(6)

Quality and Innovation

-- We are on track to launch 1,200 new products this year, having already created over 600 new products in H1. Summer Editions sales were up over 30 per cent year-on-year

-- We also launched our second Autumn Editions range with over 70 per cent more products than last year, including our Stanley Plum Tart and Tuscan Pork Ragu. We will launch 300 new Christmas products and 50 per cent of these will be Taste the Difference

-- Taste the Difference sales are up by 14 per cent on a three-year basis. We launched 160 new Taste the Difference products, up 40 per cent year-on-year and we outperformed the market overall(7) and at key events such as Easter and the Queen's Jubilee. We also launched 21 new Inspired to Cook products to help customers cook tasty food at home

-- Customer satisfaction scores for quality remain ahead of our full choice supermarket competitors and we are the only full choice supermarket to improve on quality perception scores while maintaining price perception scores over a three-year period(12)

-- We have invested to change the layout of our supermarkets and convenience stores in line with the government's High in Fat, Salt and Sugar (HFSS) guidance and to enhance our Fresh, Food Service and Grocery sections

-- Through our partnership with Boparan Restaurant Group we have opened two further "The Restaurant Hub" food halls, bringing the total to four and we now have 50 Starbucks cafés in Sainsbury's supermarkets

Service

-- In September we announced a GBP25 million package to support colleagues with the cost of living. This included a second pay rise this year for 127,000 hourly-paid colleagues, raising the base rate to GBP10.25 per hour nationally and GBP11.30 per hour in London. The package also includes free food during shifts and increased discounts at Sainsbury's and Argos

-- Investment in colleagues and our stores is supporting strong supermarket customer satisfaction scores. Customer satisfaction stores are ahead of competitors in availability, speed of checkout, quality and colleague availability(13)

-- We are well positioned to serve our customers wherever and however they want to shop. As customer shopping habits normalise and people return to stores post-pandemic, we are growing overall market share with a higher proportion of online customers switching to our own stores versus competitors(14) . Supermarket sales grew 3 per cent(15)

-- Convenience sales are now 7 per cent higher than pre-pandemic, driven by particularly strong growth in less urban convenience stores

-- Our online productivity metrics have improved with item pick rate per hour up 13 per cent versus pre-pandemic and deliveries per hour up 9 per cent

-- By the end of the financial year we plan to have opened around 16 convenience stores, closed three supermarkets and closed eight convenience stores as part of our focus on having stores that are in the best locations for customers

-- We now deliver around 118,000 On Demand grocery orders per week in as little as 30 minutes from nearly 700 stores through our Chop Chop service and partnerships with Deliveroo and Uber Eats

Brands that Deliver

We are strengthening our brands, so that they deliver more consistently both for our customers and for our shareholders. They must contribute positively in their own right and support our ambitions in food. Argos is performing well in a market where customers are looking for reassurance on value and is considerably more profitable than pre-pandemic. Habitat is growing strongly and Tu is holding up well despite pressure on customers' disposable incomes. Over 10 million customers are now registered with the Nectar app and Sainsbury's Bank's performance has been resilient in a toughening environment.

Argos

-- After declines in Q1 against a lockdown comparative, Argos sales increased by 1.6 per cent in Q2, helped by significantly improved product availability year-on-year and the impact of good Summer weather on seasonal sales. Sales were particularly strong in consumer electronics and gardening tools, barbecues and outdoor toys

-- Our Argos transformation programme is on track and profitability is significantly higher than pre-pandemic levels. We now have 414 Argos stores inside Sainsbury's supermarkets, making it easier for customers to shop for general merchandise conveniently. We have opened 11 Local Fulfilment Centres, ensuring we can serve more customers with more products faster

Habitat

-- We continue to build the Habitat brand, supporting strong sales growth. Our Autumn/Winter campaign focused on Habitat's breadth of range and value for money and products featured in the campaign are selling well

-- Our Habitat Kids range delivered a particularly strong performance, especially in bedroom furniture and bedding

-- Customer satisfaction scores have improved; value perception is up 2.4 percentage points year-on-year and brand awareness is up 2.8 percentage points(10)

-- In October we announced a one-year partnership with British designer Sebastian Conran, son of Habitat founder Sir Terence Conran, including new collaborative ranges and a mentoring scheme for Habitat designers and buyers

Tu

-- Our clothing business remains strong and structurally more profitable than pre-pandemic, with significantly lower promotional participation. Overall clothing sales were 2.5 per cent higher than H1 19/20 and full price sales grew from 64 per cent to 80 per cent

-- We delivered a record performance in womenswear dress sales, up 40 per cent, and a good performance in Back to School clothing sales

   --      Our latest Tu & Me campaign Autumn collection was well received by customers 

Nectar

-- Nectar is the UK's biggest loyalty programme and over 10 million customers are now registered with the app

-- SmartShop usage continues to increase and helps to drive value for customers by enabling them to track their spend and benefit from My Nectar Prices, which offers personalised discounts where customers can save over GBP100 a year

-- Nectar is also increasingly popular with Argos customers and is now used in over 30 per cent of Argos sales

-- Nectar360 is now working with more than 700 suppliers and is tracking ahead of its previous target to deliver incremental profits of GBP60 million to GBP70 million. We now expect Nectar360 to deliver incremental profits of at least GBP90 million by March 2026

Financial Services

-- We are making good progress with our plan to strengthen and simplify our Financial Services business and we continue to invest in digitisation

-- Financial Services delivered underlying operating profit of GBP19 million in the half, in line with last year. Underlying revenues were up 19 per cent, driven by an increase in credit demand and a recovery in ATM and Travel Money commission income. Additional provisioning has been made on the back of the subdued economic environment and as portfolio behaviours normalise post-pandemic, but overall arrears levels remain low

-- In May we re-opened all our Travel Money Bureaux and revenues have recovered well as travel has returned, although revenues remain below pre-pandemic levels. ATM transaction volumes are up over 6 per cent year-on-year

   --      We launched our Digital Savings platform, significantly improving the customer experience 
   --      Sainsbury's Bank paid its first dividend of GBP50 million to the Group in H1 

Save to Invest

Two years ago we set out to deliver a step change in efficiency by transforming our approach to costs, simplifying our organisation and delivering a structural reduction in our operating cost base. We are pleased with the level of structural cost savings delivered so far and we are in a strong place. The scale of our cost savings delivery is enabling us to make bold investments in our core food business.

-- We expect to deliver over GBP1.3 billion of cost savings in the three years to FY23/24, doubling the run rate from the three years to FY19/20. Halfway through this programme, we have delivered GBP730 million of savings. Cost inflation is considerably higher than we had anticipated, but our strong programme of cost savings is helping us to mitigate the impact of inflation and invest in low prices for customers and in colleague pay ahead of key competitors

-- Argos is delivering improved profitability driven by our end-to-end strategic transformation programme. We expect to close around 50 Argos standalone stores and open around 25 Argos stores inside Sainsbury's this financial year

-- By March 2024, we expect to have around 160 Argos standalone stores, 430-460 Argos stores inside Sainsbury's supermarkets and 450-500 collection points. We had previously guided to around 100 standalone Argos stores by this date; this change reflects progress in rent negotiations

-- We have opened 11 Local Fulfilment Centres and as a result, our customers are benefitting from improved availability and faster delivery. We are on track to make a total saving of GBP105 million by the end of March 2024 for the overall Argos transformation programme

-- We continue to review ways to make our stores more efficient, easy and convenient to shop. Introducing more self-service checkouts means our colleagues are able to focus on different tasks and deliver improved service and improves customer satisfaction scores for speed of checkout

-- We continue to improve the profitability of Groceries Online, consistently reducing the cost to serve while delivering an improved customer experience

-- The transformation of our café, bakery and hot food counters is on track to save over GBP160 million over the three years to FY22/23. We have so far closed 312 food counters and 260 cafés. We have opened two further 'The Restaurant Hub' food halls and we now have 50 Starbucks cafés in Sainsbury's stores. By working with third parties we can deliver for customers and support our own cost saving programme

-- We are making good progress with the integration of Sainsbury's, Argos and Habitat supply chain and logistics networks, which will save at least GBP250 million over the programme

-- We have made good progress in reducing overall energy consumption throughout our business which is in turn supporting cost savings. We have reduced electricity consumption (kWh) across Sainsbury's and Argos by 23 per cent over the last three years, by rolling out LED lighting in 100 per cent of our stores and fitting aerofoil technology in our fridges among other initiatives

-- We believe we are in a good position relative to the industry on our proportion of Net Zero energy sourcing. We have committed to the long-term purchasing of renewable energy from new windfarms which gives us good protection from variable cost inflation

Plan for Better

As a responsible retailer, we want to Help Everyone Eat Better, offering products that help customers reduce their impact on the environment one plate at a time. We are making good progress against our plan to become Net Zero across our own operations by no later than 2035.

Better for You

Healthy and sustainable diets

-- We are committed to keeping prices low on healthy foods; at least 75 per cent of products in our Aldi price-matched promotion are a Healthy or Better For You choice

-- We have reintroduced GBP2 top-up coupons to buy fruit and vegetables, to accompany the Government-funded NHS Healthy Start scheme every week over the next six months in England. This could help feed more than half a million pregnant women and children in need of support

-- We are inspiring customers to eat well on a budget with the re-launch of 'Feed your Family for a Fiver' campaign and by sharing Healthy and Better for You recipes online

Better for the Planet

Carbon

-- We have reduced greenhouse gas emissions (GHG) within our own operations by 44.5 per cent year-on-year, mainly driven by our transition to 100 per cent renewable electricity as well as our ongoing GHG emission reduction initiatives

-- Coming together with other retailers, we collectively invested GBP9 million in the Responsible Commodities Facility (RCF) to provide financial incentives to farmers in Brazil who commit to 100 per cent deforestation and conversion-free (DCF) soy cultivation

-- We launched our new innovation investment programme, in partnership with Williams Advanced Engineering, and are pledging to invest GBP5 million to help support small businesses pioneering sustainable technologies

Food Waste

-- We have removed 'best before' dates from 100 Fresh products and will have removed these dates from a further 130 products by the end of the year

   --      We reduced operational food waste across our business by 7 per cent 

-- In the year since launching our partnership with Neighbourly, we have distributed over six million meals, supporting an average of 750,000 people each week

Plastic and Recycling

-- We became the first retailer to launch our own refillable handwash pouch, saving 26 tonnes of plastic per year and replaced our double concentrate squash bottles to quadruple concentrate, saving 185 tonnes of plastic each year

-- We launched new double-length toilet rolls, reducing packaging by 30 per cent and saving customers money

-- Since launching our partnership with Newlife in 2019, we have donated 65.5 tonnes of unsellable clothing

Better for Everyone

Human Rights

-- We published our first Human Rights saliency report and set out five Human Rights commitments, based on our most salient human rights risks and emerging issues that affect the people within our supply chain

Diversity and Inclusion

-- We launched the 'Thrive with Sainsbury's' programme, which supports Black founder-led brands to create food and drink products and committed GBP1 million to help these businesses grow and to mentor participating founders

-- We have made good progress against our Diversity and Inclusion targets and have increased both black and female representation in senior leadership positions year-on-year

Animal Health and Welfare

   --      We were awarded 'UK Retailer of the Year 2022' by the Aquaculture Stewardship Council (ASC) 

-- We are focusing on a refreshed commitment to improve animal health and welfare and practising responsible antibiotic stewardship

(1) Nielsen panel, Total Average Selling Price growth YoY, 52 weeks to 17 Sept 2022. Total FMCG exc. Kiosk & Tobacco

(2) Nielsen panel volume growth Yo3Y. Total FMCG excl. Kiosk & Tobacco, 28 weeks to 17 Sept 2022. Total Outlets

(3) Nielsen panel volume growth YoY. Total FMCG excl. K&T, 12 weeks to 17 Sept 2022. Total universe: Total Outlets

(4) Nielsen panel, Total Average Selling Price growth YoY, 52 weeks to 17 Sept 2022. Total FMCG exc. Kiosk & Tobacco

(5) Value Reality. H1 Mar-Sept 2022 vs H1 Mar-Sept 2021; Edge by Ascential, internal modelling

(6) NielsenIQ panel data. Net volume switching GBPm to Aldi + Lidl as % of each retailer's relative volume. 28 weeks to 17 September 2022

(7) Nielsen panel, Premium OL market - Total FMCG excl. Kiosk and Tobacco. Volume growth differential for 12 weeks to 17 September 2022. Total universe: total outlets

(8) Supermarket CSAT. Competitor Benchmarking. 12 weeks to 17 Sept 2022

(9) BRC data, 28 weeks to 17 Sept 2022. Argos differential, Total NFNC (exc. H&B & stationery) sales

(10) YouGov Value Perception and Brand Awareness scores for Habitat brand. H1 22/23 average scores vs H1 21/22 average scores

(11) Nielsen panel data, Top 100 SKUs by retailer. Average Selling Price YoY growth. 52 weeks to 17 Sept 2022

(12) OC&C Proposition Index, Grocery Price vs Quality, August 2022 survey

(13) Nielsen panel data. Proportion of H1 22/23 value switching back into own stores. Average of other online players = Tesco, Asda, Morrisons

(14) Competitor benchmarking survey. Q2 22/23 supermarket CSAT scores 12 weeks to 17 September 2022

(15) Including Argos stores in Sainsbury's sales

Financial Review for the 28 weeks to 17 September 2022

In the 28 weeks to 17 September 2022, the Group generated profit before tax of GBP 376 million (HY 2021/22: GBP527 million) and an underlying profit before tax of GBP340 million (HY 2021/22: GBP371 million).

A number of Alternative Performance Measures ('APMs') have been adopted by the Directors to provide additional information on the underlying performance of the Group. These measures are intended to supplement, rather than replace the measures provided under IFRS. Please see Note 2.5 on page 25 for further information.

The prior period (28 weeks to 18 September 2021) results have been restated to reflect the removal of business rates from onerous property contract provisions. Refer to note 2 of the accounts for further information.

 
 Summary income statement(1)              28 weeks       28 weeks            52 weeks 
                                                to             to                  to 
                                      17 September   18 September   Change   05 March 
                                              2022           2021                2022 
                                              GBPm           GBPm        %       GBPm 
 
 Group sales (including VAT)                18,338         17,528      4.6     33,355 
 Retail sales (including VAT)               18,084         17,315      4.4     32,924 
 Retail sales (excluding fuel, 
  including VAT)                            14,674         14,871    (1.3)     28,095 
 
 Group sales (excluding VAT)                16,408         15,724      4.4     29,895 
 Retail sales (excluding VAT)               16,154         15,511      4.1     29,463 
 
 
 Underlying operating profit 
 Retail                                        477            523      (9)      1,001 
 Financial services                             19             19        -         38 
-----------------------------------                 -------------           --------- 
 Total underlying operating profit             496            542      (8)      1,039 
 
 Underlying net finance costs(2)             (156)          (171)        9      (309) 
 Underlying profit before tax                  340            371      (8)        730 
 Items excluded from underlying 
  results(3)                                    36            156     (77)        124 
-----------------------------------  -------------  -------------  -------  --------- 
 Profit before tax                             376            527     (29)        854 
 Income tax expense                           (91)          (149)       39      (177) 
-----------------------------------  -------------  -------------  -------  --------- 
 Profit for the financial period               285            378     (25)        677 
-----------------------------------  -------------  -------------  -------  --------- 
 
 Underlying basic earnings per 
  share                                      11.2p          12.2p      (8)      25.4p 
 Underlying diluted earnings 
  per share                                  11.1p          11.6p      (4)      24.5p 
 Basic earnings per share                    12.3p          16.8p     (27)      29.8p 
 Diluted earnings per share                  12.1p          16.1p     (25)      28.8p 
 Dividend per share                           3.9p           3.2p       22       3.2p 
 
   1      Prior year restated - refer to note 2 of the financial statements 
   2      Refer to APMs and note 7 of the financial statements 
   3      Refer to APMs and note 3 of the financial statements 

The first half has seen strong delivery against a tough comparator which benefitted from elevated sales in Q1 as a result of the last COVID-19 restrictions. The ongoing delivery of our cost programme has allowed us to largely mitigate the impact of rising operating cost inflation and deliver for customers, colleagues and investors. We have consistently prioritised protecting value for customers, raising prices less than the market, and this remains key to our strategy to grow volume market share. We have supported colleagues through this period of higher inflation with a 2(nd) pay rise during the year, and are delivering for shareholders with another strong retail free cash flow result to support the higher dividend pay-out ratio announced in our preliminary results.

Group sales

Group sales including VAT increased by 4.6 per cent year-on-year whilst Retail sales (including VAT, including fuel) increased by 4.4 per cent year-on-year, driven by a significant increase in Fuel sales. Retail sales (including VAT, excluding fuel) decreased by 1.3 per cent.

 
 Total sales performance                         28 weeks to                        28 weeks to 
  by category 
                                                17 September                       18 September   Change 
                                                        2022                               2021 
                                                       GBPbn                              GBPbn        % 
-------------------------  ---------------------------------  ---------------------------------  ------- 
 Grocery                                                11.3                               11.3     0.2% 
 General Merchandise                                     2.9                                3.1   (6.1)% 
 Clothing                                                0.5                                0.5   (6.0)% 
-------------------------  ---------------------------------  ---------------------------------  ------- 
 Retail (exc. fuel)                                     14.7                               14.9   (1.3)% 
-------------------------  ---------------------------------  ---------------------------------  ------- 
 Fuel sales                                              3.4                                2.4    39.5% 
 Retail (inc. fuel)                                     18.1                               17.3     4.4% 
-------------------------  ---------------------------------  ---------------------------------  ------- 
 

Sales strengthened through the half, with the first quarter annualising strong sales from COVID-19 restrictions in the prior year, and the second quarter also benefited from warmer weather than the prior year. Grocery inflation in the market increased during the period, but we continued to prioritise value for customers, inflating behind all key competitors.

General Merchandise sales saw the strongest impact from prior year comparators and returned to growth in the second quarter, driven by improved availability and market share gains. Consumer electronics sales growth was particularly strong against a period of supply challenges last year and seasonal sales benefited from a warm summer. Clothing saw a similar pattern with sales broadly flat in the second quarter.

Fuel sales increased by 39.5 per cent, with higher sterling oil prices leading to inflation of 36.9 per cent. Fuel sales are now 25.8 per cent above pre-COVID-19 levels.

 
 Total sales performance by channel        28 weeks to    28 weeks to 
                                          17 September   18 September 
                                                  2022           2021 
                                         -------------  ------------- 
 Total Sales fulfilled by Supermarket 
  stores                                        (0.5)%         (0.5)% 
      Supermarkets (inc Argos stores 
       in Sainsbury's)                            2.9%         (3.0)% 
      Groceries Online                         (17.4)%          12.8% 
 Convenience                                     10.5%           4.9% 
                                         -------------  ------------- 
 
 

Overall sales fulfilled from our Supermarkets fell by 0.5 per cent, driven by a 17.4 per cent decline in Groceries Online as some customers returned to stores following restrictions in the prior year. Conversely, sales in Convenience stores continued to recover, growing 10.5 per cent, with growth strongest in Food on the Move city centre stores and more urban locations. Overall, compared to pre-COVID-19 2019/20, Groceries Online sales are up 88.5 per cent.

 
 Retail like-for-like sales performance      28 weeks to    28 weeks to 
                                            17 September   18 September 
                                                    2022           2021 
 Like-for-like sales (exc. fuel)                  (0.8)%           0.3% 
 Like-for-like sales (inc. fuel)                    4.9%           6.1% 
-----------------------------------------  ------------- 
 
 

Retail like-for-like ('LFL') sales excluding fuel were down in the half reflecting tough first quarter comparisons, but grew 3.7 per cent in the second quarter.

Space

In the first half of 2022/23, Sainsbury's closed one Supermarket (2021/22 one opening and one closure). We opened four new Convenience stores and two were closed (2021/22 opened eight convenience stores and closed 10). During the period we opened 14 new Argos stores in Sainsbury's and one standalone Argos store, and closed 25 standalone Argos stores (2021/22 opened 37 stores in Sainsbury's and closed 36 standalone stores). In total Argos had 718 stores and 375 collection points at the end of the period.

 
 Store numbers and retailing space 
                                  As at                                                         As at 
                                         -----------  ------------  ------------------ 
                                5 March                                                  17 September 
                                                                            Extensions 
                                                         Disposals    / refurbishments 
                                   2022   New stores    / closures         / downsizes           2022 
-----------------------------  --------  -----------  ------------  ------------------  ------------- 
 
 Supermarkets                       598            -           (1)                  14            597 
 Supermarkets area '000 
  sq. ft.                        20,803            -          (16)                (16)         20,771 
 
 Convenience                        809            4           (2)                   -            811 
 Convenience area '000 
  sq. ft.                         1,918           11           (4)                   -          1,925 
 Sainsbury's total store 
  numbers                         1,407            4           (3)                  14          1,408 
-----------------------------  --------  -----------  ------------  ------------------  ------------- 
 
 Argos stores                       328            1          (25)                   -            304 
 Argos stores in Sainsbury's        400           14             -                   -            414 
 Argos total store numbers          728           15          (25)                   -            718 
 Argos collection points            335           45           (5)                   -            375 
 Habitat                              3            -             -                   -              3 
-----------------------------  --------  -----------  ------------  ------------------  ------------- 
 

In 2022/23, we expect to open around 16 new convenience stores, and to close three supermarkets and eight convenience stores. In addition, we expect to open around 25 Argos stores inside Sainsbury's, and close around 50 Argos standalone stores.

In the UK, we expect the standalone Argos store estate will reduce to around 160 stores by March 2024, while we expect to have 430-460 Argos stores inside Sainsbury's supermarkets as well as 450-500 collection points. We had previously guided to around 100 standalone Argos stores by this date, and this change reflects progress in rent negotiations.

Retail underlying operating profit

Retail underlying operating profit decreased by 8.7 per cent to GBP477 million (HY 2021/22: GBP523 million) and retail underlying operating margin decreased by 42 basis points year-on-year to 2.95 per cent (HY 2021/22: 3.37 per cent). This decline in profit reflects our investment in value, reduced volumes as we annualise COVID-19 restrictions and higher levels of operating cost inflation, offset by both higher fuel sales and our ongoing Save to Invest Programme.

Continued work on our retail operating model delivered strong savings in both Sainsbury's and Argos, led by enhanced labour modelling and further savings in Online as we continue to embed the rapid capacity growth during COVID-19 and improve pick rates. The Argos Transformation programme continued to deliver savings as we integrate Argos and Sainsbury's and reduce occupancy and store operational costs.

 
 Retail underlying operating profit 
                                                     28 weeks       28 weeks 
                                                           to             to 
                                                 17 September   18 September       YoY 
                                                         2022           2021    Change 
 Retail underlying operating profit (GBPm)(1)             477            523    (8.7)% 
 Retail underlying operating margin (%)(2)               2.95           3.37   (42)bps 
 
 Retail underlying EBITDA (GBPm)(3)                     1,087          1,141    (4.7)% 
 Retail underlying EBITDA margin (%)(4)                  6.73           7.36   (63)bps 
 
 

1 Retail underlying earnings before interest, tax and Sainsbury's underlying share of post-tax profit from joint ventures.

