TIDMSBRY
RNS Number : 4155L
Sainsbury(J) PLC
30 April 2020
J Sainsbury plc
30 April 2020
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES
OF ARTICLE 7 OF REGULATION (EU) NO 596/2014 (MAR)
Update on the impact of COVID-19 and Preliminary Results for the
52 weeks to 7 March 2020
Update on the impact of COVID-19
The COVID-19 pandemic has had a significant impact on our
business since early March. We have had three clear priorities
throughout: keeping our customers and colleagues safe; helping to
feed the nation and supporting our communities and the most
vulnerable in society. Our colleagues have played an incredible
role and have really pulled together to serve our customers. In
particular, our store colleagues, our distribution centre
colleagues, our drivers and customer Careline teams are working on
the frontline, ensuring that customers have good access to food and
other essential items. Our central teams have supported them,
working closely with suppliers to increase orders and to move
products quickly through the supply chain and into stores. Where
they are able, our central teams are supporting colleagues by
working in our stores. We are incredibly proud of the role our
colleagues have played and their unwavering dedication and effort
in serving our customers and supporting our local communities
during this unprecedented time.
At this very early point in our financial year it is impossible
to predict the full nature, extent and duration of the financial
impact of COVID-19 over the course of the year and there is a wide
range of potential profit outcomes, both short and medium term.
We have modelled a broad range of scenarios. Our base case
assumes that lockdown restrictions will have eased by the end of
our first quarter (end June), but that the business will continue
to be disrupted until the end of the first half (mid-September). We
also assume that consumer demand, particularly for general
merchandise and clothing, will be impacted by weaker economic
conditions thereafter. Sales assumptions are provided later in this
statement. Under this scenario we would expect Group underlying
profit before tax for the year to March 2021 to be broadly
unchanged year on year. This includes a profit impact of over
GBP500 million due to significant costs associated with protecting
customers and colleagues, weaker fuel, general merchandise and
clothing sales and lower financial services profitability, broadly
offset by stronger grocery sales and approximately GBP450 million
business rates relief. We have decided not to take up the
government's offer of furlough payments or delaying VAT
payment.
There are many sensitivities that sit behind these assumptions,
above and beyond the duration of different stages of lockdown and
there is not necessarily a linear relationship between the duration
of COVID-19 impact, costs incurred and sales impact. Hence we
cannot be more certain of this base case scenario than any other.
It is simply our best estimate on each of the assumptions at this
stage. Sales, profit and cash flow could be additionally impacted
in the event of further periods of lockdown; the cost of protecting
colleagues could exceed current estimates; colleague absence and/or
measures to protect colleagues and/or customers could reach levels
that make it necessary to restrict the number of sites that we are
able to keep open and/or services we are able to offer. Consumer
spending across grocery, general merchandise and clothing and the
profitability of our financial services business could additionally
be more heavily impacted by the longer-term impact of COVID-19 on
the UK economy than we have assumed.
We have used more negative scenarios in stress-testing for
financial viability purposes. Even with additional stress, we are
confident that we have sufficient cash and committed funding in
place to meet our obligations for the foreseeable future.
However, given the wide range of potential profit and cash flow
outcomes, the Board believes it is prudent to defer any dividend
payment decisions until later in the financial year, when there
will be improved visibility on the potential impact of COVID-19 on
the business.
Mike Coupe, Chief Executive Officer, said:
"The last few weeks have been an extraordinary time for our
business. First and foremost, I want to say thank you to all of our
colleagues. They have shown outstanding commitment and resilience
over the past few weeks and I am in awe of their adaptability and
the efforts they have made to continue to serve our customers.
Across every part of the business, colleagues have played their
part as we have done everything possible to feed the nation and to
prioritise those who are least able to access food and other
essential services. This is an unsettling time for everyone, but I
am incredibly proud of the way the business has responded,
continually adapting and responding to customer feedback. We will
continue to work hard to provide food and other essential products
to households across the UK and Ireland who are adapting to a new
way of living."