   2      Retail underlying operating profit divided by retail sales excluding VAT. 

3 Retail underlying operating profit before underlying depreciation and amortisation of GBP610 million.

   4      Retail underlying EBITDA divided by retail sales excluding VAT. 

In 2022/23, we now expect a depreciation and amortisation charge of around GBP1,150 million, including around GBP500 million right of use asset depreciation.

Financial Services

 
 Financial Services results 
 6 months to 31 August 2022 
                                                2022    2021        Change 
-------------------------------------------- 
 
 Underlying revenue (GBPm)                       254     213           19% 
 Interest and fees payable (GBPm)               (28)    (30)          (7)% 
 Total income (GBPm)                             226     183           23% 
 Underlying operating profit (GBPm)               19      19            0% 
--------------------------------------------  ------  ------  ------------ 
 
 Net interest margin (%)(1)                      5.2     4.3      Up 90bps 
 Cost:income ratio (%)                            67      72   Down 500bps 
 Bad debt as a percentage of lending (%)(2)      2.2     1.3      Up 90bps 
 Active customers (m) - Bank                     1.9     1.8          3.6% 
 Active customers (m) - AFS                      2.1     2.1        (1.6)% 
 Total capital ratio (%)(3, 4)                  17.3    20.1   Down 280bps 
 Total Customer lending (GBPbn)(5)               5.1     5.0            2% 
 Unsecured lending (GBPbn)                       4.4     4.0           11% 
 Secured lending (GBPbn)                         0.7     1.0         (28)% 
 Customer deposits (GBPbn)                     (4.6)   (4.6)            0% 
--------------------------------------------  ------  ------  ------------ 
 
   1        Net interest receivable divided by average interest-bearing assets. 
   2        Bad debt expense divided by average net lending. 
   3        Total capital divided by risk-weighted assets. 

4 Total Capital Ratio excludes profits still subject to formal verification, inclusion of these profits would increase the capital ratio by 0.4%. In addition, the Bank issued a tender to repurchase and extinguish GBP120m of its existing Tier 2 on 30th August. This was executed and replaced with a new issuance on 12th September, the Total Capital Ratio prior to the new issuance was 15.9%, the figures shown includes this re-issuance as it is a material adjustment between 31 August and 17th September.

5 Amounts due from customers at the Balance Sheet date in respect of loans, mortgages, credit cards and store cards net of provisions.

Financial Services underlying operating profit of GBP19 million was flat year-on-year (H1 21/22: profit of GBP19 million). This was driven by an increase in credit demand and recovery in Travel Money, offset by higher impairments and increased costs. Higher impairments reflect both a revision in economic assumptions on inflation and unemployment, as well as the normalisation of low arrears levels in the prior year.

Financial Services total income of GBP226 million increased by 23 per cent (H1 21/22: GBP183 million), driven primarily by a recovery of credit demand with unsecured lending balances up 11 per cent year-on-year, and a rebound in Travel Money as foreign travel resumed. Net Interest margin has increased 90bps, with net interest income up 14 per cent due to a higher unsecured mix, improving yields and a focus on managing the cost of funding. Fee income has shown recovery post COVID within Credit Card and ATMs, with higher retail spend and the demand for cash returning.

The Financial Services cost:income ratio has reduced to 67 per cent (H1 21/22: 72 per cent), primarily driven by a recovery in income as volumes recovered.

Bad debt expense as a percentage of lending increased 90 basis points year-on-year to 2.2 per cent (H1 21/22: 1.3 per cent), reflecting the higher proportion of unsecured balances, revised economic assumptions and increased arrears.

A GBP50m dividend was paid from Sainsbury's Bank to the Group for the first time in April 2022. The Bank remains well capitalised with a Total Capital ratio of 17.3%.

Underlying net finance costs

Underlying net finance costs reduced by 9 per cent to GBP156 million (HY 2021/22: GBP171 million). These costs include GBP17 million of net non-lease interest cost (HY 2021/22: GBP22 million). The reduction of net non-lease interest is driven by interest income from higher cash balances. In addition, the net underlying interest costs on lease liabilities have reduced to GBP139 million (HY 2021/22: GBP149 million), mainly due to lower interest rates on new leases.

We now expect underlying net finance costs in 2022/23 of GBP290 million - GBP300 million, lower than previously guided, including around GBP260 million of lease interest.

Items excluded from underlying results

In order to provide shareholders with additional insight into the underlying performance of the business, an adjusted measure of profit (underlying profit before tax) is provided to supplement the reported IFRS numbers, reflecting how the business measures performance internally. Underlying results exclude items recognised in reported profit or loss before tax which, if included, could distort comparability between periods. In determining which items to exclude from underlying profit, the Group considers items which are significant either by virtue of their size and/or nature, or that are non-recurring. The adjusted items are below.

 
  Items excluded from underlying results           28 weeks to    28 weeks to 
   (1) 
                                                  17 September   18 September 
                                                          2022           2021 
                                                          GBPm           GBPm 
-----------------------------------------------  -------------  ------------- 
 Restructuring and integration programmes                 (33)           (47) 
 Income recognised in relation to legal 
  disputes                                                  30            181 
 IAS 19 pension income                                      35              6 
 Property, finance and acquisition adjustments               4             16 
 Items excluded from underlying results                     36            156 
-----------------------------------------------  -------------  ------------- 
 
   1         Prior year restated - see note 2 of the financial statements 

- Restructuring and integrations costs of GBP33 million (2021/22: GBP47 million) includes GBP33 million (2021/22: GBP37 million) relating to the programme announced in November 2020. Cash costs in the half were GBP33 million (2021/22: GBP81 million) and we expect full year cash costs of around GBP60 million.

- We continue to 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 GBP300 million, with the majority in the period to March 2024. To date charges of GBP673 million and cash costs of GBP181 million have been incurred. In line with IFRIC 21 "Levies", business rates are now recognised as a periodic cost as incurred and as such we expect approximately GBP40 million of business rates associated with leased properties in the restructuring programme to be recognised after the year ending March 2024.

- Income recognised in relation to legal disputes of GBP30 million (2021/22: GBP181 million) primarily relates to settlements for overcharges from payment card processing fees and is shown net of legal fees. No net cash was received in the half (2021/22: GBP27 million).

- IAS 19 Pension income of GBP35 million (2021/22: GBP6 million) comprises pension finance income of GBP30 million, a settlement credit of GBP8 million relating to a gain on payments made to members exiting the scheme relative to the liabilities extinguished, and scheme expenses of GBP3 million. The higher pensions finance income is driven by both an increased pensions surplus and higher interest rates.

- Other movements of GBP4 million income (2020/21: GBP16 million) relate to property profits, acquisition adjustments and non-underlying financing costs. The positive value is driven by a gain on energy derivatives driven by higher energy prices.

Taxation

The tax charge was GBP91 million (HY 2021/22: GBP149 million). The underlying tax rate was 23.5 per cent (HY 2021/22: 26.4 per cent) and the effective tax rate was 24.2 per cent (HY 2021/22: 28.3 per cent).

The underlying and effective tax rates are lower than the prior year. The 2021/22 charge was adversely impacted by restating deferred tax balances in advance of the legislated 6% increase in the headline rate of corporation tax.

The 2022/23 effective tax rate of 24.2 per cent is higher than the standard rate of corporation tax in the UK of 19 per cent. This is largely a result of the impact of non-deductible expenses, particularly in respect of non-deductible capital expenditure and prior year adjustments.

We expect an underlying tax rate in 2022/23 of around 24 per cent.

Earnings per share

Underlying basic earnings per share decreased to 11.2 pence (HY 2021/22: 12.2 pence) driven by the decrease in underlying earnings. Basic earnings per share decreased to 12.3 pence (HY 2021/22: 16.8 pence). Underlying diluted earnings per share decreased to 11.1 pence (HY 2021/22: 11.6 pence) and diluted earnings per share decreased to 12.1 pence (HY 2021/22: 16.1 pence).

Dividends

The Board has recommended an interim dividend of 3.9 pence per share (2021/22: 3.2 pence) reflecting 30 per cent of the 2021/22 full year dividend per share. This will be paid on 16 December 2022 to shareholders on the Register of Members at the close of business on 11 November 2022. Sainsbury's has a Dividend Reinvestment Plan (DRIP), which allows shareholders to reinvest their cash dividends in our shares. The last date that shareholders can elect for the DRIP is 25 November 2022.

Net debt and retail cash flows

As at 17 September 2022, net debt was GBP6,165 million (18 September 2021: GBP6,345 million), a decrease of GBP180 million. Excluding the impact of lease liabilities on net debt, Sainsbury's reduced non-lease net debt by GBP388 million, moving to a net funds position of GBP361 million (18 September 2021: net debt of GBP27 million).

Net debt includes lease liabilities under IFRS 16 which grew to GBP6,526 million (HY 2021/22: GBP6,318 million) as a result of exercising purchase options on a further eight leased supermarkets held by property investment pools in which the Group holds an interest in the second half of 2021/22 (taking the total to 21 stores in 2021/22). Group net debt includes the impact of capital injections to and dividends received from Sainsbury's Bank, but excludes the net debt of Financial Services. Financial Services' net debt balances are excluded because they are required as part of the business as usual operations of the bank, as opposed to specific forms of financing for the Group.

Having exceeded our GBP950 million net debt reduction target at last year end, a year ahead of plan, we continue to expect to generate average retail free cash flow of at least GBP500 million per year over the three years to March 2025(5) .

 
 Summary cash flow statement (1)                       Retail         Retail     Retail 
                                                     28 weeks    28 weeks to   52 weeks 
                                                           to                        to 
                                                 17 September   18 September    5 March 
                                                         2022           2021       2022 
----------------------------------------------  -------------  -------------  --------- 
                                                         GBPm           GBPm       GBPm 
 Retail underlying operating profit                       477            523       1001 
 Adjustments for: 
 Retail underlying depreciation and 
  amortisation(2)                                         610            618      1,144 
 Share based payments and other                            34             26         54 
 Retail exceptional operating cash flows 
  (excluding pensions)(2)                                (33)           (30)        (3) 
 Adjusted retail operating cash flow 
  before changes in working capital(3)                  1,088          1,137      2,196 
----------------------------------------------  -------------  -------------  --------- 
 Decrease/(increase) in working capital(2)                360            135      (185) 
----------------------------------------------  -------------  -------------  --------- 
 Net interest paid(2)                                   (161)          (177)      (323) 
 Pension cash contributions                              (23)           (39)       (71) 
 Corporation tax paid                                    (32)              -       (23) 
                                                -------------  -------------  --------- 
 Adjusted net cash generated from operating 
  activities(2)                                         1,232          1,056      1,594 
----------------------------------------------  -------------  -------------  --------- 
 Cash capital expenditure(2)                            (297)          (298)      (645) 
 Repayments of lease liabilities                        (245)          (242)      (491) 
 Initial direct costs on right-of-use 
  assets                                                  (9)            (1)        (3) 
 Proceeds from disposal of property, 
  plant and equipment                                      28             39         46 
 Dividends and distributions received                      50              -          2 
 Retail free cash flow                                    759            554        503 
----------------------------------------------  -------------  -------------  --------- 
 Dividends paid on ordinary shares                      (229)          (165)      (238) 
 Repayment of borrowings(2)                              (22)          (231)      (256) 
 Other(2)                                                (23)           (30)       (27) 
 Net increase/(decrease) in cash and 
  cash equivalents                                        485            128       (18) 
----------------------------------------------  -------------  -------------  --------- 
 Decrease in Debt                                         267            473        747 
 Conversion of perpetual convertible-bond                   -              -        240 
 Other non-cash and net interest movements(4)           (158)          (477)    (1,259) 
 Movement in net debt                                     594            124      (290) 
----------------------------------------------  -------------  -------------  --------- 
 
 Opening net debt                                     (6,759)        (6,469)    (6,469) 
---------------------------------------------- 
 Closing net debt                                     (6,165)        (6,345)    (6,759) 
----------------------------------------------  -------------  -------------  --------- 
       of which 
      Lease Liabilities                               (6,526)        (6,318)    (6,618) 
----------------------------------------------  -------------  -------------  --------- 
      Net Funds / (Net Debt) Excluding Lease 
       Liabilities                                        361           (27)      (141) 
----------------------------------------------  -------------  -------------  --------- 
 

1 See note 5b for a reconciliation between Retail and Group cash flow, and Alternative Performance Measures on page 57 for reconciliations of specific line items as indicated.

   2      Refer to the Alternative Performance Measures on pages 57 to 63 for reconciliation. 
   3      Excludes working capital and pension contributions. 

4 Other non-cash includes new leases and lease modifications, fair value movements on derivatives used for hedging long term borrowings.

5 The strategic purchase of 21 stores which has yet to complete is a capital allocation decision and will be reported outside of retail free cash flow.

Adjusted retail operating cash flow before changes in working capital was GBP1,088 million (HY 2021/22: GBP1,137 million) and working capital decreased by GBP360 million since the year end (HY 2021/22: GBP135 million). Working capital typically decreases between year end and half year, driven by seasonality and the phasing of payables. HY 2021/22 saw a more subdued effect due to the unwind of COVID-19 trading patterns, whilst this year sees a return to a more normal phasing, supported by strong Q2 sales growth.

Corporation tax of GBP32 million was paid in the half, with no payments made in the prior half year, reflecting payments made in 2020/21 before the decision to forgo business rates relief which subsequently impacted taxable profits in that year. Pensions contributions of GBP23 million (HY 2021/22: GBP39 million) are down on last year with the Sainsbury's scheme now fully funded and contributions stopped. Proceeds from disposals of GBP28 million (HY 2021/22: GBP39 million) represents disposal of non-trading sites and we do not expect any material further proceeds in the second half of the year.

Retail free cash flow increased by GBP205 million year-on-year to GBP759 million (HY 2021/22: GBP554 million) reflecting the material change in working capital pattern noted above, as well as a GBP50 million dividend received from Sainsbury's Bank given their strong capital position.

Sainsbury's paid dividends of GBP229 million in the half (HY 2021/22: GBP165 million).

As at 17 September 2022 Sainsbury's has drawn debt facilities of GBP545 million (HY 2021/22 GBP592 million). The Group holds undrawn committed credit facilities of GBP1,394 million and undrawn uncommitted facilities of GBP195 million.

Capital expenditure

Retail cash capital expenditure was GBP297 million (HY 2021/22: GBP298 million).

We expect annual retail cash capital expenditure (excluding Financial Services) to be around GBP700 million to GBP750 million over the three years to March 2025.

Financial ratios

 
 Key financial ratios           28 weeks to    28 weeks to   52 weeks to 
                               17 September   18 September       5 March 
                                       2022           2021          2022 
 Return on capital employed 
  (%) (1)                               7.7            6.3           8.4 
 Net debt to EBITDA (2)           2.9 times      3.3 times     3.1 times 
 Fixed charge cover (3)           2.7 times      2.3 times     2.8 times 
 
 

1 ROCE: Return is defined as a 52 week rolling underlying profit before interest and tax. Capital employed is defined as group net assets excluding the pension deficit/surplus and excluding net debt. The average is calculated on a 14 point basis.

2 Net debt of GBP6,165 million includes lease obligations under IFRS 16, divided by Group underlying EBITDA of GBP2,158 million, calculated for a 52-week period to 17 September 2022.

3 Group underlying EBITDA divided by rent (both capital and interest) and net underlying finance costs, where interest on perpetual securities is treated as an underlying finance cost.

Return on capital employed (ROCE) has declined in the first half, reflecting both lower earnings and increased capital employed driven by lease net debt. The prior half year comparator is impacted by the decision to forgo business rates relief, which resulted in a full year's charge being recorded in the second half of 2020/21.

Sainsbury's continues to target leverage of 3.0x - 2.4x to deliver a solid investment grade balance sheet. Our net debt to EBITDA leverage metric has shown strong progress since year end. However, this is supported by seasonal working capital flows and we expect to return to the top of this range by year end. Fixed charge cover is stable.

Defined benefit pensions

The Pension Scheme is valued on different bases for different purposes. For the corporate annual accounts, the value of the retirement benefit is calculated under IAS19 while the funding of the Scheme is determined by the Trustee's triennial valuation.

The Scheme was subject to a triennial actuarial valuation as at 30 September 2021, which has now completed. There was an actuarial surplus of GBP130 million (Sainsbury's section: a surplus of GBP231 million, Argos section: a deficit of GBP101 million), from a deficit of GBP538 million in 2018. The asset backed contributions (ABC) structure established by Sainsbury's in July 2019 continues to deliver as planned. Under the ABC, properties with a value of GBP1.35 billion were transferred into a property holding company, a wholly owned subsidiary of the Group, and leased to other Group entities. Rental receipts facilitate payments of interest and capital on loan notes issued to a Scottish Limited Partnership, in which the Scheme holds an interest. The Scheme's interest in the Partnership entitles it to annual distributions over up to 20 years.

These were approximately GBP58 million per year until 2030, and subsequently approximately GBP28 million a year for the remaining period (increasing by 2% a year). The distributions are made through three payment streams: 1) Payments to the Sainsbury's section 2) Payments to the Argos section 3) Switching payment stream, paid to either the Sainsbury's section or Argos section.

The payments to the Sainsbury's and Argos sections (streams 1 and 2) will stop in 2030, or when the relevant section reaches its funding target, if earlier. The third stream is initially paid to the Sainsbury's section.

As the Sainsbury's section reached its funding target in December 2021, stream 1 (GBP15 million a year) was permanently switched off and stream 3 (currently GBP24 million a year) switched to the Argos section from March 2022. Stream 3 payments will continue until 2038 or until both sections have reached their funding targets, if earlier. The Argos section also continues to receive the stream 2 payments of GBP20 million a year.

At 17 September 2022, the net defined benefit surplus under IAS19 for the Group was GBP1,455 million (excluding deferred tax). The GBP828 million decrease from 5 March 2022 was driven by remeasurement losses resulting from the net impact of rising interest rates on both plan assets and liabilities.

For 2022/23, total pension scheme cash contributions are expected to be GBP53 million.

 
 Retirement benefit obligations 
                                    Sainsbury's          Argos          Group     Group 
                                          as at          as at          as at     as at 
                                   17 September   17 September   17 September   5 March 
                                           2022           2022           2022      2022 
                                           GBPm           GBPm           GBPm      GBPm 
 Present value of funded 
  obligations                           (5,836)          (922)        (6,758)   (9,373) 
 Fair value of plan assets                7,176          1,064          8,240    11,693 
 Pension surplus                          1,340            142          1,482     2,320 
 Present value of unfunded 
  obligations                              (15)           (12)           (27)      (37) 
--------------------------------  -------------  -------------  -------------  -------- 
 Retirement benefit surplus               1,325            130          1,455     2,283 
 Deferred income tax liability            (413)           (41)          (454)     (640) 
--------------------------------  -------------  -------------  -------------  -------- 
 Net retirement benefit 
  surplus                                   912             89          1,001     1,643 
--------------------------------  -------------  -------------  -------------  -------- 
 

Post Balance Sheet Events

Borrowings

Subsequent to the balance sheet date, an unsecured term facility for GBP575m was entered into in October 2022, with an ultimate maturity date of 30 November 2024. As at the date of signing the term facility was undrawn.

Retirement benefit obligations

Subsequent to the balance sheet date, there have been significant movements in gilt markets. In particular the 'mini budget' announced by the government on 23rd September caused rapid sales of government bonds which further depressed gilt markets. Although a temporary intervention by the Bank of England and subsequent policy changes have stabilised the market, gilt yields remain significantly higher than they were prior to the mini budget. This has resulted in a significant decrease in the value of the Group's pension Scheme's assets, and also its liabilities.

The Group's pension Scheme adopts a collateral sufficiency framework which ensures sufficient high quality liquid assets are maintained in order to meet liquidity requirements, even in times of market stress. The scale and speed of the increase in interest rate expectations since the 'mini budget', and volatility within the markets, resulted in the Group deciding to put in place a loan facility to the Scheme of GBP500m on 18th October. The purpose of this facility was to further enhance the pensions Scheme's resilience in the event of unexpected substantial further rises in interest rates. This facility will remain in place for 3 months and as at the date of signing has not been drawn.

Group income statement (unaudited)

for the 28 weeks to 17 September 2022

 
                                      28 weeks to 17 September                      28 weeks to 18 September 
                                                 2022                                    2021 (restated) 
-------------------  -----  --------------------------------------------  -------------------------------------------- 
                                      Before   Non-underlying                       Before   Non-underlying 
                              non-underlying            items               non-underlying            items 
                                       items            (Note                        items            (Note 
                                                           3)      Total                                 3)      Total 
                      Note              GBPm             GBPm       GBPm              GBPm             GBPm       GBPm 
-------------------  -----  ----------------  ---------------  ---------  ----------------  ---------------  --------- 
 Revenue               4              16,408                -     16,408            15,724                -     15,724 
 Cost of sales                      (15,183)             (11)   (15,194)          (14,476)             (28)   (14,504) 
 Gross 
  profit/(loss)                        1,225             (11)      1,214             1,248             (28)      1,220 
 Administrative 
  expenses                             (751)             (18)      (769)             (725)             (32)      (757) 
 Other income                             22               40         62                19              184        203 
-------------------  -----  ----------------  ---------------  ---------  ----------------  ---------------  --------- 
 Operating profit                        496               11        507               542              124        666 
 Finance income        7                   5               30         35                 -               36         36 
 Finance costs         7               (161)              (5)      (166)             (171)              (4)      (175) 
-------------------  -----  ----------------  ---------------  ---------  ----------------  ---------------  --------- 
 Profit before tax                       340               36        376               371              156        527 
 Income tax expense    8                (80)             (11)       (91)              (98)             (51)      (149) 
-------------------  -----                                     ---------                                     --------- 
 Profit for the 
  financial 
  period                                 260               25        285               273              105        378 
-------------------  -----  ----------------  ---------------  ---------  ----------------  ---------------  --------- 
 
 Earnings per share    9                                           pence                                         pence 
-------------------  -----  ----------------  ---------------  ---------  ----------------  ---------------  --------- 
 Basic earnings                                                     12.3                                          16.8 
 Diluted earnings                                                   12.1                                          16.1 
-------------------  -----  ----------------  ---------------  ---------  ----------------  ---------------  --------- 
 
 
                                                                                       52 weeks to 5 March 
                                                                                               2022 
-------------------  -----  --------------------------------------------  -------------------------------------------- 
                                                                                    Before   Non-underlying 
                                                                            non-underlying            items 
                                                                                     items            (Note 
                                                                                                         3)      Total 
                      Note                                                            GBPm             GBPm       GBPm 
-------------------  -----  ----------------  ---------------  ---------  ----------------  ---------------  --------- 
 Revenue               4                                                            29,895                -     29,895 
 Cost of sales                                                                    (27,538)                9   (27,529) 
 Gross profit                                                                        2,357                9      2,366 
 Administrative 
  expenses                                                                         (1,352)             (78)    (1,430) 
 Other income                                                                           34              186        220 
-------------------  -----  ----------------  ---------------  ---------  ----------------  ---------------  --------- 
 Operating profit                                                                    1,039              117      1,156 
 Finance income        7                                                                 3               17         20 
 Finance costs         7                                                             (312)             (10)      (322) 
 Profit before tax                                                                     730              124        854 
 Income tax expense    8                                                             (154)             (23)      (177) 
-------------------  -----                                     ---------                                     --------- 
 Profit for the 
  financial 
  period                                                                               576              101        677 
-------------------  -----  ----------------  ---------------  ---------  ----------------  ---------------  --------- 
 
 Earnings per share    9                                                                                         pence 
-------------------  -----  ----------------  ---------------  ---------  ----------------  ---------------  --------- 
 Basic earnings                                                                                                   29.8 
 Diluted earnings                                                                                                 28.8 
-------------------  -----  ----------------  ---------------  ---------  ----------------  ---------------  --------- 
 

The notes on pages 22 to 53 form an integral part of these Condensed Consolidated Interim Financial Statements.

Refer to note 2 for details of prior year restatement.

Group statement of comprehensive (loss)/income (unaudited)

for the 28 weeks to 17 September 2022

 
                                                                       28 weeks           28 weeks   52 weeks 
                                                                             to                 to         to 
                                                                   17 September       18 September    5 March 
                                                                           2022    2021 (restated)       2022 
                                                          ---  ----------------  -----------------  --------- 
                                                             Note          GBPm               GBPm       GBPm 
                                                          ---------  ----------  -----------------  --------- 
 Profit for the financial period                                            285                378        677 
--------------------------------------------------------  ---------  ----------  -----------------  --------- 
 
 Items that will not be reclassified subsequently 
  to the income statement 
                                                          ---------  ----------  -----------------  --------- 
  Remeasurement on defined benefit pension 
   schemes                                                    18          (886)                298      1,457 
                                                          --------- 
  Movements on financial assets at fair value 
   through other comprehensive income                                       (6)                 40         76 
  Cash flow hedges fair value movements - inventory 
   hedges                                                                   171                 53         73 
  Current tax relating to items not reclassified                             14                  -          - 
  Deferred tax relating to items not reclassified                           208              (165)      (461) 
                                                                          (499)                226      1,145 
--------------------------------------------------------  ---------  ----------  -----------------  --------- 
 Items that may be reclassified subsequently 
  to the income statement 
                                                          --------- 
  Currency translation differences                                            5                  2        (1) 
                                                          --------- 
  Movements on financial assets at fair value 
   through other comprehensive income                                       (1)                (2)        (5) 
  Items reclassified from financial assets at 
   fair value through other comprehensive income 
   reserve                                                                  (1)                  -          4 
                                                               ---- 
  Cash flow hedges fair value movements - non-inventory 
   hedges                                                                    31                 14        131 
                                                          --------- 
  Items reclassified from cash flow hedge reserve                          (10)                  4          7 
                                                          --------- 
  Deferred tax on items that may be reclassified                           (34)               (18)       (57) 
                                                          --------- 
                                                                           (10)                  -         79 
                                                          --------- 
 Total other comprehensive (loss)/income 
  for the financial period (net of tax)                                   (509)                226      1,224 
 Total comprehensive (loss)/income for the 
  financial period                                                        (224)                604      1,901 
--------------------------------------------------------  ---------  ----------  -----------------  --------- 
 
 

The notes on pages 22 to 53 form an integral part of these Condensed Consolidated Interim Financial Statements.

Refer to note 2 for details of prior year restatement.

Group balance sheet (unaudited)

at 17 September 2022

 
                                                         17 September    5 March       18 September 
                                                                 2022       2022    2021 (restated) 
                                                  Note           GBPm       GBPm               GBPm 
-----------------------------------------------  -----  -------------  ---------  ----------------- 
 Non-current assets 
 Property, plant and equipment                     11           8,272      8,402              8,417 
 Right-of-use assets                               12           5,456      5,560              5,222 
 Intangible assets                                 13           1,021      1,006              1,001 
 Investments in joint ventures and associates                       3          3                  5 
 Financial assets at fair value through 
  other comprehensive income                      14a             249        604                640 
 Trade and other receivables                                       75         65                 39 
 Amounts due from Financial Services customers 
  and banks                                       14d           2,013      2,026              2,049 
 Derivative financial assets                      14c             434        213                 44 
 Net retirement benefit surplus                    18           1,455      2,283              1,087 
                                                               18,978     20,162             18,504 
-----------------------------------------------  -----  -------------  ---------  ----------------- 
 Current assets 
 Inventories                                                    1,891      1,797              1,682 
 Trade and other receivables                                      728        683                740 
 Amounts due from Financial Services customers 
  and banks                                       14d           3,275      3,163              2,973 
 Financial assets at fair value through 
  other comprehensive income                      14a             522        196                112 
 Derivative financial assets                      14c             112         78                 20 
 Cash and cash equivalents                         17           1,580        825              1,636 
                                                                       ---------  ----------------- 
                                                                8,108      6,742              7,163 
 Assets held for sale                                               8          8                  9 
-----------------------------------------------  -----                 ---------  ----------------- 
                                                                8,116      6,750              7,172 
-----------------------------------------------  -----  -------------  ---------  ----------------- 
 Total assets                                                  27,094     26,912             25,676 
-----------------------------------------------  -----  -------------  ---------  ----------------- 
 Current liabilities 
 Trade and other payables                                     (4,966)    (4,546)            (4,563) 
 Amounts due to Financial Services customers 
  and banks                                       14a         (4,719)    (4,444)            (4,970) 
 Borrowings                                        16            (52)       (54)              (261) 
 Lease liabilities                                 12         (1,536)      (526)              (558) 
 Derivative financial liabilities                 14c             (4)       (29)               (33) 
 Taxes payable                                                  (234)      (169)              (194) 
 Provisions                                                      (88)      (100)              (105) 
-----------------------------------------------  -----                 ---------  ----------------- 
                                                             (11,599)    (9,868)           (10,684) 
-----------------------------------------------  -----  -------------  ---------  ----------------- 
 Net current liabilities                                      (3,483)    (3,118)            (3,512) 
-----------------------------------------------  -----  -------------  ---------  ----------------- 
 Non-current liabilities 
 Other payables                                                  (28)       (24)               (21) 
 Amounts due to Financial Services customers 
  and banks                                       14a         (1,013)      (815)              (644) 
 Borrowings                                        16           (687)      (707)              (722) 
 Lease liabilities                                 12         (4,992)    (6,095)            (5,764) 
 Derivative financial liabilities                 14c            (52)        (3)               (18) 
 Deferred income tax liability                                  (651)      (806)              (490) 
 Provisions                                                     (143)      (171)              (171) 
                                                              (7,566)    (8,621)            (7,830) 
 Total liabilities                                           (19,165)   (18,489)           (18,514) 
-----------------------------------------------  -----  -------------  ---------  ----------------- 
 Net assets                                                     7,929      8,423              7,162 
-----------------------------------------------  -----  -------------  ---------  ----------------- 
 Equity 
 Called up share capital                                          670        668                666 
 Share premium                                                  1,408      1,406              1,398 
 Merger reserve                                                   568        568                568 
 Capital redemption reserve                                       680        680                680 
 Other reserves                                                   509        409                276 
 Retained earnings                                              4,094      4,692              3,574 
-----------------------------------------------  -----  -------------  ---------  ----------------- 
 Total equity                                                   7,929      8,423              7,162 
-----------------------------------------------  -----  -------------  ---------  ----------------- 
 

The notes on pages 22 to 53 form an integral part of these Condensed Consolidated Interim Financial Statements.

Refer to note 2 for details of prior year restatement.

Group cash flow statement (unaudited)

for the 28 weeks to 17 September 2022

 
                                                                  28 weeks             28 weeks             52 weeks 
                                                                        to                   to                   to 
                                                              17 September         18 September              5 March 
                                                                      2022                 2021                 2022 
                                                                                     (restated) 
                                               Note                   GBPm                 GBPm                 GBPm 
------------------------------------------  ---------  -------------------  -------------------  ------------------- 
 Cash flows from operating activities 
 Profit before tax                                                     376                  527                  854 
 Net finance costs                                                     131                  139                  302 
 Operating profit                                                      507                  666                1,156 
 Adjustments for: 
  Depreciation expense                        11,12                    564                  581                1,069 
  Amortisation expense                          13                      86                   78                  151 
  Net impairment charge on property, plant 
   and equipment, right-of-use assets, and 
   intangible 
   assets                                    11,12,13                   20                    1                    9 
  Non-cash adjustments arising from                                    (1)                    -                    - 
  acquisitions 
  Financial Services impairment losses on 
   loans 
   and advances                                                         23                   35                   19 
  Profit on sale of properties and early 
   termination 
   of leases                                    17                    (12)                 (22)                  (6) 
  Non-underlying fair value movements                                 (28)                    -                 (76) 
  Share-based payments expense                                          37                   28                   58 
  Defined benefit scheme (income)/expenses      18                     (5)                    2                    4 
  Cash contributions to defined benefit 
   schemes                                      18                    (23)                 (39)                 (71) 
 Operating cash flows before changes in 
  working 
  capital                                                            1,168                1,330                2,313 
 Changes in working capital 
  Increase in inventories                       17                    (87)                 (57)                (179) 
  Decrease in financial assets at fair 
   value 
   through other comprehensive income           17                      22                  130                  115 
  (Increase)/decrease in trade and other 
   receivables                                  17                    (51)                  (6)                   33 
  (Increase)/decrease in amounts due from 
   Financial 
   Services customers and other deposits        17                   (158)                  350                  161 
  Increase in trade and other payables          17                     438                   95                   28 
  Increase/(decrease) in amounts due to 
   Financial 
   Services customers and other deposits        17                     472                (675)              (1,030) 
  Decrease in provisions and other 
   liabilities                                  17                    (41)                 (76)                 (80) 
 Cash generated from operations                                      1,763                1,091                1,361 
 Interest paid                                                       (161)                (178)                (329) 
 Corporation tax paid                                                 (34)                    -                 (23) 
 Net cash generated from operating 
  activities                                                         1,568                  913                1,009 
------------------------------------------  ---------  -------------------  -------------------  ------------------- 
 
 Cash flows from investing activities 
 Purchase of property, plant and equipment                           (202)                (154)                (416) 
 Initial direct costs on new leases                                    (9)                  (1)                  (3) 
 Purchase of intangible assets                                       (106)                (165)                (278) 
 Proceeds from disposal of property, plant 
  and equipment                                                         28                   39                   46 
 Dividends and distributions received                                    -                    -                    2 
 Net cash used in investing activities                               (289)                (281)                (649) 
------------------------------------------  ---------  -------------------  -------------------  ------------------- 
 
 Cash flows from financing activities 
 Proceeds from issuance of ordinary shares                               2                   11                   21 
 Repayment of borrowings                        15                    (22)                (223)                (248) 
 Repayment of perpetual capital securities                               -                  (8)                  (8) 
 Purchase of own shares                                               (25)                 (41)                 (48) 
 Repayment of capital element of lease 
  obligations                                   15                   (246)                (243)                (493) 
 Dividends paid on ordinary shares              10                   (229)                (165)                (238) 
 Dividends paid on perpetual securities                                  -                  (4)                  (4) 
 Net cash used in financing activities                               (520)                (673)              (1,018) 
------------------------------------------  ---------  -------------------  -------------------  ------------------- 
 
 Net Increase/(decrease) in cash and cash 
  equivalents                                                          759                 (41)                (658) 
 
 Opening cash and cash equivalents                                     818                1,476                1,476 
 Closing cash and cash equivalents              17                   1,577                1,435                  818 
------------------------------------------  ---------  -------------------  -------------------  ------------------- 
 
 

The notes on pages 22 to 53 form an integral part of these Condensed Consolidated Interim Financial Statements.

Refer to note 2 for details of prior year restatement.

Group statement of changes in equity (unaudited)

for the 28 weeks to 17 September 2022

 
                                                           Capital               Total equity 
                        Called      Share               redemption                     before      Perpetual 
                      up share    premium     Merger     and other    Retained      perpetual    convertible     Total 
                       capital    account    reserve      reserves    earnings     securities          bonds    equity 
                          GBPm       GBPm       GBPm          GBPm        GBPm           GBPm           GBPm      GBPm 
------------------ 
 At 6 March 2022           668      1,406        568         1,089       4,692          8,423              -     8,423 
------------------  ----------  ---------  ---------  ------------  ----------  -------------  -------------  -------- 
 Profit for the 
  period                     -          -          -             -         285            285              -       285 
 Other 
  comprehensive 
  income/(loss)              -          -          -           189       (886)          (697)              -     (697) 
 Tax relating to 
  other 
  comprehensive 
  income/(loss)              -          -          -          (34)         222            188              -       188 
------------------ 
 Total 
  comprehensive 
  income/(loss) 
  for 
  the period ended 
  17 September 
  2022                       -          -          -           155       (379)          (224)              -     (224) 
------------------  ----------  ---------  ---------  ------------  ----------  -------------  -------------  -------- 
 
 Cash flow hedges 
  gains and losses 
  transferred 
  to inventory               -          -          -          (56)           -           (56)              -      (56) 
------------------  ----------  ---------  ---------  ------------  ----------  -------------  -------------  -------- 
 
 Transactions with 
 owners: 
  Dividends                  -          -          -             -       (229)          (229)              -     (229) 
  Share-based 
   payment                   -          -          -             -          37             37              -        37 
  Purchase of own 
   shares                    -          -          -             -        (25)           (25)              -      (25) 
  Allotted in 
   respect of 
   share option 
   schemes                   2          2          -             -         (2)              2              -         2 
  Other 
   adjustments               -          -          -             1           2              3              -         3 
  Tax on items 
   charged to 
   equity                    -          -          -             -         (2)           (2 )              -       (2) 
------------------ 
 At 17 September 
  2022                     670      1,408        568         1,189       4,094          7,929              -     7,929 
------------------  ----------  ---------  ---------  ------------  ----------  -------------  -------------  -------- 
 
 
                                                           Capital               Total equity 
                        Called      Share               redemption                     before      Perpetual 
                      up share    premium     Merger     and other    Retained      perpetual    convertible     Total 
                       capital    account    reserve      reserves    earnings     securities          bonds    equity 
                          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 
  (restated)                 -          -          -             -         378            378                      378 
 Other 
  comprehensive 
  income                     -          -          -           111         298            409              -       409 
 Tax relating to 
  other 
  comprehensive 
  income                     -          -          -          (42)       (141)          (183)              -     (183) 
------------------ 
 Total 
  comprehensive 
  income for the 
  period 
  ended 18 
  September 2021 
  (restated)                 -          -          -            69         535            604              -       604 
------------------  ----------  ---------  ---------  ------------  ----------  -------------  -------------  -------- 
 
 Cash flow hedges 
  gains and losses 
  transferred 
  to inventory               -          -          -            24           -             24              -        24 
------------------  ----------  ---------  ---------  ------------  ----------  -------------  -------------  -------- 
 
 Transactions with 
 owners: 
  Dividends                  -          -          -             -       (165)          (165)              -     (165) 
  Conversion of 
   perpetual 
   convertible 
   bonds                    26        216          -             -         (2)            240          (240)         - 
  Repayment of 
   perpetual 
   convertible 
   bonds                     -          -          -             -           -              -            (8)       (8) 
  Share-based 
   payment                   -          -          -             -          28             28              -        28 
  Purchase of own 
   shares                    -          -          -             -        (41)           (41)              -      (41) 
  Allotted in 
   respect of 
   share option 
   schemes                   3          9          -             -         (1)             11              -        11 
  Other 
   adjustments               -          -          -            16        (16)              -              -         - 
  Tax on items 
   charged to 
   equity                    -          -          -             -           8              8              -         8 
------------------ 
 At 18 September 
  2021 (restated)          666      1,398        568           956       3,574          7,162              -     7,162 
------------------  ----------  ---------  ---------  ------------  ----------  -------------  -------------  -------- 
 

Group statement of changes in equity ( unaudited)

 
                                                           Capital               Total equity 
                        Called      Share               redemption                     before      Perpetual 
                      up share    premium     Merger     and other    Retained      perpetual    convertible     Total 
                       capital    account    reserve      reserves    earnings     securities          bonds    equity 
                          GBPm       GBPm       GBPm          GBPm        GBPm           GBPm           GBPm      GBPm 
 
 At 7 March 2021           637      1,173        568           847       3,228          6,453            248     6,701 
------------------  ----------  ---------  ---------  ------------  ----------  -------------  -------------  -------- 
 Profit for the 
  period                     -          -          -             -         677            677              -       677 
 Other 
  comprehensive 
  income                     -          -          -           285       1,457          1,742              -     1,742 
 Tax relating to 
  other 
  comprehensive 
  income                     -          -          -          (87)       (431)          (518)              -     (518) 
------------------ 
 Total 
  comprehensive 
  income for the 
  period 
  ended 5 March 
  2022                       -          -          -           198       1,703          1,901              -     1,901 
------------------  ----------  ---------  ---------  ------------  ----------  -------------  -------------  -------- 
 
 Cash flow hedges 
  gains and losses 
  transferred 
  to inventory               -          -          -            28           -             28              -        28 
------------------  ----------  ---------  ---------  ------------  ----------  -------------  -------------  -------- 
 
 Transactions with 
 owners: 
  Dividends                  -          -          -             -       (238)          (238)              -     (238) 
  Conversion of 
   perpetual 
   convertible                                                                                          (240 
   bonds                    26        216          -             -        (2 )            240              )         - 
  Share-based 
   payment                   -          -          -             -          60             60              -        60 
  Purchase of own 
   shares                    -          -          -             -       (48 )          (48 )              -      (48) 
  Allotted in 
   respect of 
   share option 
   schemes                   5         17          -             -         (1)             21              -        21 
  Repayment of 
   perpetual 
   convertible 
   bonds                     -          -          -             -           -              -           (8 )       (8) 
  Other 
   adjustments               -          -          -            16       (13 )              3              -         3 
  Tax on items 
   charged to 
   equity                    -          -          -             -           3              3              -         3 
------------------  ----------  ---------  ---------  ------------  ----------  -------------  -------------  -------- 
 At 5 March 2022           668      1,406        568         1,089       4,692          8,423              -     8,423 
------------------  ----------  ---------  ---------  ------------  ----------  -------------  -------------  -------- 
 

The notes on pages 22 to 53 form an integral part of these Condensed Consolidated Interim Financial Statements.

Refer to note 2 for details of prior year restatement.

Notes to the Condensed Consolidated Interim Financial Statements (unaudited)

   1.            General information 

J Sainsbury plc is a public limited company (the 'Company') incorporated in the United Kingdom, whose shares are publicly traded on the London Stock Exchange. The Company is domiciled in the United Kingdom and its registered address is 33 Holborn, London EC1N 2HT, United Kingdom.

The Condensed Consolidated Interim Financial Statements are unaudited but have been reviewed by the auditors whose report is set out on page 56. The financial information presented herein does not amount to statutory accounts within the meaning of Section 434 of the Companies Act 2006. The Annual Report and Financial Statements 2022 have been filed with the Registrar of Companies. The Independent Auditor's report on the Annual Report and Financial Statements 2022 was unqualified and did not contain a statement under Section 498 of the Companies Act 2006.

The financial period represents the 28 weeks to 17 September 2022 (comparative financial period 28 weeks to 18 September 2021; prior financial year 52 weeks to 5 March 2022). The financial information comprises the results of the Company and its subsidiaries (the 'Group') and the Group's interests in joint ventures and associates.

The Group's principal activities are Food, General Merchandise & Clothing Retailing and Financial Services.

   2.            Basis of preparation and accounting policies 
   2.1          Basis of preparation 

The Interim Results, comprising the Condensed Consolidated Interim Financial Statements and the Interim Management Report, have been prepared in accordance with the Disclosure and Transparency Rules of the UK's Financial Conduct Authority and with the requirements of UK adopted IAS 34 'Interim Financial Reporting'.

The financial information contained in the Interim Results is presented in sterling, rounded to the nearest million (GBPm) unless otherwise stated.

The financial information contained in the Condensed Consolidated Interim Financial Statements should be read in conjunction with the Annual Report and Financial Statements 2022, which were prepared in accordance with UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006.

The annual financial statements of the Group for the period to 4 March 2023 will be prepared in accordance with UK adopted international accounting standards.

Sainsbury's Bank plc and its subsidiaries have been consolidated for the six months to 31 August 2022 (18 September 2021: six months to 31 August 2021; 5 March 2022: twelve months to 28 February 2022). The only significant transaction which occurred between this date and the Group's balance sheet date was in relation to the issuance and redemption of Tier 2 Notes of an equivalent amount, which had a GBPnil impact (refer to note 16). Therefore, no adjustments have been made to reflect the difference in balance sheet dates.

Prior period restatement

Business rates within property provisions

The Condensed Consolidated Interim Financial Statements include a prior year restatement in relation to the treatment of business rates within property provisions. Where the Group no longer operates from a leased property, onerous property contract provisions are recognised for the least net cost of exiting from the contract. Unless a separate exit agreement with a landlord has already been agreed, the Group's policy is that this onerous contract provision includes all unavoidable costs of meeting the obligations of the contract - these include service charges and insurance, and have also historically included business rates.

There was apparent mixed practice across companies concerning the treatment of business rates in onerous contract provisions. However following additional guidance published last year by accounting advisory firms, the Group has reassessed its policy in this area, and concluded that business rates are a statutory obligation rather than a contractual one, and should be recognised as a periodic cost in line with IFRIC 21 "Levies".