Keeping our customers and colleagues safe
Our highest priority throughout this period has been to keep our
customers and colleagues safe. We have made changes to all aspects
of our business to achieve this, which has added material costs. We
have focused on feeding the nation and on ensuring that the most
vulnerable in our communities can access food and other essential
items. We have made significant donations and are working closely
with Fareshare, Comic Relief and other charities and organisations
to help people who have no other form of support. This
includes:
-- Providing full basic pay for up to 12 weeks for extremely
vulnerable and vulnerable colleagues and those living with
extremely vulnerable members of their household. Colleagues who
need to self-isolate will receive full pay for up to 14 days
-- Recruiting thousands of temporary colleagues to work in
stores, as drivers and in distribution centres
-- Giving a 10 per cent thank you payment to 157,000 colleagues
and front line managers on hours worked from 8 March to 5 April
-- Prioritising all online grocery slots for elderly, disabled
and vulnerable people, significantly increasing our home delivery
and click and collect operations. We have now increased the total
number of slots available weekly by nearly 50 per cent and we have
an ambition to deliver 600,000 slots per week
-- Restricting the number of products customers can buy in a
single shop so that essential items are available to a larger
number of customers
-- Limiting the number of customers allowed into shops at any one time
-- Significantly increasing security and cleaning at all sites
and introducing strict social distancing and hygiene measures
-- Limiting product ranges to prioritise availability of essential items
-- Closing fresh food counters and cafes in our supermarkets so
that colleagues can focus on keeping essential food items on
shelves
-- Closing all 573 standalone Argos stores from 24 March, as per
Government guidance. Argos is currently an online-only retailer and
we are advising customers to order home delivery where possible or
to collect items from Sainsbury's stores when shopping for food and
other essential items
-- Prioritising rapid changes to our operations over longer-term cost saving projects
Feeding the Nation - Sales update
Sales in recent weeks have reflected:
-- Strong grocery demand since the start of March, with
particularly high demand over week 52 of our 2019/20 financial year
and weeks 1 to 2 of our current financial year and some
normalisation over recent weeks
-- Higher sales at Argos in the early days of lockdown, as
customers equipped themselves for home working and spending more
time in their homes. Growth has moderated in recent weeks following
this early lockdown preparation activity and, since 24 March, has
been impacted by the closure of all Argos standalone stores and
reduced sales of items such as washing machines and furniture, due
to colleagues no longer being able to enter customers' homes
-- Materially reduced clothing and general merchandise sales in
Sainsbury's stores, reflecting different customer priorities and
reduced stocks of clothing in stores as we have prioritised grocery
deliveries
-- Materially reduced fuel sales
Current Trading
Q4 2019/20 Q1 2020/21 to
date
9 wks to March 7 weeks to April
Total sales growth % 7th 25th
------------------------------------- -----------------
Grocery 2.0% 12%
Total General Merchandise (1.3%) 3%
GM (Argos) 0.4% 9%
GM (Sainsbury's supermarkets) (8.1%) (22%)
Clothing 2.5% (53%)
Total Retail ex fuel 1.3% 8%
Fuel 4.9% (52%)
------------------------------------- -----------------
Total sales growth
%
------ ------ ------ ------ ------- ------- ------ ---------
Financial year 2019/20 2020/21
-------------- ---------------------------------------------------------------
Week no. 51 52 1 2 3 4 5 6 7
------ ------ ------ ------ ------- ------- ------ --------- ----------
Feb March March March March April April April April
Week to 29th 7th 14th 21st 28th* 4th** 11th 18th*** 25th****
------ ------ ------ ------ ------- ------- ------ --------- ----------
Grocery 3% 12% 29% 48% (4%) 5% 13% (15%) 12%
Total General
Merchandise (4%) (4%) 5% 53% (10%) (13%) (1%) (16%) 10%
GM (Argos) (3%) (2%) 9% 63% (1%) (10%) 3% (10%) 14%
GM (Sainsbury's
supermarkets) (10%) (13%) (12%) 10% (47%) (28%) (18%) (41%) (9%)
Clothing 12% (9%) (16%) (44%) (72%) (67%) (41%) (71%) (39%)
----------------------- ------ ------ ------ ------- ------- ------ --------- ----------
Total Retail ex
fuel 2% 8% 23% 47% (8%) (2%) 8% (18%) 9%
----------------------- ------ ------ ------ ------- ------- ------ --------- ----------
Fuel 0% (0%) (0%) (3%) (59%) (74%) (76%) (78%) (72%)
----------------------- ------ ------ ------ ------- ------- ------ --------- ----------
Sales trends in recent weeks, particularly grocery sales in the
last three weeks, have additionally reflected seasonal
variations:
*Includes Mother's Day in 2020/21 **Includes Mother's Day in
2019/20 ***Includes Easter Sunday (supermarkets closed) in 2020/21
****Includes Easter Sunday (supermarkets closed) in 2019/20
Executive remuneration
Market conditions over the last financial year have been
challenging and, despite the progress made by the business against
its strategic priorities, overall remuneration levels for the
Executive Directors are approximately 13 per cent lower for 2019/20
than the previous year.