Prior period comparatives for the 28 weeks to 18 September 2021 have therefore been restated in accordance with IAS 8: 'Accounting Policies, Changes in Accounting Policies and Errors' by removing business rates from previously recognised property provisions. Prior period comparatives for the 52 weeks to 5 March 2022 were restated in the Group's 2022 Annual Report and Financial Statements. The impacts to the primary financial statements are as follows:

   2.         Basis of preparation and accounting policies 

Income statement

 
 For the 28                  Before non-underlying                   Non-underlying items                          Total 
  weeks to 18                        items 
  September 2021 
------------------  --------------------------------------  --------------------------------------  ----------------------------------- 
                             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                 15,724            -        15,724            -            -             -       15,724            -     15,724 
 Cost of sales         (14,476)            -      (14,476)         (14)         (14)          (28)     (14,490)         (14)   (14,504) 
 Gross 
  profit/(loss)           1,248            -         1,248         (14)         (14)          (28)        1,234         (14)      1,220 
 Administrative 
  expenses                (725)            -         (725)         (31)          (1)          (32)        (756)          (1)      (757) 
 Other income                19            -            19          184            -           184          203            -        203 
------------------  -----------  -----------  ------------  -----------  -----------  ------------  -----------  -----------  --------- 
 Operating 
  profit/(loss)             542            -           542          139         (15)           124          681         (15)        666 
 Finance income               -            -             -           36            -            36           36            -         36 
 Finance costs            (171)            -         (171)          (5)            1           (4)        (176)            1      (175) 
                                              ------------ 
 Profit/(loss) 
  before tax                371            -           371          170         (14)           156          541         (14)        527 
 Income tax 
  (expense)/credit         (98)            -          (98)         (54)            3          (51)        (152)            3      (149) 
------------------  -----------  -----------  ------------  -----------  -----------  ------------  -----------  -----------  --------- 
 Profit/(loss) 
  for the 
  financial 
  period                    273            -           273          116         (11)           105          389         (11)        378 
------------------  -----------  -----------  ------------  -----------  -----------  ------------  -----------  -----------  --------- 
 
 Basic earnings                                                                                            17.3        (0.5)       16.8 
 Diluted earnings                                                                                          16.6        (0.5)       16.1 
------------------  -----------  -----------  ------------  -----------  -----------  ------------  -----------  -----------  --------- 
 

Balance sheet

 
 As at 18 September 2021                     As previously            Business   As restated 
                                                  reported    rates adjustment 
                                                      GBPm                GBPm          GBPm 
------------------------------------------  --------------  ------------------  ------------ 
 Current liabilities 
 Taxes payable                                       (174)                (20)         (194) 
 Provisions                                          (113)                   8         (105) 
------------------------------------------  --------------  ------------------  ------------ 
 Total current liabilities                        (10,672)                (12)      (10,684) 
------------------------------------------  --------------  ------------------  ------------ 
 Net current liabilities                           (3,500)                (12)       (3,512) 
------------------------------------------  --------------  ------------------  ------------ 
 
 Non-current liabilities 
 Provisions                                          (269)                  98         (171) 
 Total liabilities                                (18,600)                  86      (18,514) 
------------------------------------------  --------------  ------------------  ------------ 
 
 Net assets                                          7,076                  86         7,162 
------------------------------------------  --------------  ------------------  ------------ 
 
 Equity 
 Retained earnings                                   3,488                  86         3,574 
------------------------------------------  --------------  ------------------  ------------ 
 Total equity before perpetual securities            7,076                  86         7,162 
 Total equity                                        7,076                  86         7,162 
------------------------------------------  --------------  ------------------  ------------ 
 

Cash flow statement

 
  For the 28 weeks to 18 September 2021          As previously   Business rates   As restated 
                                                      reported       adjustment 
                                                          GBPm             GBPm          GBPm 
----------------------------------------------  --------------  ---------------  ------------ 
 Cash flows from operating activities 
 Profit/(loss) before tax                                  541             (14)           527 
 Net finance costs                                         140              (1)           139 
---------------------------------------------- 
 Operating profit                                          681             (15)           666 
---------------------------------------------- 
 Operating cash flows before changes in 
  working capital                                        1,345             (15)         1,330 
 Changes in working capital 
  (Decrease)/increase in provisions and 
   other liabilities                                      (91)               15          (76) 
---------------------------------------------- 
 Cash generated from operations                          1,091                -         1,091 
---------------------------------------------- 
 Net cash generated from operating activities              913                -           913 
----------------------------------------------  --------------  ---------------  ------------ 
 Net cash used in investing activities                   (281)                -         (281) 
----------------------------------------------  --------------  ---------------  ------------ 
 Net cash used in financing activities                   (673)                -         (673) 
----------------------------------------------  --------------  ---------------  ------------ 
 Net decrease in cash and cash equivalents                (41)                -          (41) 
----------------------------------------------  --------------  ---------------  ------------ 
 
   2.         Basis of preparation and accounting policies 
   2.2          Going concern 

The Directors are satisfied that the Group has sufficient resources to continue in operation for a period of at least 12 months from the date of approval. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. The assessment period for the purposes of considering going concern is the 16 months to 2 March 2024.

In assessing the Group's ability to continue as a going concern, the Directors have considered the Group's most recent corporate planning and budgeting processes. This includes an annual review which considers profitability, the Group's cash flows, committed funding and liquidity positions and forecasted future funding requirements over three years, with a further two years of indicative movements.

The Group manages its financing by diversifying funding sources, structuring core borrowings with long-term maturities and maintaining sufficient levels of standby liquidity via the Revolving Credit Facility. This seeks to minimise liquidity risk by maintaining a suitable level of undrawn additional funding capacity.

The Revolving Credit Facility is split into two Facilities, a 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 17 September 2022, both Facility (A) and Facility (B) were undrawn.

Additionally, an unsecured term facility for GBP575m was entered into in October 2022, with an ultimate maturity date of 30 November 2024.

In assessing going concern, scenarios in relation to the Group's principal risks have been considered in line with those disclosed at year-end by overlaying them into the corporate plan and assessing the impact on cash flows, net debt and funding headroom. These severe but plausible scenarios included modelling inflationary pressures on both food margins and general recession-related risks, the impact of any regulatory fines, failure to deliver planned cost savings and the failure of future property transactions.

In performing the above analysis, the Directors have made certain assumptions around the availability and effectiveness of the mitigating actions available to the Group. These include reducing any non-essential capital expenditure and operating expenditure on projects, bonuses and dividend payments.

The Group's most recent corporate planning and budgeting processes includes assumed cashflows to address climate change risks, including costs associated with initiatives in place as part of the Plan for Better commitment which include reducing environmental impacts and meeting customer expectations in this area, notably through reducing packaging and reducing energy usage across the estate. Climate-related risks do not result in any material uncertainties affecting the Group's ability to continue as a going concern.

As a consequence of the work performed, the Directors considered it appropriate to adopt the going concern basis in preparing the Financial Statements with no material uncertainties to disclose.

   2.3          Accounting judgements and estimates 

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these Condensed Consolidated Interim Financial Statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements for the year ended 5 March 2022 unless otherwise stated.

   2.4          New standards, interpretations and amendments adopted by the Group 

The Group has considered the following amendments to published standards that are effective for the Group for the financial year beginning 6 March 2022 and concluded that they are either not relevant to the Group or that they do not have a significant impact on the Group's financial statements other than disclosures.

   -   Amendments to IFRS 3 'Business Combinations' - Reference to the Conceptual Framework 
   -   Amendments to IAS 16 'Property, Plant and Equipment' - Proceeds before Intended Use 

- Amendments to IAS 37 'Provisions, Contingent Assets and Contingent Liabilities' - Onerous Contracts - Costs of Fulfilling a Contract

- Amendments to IFRS 1 'First-time Adoption of International Financial Reporting Standards' - Subsidiary as a first-time adopter

   2.         Basis of preparation and accounting policies continued 

- Amendments to IFRS 9 'Financial Instruments' - Fees in the '10 per cent' test for derecognition of financial liabilities

   -   Amendments to IAS 41 'Agriculture' - Taxation in fair value measurements 

The accounting policies have remained unchanged from those disclosed in the Annual Report for the year ended 5 March 2022.

   2.5        Alternative performance measures (APMs) 

In the reporting of financial information, the Directors use various APMs. These APMs are defined and reconciled on pages 57 to 63, and should be considered in addition to, and are not intended to be a substitute for, IFRS measurements. As they are not defined by International Financial Reporting Standards, they may not be directly comparable with other companies' APMs.

   3.         Profit before non-underlying items 

In order to provide shareholders with additional insight into the underlying performance of the business, an adjusted measure of profit (underlying profit before tax) is provided to supplement the reported IFRS numbers, and reflects how the business measures performance internally. Underlying results exclude items recognised in reported profit or loss before tax which, if included, could distort comparability between periods.

In determining which items to exclude from underlying profit, the Group considers items which are significant either by virtue of their size and/or nature, or that are non-recurring. The same assessment is applied consistently to any reversals of prior non-underlying items. More details on each item excluded from underlying profit are included further below.

Underlying profit is not an IFRS measure and therefore not directly comparable to other companies.

 
 28 weeks to 17 September 2022 
---------------------------------- 
                                       Cost   Administrative     Other        Net          Total    Tax          Total 
                                         of         expenses    income    finance    adjustments           adjustments 
                                      sales                               income/         before 
                                                                          (costs)            tax 
                                       GBPm             GBPm      GBPm       GBPm           GBPm   GBPm           GBPm 
----------------------------------  -------  ---------------  --------  ---------  -------------  -----  ------------- 
 Income recognised in relation 
  to legal disputes                       -                -        30          -             30    (5)             25 
 
 Restructuring and integration 
 Restructuring programmes              (39)              (4)        10          -           (33)      5           (28) 
 Total restructuring and 
  integration                          (39)              (4)        10          -           (33)      5           (28) 
 
 Property, finance, pension 
  and acquisition adjustments 
 Property related transactions            -              (8)         -          -            (8)      2            (6) 
 Non-underlying finance and 
  fair value movements                   28                -         -        (5)             23    (5)             18 
 IAS 19 pension income                    -                5         -         30             35    (8)             27 
 Acquisition adjustments                  -             (11)         -          -           (11)      2            (9) 
 Total property, finance, pension 
  and acquisition adjustments            28             (14)         -         25             39    (9)             30 
 
 Tax adjustments 
 Revaluation of deferred tax 
  balances and changes in law             -                -         -          -              -    (1)            (1) 
 Capital loss recognition                 -                -         -          -              -    (1)            (1) 
 
 Total adjustments                     (11)             (18)        40         25             36   (11)             25 
----------------------------------  -------  ---------------  --------  --------- 
 

Income recognised in relation to legal disputes

During the prior period agreements were reached in relation to overcharges from payment card processing fees, which largely reflect inter-bank "interchange fees". This led to net income of GBP167 million being recognised. During the current period a further agreement has been reached resulting in net income of GBP30 million being recognised.

Net cash of GBP30 million was received subsequent to the interim balance sheet date and thus has not been included within the cashflow statement.

   3 .        Profit before non-underlying items 

Restructuring programmes

Costs/(gains) have been recognised during the period in relation to the restructuring programmes announced in the year ended 6 March 2021 as follows:

 
                                                       28 weeks           28 weeks   52 weeks 
                                                             to                 to         to 
                                                   17 September       18 September    5 March 
                                                           2022    2021 (restated)       2022 
                                                           GBPm               GBPm       GBPm 
----------------------------------------------   --------------  -----------------  --------- 
 Write downs of property, plant and equipment 
  (a)                                                         2                  -          6 
 Write downs of leased assets (a)                            13                  1          3 
 Write down of intangible assets (a)                          5                  -          - 
 Closure costs (b)                                            8                  5         24 
 Accelerated depreciation of assets (c)                      12                 20         33 
 Redundancy provisions (d)                                    5                 21         40 
 Consultancy costs                                            -                  8         18 
 Gain on lease terminations (e)                             (1)                (5)        (9) 
 Profit on disposal of properties (f)                      (11)               (13)       (12) 
 Recognition of sub-lease debtor                              -                  -       (11) 
-----------------------------------------------  --------------  -----------------  --------- 
 Restructuring programmes                                    33                 37         92 
-----------------------------------------------  --------------  -----------------  --------- 
 

a) Write down of assets associated with Argos stores and IT assets as a result of the overall restructuring programme to accelerate the structural integration of Sainsbury's and Argos and further simplify the Argos business.

b) Closure provisions relate to onerous contract costs, dilapidations and strip out costs on leased sites that have been identified for closure. Upon initial recognition of closure provisions, management uses its best estimates of the relevant costs to be incurred as well as expected closure dates. Business rates on leased property where the Group no longer operates from are recognised in the period they are incurred.

c) The remaining useful economic lives of corresponding sites have been reassessed to align with closure dates, resulting in an acceleration in depreciation of these assets. The existing depreciation of these assets (depreciation that would have been recognised absent of a closure decision) is recognised within underlying expenses, whereas accelerated depreciation above this is recognised within non-underlying expenses.

d) Redundancy costs are recognised as the plan has been announced and a valid expectation raised with the affected colleagues.

e) Gains on lease terminations relate to sites impaired in a prior year for which it has been negotiated to exit the leases before the contractual end date.

f) Profit on disposal of properties relates to profits recognised in the period as sites previously impaired as part of the restructuring programmes have been sold.

As the costs incurred facilitate future underlying cost savings, it was considered whether it was appropriate to report these costs within underlying profit. Whilst they arise from changes in the Group's underlying operations, they can be separately identified, are material in size and do not relate to ordinary in-year trading activity. In addition, the areas being closed or restructured no longer relate to the Group's remaining underlying operations and their exclusion provides meaningful comparison between financial years.

The restructuring programme is a multi-year activity which began in the financial period ended 6 March 2021. Total cumulative costs including impairment costs to 17 September 2022 are GBP673 million. Total expected costs are still in the range of GBP900 million to GBP1 billion, with total expected cash outflows of around GBP300 million.

Property, finance, pension and acquisition adjustments

-- Property related transactions include a write-off of a loan of GBP(8) million relating to a property transaction. These are excluded from underlying profit as such losses are not related to the ongoing operating activities of the Group.

-- Defined benefit pension interest and expenses comprises pension finance income of GBP30 million, settlement credit of GBP8 million and scheme expenses of GBP(3) million (see note 18). Although a recurring item, the Group has chosen to exclude net retirement benefit income and costs from underlying profit as, following closure of the defined benefit scheme to future accrual, it is not part of the ongoing operating activities of the Group and its exclusion is consistent with how the Directors assess the performance of the business.

   3.        Profit before non-underlying items 

-- Non-underlying finance and fair value movements for the financial period comprised GBP23 million for the Group. These include fair value remeasurements on derivatives not in a hedging relationship. The fair value movements are driven by external market factors and can significantly fluctuate year-on-year. They are therefore excluded to ensure consistency between periods. Included within cost of sales is GBP28 million of income in relation to favourable movements on long-term, fixed price power purchase arrangements (PPAs) with independent producers. These are accounted for as derivative financial instruments, however are not designated in hedging relationships, therefore gains and losses are recognised in the income statement. Increases in electricity forward prices in the period have led to gains on the related derivative financial instruments. In the interim period comparative, this income was classified as finance income, however for the full year comparative this income was reclassified to cost of sales as this better reflects the nature of the costs associated with the financial instruments and thus the gains recognised. This reclassification has no impact on the carrying value of the derivatives, underlying profit before tax, or statutory profit before tax, and therefore the prior interim period comparatives have not been restated. Non-underlying finance and fair value movements also includes lease interest on impaired non-trading sites, including site closures. Lease interest on impaired, non-trading sites is excluded as they do not contribute to the operating activities of the Group. The remaining movements of GBP(5) million within finance income and costs are analysed further in note 7.

-- Acquisition adjustments of GBP(11) million reflect the unwind of non-cash fair value adjustments arising from Home Retail Group (HRG) and Nectar UK acquisitions. The Group would not normally recognise these as assets outside of a business combination. Therefore, the unwinds are classified as non-underlying and are recognised as follows:

 
                          28 weeks to 17           28 weeks to 18              52 weeks to 
                          September 2022           September 2021             5 March 2022 
                   HRG   Nectar    Total    HRG   Nectar    Total    HRG   Nectar    Total 
                                   Group                    Group                    Group 
                  GBPm     GBPm     GBPm   GBPm     GBPm     GBPm   GBPm     GBPm     GBPm 
---------------  -----  -------  -------  -----  -------  -------  -----  -------  ------- 
 Cost of sales       1        -        1      -        -        -      -        -        - 
 Depreciation        -        -        -      1        -        1      3        -        3 
 Amortisation      (9)      (3)     (12)   (10)      (2)     (12)   (18)      (5)     (23) 
                   (8)      (3)     (11)    (9)      (2)     (11)   (15)      (5)     (20) 
---------------  -----  -------  -------  -----  -------  -------  -----  -------  ------- 
 

Comparative information

 
 28 weeks to 18 September 2021 
  (restated) 
---------------------------------- 
                                       Cost   Administrative     Other        Net          Total    Tax          Total 
                                         of         expenses    income    finance    adjustments           adjustments 
                                      sales                                income         before 
                                                                                             tax 
                                       GBPm             GBPm      GBPm       GBPm           GBPm   GBPm           GBPm 
----------------------------------  -------  ---------------  --------  ---------  -------------  -----  ------------- 
 Income recognised in relation 
  to legal disputes                       -               13       168          -            181   (34)            147 
 
 Restructuring and integration 
 Restructuring programmes              (28)             (22)        13          -           (37)      5           (32) 
 Financial Services transition 
  and other                               -             (10)         -          -           (10)      2            (8) 
 Total restructuring and 
  integration                          (28)             (32)        13          -           (47)      7           (40) 
 
 Property, finance, pension 
  and acquisition adjustments 
 Profit on disposal of properties         -                -         3          -              3      -              3 
 Non-underlying finance and 
  fair value movements                    -                -         -         24             24    (4)             20 
 IAS 19 pension (expenses) / 
  income                                  -              (2)         -          8              6    (1)              5 
 Acquisition adjustments                  -             (11)         -          -           (11)      2            (9) 
 Total property, finance, pension 
  and acquisition adjustments             -             (13)         3         32             22    (3)             19 
 
 Tax adjustments 
 Under provision in prior years           -                -         -          -              -    (5)            (5) 
 Revaluation of deferred tax 
  balances and changes in law             -                -         -          -              -   (20)           (20) 
 Capital loss recognition                 -                -         -          -              -      4              4 
 
 Total adjustments                     (28)             (32)       184         32            156   (51)            105 
----------------------------------  -------  ---------------  --------  ---------  -------------         ------------- 
 
   3.        Profit before non-underlying items 
 
 52 weeks to 5 March 2022 
---------------------------------- 
                                       Cost   Administrative     Other        Net          Total    Tax          Total 
                                         of         expenses    income    finance    adjustments           adjustments 
                                      sales                               income/         before 
                                                                          (costs)            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) / 
  income                                  -              (4)         -         15             11    (2)              9 
 Acquisition adjustments                  -             (20)         -          -           (20)      4           (16) 
 Total property, finance, pension 
  and acquisition adjustments            78             (24)         7          7             68   (11)             57 
 
 Tax adjustments 
 Over provision in prior years            -                -         -          -              -    (2)            (2) 
 Revaluation of deferred tax 
  balances                                -                -         -          -              -      9              9 
 Other tax adjustments                    -                -         -          -              -    (7)            (7) 
 
 Total adjustments                        9             (78)       186          7            124   (23)            101 
----------------------------------  -------  ---------------  --------  ---------                        ------------- 
 

Financial Services transition and other

In prior years these predominantly comprised Financial Services transition costs and were incurred in transitioning to new banking platforms as part of the previously announced New Bank Programme. The programme ended in the 2022 financial year.

Software as a service accounting adjustment

In the second half of the prior year, the Group revised its accounting policy in relation to upfront configuration and customisation costs incurred in implementing software as a service (SaaS) arrangement. This was in response to the IFRS Interpretations Committee (IFRIC) agenda decision clarifying its interpretation of how current accounting standards apply to these types of arrangements. Costs capitalised prior to the period ended 5 March 2022 totalling GBP21 million were written off in the prior year as a non-underlying expense. In addition, GBP14 million of prior year spend that would have been capitalised to intangible assets under the Group's previous accounting policy was recognised within prepayments (GBP6 million) and underlying profit (GBP8 million). Had the change in accounting policy been implemented in the first half of the prior year, GBP7 million of first half spend that would have been capitalised to intangible assets under the Group's previous accounting policy would have been recognised within prepayments (GBP3 million) and underlying profit (GBP4 million).

Cash flow statement

The table below shows the impact of non-underlying items on the Group cash flow statement:

 
                                                   28 weeks        28 weeks   52 weeks 
                                                         to              to         to 
                                               17 September    18 September    5 March 
                                                       2022            2021       2022 
                                                       GBPm            GBPm       GBPm 
------------------------------------------   --------------  --------------  --------- 
 Cash flows from operating activities 
 IAS 19 pension expenses                                (3)             (2)        (7) 
 Financial Services transition and other                  -            (11)       (13) 
 Restructuring programmes                              (33)            (70)      (114) 
 ATM Rates reimbursement                                  -              13         14 
 Net income recognised in relation to 
  legal disputes                                          -              27         93 
 Cash used in operating activities                     (36)            (43)       (27) 
 
 Cash flows from investing activities 
 Proceeds from property disposals(1)                     28              39         46 
 Cash generated from investing activities                28              39         46 
 
 Net cash flows                                         (8)             (4)         19 
-------------------------------------------  --------------  --------------  --------- 
 

(1) GBP26 million of the current period proceeds from property disposals are a result of restructuring programmes.

Refer to Note 2 for details of the prior year restatement.

   4.         Revenue 
 
                                                       28 weeks        28 weeks   52 weeks 
                                                             to              to         to 
                                                   17 September    18 September    5 March 
                                                           2022            2021       2022 
                                                           GBPm            GBPm       GBPm 
-----------------------------------------------  --------------  --------------  --------- 
 Grocery, General Merchandise and Clothing 
  (GM&C)                                                 13,314          13,475     25,440 
 Fuel                                                     2,840           2,036      4,023 
 Total retail sales                                      16,154          15,511     29,463 
 
 Financial Services interest receivable (using 
  effective interest rate method)                           183             161        322 
 Financial Services fees and commission                      71              52        110 
-----------------------------------------------  --------------  --------------  --------- 
 Total Financial Services income                            254             213        432 
 
 Total revenue                                           16,408          15,724     29,895 
-----------------------------------------------  --------------  --------------  --------- 
 
   5.         Segment reporting 

Management has determined the operating segments based on the information provided to the Operating Board (the Chief Operating Decision Maker for the Group) to make operational decisions on the management of the Group. Three operating segments were identified as follows:

   --      Retail - Food; 
   --      Retail - General Merchandise & Clothing; 
   --      Financial Services (Sainsbury's Bank plc and Argos Financial Services entities) 

Management has considered the economic characteristics, in particular average gross margin, similarity of products, production processes, customers, sales methods and regulatory environment of its two Retail segments. In doing so it has been concluded that they should be aggregated into one 'Retail' segment in the financial statements. This aggregated information provides users the financial information needed to evaluate the business and the environment in which it operates.

The Operating Board assesses the performance of all segments on the basis of underlying profit before tax. Underlying profit before tax is an APM as described in note 2.5. All material operations and assets are in the UK.

   a.         Income statement and balance sheet 
 
 
                                                  Retail   Financial      Group 
                                                            Services 
 28 weeks to 17 September 2022                      GBPm        GBPm       GBPm 
---------------------------------------------  ---------  ----------  --------- 
 Segment revenue 
 Retail sales to external customers               16,154           -     16,154 
 Financial Services to external customers              -         254        254 
 Revenue                                          16,154         254     16,408 
---------------------------------------------  ---------  ----------  --------- 
 
 Underlying operating profit                         477          19        496 
 Underlying finance income                             5           -          5 
 Underlying finance costs                          (161)           -      (161) 
 Underlying profit before tax                        321          19        340 
 Non-underlying income (note 3)                                              36 
 Profit before tax                                                          376 
 Income tax expense (note 8)                                               (91) 
 Profit for the financial period                                            285 
---------------------------------------------  ---------  ---------- 
 
 Assets                                           20,078       7,013     27,091 
 Investment in joint ventures and associates           3           -          3 
 Segment assets                                   20,081       7,013     27,094 
 Segment liabilities                            (13,042)     (6,123)   (19,165) 
---------------------------------------------  ---------  ---------- 
 
   a.         Income statement and balance sheet 
 
                                                Retail (restated)   Financial   Group (restated) 
                                                                     Services 
 28 weeks to 18 September 2021                               GBPm        GBPm               GBPm 
---------------------------------------------  ------------------  ----------  ----------------- 
 Segment revenue 
 Retail sales to external customers                        15,511           -             15,511 
 Financial Services to external customers                       -         213                213 
 Revenue                                                   15,511         213             15,724 
---------------------------------------------  ------------------  ----------  ----------------- 
 
 Underlying operating profit                                  523          19                542 
 Underlying finance costs                                   (171)           -              (171) 
 Underlying profit before tax                                 352          19                371 
 Non-underlying expense (note 3)                                                             156 
 Profit before tax                                                                           527 
 Income tax expense (note 8)                                                               (149) 
 Profit for the financial period                                                             378 
---------------------------------------------  ------------------  ---------- 
 
 Assets                                                    18,847       6,824             25,671 
 Investment in joint ventures and associates                    5           -                  5 
 Segment assets                                            18,852       6,824             25,676 
 Segment liabilities                                     (12,601)     (5,913)           (18,514) 
---------------------------------------------  ------------------  ---------- 
 
 
                                                  Retail   Financial      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 3)                                            124 
 Profit before tax                                                          854 
 Income tax expense (note 8)                                              (177) 
 Profit for the financial period                                            677 
---------------------------------------------  ---------  ---------- 
 
 Assets                                           20,368       6,541     26,909 
 Investment in joint ventures and associates           3           -          3 
 Segment assets                                   20,371       6,541     26,912 
 Segment liabilities                            (12,870)     (5,619)   (18,489) 
---------------------------------------------  ---------  ---------- 
 

Refer to Note 2 for details of the prior year restatement.

   b.         Segmented cash flow statement 
 
                                                                     28 weeks to                  28 weeks to 
                                                                     17 September                 18 September 
                                                                         2022                    2021 (restated) 
                                                    APM       Retail   Financial   Group   Retail   Financial   Group 
                                                 reference              Services                     Services 
                                                              GBPm     GBPm        GBPm    GBPm     GBPm        GBPm 
---------------------------------------------  ------------  -------  ----------  ------  -------  ----------  ------ 
 
 Profit before tax                                               357          19     376      520           7     527 
 Net finance costs                                               131           -     131      139           -     139 
-----------------------------------------------------------  -------  ----------  ------  -------  ----------  ------ 
 Operating profit                                                488          19     507      659           7     666 
 Adjustments for: 
 Depreciation and amortisation expense                           634          16     650      649          10     659 
 Net impairment charge on property, plant 
  and equipment, right-of-use assets, and 
  intangible assets                                               20           -      20        1           -       1 
 Non-cash adjustments arising from 
  acquisitions                                                   (1)           -     (1)        -           -       - 
 Financial Services impairment losses 
  on loans and advances                                            -          23      23        -          35      35 
 Profit on sale of properties and 
  early termination of leases                                   (12)           -    (12)     (22)           -    (22) 
 Non-underlying fair value movements                            (28)           -    (28)        -           -       - 
 Share-based payments expense                                     34           3      37       27           1      28 
 Defined benefit scheme (income)/expenses                        (5)           -     (5)        2           -       2 
 Cash contributions to defined benefit 
  schemes                                                       (23)           -    (23)     (39)           -    (39) 
 Operating cash flows before changes 
  in working capital                                           1,107          61   1,168    1,277          53   1,330 
 Movements in working capital                                    318         277     595     (44)       (195)   (239) 
 Cash generated/(used) from operations                         1,425         338   1,763    1,233       (142)   1,091 
 Interest paid                                       a         (161)           -   (161)    (173)         (5)   (178) 
 Corporation tax paid                                           (32)         (2)    (34)        -           -       - 
 Net cash generated/(used) from operating 
  activities                                                   1,232         336   1,568    1,060       (147)     913 
-----------------------------------------------------------  -------  ----------  ------  -------  ----------  ------ 
 
 Cash flows from investing activities 
 Purchase of property, plant and equipment                     (201)         (1)   (202)    (154)           -   (154) 
 Initial direct costs on new leases                              (9)           -     (9)      (1)           -     (1) 
 Purchase of intangible assets                                  (96)        (10)   (106)    (144)        (21)   (165) 
 Proceeds from disposal of property, 
  plant and equipment                                             28           -      28       39           -      39 
 Dividends and distributions received/(paid)         e            50        (50)       -        -           -       - 
 Net cash used in investing activities                         (228)        (61)   (289)    (260)        (21)   (281) 
-----------------------------------------------------------  -------  ----------  ------  -------  ----------  ------ 
 
 Cash flows from financing activities 
 Proceeds from issuance of ordinary 
  shares                                             d             2           -       2       11           -      11 
 Repayment of borrowings                             c          (22)           -    (22)    (223)           -   (223) 
 Repayment of perpetual capital securities           c             -           -       -      (8)           -     (8) 
 Purchase of own shares                              d          (25)           -    (25)     (41)           -    (41) 
 Repayment of capital element of lease 
  obligations                                        b         (245)         (1)   (246)    (242)         (1)   (243) 
 Dividends paid on ordinary shares                             (229)           -   (229)    (165)           -   (165) 
 Dividends paid on perpetual securities              a             -           -       -      (4)           -     (4) 
 Net cash used in financing activities                         (519)         (1)   (520)    (672)         (1)   (673) 
-----------------------------------------------------------  -------  ----------  ------  -------  ----------  ------ 
 
 Net increase/(decrease) in cash 
  and cash equivalents                                           485         274     759      128       (169)    (41) 
-----------------------------------------------------------  -------  ----------  ------  -------  ----------  ------ 
 
   b.         Segmented cash flow statement 
 
                                                                         52 weeks to 5 March 2022 
                                           APM                     Retail              Financial                 Group 
                                                                                        Services 
                     reference 
                                                                     GBPm                   GBPm                  GBPm 
 
 Profit before tax                                                    833                     21                   854 
--------------------------------------------------  ---------------------  ---------------------  -------------------- 
 Net finance income/(costs)                                           304                    (2)                   302 
--------------------------------------------------  ---------------------  ---------------------  -------------------- 
 Operating profit                                                   1,137                     19                 1,156 
 Adjustments for: 
 Depreciation and amortisation expense                              1,197                     23                 1,220 
 Net impairment charge on property, plant 
  and equipment, right-of-use assets and 
  intangible assets                                                     8                      1                     9 
 Financial Services impairment losses 
  on loans and advances                                                 -                     19                    19 
 Profit on sale of properties and early 
  termination of leases                                               (6)                      -                   (6) 
 Non-underlying fair value movements                                 (76)                      -                  (76) 
 Share-based payments expense                                          53                      5                    58 
 Non-cash defined benefit scheme expenses                               4                      -                     4 
 Cash contributions to defined benefit 
  scheme                                                             (71)                      -                  (71) 
--------------------------------------------------  ---------------------  ---------------------  -------------------- 
 Operating cash flows before changes 
  in working capital                                                2,246                     67                 2,313 
 Movements in working capital                                       (306)                  (646)                 (952) 
--------------------------------------------------  ---------------------  ---------------------  -------------------- 
 Cash generated/(used) from operations                              1,940                  (579)                 1,361 
 Interest paid                              a                       (319)                   (10)                 (329) 
 Corporation tax paid                                                (23)                      -                  (23) 
 Net cash generated/(used) from operating 
  activities                                                        1,598                  (589)                 1,009 
--------------------------------------------------  ---------------------  ---------------------  -------------------- 
 
 Cash flows from investing activities 
 Purchase of property, plant and equipment                          (416)                      -                 (416) 
 Initial direct costs on new leases                                   (3)                      -                   (3) 
 Purchase of intangible assets                                      (229)                   (49)                 (278) 
 Proceeds from disposal of property, 
  plant and equipment                                                  46                      -                    46 
 Dividends and distributions received       e                           2                      -                     2 
-------------------------------------  -----------  ---------------------  ---------------------  -------------------- 
 Net cash used in investing activities                              (600)                   (49)                 (649) 
--------------------------------------------------  ---------------------  ---------------------  -------------------- 
 
 Cash flows from financing activities 
 Proceeds from issuance of ordinary 
  shares                                    d                          21                      -                    21 
 Repayment of borrowings                    c                       (248)                      -                 (248) 
 Repayment of perpetual capital 
  securities                                c                         (8)                      -                   (8) 
 Purchase of own shares                     d                        (48)                      -                  (48) 
 Repayment of capital element of 
  obligations 
  under lease liabilities                   b                       (491)                    (2)                 (493) 
 Dividends paid on ordinary shares                                  (238)                      -                 (238) 
 Dividends paid on perpetual 
  securities                                a                         (4)                      -                   (4) 
 Net cash used in financing activities                            (1,016)                    (2)               (1,018) 
--------------------------------------------------  ---------------------  ---------------------  -------------------- 
 
 Net decrease in cash and cash equivalents                           (18)                  (640)                 (658) 
--------------------------------------------------  ---------------------  ---------------------  -------------------- 
 
   6.         Supplier arrangements 

Supplier incentives, rebates and discounts, collectively known as 'supplier arrangements', represent a material deduction to cost of sales and directly affect the Group's reported margin.

The types of supplier arrangements applicable to the Group are as follows:

-- Discounts and supplier incentives - these represent the majority of all supplier arrangements and are linked to individual unit sales. The incentive is typically based on an agreed sum per item sold on promotion for a period and therefore is considered part of the purchase price of that product.

-- Fixed amounts - these are agreed with suppliers primarily to support in-store activity including promotions, such as utilising specific space.

-- Supplier rebates - these are typically agreed on an annual basis, aligned with the Group's financial year. The rebate amount is linked to pre-agreed targets such as sales volumes.

-- Marketing and advertising income - advertising income from suppliers through the Group's subsidiary Nectar 360 Services LLP and online marketing and advertising campaigns within Argos.

Amounts recognised in the income statement during the period for fixed amounts, volume-based rebates and marketing and advertising income are shown below. Discounts and supplier incentives are not shown as they are deemed to be part of the cost price of inventory.

 
                                           28 weeks          28 weeks           52 weeks 
                                                 to                to                 to 
                                       17 September      18 September            5 March 
                                               2022              2021               2022 
                                               GBPm              GBPm               GBPm 
----------------------------------   --------------  ----------------  ----------------- 
 Fixed amounts                                   81               103                208 
 Supplier rebates                                47                33                 94 
 Marketing and advertising income                41                45                 79 
 Total supplier arrangements                    169               181                381 
-----------------------------------  --------------  ----------------  ----------------- 
 
   6.         Supplier arrangements 

Of the above amounts, the following was outstanding and held on the balance sheet at the period-end:

 
                                              28 weeks           28 weeks            52 weeks 
                                       to 17 September    to 18 September                  to 
                                                  2022               2021             5 March 
                                                                                         2022 
                                                  GBPm               GBPm                GBPm 
----------------------------------   -----------------  -----------------  ------------------ 
 Within inventory                                  (4)                (5)                 (4) 
 
 Within current trade receivables 
 Supplier arrangements due                          33                 30                  39 
 Accrued supplier arrangements                      47                 49                  37 
 
 Within current trade payables 
 Supplier arrangements due                          25                 23                  47 
 Accrued supplier arrangements                       1                  2                   2 
 Deferred income due                               (1)                (1)                   - 
 Total supplier arrangements                       101                 98                 121 
-----------------------------------  -----------------  -----------------  ------------------ 
 
   7.         Finance income and finance costs 
 
                         28 weeks to 17                     28 weeks to 18                     52 weeks to 5 
                         September 2022                     September 2021                       March 2022 
                                                              (restated) 
               Underlying  Non-Underlying  Total  Underlying  Non-Underlying  Total  Underlying   Non-Underlying  Total 
                     GBPm            GBPm   GBPm        GBPm            GBPm   GBPm        GBPm             GBPm   GBPm 
                                                                                                 --------------- 
Interest on 
 bank 
 deposits 
 and other 
 financial 
 assets                 4               -      4           -               -      -           1                -      1 
Fair value 
 measurements           -               -      -           -              28     28           -                2      2 
IAS 19 
 pension 
 financing 
 income                 -              30     30           -               8      8           -               15     15 
Finance 
 income on 
 net 
 investment 
 in leases              1               -      1           -               -      -           2                -      2 
Finance 
 Income                 5              30     35           -              36     36           3               17     20 
                                                                                                 --------------- 
 
Secured 
 borrowings          (20)               -   (20)        (22)               -   (22)        (40)                -   (40) 
Unsecured 
 borrowings           (1)               -    (1)         (1)               -    (1)         (2)                -    (2) 
Lease 
 liabilities        (140)             (5)  (145)       (149)             (4)  (153)       (271)             (10)  (281) 
Provisions - 
 amortisation 
 of discount            -               -      -           -               -      -         (1)                -    (1) 
Interest 
 capitalised 
 - qualifying 
 assets                 -               -      -           1               -      1           2                -      2 
Finance costs       (161)             (5)  (166)       (171)             (4)  (175)       (312)             (10)  (322) 
                                                                                                 --------------- 
 

Fair value remeasurements relate to net fair value movements on derivative financial instruments not designated in a hedging relationship. Refer to note 3 for further details.

Refer to Note 2 for details of the prior year restatement.

   8.         Income tax expense 
 
                                                           28 weeks        28 weeks   52 weeks 
                                                                 to              to         to 
                                                       17 September    18 September    5 March 
                                                               2022            2021       2022 
                                                                         (restated) 
                                                               GBPm            GBPm       GBPm 
                                                    --------------- 
Current year UK tax                                              72              82        131 
Current year overseas tax                                         2               3          6 
(Under)/over provision in prior years                           (1)               4          5 
Total current tax expense                                        73              89        142 
 
Origination and reversal of temporary differences                16              30         52 
Over/(under) provision in prior years                             -               3       (35) 
Adjustment from changes in tax rates                              1              31         23 
Derecognition/(recognition) of capital losses                     1             (4)        (5) 
Total deferred tax expense                                       18              60         35 
 
Total income tax expense in income statement                     91             149        177 
                                                    --------------- 
 
Analysed as: 
   Underlying tax                                                80              98        154 
   Non-underlying tax                                            11              51         23 
Total income tax expense in income statement                     91             149        177 
                                                    --------------- 
 
Underlying tax rate                                           23.5%           26.4%      21.1% 
Effective tax rate                                            24.2%           28.3%      20.7% 
                                                    --------------- 
 

Tax charged within the 28 weeks ended 17 September 2022 has been calculated by applying the effective rate of tax which is expected to apply to the Group for the period ending 4 March 2023 using rates substantively enacted by 17 September 2022 as required by IAS 34 'Interim Financial Reporting'.

   8.         Income tax expense 

The effective tax rate of 24.2 per cent (28 weeks to 18 September 2021 (restated): 28.3 per cent) is higher than the standard rate of corporation tax in the UK of 19 per cent. This is largely a result of the impact of non-deductible expenses, particularly in respect of non-deductible capital expenditure and prior year adjustments.

It was announced in the UK Government's Budget on 3 March 2021 that the main UK corporation tax rate will increase to 25% from 1 April 2023. This change was enacted during the prior accounting period and remains enacted at the balance sheet date. As a result, existing temporary differences on which deferred tax has been provided have been revalued, where appropriate, to reflect the fact that they will unwind at 25%.

Finance Act 2020 included legislation restricting the amount of chargeable gains that a company can relieve with its carried-forward capital losses from previous accounting periods. Broadly, from 1 April 2020 a company is only able to offset up to 50 per cent of chargeable gains using carried forward capital losses. The Group has considered the expected impact of the tax law in respect of the utilisation of carried-forward tax losses. Accordingly, approximately GBP197 million of the Group's carried forward unrestricted capital losses (5 March 2022: GBP194 million) have not been recognised as at 17 September 2022.

   9.         Earnings per share 

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, excluding those held by the Employee Share Ownership Plan trusts, which are treated as cancelled.

The weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares. These represent share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year and the number of shares that would be issued if all senior convertible bonds and perpetual subordinated convertible bonds are assumed to be converted.

Underlying earnings per share is provided by excluding the effect of any non-underlying items as defined in note 3. This alternative measure of earnings per share is presented to reflect the Group's underlying trading performance. All operations are continuing for the periods presented.

 
                                                    17 September      18 September     5 March 
                                                            2022   2021 (restated)        2022 
                                                         million           million     million 
Weighted average number of shares in issue               2,314.3           2,245.4     2,271.8 
Weighted average number of dilutive share options           35.9              34.8        39.6 
Weighted average number of dilutive subordinated 
 perpetual convertible bonds                                   -              69.3        39.6 
Total number of shares for calculating diluted 
 earnings per share                                      2,350.2           2,349.5     2,351.0 
 
                                                            GBPm              GBPm        GBPm 
Profit for the financial period (net of tax)                 285               378         677 
Profit for the financial period attributable 
 to ordinary shareholders                                    285               378         677 
 
Diluted earnings for calculating diluted earnings 
 per share                                                   285               378         677 
 
Profit for the financial period attributable 
 to ordinary shareholders of the parent                      285               378         677 
Adjusted for non-underlying items (note 3)                  (36)             (156)       (124) 
Tax on non-underlying items                                   11                51          23 
Underlying profit after tax attributable to 
 ordinary shareholders of the parent                         260               273         576 
 
Diluted underlying profit after tax attributable 
 to ordinary shareholders of the parent                      260               273         576 
 
 
                                                           Pence         Pence per       Pence 
                                                       per share             share   per share 
Basic earnings                                              12.3              16.8        29.8 
Diluted earnings                                            12.1              16.1        28.8 
Underlying basic earnings                                   11.2              12.2        25.4 
Underlying diluted earnings                                 11.1              11.6        24.5 
 

Refer to note 2 for details of prior year restatement.

   10.        Dividends 
 
                                                       28 weeks       28 weeks                52 weeks 
                                                             to             to                      to 
                                                   17 September   18 September                 5 March 
                                                           2022           2021                    2022 
Amounts recognised as distributions to 
 ordinary shareholders in the year: 
    Dividend per share (pence)                              9.9            7.4                    10.6 
    Total dividend charge (GBPm)                            229            165                     238 
 

An interim dividend of 3.9 pence per share (18 September 2021: 3.2 pence per share), has been approved by the Board of Directors for the financial year ending 4 March 2023, resulting in an interim dividend of GBP90 million (18 September 2021: GBP74 million). The interim dividend was approved by the Board on 2 November 2022 and as such has not been included as a liability at 17 September 2022.

   11.        Property, plant and equipment 
 
                                             28 weeks   52 weeks       28 weeks 
                                                   to         to             to 
                                         17 September    5 March   18 September 
                                                 2022       2022           2021 
                                                 GBPm       GBPm           GBPm 
                                                       --------- 
Net book value 
At the beginning of the period                  8,402      8,587          8,587 
Additions                                         199        417            151 
Disposals                                        (14)        (5)              - 
Depreciation charge                             (310)      (591)          (321) 
Impairment charge                                 (2)        (6)              - 
Transfer to assets classified as held 
 for sale                                         (3)          -              - 
At the end of the period                        8,272      8,402          8,417 
                                                       --------- 
 

The net book value of property, plant and equipment comprises land & buildings of GBP6,794 million (5 March 2022: GBP6,776 million; 18 September 2021: GBP6,831 million); and fixtures & fittings of GBP1,478 million (5 March 2022: GBP1,626 million; 18 September 2021: GBP1,586 million).

At 17 September 2022, capital commitments contracted, but not provided for by the Group, amounted to GBP159 million (5 March 2022: GBP108 million; 18 September 2021: GBP165 million).

At each reporting date, the Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. The Group has considered whether there have been any indicators of impairment during the 28 weeks ended 17 September 2022 and subsequently recognised an impairment of GBP2 million in relation to Argos stores (5 March 2022: GBP6 million in relation to in-store cafe assets; 18 September 2021: GBPnil).

   12.        Leases 

Set out below are the carrying amounts of right-of-use assets and the movements during the period:

 
                                      28 weeks  52 weeks       28 weeks 
                                            to        to             to 
                                  17 September   5 March   18 September 
                                          2022      2022           2021 
                                          GBPm      GBPm           GBPm 
At the beginning of the period           5,560     4,747          4,747 
New leases and modifications               163     1,294            736 
Impairment charge                         (13)       (3)            (1) 
Depreciation charge                      (254)     (478)          (260) 
At the end of the period                 5,456     5,560          5,222 
 

Included within the above are land and buildings with a net book value of GBP5,164 million (5 March 2022: GBP5,266 million; 18 September 2021: GBP4,916 million), and equipment with a net book value of GBP292 million (5 March 2022: GBP294 million; 18 September 2021: GBP306 million).

At each reporting date, the Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. The Group has considered whether there have been any indicators of impairment during the 28 weeks ended 17 September 2022 and subsequently recognised an impairment of GBP13 million in relation to Argos stores (5 March 2022: GBP3 million in relation to in-store cafe assets; 18 September 2021: GBP1 million in relation to in-store cafe assets).

Set out below are the carrying amounts of lease liabilities and the movements during the period:

 
Lease Liability 
                                       28 weeks  52 weeks       28 weeks 
                                             to        to             to 
                                   17 September   5 March   18 September 
                                           2022      2022           2021 
                                           GBPm      GBPm           GBPm 
                                 -------------- 
At the beginning of the period            6,621     5,834          5,834 
New leases and modifications                153     1,280            731 
Interest expense                            145       281            153 
Payments                                  (391)     (774)          (396) 
At the end of the period                  6,528     6,621          6,322 
                                 -------------- 
 
 
Current                                   1,536       526            558 
Non-current                               4,992     6,095          5,764 
                                 -------------- 
 

The Group presents additions to lease liabilities and right-of-use assets in line with the disclosure requirements of IFRS 16 'Leases'. In doing so, additions to right-of-use assets and lease liabilities above include the net impact of new leases, terminations, modifications, and reassessments. In the prior year, the Group exercised purchase options on 21 leased supermarkets held by a property investment pool in which the Group holds an interest. The purchase options were first included within the lease liability in the prior financial year when the Group exercised them. The Group has now reached an agreement on an acquisition price for these 21 supermarkets, and thus this acquisition price has been used to remeasure the lease liabilities.

Income statement disclosures

The following are the amounts recognised in profit or loss:

 
                                                       28 weeks       28 weeks  52 weeks 
                                                             to             to        to 
                                                   17 September   18 September   5 March 
                                                           2022           2021      2022 
                                                           GBPm           GBPm      GBPm 
Depreciation of right-of-use assets                       (254)          (260)     (478) 
Impairment of right-of-use assets                          (13)            (1)       (3) 
Interest on lease liabilities                             (145)          (153)     (281) 
Variable lease payments not included in the 
 measurement of lease liabilities                           (1)            (1)         - 
Finance income from sub-leasing of right-of-use 
 assets                                                       1              -         2 
Operating sublet income                                      32             29        56 
Expenses relating to short term leases                     (14)           (18)      (32) 
Expenses relating to leases of low value 
 assets                                                     (1)            (1)       (2) 
Total amount recognised in profit or loss                 (395)          (405)     (738) 
 
Total cash outflow for leases (excluding 
 sublease income)                                         (407)          (416)     (808) 
 

Maturity analysis

 
                                                        28 weeks   52 weeks       28 weeks 
                                                              to         to             to 
                                                    17 September    5 March   18 September 
                                                            2022       2022           2021 
                                                            GBPm       GBPm           GBPm 
                                                                  --------- 
Contractual undiscounted cash flows 
Less than one year                                         1,775        773            826 
One to two years                                             707      1,683          1,303 
Two to three years                                           655        627            649 
Three to four years                                          611        575            594 
Four to five years                                           570        542            564 
Total less than five years                                 4,318      4,200          3,936 
Five to ten years                                          2,533      2,416          2,443 
Ten to fifteen years                                       2,016      2,005          2,065 
More than fifteen years                                    3,215      3,338          3,500 
Total undiscounted lease liability                        12,082     11,959         11,944 
                                                  --------------  --------- 
Lease liabilities included in the statement 
 of financial position                                     6,528      6,621          6,322 
Current                                                    1,536        526            558 
Non-current                                                4,992      6,095          5,764 
                                                                  --------- 
 
 
   13.        Intangible assets 
 
                                       28 weeks   52 weeks       28 weeks 
                                             to         to             to 
                                   17 September    5 March   18 September 
                                           2022       2022           2021 
                                           GBPm       GBPm           GBPm 
                                 --------------  --------- 
Net book value 
At the beginning of the period            1,006        914            914 
Additions                                   106        278            165 
Disposals                                     -       (35)              - 
Amortisation charge                        (86)      (151)           (78) 
Impairment charge                           (5)          -              - 
At the end of the period                  1,021      1,006          1,001 
                                 --------------  --------- 
 

The net book value of goodwill and intangible assets predominantly comprises goodwill of GBP366 million (5 March 2022: GBP366 million; 18 September 2021: GBP366 million), software assets of GBP584 million (5 March 2022: GBP556 million; 18 September 2021: GBP541 million), acquired brands of GBP70 million (5 March 2022: GBP82 million; 18 September 2021: GBP91 million) and customer relationships of GBP1 million (5 March 2022: GBP2 million; 18 September 2021: GBP3 million).

Refer to note 3 for details of the impairment recognised in the period.

   14.        Financial instruments 
   a.         Financial assets and liabilities by category 

Set out below are the accounting classifications of each class of financial assets and liabilities:

 
                                                                          Fair 
                                                                Fair     value 
                                                               value   through 
                                                 Amortised   through    profit 
                                                      cost       OCI   or loss    Total 
                                                      GBPm      GBPm      GBPm     GBPm 
At 17 September 2022 
Cash and cash equivalents                            1,580         -         -    1,580 
Trade and other receivables                            592         -         -      592 
Amounts due from Financial Services customers 
 and banks                                           5,288         -         -    5,288 
Financial assets at fair value through other 
 comprehensive income                                    -       771         -      771 
Trade and other payables                           (4,626)         -         -  (4,626) 
Current borrowings                                    (52)         -         -     (52) 
Non-current borrowings                               (687)         -         -    (687) 
Amounts due to Financial Services customers 
 and banks                                         (5,732)         -         -  (5,732) 
Derivative financial instruments                         -         -       490      490 
Lease liabilities                                  (6,528)         -         -  (6,528) 
                                                  (10,165)       771       490  (8,904) 
                                                ---------- 
 
                                                                          Fair 
                                                                Fair     value 
                                                               value   through 
                                                 Amortised   through    profit 
                                                      cost       OCI   or loss    Total 
                                                      GBPm      GBPm      GBPm     GBPm 
At 5 March 2022 
Cash and cash equivalents                              825         -         -      825 
Trade and other receivables                            552         -         -      552 
Amounts due from Financial Services customers        5,189         -         -    5,189 
Financial assets at fair value through other 
 comprehensive income                                    -       800         -      800 
Trade and other payables                           (4,218)         -         -  (4,218) 
Borrowings                                           (761)         -         -    (761) 
Amounts due to Financial Services customers 
 and banks                                         (5,259)         -         -  (5,259) 
Derivative financial instruments                         -         -       259      259 
Lease liabilities                                  (6,621)         -         -  (6,621) 
                                                  (10,293)       800       259  (9,234) 
                                                ---------- 
 
                                                                          Fair 
                                                                Fair     value 
                                                               value   through 
                                                 Amortised   through    profit 
                                                      cost       OCI   or loss    Total 
                                                      GBPm      GBPm      GBPm     GBPm 
At 18 September 2021 
Cash and cash equivalents                            1,636         -         -    1,636 
Trade and other receivables                            589         -         -      589 
Amounts due from Financial Services customers        5,022         -         -    5,022 
Financial assets at fair value through other 
 comprehensive income                                    -       752         -      752 
Trade and other payables                           (4,227)         -         -  (4,227) 
Current borrowings                                   (261)         -         -    (261) 
Non-current borrowings                               (722)         -         -    (722) 
Amounts due to Financial Services customers 
 and banks                                         (5,614)         -         -  (5,614) 
Derivative financial instruments                         -         -        13       13 
Lease liabilities                                  (6,322)         -         -  (6,322) 
                                                   (9,899)       752        13  (9,134) 
                                                ---------- 
 
   b.   Carrying amount versus fair value 

Set out below is a comparison of the carrying amount and the fair value of financial instruments that are carried in the financial statements at a value other than fair value. The fair value of financial assets and liabilities are based on prices available from the market on which the instruments are traded. Where market values are not available, the fair values of financial assets and liabilities have been calculated by discounting expected future cash flows at prevailing interest rates. The fair values of short-term deposits, trade receivables, overdrafts and payables are assumed to approximate to their book values.

 
                                                        Carrying 
                                                          amount  Fair value 
At 17 September 2022                                        GBPm        GBPm 
Financial assets 
Amounts due from Financial Services customers and 
 banks                                                     5,288       5,252 
 
Financial liabilities 
Loans due 2031                                             (558)       (594) 
Tier 2 Capital                                             (178)       (177) 
Amounts due to Financial Services customers and banks    (5,732)     (5,729) 
 
                                                        Carrying  Fair value 
                                                          amount 
At 5 March 2022                                             GBPm        GBPm 
Financial assets 
Amounts due from Financial Services customers and 
 banks                                                     5,189       5,216 
 
Financial liabilities 
Loans due 2031                                             (575)       (717) 
Tier 2 Capital                                             (179)       (180) 
Amounts due to Financial Services customers and banks    (5,259)     (5,260) 
 
                                                        Carrying  Fair value 
                                                          amount 
At 18 September 2021                                        GBPm        GBPm 
Financial assets 
Amounts due from Financial Services customers and 
 banks                                                     5,022       5,037 
 
Financial liabilities 
Loans due 2031                                             (602)       (693) 
Tier 2 Capital                                             (180)       (181) 
Amounts due to Financial Services customers and banks    (5,614)     (5,617) 
 
   c.         Fair value measurements recognised in the balance sheet 

The following table provides an analysis of financial instruments that are recognised at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

-- Level 1 fair value measurements are derived from quoted market prices (unadjusted) in active markets for identical assets or liabilities at the balance sheet date. This level includes listed equity securities and debt instrument on public exchanges;

-- Level 2 fair value measurements are derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). The fair value of financial instruments is determined by discounting expected cash flows at prevailing interest rates; and

-- Level 3 fair value measurements are derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 
                                              Level  Level  Level  Total 
                                                  1      2      3 
At 17 September 2022                           GBPm   GBPm   GBPm   GBPm 
Financial instruments at fair value through 
 other comprehensive income 
   Other financial assets                         -    376      -    376 
   Investment securities                        395      -      -    395 
 
Derivative financial assets                       -    314    232    546 
 
Derivative financial liabilities                  -   (56)      -   (56) 
 
                                              Level  Level  Level  Total 
                                                  1      2      3 
At 5 March 2022                                GBPm   GBPm   GBPm   GBPm 
Financial instruments at fair value through 
 other comprehensive income 
   Other financial assets                         -     15    367    382 
   Investment securities                        418      -      -    418 
 
Derivative financial assets                       -    111    180    291 
 
Derivative financial liabilities                  -   (32)      -   (32) 
 
                                              Level  Level  Level  Total 
                                                  1      2      3 
At 18 September 2021                           GBPm   GBPm   GBPm   GBPm 
Financial instruments at fair value through 
 other comprehensive income 
   Interest bearing financial assets              -      1      -      1 
   Other financial assets                         -     17    329    346 
   Investment securities                        405      -      -    405 
 
Derivative financial assets                       -     29     35     64 
 
Derivative financial liabilities                  -   (51)      -   (51) 
 

Level 3 Financial assets

Details of the determination of Level 3 fair value measurements are set out below:

 
                                                                    Commodity 
                                                                  derivatives  Total 
                                                                         GBPm   GBPm 
At 6 March 2022                                                           180    180 
In cost of sales in the Group 
 income statement                                                          28     28 
In other comprehensive income                                              24     24 
At 17 September 2022                                                      232    232 
 
                                 Financial instruments 
                                             at FVTOCI  Commodity derivatives  Total 
                                                  GBPm                   GBPm   GBPm 
At 7 March 2021                                    291                      6    297 
In cost of sales in the Group 
 income statement                                    -                     76     76 
In other comprehensive income                       76                     98    174 
At 5 March 2022                                    367                    180    547 
 
                                 Financial instruments 
                                             at FVTOCI  Commodity derivatives  Total 
                                                  GBPm                   GBPm   GBPm 
At 7 March 2021                                    291                      6    297 
In finance income in the Group 
 income statement                                    -                     29     29 
In other comprehensive income                       38                      -     38 
At 18 September 2021                               329                     35    364 
 

Of the commodity derivative financial assets, as at 17 September 2022, GBP123 million is designated in a cash flow hedge relationship (5 March 2022: GBP99 million; 18 September 2021: GBPnil); and GBP109 million is not in a hedge relationship (5 March 2022: GBP81 million; 18 September 2021: GBP35 million).

Level 3 other financial assets

Other financial assets categorised as Level 3 in the prior year of GBP367 million relate to the Group's beneficial interest in a property investment pool. Given the Group has reached an agreement on an acquisition price for the properties within this investment pool during the period (see note 12 for further details), these financial assets have been reclassified to Level 2.

Level 3 derivative financial assets - power purchase agreement

The Group has entered into several long-term fixed-price power purchase agreements with independent producers. Included within derivative financial instruments is a net asset of GBP232 million relating to these agreements at 17 September 2022 (at 18 September 2021: GBP35 million; at 6 March 2022: GBP180 million). The Group values its power purchase agreements as the net present value of the estimated future usage at the contracted fixed price less the market implied forward energy price discounted back at the prevailing swap rate. The Group also makes an assumption regarding expected energy output based on the historical performance and the producer's estimate of expected electricity output. The sensitivity of this balance to changes of 20 per cent in the assumed rate of energy output and 20 per cent in the implied forward energy prices holding other assumptions constant is shown below:

 
Not in a hedge 
relationship 
                                                    17 September 2022                             5 March 2022 
                                                Change in electricity                    Change in electricity 
                        Change in volume                forward price  Change in volume          forward price 
                               +/- 20.0%                    +/- 20.0%         +/- 20.0%              +/- 20.0% 
                                    GBPm                         GBPm              GBPm                   GBPm 
Derivative financial 
 instruments                      29(29)                      22/(22)           23/(23)                16/(16) 
 
 
                                                                                             18 September 2021 
                                                                                           Change in electricity 
                                                                       Change in volume            forward price 
                                                                              +/- 20.0%                +/- 20.0% 
                                                                                   GBPm                     GBPm 
Derivative financial instruments                                                  7/(7)                  14/(14) 
 
 
 
Designated in a cash flow 
 hedge relationship 
                                                      17 September 2022                       5 March 2022 
                                   Change in      Change in electricity   Change in  Change in electricity 
                                      volume              forward price      volume          forward price 
                                   +/- 20.0%                  +/- 20.0%   +/- 20.0%              +/- 20.0% 
                                        GBPm                       GBPm        GBPm                   GBPm 
Derivative financial instruments     35/(35)                    24/(24)     32/(32)                20/(20) 
 
 
                                                                                         18 September 2021 
                                                                          Change in    Change in electricity 
                                                                             volume            forward price 
                                                                          +/- 20.0%                +/- 20.0% 
                                                                               GBPm                     GBPm 
Derivative financial instruments                                                N/A                      N/A 
 
 
   d.         Financial Services expected credit loss (ECL) 

Loans and advances are initially recognised at fair value and subsequently held at amortised cost, using the effective interest method, less provision for impairment and recognised on the balance sheet when cash is advanced:

 
                                               17 September  5 March  18 September 
                                                       2022     2022          2021 
                                                       GBPm     GBPm          GBPm 
                                              ------------- 
Non-current 
Loans and advances to customers                       2,065    2,069         2,100 
Impairment of loans and advances                       (52)     (43)          (51) 
                                                      2,013    2,026         2,049 
                                              ------------- 
 
Current 
Loans and advances to customers                       3,329    3,202         3,094 
Loans and advances to banks                             120      121            71 
Impairment of loans and advances                      (174)    (160)         (192) 
                                                      3,275    3,163         2,973 
                                              ------------- 
Loan commitment provisions                             (19)     (19)          (16) 
Total impairment provisions for loans and 
 advances to customers and loan commitments           (245)    (222)         (259) 
                                              ------------- 
Impairment provisions as a percentage of 
 loans and advances to customers                       4.5%     4.2%          5.0% 
                                              ------------- 
 

The ECL models utilise four scenarios including a 'base case' scenario considered to be the most likely outcome together with an upside, downside and severe downside scenario. The base case has been assigned a probability weighting of 45% with the upside, downside and severe downside scenarios weighted 35%, 15%, 5% respectively. These scenarios were updated in August 2022 to reflect the prevailing inflationary pressures and impacts of the cost of living crisis. The weighted economic measures from the scenarios are as follows:

 
                                            At 17 September 2022 
5-year average                     Base  Upside  Downside  Severe Downside 
Unemployment rate                   4.9     4.1       5.8              7.4 
Consumer price growth               5.4     5.0       5.8              6.4 
GDP                                 1.2     1.6       0.8              0.3 
Mortgage debt as a percentage of 
 household income                  98.9    96.5     101.5            104.8 
Real household disposable income    0.5     1.1     (0.2)            (1.0) 
Probability weighting                45      35        15                5 
 
 
                                            At 5 March 2022 
                                    Base  Upside  Downside     Severe 
5-year average                                               Downside 
Unemployment rate                    4.0     3.9       4.7        6.2 
Consumer price growth                2.7     2.8       2.6        2.5 
GDP                                  1.8     2.2       1.5        1.0 
Mortgage debt as a percentage of 
 household income                  102.8   101.7     104.3      105.9 
Real household disposable income     1.0     1.3       0.7        0.4 
Probability weighting                 45      35        15          5 
 
 
                                          At 18 September 2021 
                                    Base  Upside  Downside     Severe 
5-year average                                               Downside 
Unemployment rate                    4.6     4.2       5.7        7.5 
Consumer price growth                2.2     2.3       2.1        1.9 
GDP                                  3.2     3.7       2.8        2.3 
Mortgage debt as a percentage of 
 household income                  102.1   101.1     103.3      104.3 
Real household disposable income     2.2     2.3       1.9        1.6 
Probability weighting                 40      30        25          5 
 

Like many other banks, our ECL models were not developed under a high inflationary environment and as a result exhibit volatility not well calibrated to the current economic situation. We have therefore retained the inflation outlook at the year ended 5 March 2022 in our models, supplemented with a new economic overlay calculated by referencing our updated consumer price growth scenarios.

ECL sensitivity

The economic conditions impact the probability of default of the customers. The impact of 100% weighting of each of the economic scenarios is outlined as follows:

 
                                 Impact on the loss allowance 
                           17 September  5 March 2022  18 September 
                                   2022          GBPm          2021 
                                   GBPm                        GBPm 
Closing ECL allowance               245           222           259 
Base scenario                         -           (4)           (3) 
Upside scenario                     (9)           (7)           (9) 
Downside scenario                    12            10            12 
Severe Downside scenario             38            30            30 
 

Our ECL models have been upgraded to cope with much of the anticipated economic forecasts arising from the COVID-19 pandemic, and as a result the associated post model adjustment (PMA) held as at 5 March 2022 of GBP10 million has been partially reduced accordingly (PMA at 18 September 2021 was GBP33 million). However, other world events have severely impacted the UK's economic outlook with a high inflation cost-of-living crisis and recession on the horizon requiring introduction of a new economic PMA. The aggregate amount of economic PMA now held at 17 September 2022 is GBP8 million.

   15.        Analysis of net (debt)/funds 

The Group's definition of net debt includes the capital injections to Sainsbury's Bank, but excludes the net debt of Sainsbury's Bank and its subsidiaries (Financial Services). Financial Services' net debt balances are excluded because they are required as part of the business as usual operations of a bank, as opposed to specific forms of financing for the Group. The Group's definition of net debt includes lease liabilities as recognised under IFRS 16 and perpetual securities, and excludes derivatives that are not used to hedge borrowings.

A reconciliation of opening to closing net debt is included below. Balances and movements for the total Group and Financial Services are shown in addition to Retail to enable reconciliation between the Group balance sheet and Group cash flow statement.

Financial assets at fair value through other comprehensive income exclude equity related financial assets which predominantly relate to the Group's beneficial interest in a commercial property investment pool. Derivatives exclude those not used to hedge borrowings, and borrowings exclude bank overdrafts as they are disclosed separately.

 
                                          Cash Movements             Non-Cash Movements 
                             6 March  Cash flows          Net    Accrued       Other   Changes  17 September 
                                2022   excluding     interest   Interest    non-cash   in fair          2022 
                                        interest   (received)              movements     value 
                                                       / paid 
                                GBPm        GBPm         GBPm       GBPm        GBPm      GBPm          GBPm 
Retail 
Net derivative financial           5           -            -          1           -       (1)             5 
 instruments 
Borrowings (excluding 
 overdrafts)                   (575)          22           16       (21)           -         -         (558) 
Lease liabilities            (6,618)         245          145      (145)       (153)         -       (6,526) 
Arising from financing 
 activities                  (7,188)         267          161      (165)       (153)       (1)       (7,079) 
 
Cash and cash equivalents        436         481            -          -           -         -           917 
Bank overdrafts                  (7)           4            -          -           -         -           (3) 
Retail net debt              (6,759)         752          161      (165)       (153)       (1)       (6,165) 
 
Financial Services 
Net derivative financial           4           -            -          -           -       (3)             1 
 instruments 
Borrowings (excluding 
 overdrafts)                   (179)           -            -          -           1         -         (178) 
Lease liabilities                (3)           1            -          -           -         -           (2) 
Arising from financing 
 activities                    (178)           1            -          -           1       (3)         (179) 
 
Financial assets at 
 fair value through other 
 comprehensive income            418        (22)            -          -           -       (1)           395 
Cash and cash equivalents        389         274            -          -           -         -           663 
Financial services 
 net funds                       629         253            -          -           1       (4)           879 
 
Group 
Net derivative financial           9           -            -          1           -       (4)             6 
 instruments 
Borrowings (excluding 
 overdrafts)                   (754)          22           16       (21)           1         -         (736) 
Lease liabilities            (6,621)         246          145      (145)       (153)         -       (6,528) 
Arising from financing 
 activities                  (7,366)         268          161      (165)       (152)       (4)       (7,258) 
 
Financial assets at 
 fair value through other 
 comprehensive income            418        (22)            -          -           -       (1)           395 
Cash and cash equivalents        825         755            -          -           -         -         1,580 
Bank overdrafts                  (7)           4            -          -           -         -           (3) 
Group net debt               (6,130)       1,005          161      (165)       (152)       (5)       (5,286) 
 
Retail net debt              (6,759)         752          161      (165)       (153)       (1)       (6,165) 
 
Of which: 
Leases                       (6,618)                                                                 (6,526) 
Net (debt)/funds excluding 
 lease liabilities             (141)                                                                     361 
 

Other non-cash movements predominantly comprise new leases and lease modifications.

Overdraft balances are included within borrowings in the Group balance sheet, and within cash and cash equivalents in the Group cash flow statement.

 
                                                  Cash Movements             Non-Cash Movements 
                                     7 March  Cash flows          Net    Accrued       Other   Changes  18 September 
                                        2021   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                            (14)           -            5        (6)           6         8           (1) 
Borrowings (excluding 
 overdrafts)                           (826)         223           15       (14)           -         -         (602) 
Lease liabilities                    (5,829)         242          153      (153)       (731)         -       (6,318) 
Arising from financing 
 activities                          (6,669)         465          173      (173)       (725)         8       (6,921) 
 
Financial assets at fair 
 value through other comprehensive 
 income                                    1           -            -          -           -         -             1 
Cash and cash equivalents                546         230            -          -           -         -           776 
Bank overdrafts                         (99)       (102)            -          -           -         -         (201) 
Retail net debt (excluding 
 perpetual securities)               (6,221)         593          173      (173)       (725)         8       (6,345) 
 
Financial Services 
Net derivative financial 
 instruments                               -           -            -          -           -         1             1 
Borrowings (excluding 
 overdrafts)                           (179)           -            5        (5)         (1)                   (180) 
Lease liabilities                        (5)           1            -          -           -         -           (4) 
Arising from financing 
 activities                            (184)           1            5        (5)         (1)         1         (183) 
 
Financial assets at fair 
 value through other comprehensive 
 income                                  537       (130)            -          -           -       (2)           405 
Cash and cash equivalents              1,029       (169)            -          -           -         -           860 
Financial services net 
 funds                                 1,382       (298)            5        (5)         (1)       (1)         1,082 
 
Group 
Net derivative financial 
 instruments                            (14)           -            5        (6)           6         9             - 
Borrowings (excluding 
 overdrafts)                         (1,005)         223           20       (19)         (1)         -         (782) 
Lease liabilities                    (5,834)         243          153      (153)       (731)         -       (6,322) 
Arising from financing 
 activities                          (6,853)         466          178      (178)       (726)         9       (7,104) 
 
Financial assets at fair 
 value through other comprehensive 
 income                                  538       (130)            -          -           -       (2)           406 
Cash and cash equivalents              1,575          61            -          -           -         -         1,636 
Bank overdrafts                         (99)       (102)            -          -           -         -         (201) 
Group net debt (excluding 
 perpetual securities) 
 (restated)                          (4,839)         295          178      (178)       (726)         7       (5,263) 
 
Retail net debt (excluding 
 perpetual securities)               (6,221)         593          173      (173)       (725)         8       (6,345) 
Perpetual convertible 
 bonds                                 (248)           8            -          -         240         -             - 
Retail net debt (including 
 perpetual securities)               (6,469)         601          173      (173)       (485)         8       (6,345) 
 
Of which: 
Leases                               (5,829)                                                                 (6,318) 
Net debt excluding lease 
 liabilities                           (640)                                                                    (27) 
 
 
                                                  Cash Movements             Non-Cash Movements 
                                     7 March  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                546       (110)            -          -           -         -      436 
Bank overdrafts                         (99)          92            -          -           -         -      (7) 
Retail net debt (excluding 
 perpetual securities)               (6,221)         721          319      (316)     (1,269)         7  (6,759) 
 
Financial Services 
Net derivative financial 
 instruments                               -           -            -          -           -         4        4 
Borrowings (excluding 
 overdrafts)                           (179)           -           10       (11)           -         1    (179) 
Lease liabilities                        (5)           2            -          -           -         -      (3) 
Arising from financing 
 activities                            (184)           2           10       (11)           -         5    (178) 
 
Financial assets at fair 
 value through other comprehensive 
 income                                  537       (115)            -          -           -       (4)      418 
Cash and cash equivalents              1,029       (640)            -          -           -         -      389 
Financial services net 
 funds                                 1,382       (753)           10       (11)           -         1      629 
 
 
Group 
Net derivative financial 
 instruments                            (14)           -           10       (10)          11        12        9 
Borrowings (excluding 
 overdrafts)                         (1,005)         248           38       (36)           -         1    (754) 
Lease liabilities                    (5,834)         493          281      (281)     (1,280)         -  (6,621) 
Arising from financing 
 activities                          (6,853)         741          329      (327)     (1,269)        13  (7,366) 
 
Financial assets at fair 
 value through other comprehensive 
 income                                  538       (115)            -          -           -       (5)      418 
Cash and cash equivalents              1,575       (750)            -          -           -         -      825 
Bank overdrafts                         (99)          92            -          -           -         -      (7) 
Group net debt (excluding 
 perpetual securities) 
 (restated)                          (4,839)        (32)          329      (327)     (1,269)         8  (6,130) 
 
Retail net debt (excluding 
 perpetual securities)               (6,221)         721          319      (316)     (1,269)         7  (6,759) 
Perpetual convertible 
 bonds                                 (248)           8            -          -         240         -        - 
Retail net debt (including 
 perpetual securities)               (6,469)         729          319      (316)     (1,029)         7  (6,759) 
 
Of which: 
Leases                               (5,829)                                                            (6,618) 
Net debt excluding lease 
 liabilities                           (640)                                                              (141) 
 

Reconciliation of net cash flow to movement in Retail net debt

 
                                                         28 weeks       28 weeks  52 weeks 
                                                               to             to        to 
                                                     17 September   18 September   5 March 
                                                             2022           2021      2022 
                                                             GBPm           GBPm      GBPm 
Opening net debt                                          (6,759)        (6,469)   (6,469) 
 
Cash flow movements 
Net increase/(decrease) in cash and cash 
 equivalents (including overdrafts)                           759           (41)     (658) 
Elimination of Financial Services movement 
 in cash and cash equivalents                               (274)            169       640 
Repayment of perpetual capital securities                       -              8         8 
Repayment of Retail borrowings                                 22            223       248 
Repayment of Retail lease obligations                         245            242       491 
Net interest paid on components of Retail 
 net debt                                                     161            173       319 
Changes in net debt resulting from cash 
 flow                                                         913            774     1,048 
 
Non-cash movements 
Accrued interest                                            (165)          (173)     (316) 
Retail fair value and other non-cash movements              (154)          (477)   (1,022) 
Changes in net debt resulting from non-cash 
 movements                                                  (319)          (650)   (1,338) 
 
Movement in net debt                                          594            124     (290) 
 
Closing net debt                                          (6,165)        (6,345)   (6,759) 
 
   16.        Borrowings 
 
                            28 weeks to 17 September        52 weeks to 5 March 
                                      2022                          2022 
                           Current  Non-current  Total  Current   Non-current  Total 
                              GBPm         GBPm   GBPm     GBPm          GBPm   GBPm 
                                                                 ------------ 
 
Loan due 2031                   46          512    558       44           531    575 
Bank overdrafts                  3            -      3        7             -      7 
Sainsbury's Bank Tier 2 
 Capital                         3          175    178        3           176    179 
Total borrowings                52          687    739       54           707    761 
 
 
                             28 weeks to 18 September 
                                       2021 
                            Current  Non-current  Total 
                               GBPm         GBPm   GBPm 
Loan due 2031                    57          545    602 
Bank overdrafts                 201            -    201 
Sainsbury's Bank Tier 
 2 Capital                        3          177    180 
Total borrowings                261          722    983 
 

Available facilities

The Revolving Credit Facility is split into two Facilities, a 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 17 September 2022, the Revolving Credit Facility was undrawn (5 March 2022: nil; 18 September 2021: nil).

The Revolving Credit Facility incurs commitment fees at market rates and drawdowns bear interest at a margin above SONIA.

The Group maintains uncommitted facilities to provide additional capacity to fund short-term working capital requirements. Drawdowns on these uncommitted facilities bear interest at a margin. The uncommitted facilities were undrawn at 17 September 2022 (5 March 2022: nil; 18 September 2021: nil).

Subsequent to the balance sheet date, an unsecured term facility for GBP575m was entered into. Refer to note 21 for further details.

Sainsbury's Bank Tier 2 Capital

The Bank issued GBP120m of fixed rate reset callable subordinated Tier 2 notes on 12 September 2022. These notes pay interest on the principal amount at a rate of 10.5 per cent per annum, payable in equal instalments semi-annually in arrears, until 12 March 2028 at which time the interest rate will reset. The Bank has the option to redeem these notes on 12 March 2028.

This was issued in conjunction with the repurchase and extinguishment of GBP120m of the existing GBP175m subordinated Tier 2 notes that were issued on 23 November 2017. Subsequently on 19 October 2022, the Bank announced its intention to redeem the remaining GBP55m in full on the call date 23 November 2022.

   17.        Cash and cash equivalents 

Cash and cash equivalents comprise the following:

 
                                                     28 weeks 
                                                           to     52 weeks          28 weeks 
                                                 17 September   to 5 March   to 18 September 
                                                         2022         2022              2021 
                                                         GBPm         GBPm              GBPm 
Cash in hand and bank balances                            586          566               508 
Money market funds and deposits                           602           25               579 
Deposits at central banks                                 392          234               549 
Cash and bank balances as reported in the 
 Group balance sheet                                    1,580          825             1,636 
 
Bank overdrafts (within current borrowings)               (3)          (7)             (201) 
Net cash and cash equivalents as reported 
 in the Group cash flow statement                       1,577          818             1,435 
 
 

Of the above balance, GBP16 million (5 March 2022: GBP18 million; 18 September 2021: GBP19 million) was restricted as at the period-end. Of the GBP16 million (5 March 2022: GBP18 million; 18 September 2021: GBP19 million) restricted cash, GBP15 million (5 March 2022: GBP15 million; 18 September 2021: GBP16 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 GBP1 million (5 March 2022: GBP3 million; 18 September 2021: GBP2 million) is restricted for insurance purposes.

Reconciliation of cash flow items

Working capital

 
                                            Financial                   Amounts 
                                               assets                       due                    Amounts 
                                              at fair                      from       Trade            due 
                                                value         Trade   Financial         and   to Financial 
                                              through     and other    Services       other       Services 
                              Inventories         OCI   receivables   customers    payables      customers  Provisions 
                                     GBPm        GBPm          GBPm        GBPm        GBPm           GBPm        GBPm 
                                                                                 ---------- 
At 17 September 2022                1,891         771           803       5,288     (4,994)        (5,732)       (231) 
At 5 March 2022                     1,797         800           748       5,189     (4,570)        (5,259)       (271) 
                                                                                 ---------- 
Balance sheet movement               (94)          29          (55)        (99)         424            473        (40) 
Fair value movements                    -         (7)             -        (35)           -              -           - 
Hedge adjustment to 
 inventory                              7           -             -           -           -              -           - 
Reclassification to other 
 lines in the cash flow 
 statement                              -           -             4           -          24              -           - 
Financial Services ECL 
 impairments                            -           -             -        (23)           -              -           - 
Movement in capital accruals            -           -             -           -           3              -           - 
Other                                   -           -             -         (1)        (13)            (1)         (1) 
Movement shown in cash flow 
 statement                           (87)          22          (51)       (158)         438            472        (41) 
                                           ----------                            ---------- 
 
 
                                            Financial                   Amounts 
                                               assets                       due                    Amounts 
                                              at fair                      from       Trade            due 
                                                value         Trade   Financial         and   to Financial 
                                              through     and other    Services       other       Services 
                              Inventories         OCI   receivables   customers    payables      customers  Provisions 
                                     GBPm        GBPm          GBPm        GBPm        GBPm           GBPm        GBPm 
                                                                                 ---------- 
At 18 September 2021 
 (restated)                         1,682         752           779       5,022     (4,584)        (5,614)       (276) 
At 6 March 2021                     1,625         844           775       5,407     (4,508)        (6,289)       (470) 
                                                                                 ---------- 
Balance sheet movement               (57)          92           (4)         385          76          (675)       (194) 
Fair value movements                    -          38             -           -           -              -           - 
Reclassification to other 
 lines in the cash flow 
 statement                              -           -             -           -          15              -           - 
Financial Services ECL 
 impairments                            -           -             -        (35)           -              -           - 
Movement in capital accruals            -           -             -           -           4              -           - 
Business rates adjustment               -           -             -           -           -              -         106 
Other                                   -           -           (2)           -           -              -          12 
                                                                                 ---------- 
Movement shown in cash flow 
 statement                           (57)         130           (6)         350          95          (675)        (76) 
                                                                                 ---------- 
 
 
                                            Financial                   Amounts 
                                               assets                       due                    Amounts 
                                              at fair                      from       Trade            due 
                                                value         Trade   Financial         and   to Financial 
                                              through     and other    Services       other       Services 
                              Inventories         OCI   receivables   customers    payables      customers  Provisions 
                                     GBPm        GBPm          GBPm        GBPm        GBPm           GBPm        GBPm 
                                                                                 ---------- 
At 5 March 2022                     1,797         800           748       5,189     (4,570)        (5,259)       (271) 
At 6 March 2021                     1,625         844           775       5,407     (4,508)        (6,289)       (349) 
                                                                                 ---------- 
Balance sheet movement              (172)          44            27         218          62        (1,030)        (78) 
Fair value movements                    -          71             -        (38)           -              -           - 
Hedge adjustments                     (7)           -             -           -           -              -           - 
Interest in working capital             -           -             -           -         (6)              -           - 
Transfer of SaaS spend to 
 prepayments                            -           -             9           -           -              -           - 
Reclassification to other 
 lines in the cash flow 
 statement                              -           -             -           -        (28)              -           - 
Financial Services ECL 
 impairments                            -           -             -        (19)           -              -           - 
Movement in capital accruals            -           -             -           -           1              -           - 
Amortisation of discount                -           -             -           -           -              -         (1) 
Other                                   -           -           (3)           -         (1)              -         (1) 
Movement shown in cash flow 
 statement                          (179)         115            33         161          28        (1,030)        (80) 
                                           ----------                            ---------- 
 

Profit on the sale of properties and early termination of leases in the cash flow statement is reconciled as follows:

 
                                                              28 weeks       28 weeks     52 weeks 
                                                                    to             to   to 5 March 
                                                          17 September   18 September         2022 
                                                                  2022           2021 
                                                                  GBPm           GBPm         GBPm 
                                                        -------------- 
Profit on disposal of properties (note 3)                            -            (3)          (7) 
Non underlying gain on early termination of 
 leases (note 3)                                                   (1)            (5)          (9) 
Profit on disposal of properties within restructuring 
 programmes (note 3)                                              (11)           (13)         (12) 
Non-underlying SaaS adjustment (note 3)                              -              -           21 
Underlying gain on early termination of leases                       -            (1)          (3) 
Loss on disposal of intangible assets                                -              -            4 
Profit on sale of non-current assets and 
 early termination of leases                                      (12)           (22)          (6) 
                                                        -------------- 
 
   18.        Retirement benefit obligations 

All retirement benefit obligations relate to the Sainsbury's Pension Scheme plus two unfunded pension liabilities relating to former senior employees of Sainsbury's and Home Retail Group.

The Sainsbury's Pension Scheme has two segregated sections: the Sainsbury's Section and the Argos Section.

The unfunded pension liabilities are unwound when each employee reaches retirement and takes their pension from the Group payroll or is crystallised in the event of an employee retiring and choosing to take the provision as a one-off cash payment.

Triennial valuation

The Trustee's triennial valuation is used to determine the contributions required for the Scheme to pay all the benefits due, now and in the future. The Trustee must allow for a level of prudence and so these assumptions therefore place a relatively high value on the Scheme's liabilities. By contrast, IAS 19 'Employee Benefits' requires all companies to value the liabilities on a 'best estimate' basis which places a lower value on the liabilities and therefore a more favourable financial position. As such, the accounting value is different to the result obtained using the Trustee's triennial valuation basis.

The Trustee completed a triennial actuarial valuation as at 30 September 2021, resulting in an actuarial surplus of GBP130 million (Sainsbury's section was a surplus of GBP231 million, Argos section was a deficit of GBP101 million), from a deficit of GBP538 million in 2018. The asset backed contributions (ABC) structure established by Sainsbury's in July 2019 continues to deliver as planned. Under the ABC, properties with a value of GBP1.35 billion were transferred into a property holding company, a wholly owned subsidiary of the Group, and leased to other Group entities. Rental receipts facilitate payments of interest and capital on loan notes issued to a Scottish Limited Partnership, in which the Scheme holds an interest. The Scheme's interest in the Partnership entitles it to annual distributions over up to 20 years.

The distributions were approximately GBP58 million per year until 2030, and subsequently approximately GBP28 million a year for the remaining period (increasing by 2% a year). The distributions are made through three payment streams:

   1.   Payments to the Sainsbury's section 
   2.   Payments to the Argos section 
   3.   Switching payment stream, paid to either the Sainsbury's section or Argos section 

The payments to the Sainsbury's and Argos sections (streams 1 and 2) stop in 2030, or when the relevant section reaches its funding target, if earlier. The third stream is initially paid to the Sainsbury's section.

As the Sainsbury's section reached its funding target in December 2021, stream 1 (GBP15 million a year) was permanently switched off and stream 3 (currently GBP24 million a year) switched to the Argos section from March 2022. Stream 3 payments will continue until 2038 or until both sections have reached their funding targets, if earlier. The Argos section also continues to receive the stream 2 payments of GBP20 million a year.

The amounts recognised in the balance sheet are as follows:

 
                                                  17 September 2022                   5 March 2022 
                                        Sainsbury's  Argos    Group  Sainsbury's    Argos    Group 
                                               GBPm   GBPm     GBPm         GBPm     GBPm     GBPm 
Present value of funded obligations         (5,836)  (922)  (6,758)      (8,060)  (1,313)  (9,373) 
Fair value of plan assets                     7,176  1,064    8,240       10,158    1,535   11,693 
Retirement benefit surplus                    1,340    142    1,482        2,098      222    2,320 
Present value of unfunded obligations          (15)   (12)     (27)         (20)     (17)     (37) 
Retirement benefit surplus                    1,325    130    1,455        2,078      205    2,283 
 
 
                                                        18 September 2021 
                                           Sainsbury's    Argos     Group 
                                                  GBPm     GBPm      GBPm 
Present value of funded obligations            (9,352)  (1,488)  (10,840) 
Fair value of plan assets                       10,394    1,574    11,968 
Retirement benefit surplus                       1,042       86     1,128 
Present value of unfunded obligations             (23)     (18)      (41) 
Retirement benefit surplus                       1,019       68     1,087 
 

The principal actuarial assumptions used at the balance sheet date are as follows:

 
                                17 September   5 March  18 September 
                                        2022      2022          2021 
                                           %         %             % 
                               -------------  -------- 
Discount rate                           4.45      2.40          1.75 
Inflation rate - RPI                    3.45      3.60          3.40 
Inflation rate - CPI                    2.75      2.90          2.70 
                                                2.30 -        2.25 - 
Future pension increases         2.30 - 3.35      3.45          3.30 
                               -------------  -------- 
 

The amounts recognised in the income statement in respect of the IAS 19 charges for the defined benefit schemes are as follows:

 
                                              17 September  5 March  18 September 
                                                      2022     2022          2021 
                                                      GBPm     GBPm          GBPm 
Excluded from underlying profit 
 before tax: 
   Interest cost on pension liabilities              (119)    (197)         (106) 
   Interest income on plan assets                      149      212           114 
Total included in finance income/(costs)                30       15             8 
Defined benefit pension scheme 
 expenses                                              (3)      (7)           (2) 
Past service cost                                        -        3             - 
Settlement gains                                         8        -             - 
Total excluded from underlying 
 profit before tax                                      35       11             6 
Total income statement credit                           35       11             6 
 

The movements in the net defined benefit surplus are as follows:

 
                                             17 September  5 March  18 September 
                                                     2022     2022          2021 
                                                     GBPm     GBPm          GBPm 
The movements in the Groups net defined 
 benefit surplus is as follows: 
At the beginning of the year                        2,283      744           744 
Net interest income                                    30       15             8 
Remeasurement (losses)/gains                        (886)    1,457           298 
Pension scheme expenses                               (3)      (7)           (2) 
Contributions by employer                              23       71            39 
Past service charge                                     -        3             - 
Settlement gains                                        8        -             - 
At the end of the year                              1,455    2,283         1,087 
 

Cash contributions

Cash contributions for the full year are expected to be approximately GBP53 million.

Valuation of pension assets

The Pension Scheme has circa GBP2 billion of private market assets, split between private debt, private equity and property. These assets are held as they are expected to deliver a greater risk/return profile vs public market equivalents over the long term. The assets are illiquid (likely to be realised over 5+ years) but the Pension Scheme holds sufficient liquid assets (cash, gilts and other liquid securities) to be confident that it can meet its pension and collateral obligations over time.

The valuation of these assets is based on the audited accounts of the funds, where available, and net asset value statements from the investment managers where recent accounts are not available. For many of the investments the valuations provided are at 30 June. The Group therefore performs a roll-forward for these valuations, adjusting for cash received or paid and applying the changes seen in relevant liquid indices as follows:

 
Asset Class                          Returns 
Global equity USD return            (15.15)% 
Global High Yield Debt USD return    (7.35)% 
US loans USD return                  (1.16)% 
UK REITS GBP return                 (22.36)% 
 

The roll-forward has reduced the valuation of illiquid assets by GBP15 million. A 1% increase/decrease in the indices used would have caused a GBP18 million increase/decrease in the adjustment.

Subsequent to the balance sheet date, there have been significant movements within the pension market. Refer to note 21 for further details.

Sensitivities

The following sensitivities are based on management's best estimate of a reasonably anticipated change. The sensitivities are calculated using the same methodology used to calculate the retirement benefit obligation, by considering the change in the retirement benefit obligation for a given change in assumption. The net retirement benefit obligation is the difference between the retirement benefit obligation and the fair value of plan assets. Changes in the assumptions may occur at the same time as changes in the fair value of plan assets. There has been no change in the calculation methodology since the prior period.

 
                                                           Sainsbury's  Argos  Total 
                                                              GBPm      GBPm   GBPm 
An increase of 0.5% in the discount rate would decrease 
 the present value of funded obligations by                    420       75     495 
A decrease of 0.5% in the discount rate would increase 
 the present value of funded obligations by                    469       85     554 
An increase of 0.5% in the inflation rate would increase 
 the present value of funded obligations by                    266       68     334 
A decrease of 0.5% in the inflation rate would decrease 
 the present value of funded obligations by                    274       67     341 
An increase of 0.5% in the inflation rate for future 
 pension increases in payment only would increase 
 the present value of funded obligations by                    142       39     181 
A decrease of 0.5% in the inflation rate for future 
 pension increases in payment only would reduce the 
 present value of funded obligations by                        161       42     203 
 
Demographic sensitivities 
An increase of one year to the life expectancy would 
 increase the present value of funded obligations 
 by                                                            193       30     223 
Changing the 2020 and 2021 weighting parameters in 
 CMI 2021 to 0% would increase the present value of 
 funded obligations by                                         67        10     77 
Changing the 2020 and 2021 weighting parameters in 
 CMI 2021 to 25% would decrease the present value 
 of funded obligations by                                      65        10     75 
 
   19.        Related party transactions 

The Group's related parties are its joint ventures and key management personnel, comprising members of the J Sainsbury plc Board of Directors and the Operating Board as disclosed in the Annual Report and Financial Statements 2022.

Transactions with joint ventures and associates

For the 28 weeks to 17 September 2022, the Group entered into various transactions with joint ventures and associates as set out below:

 
                                                                     52 weeks 
                                         28 weeks to    28 weeks to        to 
                                        17 September   18 September   5 March 
                                                2022           2021      2022 
                                                GBPm           GBPm      GBPm 
Services and loans provided to 
 joint ventures 
Dividends and distributions received               -              -         2 
Rental expenses paid                             (3)            (3)       (8) 
 

Balances arising from transactions with joint ventures and associates

 
                 17 September  18 September  5 March 
                         2022          2021     2022 
                         GBPm          GBPm     GBPm 
Other payables            (1)           (1)      (1) 
 
   20.        Contingent liabilities 

The Group has a number of contingent liabilities in respect of historic guarantees, particularly in relation to disposed assets, which if the current tenant and their ultimate parents become insolvent, may expose the Group to a material liability. This is not expected to materialise.

Along with other retailers, the Group is currently subject to claims from current and ex-employees in the Employment Tribunal for equal pay under the Equality Act 2010 and/or the Equal Pay Act 1970. There are currently circa 10,500 equal pay claims from circa 6,300 claimants, in which the claimants are alleging that their work within Sainsbury's stores is or was, of equal value to that of colleagues working in Sainsbury's distribution centres, and that differences in terms and conditions relating to pay are not objectively justifiable. The claimants are seeking the differential back pay based on the higher wages in distribution centres, and the equalisation of wages and terms and conditions on an ongoing basis. The Group believes further claims will be served.

There are three stages in the tribunal procedure for equal value claims of this nature and the claimants will need to succeed in all three. The first stage is whether store claimants have the legal right to make the comparison with depot workers. Following European and Supreme Court decisions in other similar litigation, Sainsbury's has conceded this point. The second stage is the lengthy process to determine whether any of the claimants' roles are of equal value to their chosen comparators. This process is likely to continue for several more years. In the event that any of the claimants succeed at the second stage there will be further hearings, in the years following, to consider whether any pay differential is justified.

Given that the outcome of the second and third stages in the litigation remains highly uncertain at this stage, the Group cannot make any assessment of the likelihood nor quantum of any outcome. No provision has therefore been recognised on the Group's balance sheet. There are substantial factual and legal defences to these claims and the Group intends to defend them vigorously.

   21.        Post balance sheet events 

Retirement benefit obligations

Subsequent to the balance sheet date, there have been significant movements in gilt markets. In particular the 'mini budget' announced by the government on 23rd September caused rapid sales of government bonds which further depressed gilt markets. Although a temporary intervention by the Bank of England and subsequent policy changes have stabilised the market, gilt yields remain significantly higher than they were prior to the mini budget. This will have resulted in a significant decrease in the value of the Group's pension Scheme's assets, and also its liabilities.

The Group's pension Scheme adopts a collateral sufficiency framework which ensures sufficient high quality liquid assets are maintained in order to meet liquidity requirements, even in times of market stress. The scale and speed of the increase in interest rate expectations since the 'mini budget', and volatility within the markets, resulted in the Group deciding to put in place a loan facility to the Scheme of GBP500m on 18th October. The purpose of this facility was to further enhance the pensions Scheme's resilience in the event of unexpected substantial further rises in interest rates. This facility will remain in place for 3 months and as at the date of signing has not been drawn.

Borrowings

Subsequent to the balance sheet date, an unsecured term facility for GBP575m was entered into in October 2022, with an ultimate maturity date of 30 November 2024. As at the date of signing the term facility was undrawn.

Principal risks and uncertainties

Risk is an inherent part of doing business. The J Sainsbury plc Board has overall responsibility for the identification and management of the principal risks, emerging risks and internal control of the Company. The Board has identified the following principal potential risks to the successful operation of the business. These risks, along with the events in the financial markets and their potential impacts on the wider economy, remain those most likely to affect the Group in the second half of the year.

   --      Business continuity, operational resilience and major incidents response 
   --      Business strategy and change 
   --      Colleague engagement, retention and capability 
   --      Customer 
   --      Data security 
   --      Environment and sustainability 
   --      Financial and treasury 
   --      Health and safety 
   --      Political and regulatory environment 
   --      Product safety and sourcing 
   --      Sainsbury's Bank 
   --      Trading environment and competitive landscape 

The trading environment in which we are operating is directly impacted by inflationary pressures, continued disruption in global macro environment and the cost-of-living. We continue to monitor these external pressures and respond accordingly whilst continuing to focus on delivery of our strategic priorities. As such, the gross and net position of this risk have regressed.

Aside from the Trading environment and competitive landscape Principal Risk, the others remain unchanged from those reported in the Group's Annual Report and Financial Statements 2022. For more information on these risks, please refer to pages 38 to 50 of the J Sainsbury plc Annual Report and Financial Statements 2022, a copy of which is available on the Group's corporate website www.j-sainsbury.co.uk .

Statement of Directors' responsibilities

The Directors confirm that this set of Condensed Consolidated Interim Financial Statements has been prepared in accordance with UK adopted IAS 34 'Interim Financial Reporting' and the Disclosure and Transparency Rules of the UK's Financial Conduct Authority, and that the Interim Management Report herein includes a true and fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

-- that the report contains a fair review of important events that have occurred during the first 28 weeks of the financial year, and their impact on the condensed set of financial statements, and of the principal risks and uncertainties for the remaining six months of the financial year; and

   --      that the report contains a fair review of related party transactions. 

The Directors of J Sainsbury plc are listed in the J Sainsbury plc Annual Report and Financial Statements 2022.

A list of current directors is maintained on the Group's website : www.about.sainsburys.co.uk/about-us/our-management .

By order of the Board

Simon Roberts

Chief Executive

2 November 2022

Kevin O'Byrne

Chief Financial Officer

2 November 2022

INDEPENT REVIEW REPORT TO J SAINSBURY PLC

Conclusion

We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for the 28 week period ended 17 September 2022 which comprises the Group income statement, the Group statement of comprehensive income, the Group balance sheet, the Group cash flow statement and the Group statement of changes in equity and the related explanatory notes. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the 28 week period ended 17 September 2022 is not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Basis for Conclusion

We conducted our review in accordance with International Standard on Review Engagements 2410 (UK) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" (ISRE) issued by the Financial Reporting Council. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with UK-adopted international accounting standards. The condensed set of financial statements included in this interim financial report has been prepared in accordance with UK adopted International Accounting Standard 34, "Interim Financial Reporting".

Conclusions Relating to Going Concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for Conclusion section of this report, nothing has come to our attention to suggest that management have inappropriately adopted the going concern basis of accounting or that management have identified material uncertainties relating to going concern that are not appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with this ISRE, however future events or conditions may cause the entity to cease to continue as a going concern.

Responsibilities of the directors

The directors are responsible for preparing the interim financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

In preparing the half-yearly financial report, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditor's Responsibilities for the review of the financial information

In reviewing the interim report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statements in the interim financial report. Our conclusions, including our Conclusions Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

Use of our report

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Ernst & Young LLP

London

2 November 2022

Alternative performance measures (APMs)

In the reporting of financial information, the Directors use various APMs which they believe provide additional useful information for understanding the financial performance and financial health of the Group. These APMs should be considered in addition to, and are not intended to be a substitute for, IFRS measurements. As they are not defined by International Financial Reporting Standards, they may not be directly comparable with other companies who use similar measures.

The Directors believe that these APMs provide additional useful information for understanding the financial performance and health of the Group. They are also used to enhance the comparability of information between reporting periods (such as like-for-like sales and underlying profit) by adjusting for non-recurring or uncontrollable factors which affect IFRS measures, to aid users in understanding the Group's performance.

Consequently, APMs are used by the Directors and management for performance analysis, planning, reporting and incentive setting purposes.

All of the following APMs relate to the current period's results and comparative periods.

 
APM             Closest     Definition              Purpose        Reconciliation 
                equivalent 
                IFRS 
                measure 
Income statement 
 - Revenue 
 Retail         Revenue     Group sales less        Shows the      A reconciliation of the measure is provided 
  sales                     Financial               annual          in note 4 of the financial statements. 
                            Services revenue.       rate of 
                                                    growth in 
                                                    the Group's 
                                                    Retail 
                                                    business 
                                                    sales. 
 Like-for-like  No direct   Year-on-year growth in  The measure     The reported retail like-for-like 
  sales         equivalent  sales including VAT,    is used           sales decline of 0.8 per 
                            excluding               widely in the     cent is based on a combination 
                            fuel, excluding         retail            of Sainsbury's like-for-like 
                            Financial               industry as       sales and Argos like-for-like                          28 weeks 
                            Services, for stores    an indicator      sales for the 28 weeks to                  28 weeks       to 18 
                            that                    of current        17 September 2022. See movements    to 17 September   September 
                            have been open for      trading           below:                                         2022        2021 
                            more                    performance      Retail like-for-like (exc. 
                            than one year.          and is            Fuel, inc. VAT)                              (0.8)%        0.3% 
                                                    useful when      Underlying net new space 
                            The relocation of       comparing         impact                                       (0.5)%      (0.1)% 
                            Argos                   growth           Retail sales (decline)/growth 
                            stores into             between           (exc. Fuel, inc. VAT)                        (1.3)%        0.2% 
                            Sainsbury's             retailers        Fuel impact                                     5.7%        5.8% 
                            supermarkets are        that have        Total retail sales growth 
                            classified              different         (inc. fuel, inc. VAT)                          4.4%        6.0% 
                            as new space, while     profiles of      VAT impact                                    (0.3)%      (0.6)% 
                            the                     expansion,       Total retail sales growth                       4.1%        5.4% 
                            host supermarket is     disposals and 
                            classified              closures. 
                            like-for-like. 
 
 
 
 
APM         Closest     Definition     Purpose           Reconciliation 
            equivalent 
            IFRS 
            measure 
 
Income statement - Profit 
Retail      Profit      Underlying       This is the                                                                                                                                                  28 weeks          28 weeks  52 weeks 
underlying   before     earnings         lowest                                                                                                                                                              to                to        to 
operating    tax        before           level at which                                                                                                                                            17 September      18 September   5 March 
profit                  interest, tax,   the retail                                                                                                                                                        2022   2021 (restated)      2022 
                        Financial        segment                                                                                                                                                           GBPm              GBPm      GBPm 
                        Services         can be viewed                                                                                                                                                           ---------------- 
                        operating        from                                                                                                                     Group PBT (note 5a)                       376               527       854 
                        profit and       a management                                                                                                             Less Group non-underlying 
                        Sainsbury's      perspective,                                                                                                              items (note 3)                          (36)             (156)     (124) 
                        underlying       with finance                                                                                                             Group UPBT                                340               371       730 
                        share of         costs                                                                                                                                                                   ---------------- 
                        post-tax         managed for                                                                                                              Financial Services underlying 
                        profit from      the                                                                                                                       operating profit                        (19)              (19)      (38) 
                        joint            Group as a                                                                                                               Retail underlying profit 
                        ventures and     whole.                                                                                                                    before tax                               321               352       692 
                        associates.                                                                                                                               Net underlying finance costs              156               171       309 
                                                                                                                                                                                                                 ---------------- 
                                                                                                                                                                  Retail underlying operating 
                                                                                                                                                                   profit                                   477               523     1,001 
                                                                                                                                                                                                                 ---------------- 
 
                                                                                                                                                                  Retail sales (note 5a)                 16,154            15,511    29,463 
                                                                                                                                                                  Retail underlying operating 
                                                                                                                                                                   margin                                 2.95%             3.37%     3.40% 
                                                                                                                                                                                                                 ---------------- 
Underlying  Profit      Underlying       In order to     Underlying profit before tax is bridged to statutory 
 profit      before     results          provide          profit before tax in the income statement and note 
 before      tax        exclude items    shareholders     3 of the financial statements. 
 tax                    recognised       with 
                        in reported      additional       The adjusted items are as described in note 3 of the 
                        profit           insight          financial statements 
                        or loss before   into the 
                        tax              underlying 
                        which, if        performance of 
                        included,        the business, 
                        could distort    this 
                        comparability    adjusted 
                        between          measure 
                        periods. In      of profit is 
                        determining      provided 
                        which            to supplement 
                        items to         the 
                        exclude from     reported IFRS 
                        underlying       numbers, 
                        profit,          and reflects 
                        the Group        how 
                        considers        the business 
                        items which are  measures 
                        significant      performance 
                        either by        internally. 
                        virtue of 
                        their size 
                        and/or 
                        nature, or that 
                        are 
                        non-recurring. 
Underlying  Basic       Earnings per     This is a key   A reconciliation of the measure is provided in note 
 basic       earnings   share            measure          9 of the financial statements. 
 earnings    per share  using            to evaluate 
 per share              underlying       the 
                        profit           performance of 
                        as described     the business 
                        above.           and 
                                         returns 
                                         generated 
                                         for investors. 
Retail      No direct   Retail           EBITDA is used                                                                                                                                                             28 weeks       28 weeks 
underlying  equivalent  underlying       to review the                                                                                                                                                                     to             to 
EBITDA                  operating        retail                                                                                                                                                                  17 September   18 September 
                        profit as        segment's                                                                                                                                                                       2022           2021 
                        above, before    profit                                                                                                                                                                          GBPm           GBPm 
                        underlying       generation and                                                                                                             Retail underlying operating profit                    477            523 
                        depreciation,    the                                                                                                                        Add: Retail depreciation and amortisation 
                        and              sustainability                                                                                                              expense                                              634            649 
                        amortisation.    of ongoing                                                                                                                 Less: Non-underlying depreciation 
                                         capital                                                                                                                     and amortisation                                    (24)           (31) 
                                         reinvestment                                                                                                               Retail underlying EBITDA                            1,087          1,141 
                                         and 
                                         finance costs.                                                                                                             Retail sales (note 5a)                             16,154         15,511 
                                                                                                                                                                    Retail underlying EBITDA margin                     6.73%          7.36% 
 
 
 
APM         Closest     Definition      Purpose         Reconciliation 
            equivalent 
            IFRS 
            measure 
Underlying  Finance     Net finance     This provides         A reconciliation of this measure is included 
 net        income      costs before    shareholders          in note 7 of the financial statements. 
 finance    less        any             with 
 costs      finance     non-underlying  additional            The adjusted items are as follows: 
            costs       items as        insight                *    Non-underlying finance and fair value movements - 
                        defined above   into the                    these include fair value remeasurements on 
                        that are        underlying                  derivatives not in a hedging relationship and lease 
                        recognised      net finance                 interest on impaired non-trading sites, including 
                        within finance  costs of                    site closures. The fair value movements are driven 
                        income          the Group by          by 
                        / expenses.     excluding                   external market factors and can significantly 
                                        non-recurring               fluctuate year-on-year. They are therefore excluded 
                                        one-off                     to ensure consistency between periods. Lease intere 
                                        items.                st 
                                                                    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 in 
 tax         tax rate   underlying      indication       note 3 of the financial statements 
 rate                   items,          of the tax 
                        divided by      rate across 
                        underlying      the Group 
                        profit before   before the 
                        tax.            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                                            28 weeks       28 weeks  52 weeks 
cash          equivalent                 reader                                                        to             to        to 
flow                                     understand                                          17 September   18 September   5 March 
items                                    cash flows                                                  2022           2021      2022 
in                                       of the                                       Ref            GBPm           GBPm      GBPm 
Financial                                business a     Net interest paid              a            (161)          (177)     (323) 
Review                                   summarised     Repayment of lease 
                                         cash flow       liabilities                   b            (245)          (242)     (491) 
                                         statement      Repayment of borrowings        c             (22)          (231)     (256) 
                                         is included    Other                          d             (23)           (30)      (27) 
                                         within the     Dividends and distributions 
                                         Financial       received                      e               50              -         2 
                                         Review. 
 
                                         As part of 
                                         this a 
                                         number of 
                                         line items 
                                         have been 
                                         combined. 
                                         The cash 
                                         flow in 
                                         note 5 of 
                                         the 
                                         financial 
                                         statements 
                                         includes 
                                         a reference 
                                         to show 
                                         what has 
                                         been 
                                         combined 
                                         in these 
                                         line items. 
Retail     Net cash        Net cash      This                                                   28 weeks       28 weeks  52 weeks 
 free      generated       generated     measures                                                      to             to        to 
 cash      from operating  from retail   cash                                                17 September   18 September   5 March 
 flow      activities      operations,   generation,                                                 2022           2021      2022 
                           after         working                                                     GBPm           GBPm      GBPm 
                           perpetual     capital        Cash generated from retail 
                           security      efficiency      operations                                 1,425          1,233     1,940 
                           coupons and   and capital    Net interest paid (ref (a) 
                           cash capital  expenditure     above)                                     (161)          (177)     (323) 
                           expenditure   of the         Corporation Tax                              (32)              -      (23) 
                           but before    retail         Retail purchase of property, 
                           strategic     business        plant and equipment                        (201)          (154)     (416) 
                           capital                      Retail purchase of intangibles 
                           expenditure,                  assets                                      (96)          (144)     (229) 
                           and                          Retail proceeds from disposal 
                           including                     of property, plant and equipment              28             39        46 
                           payments                     Initial direct costs on 
                           of lease                      right-of-use assets                          (9)            (1)       (3) 
                           obligations,                 Repayments of obligations 
                           cash flows                    under leases                               (245)          (242)     (491) 
                           from joint                   Dividends and distributions 
                           ventures and                  received                                      50              -         2 
                           associates                   Retail free cash flow                         759            554       503 
                           and 
                           Sainsbury's 
                           Bank 
                           capital 
                           injections. 
 
 
 
APM         Closest     Definition      Purpose         Reconciliation 
            equivalent 
            IFRS 
            measure 
Underlying  No direct   Removes         To provide a                                                                28 weeks 
 working    equivalent  working         reconciliation                                                                     to 
 capital                capital         of the working                                               28 weeks    18 September   52 weeks 
 movements              and cash        capital                                                            to            2021         to 
                        movements       movement in                                              17 September                    5 March 
                        relating to     the financial                                                    2022      (restated)       2022 
                        non-underlying  statements to                                                    GBPm            GBPm       GBPm 
                        items.          the               Retail working capital movements 
                                        underlying         per cash flow (note 5)                         318            (44)      (306) 
                                        working 
                                        capital           Adjustments for: 
                                        movement          Retail non-underlying impairment 
                                        in the             charges (note 5)                                20               1          8 
                                        financial         Non-underlying restructuring 
                                        review.            and impairment charges (note 
                                                           3)                                            (33)            (37)       (92) 
                                                          Accelerated depreciation (note 
                                                           3)                                              12              20         33 
                                                          Bank impairment charges (note 
                                                           3)                                               -               -          7 
                                                          Gains on early termination of 
                                                           leases (note 3)                                (1)             (5)        (9) 
                                                          Profit on disposal of properties 
                                                           within restructuring programme 
                                                           (note 3)                                      (11)            (13)       (12) 
                                                          ATM income (note 3)                               -               -          2 
                                                          Income recognised in relation 
                                                           to legal disputes (note 3)                      30             181        180 
                                                          Property related transactions 
                                                           (note 3)                                       (8)               -          - 
                                                          Other                                             -               2          1 
                                                          Non-underlying working capital 
                                                           movements before cash movements                  9             149        118 
 
                                                          Non-underlying cash movements: 
                                                          Restructuring (note 3)                           33              70        114 
                                                          Bank restructuring                                -               -        (4) 
                                                          ATM income (note 3)                               -            (13)       (14) 
                                                          Net income recognised in relation 
                                                           to legal disputes (note 3)                       -            (27)       (93) 
                                                          Retail non-underlying operating 
                                                           cash flows (excluding pensions)                 33              30          3 
 
                                                          Total adjustments for non-underlying 
                                                           working capital                                 42             179        121 
 
                                                          Underlying working capital 
                                                           movements                                      360             135      (185) 
 
 
APM             Closest       Definition               Purpose       Reconciliation 
                equivalent 
                IFRS 
                measure 
Adjusted        Cash         This presents retail      This enables                                      28 weeks       28 weeks   52 weeks 
net cash        generated    operating cash flows      management                                               to             to         to 
generated       from         adjusted for movements    to assess                                      17 September   18 September    5 March 
from retail     operations   in working capital,       the cash                                               2022           2021       2022 
operations                   less net interest         generated                                              GBPm           GBPm       GBPm 
(per financial               paid (including           from its        Retail cash generated from 
review)                      distributions             core retail      operating activities (note 
                             on perpetual securities)  operations.      5)                                   1,232          1,060      1,598 
                             and pension cash                          Perpetual security coupons                -            (4)        (4) 
                             contributions.                            Adjusted net cash generated 
                                                                        from operating activities            1,232          1,056      1,594 
                                                                                                     -------------                 --------- 
Core            No direct    Capital expenditure       This allows                                       28 weeks       28 weeks  52 weeks 
 retail          equivalent   excluding Sainsbury's    management                                               to             to        to 
 capital                      Bank.                    to assess                                      17 September   18 September   5 March 
 expenditure                                           core retail                                            2022           2021      2022 
                                                       capital                                                GBPm           GBPm      GBPm 
                                                       expenditure     Purchase of property, plant 
                                                       in the           and equipment                        (201)          (154)     (416) 
                                                       period in       Purchase of intangibles                (96)          (144)     (229) 
                                                       order to        Cash capital expenditure              (297)          (298)     (645) 
                                                       review 
                                                       the 
                                                       strategic 
                                                       business 
                                                       performance. 
Net debt        Borrowings,  Net debt includes         This shows    A reconciliation of the measure is provided in 
                cash,        the capital injections    the overall    note 15 of the financial statements. In addition, 
                derivatives  into Sainsbury's Bank,    strength of    to aid comparison to the balance sheet, reconciliations 
                ,            but excludes the net      the            between financial assets at FVTOCI and derivatives 
                financial    debt of Sainsbury's       balance        per the balance sheet and Group net debt (i.e. 
                assets       Bank and its              sheet          including Financial Services) is included below: 
                at FVTOCI,   subsidiaries.             alongside 
                lease                                  the                                                   28 weeks       28 weeks  52 weeks 
                liabilities  It is calculated as:      liquidity                                                   to             to        to 
                             financial assets at       and                                               17 September   18 September   5 March 
                             fair value through        its                                                       2022           2021      2022 
                             other comprehensive       indebtedness                                              GBPm           GBPm      GBPm 
                             income (excluding         and whether    Financial instruments at 
                             equity investments)       the             FVTOCI per balance sheet                   771            752       800 
                             + net derivatives         Group can      Less: equity related securities           (376)          (346)     (382) 
                             to hedge borrowings       cover          Financial instruments 
                             + net cash and cash       its debt        at FVTOCI included in net 
                             equivalents + loans       commitments.    debt                                       395            406       418 
                             + lease obligations                      Net derivatives per balance 
                             + perpetual securities.                   sheet                                      490             13       259 
                                                                      Less: derivatives not used 
                                                                       to hedge borrowings                      (484)           (13)     (250) 
                                                                      Derivatives included in 
                                                                       net debt                                     6              -         9 
 
 
APM         Closest      Definition       Purpose      Reconciliation 
            equivalent 
            IFRS 
            measure 
Other 
Net debt/   No direct   Net debt divided  This helps   Net debt as provided in note 15. 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         This                                            52 weeks         52 weeks  52 weeks 
on capital  equivalent  capital           represents                                             to               to        to 
employed                employed is       the total                                    17 September     18 September   5 March 
                        calculated        capital                                              2022  2021 (restated)      2022 
                        as return         that the                                             GBPm             GBPm      GBPm 
                        divided           Group has      Underlying profit before 
                        by average        utilised in     tax                                   699              426       730 
                        capital           order          Add: Underlying net 
                        employed.         to generate     interest                              294              325       309 
                                          profits.       Return                                 993              751     1,039 
                        Return is         Management     Capital employed is 
                        defined           use this        reconciled as follows: 
                        as 52 week        to assess                                        52 weeks         52 weeks  52 weeks 
                        rolling           the                                                    to               to        to 
                        underlying        performance                                  17 September     18 September   5 March 
                        profit            of the                                               2022  2021 (restated)      2022 
                        before interest   business.                                            GBPm             GBPm      GBPm 
                        and                              Group net assets                     7,929            7,162     8,423 
                        tax.                             Less: Pension surplus 
                                                          (note 18)                         (1,455)          (1,087)   (2,283) 
                        Capital employed                 Deferred tax on pension 
                        is                                surplus                               454              367       640 
                        defined as Group                 Less: net debt (note 
                        net                               15)                                 6,165            6,345     6,759 
                        assets excluding                 Effect of in-year averaging          (228)            (792)   (1,127) 
                        pension                          Capital employed                    12,865           11,995    12,412 
                        deficit/surplus, 
                        less                             Return on capital employed            7.7%             6.3%      8.4% 
                        net debt 
                        (excluding 
                        perpetual 
                        securities). 
                        The average is 
                        calculated 
                        on a 14 point 
                        basis. 
 
                        The 14-point 
                        basis 
                        uses the average 
                        of 
                        14 datapoints - 
                        the 
                        prior year 
                        closing 
                        capital 
                        employed, 
                        the current year 
                        closing 
                        capital employed 
                        and 
                        12 intra-year 
                        periods 
                        as this more 
                        closely 
                        aligns to the 
                        recognition 
                        of amounts in 
                        the 
                        income 
                        statement. 
Fixed       No direct   Group underlying  This helps                              24 weeks       28 weeks       52 weeks  52 weeks 
 charge     equivalent  EBITDA            assess                                         to             to             to        to 
 cover                  divided by rent   the Group's                               5 March   17 September   17 September   5 March 
                        (representing     ability                                      2022           2022           2022      2022 
                        capital and       to satisfy                                   GBPm           GBPm           GBPm      GBPm 
                        interest          fixed          Group underlying 
                        repayments on     financing       operating profit              497            496            993     1,039 
                        leases)           expenses       Add: Group depreciation 
                        and underlying    from            and amortisation 
                        net               performance     expense                       561            650          1,211     1,220 
                        finance costs,    of the         Less: Non-underlying 
                        where             business.       depreciation and 
                        interest on                       amortisation expense         (22)           (24)           (46)      (53) 
                        perpetual                        Group underlying 
                        securities is                     EBITDA                      1,036          1,122          2,158     2,206 
                        treated                          Repayment of capital 
                        as an underlying                  element of lease 
                        finance                           obligations                 (250)          (246)          (496)     (493) 
                        cost. All items                  Underlying finance 
                        are                               income                          3              5              8         3 
                        calculated on a                  Underlying finance 
                        52                                costs                       (141)          (161)          (302)     (312) 
                        week rolling                     Fixed charges                (388)          (402)          (790)     (802) 
                        basis.                           Fixed charge cover             2.7            2.8            2.7       2.8 
 

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(END) Dow Jones Newswires

November 03, 2022 03:00 ET (07:00 GMT)

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