When determining executive pay outcomes for the year, the
Committee has discretion to apply judgement and to adjust incentive
payouts and award levels. The Remuneration Committee has decided
that no cash annual bonuses will be paid to Executive Directors and
the wider senior executive population in respect of 2019/20. Once
the Board is in a position to make a decision regarding dividend
payments, the Committee will consider the impact on shareholders
and if there should be any implications on executive pay for the
year 2020/21.
Retail Outlook - sales
We do not know how long COVID-19 will continue to directly
impact our business and consumer behaviour or the impact that a
changed economy will have on consumers over the remainder of the
year. We have modelled a number of different scenarios. Our base
case assumes that lockdown restrictions will have eased gradually
by the end of the first quarter of our financial year (end June),
but that the business continues to be disrupted until the end of
the first half (mid-September). We additionally assume that
consumer demand, particularly for general merchandise and clothing,
will be impacted by weaker economic conditions thereafter. Key
assumptions on sales include:
Grocery
-- High single digit percentage grocery sales growth through the lockdown period
-- Low single digit percentage sales growth over the remainder
of H1, reflecting a greater number of meals being eaten inside the
home rather than in schools, workplaces, cafes and restaurants.
-- A return to normal grocery market conditions in H2
General Merchandise
-- Low teens percentage sales declines at Argos whilst in
lockdown, in line with more recent trends and reflecting the
closure of 573 standalone Argos stores
-- Low teens percentage sales declines at Argos thereafter,
reflecting anticipated subdued discretionary spending
-- Continued significant double digit percentage sales declines
for General Merchandise in Sainsbury's stores during lockdown and
continuing through the remainder of H1, moderating to mid-single
digit percentage sales declines through the remainder of the
year
Clothing
-- Significant continued sales declines while in lockdown,
moderating through the remainder of the year towards low double
digit percentage declines in H2
Fuel
-- Significant fuel volume declines in line with current trends
until the end of lockdown, easing through Q2
-- A return to normal market conditions in H2
Retail outlook - costs
Operating expenses will be materially higher than budgeted,
particularly in the areas of retail and logistics labour, absence
and instore costs, where we assume disruption will continue for
most of the first half of our financial year. In addition, we
anticipate higher stock clearance in clothing and some key seasonal
areas. Finally, many of our cost saving programmes will be delayed
due to the disruption.
There are limited opportunities to mitigate these impacts. We
have taken the decision not to take up the government's offer of
furlough payments or delaying VAT payment. We are redeploying
colleagues to different roles within the business wherever possible
and colleagues in central roles are supporting in stores where they
are able. There will be some offset from approximately GBP450
million of business rates relief on shops in England, Scotland and
Northern Ireland.
Financial Services outlook
Financial Services profits for the year to March 2021 will be
impacted by actions we have taken to date and the changed
macroeconomic outlook.
-- Our base case outlook includes an increase in bad debt
provisions, reflecting an assumed increase in unemployment
-- The business will incur additional costs and reduced revenue
as a result of the actions necessary to protect colleagues and
customers during the pandemic. There will be delays to
restructuring activity
-- Commission income will be significantly impacted for both
Travel Money and ATMs. Travel money bureaux are currently closed
and ATM usage is significantly below normal levels. We anticipate a
slow recovery in both post lockdown
As a consequence we expect the financial services business to
make a loss in the financial year to February 2021.
Whilst this represents a very challenging trading environment,
our financial services business is well capitalised. We have
capital resources of around GBP1 billion, over GBP100 million of
surplus capital at year end, an additional GBP58 million benefit
from the Bank of England's reduction in the counter cyclical buffer
requirement and GBP145 million of additional stress buffers.
Together these provide more than GBP300 million of loss absorption.
The financial services business additionally has significant excess
liquidity of around GBP200 million. We are confident that the
financial services business will not require capital injections
from the Group.
Liquidity
To date, the impact of higher sales has been positive from a
working capital perspective. However, a number of factors have
negatively impacted working capital in the short term,
including:
-- Accelerated supplier payments. We are working collaboratively
with suppliers to support them with vital cash flow where needed,
including immediate payment to at least 1,500 smaller suppliers
-- Supporting our tenants and concession partners - through
offering a one month rent free period and accepting monthly
payments instead of quarterly payments in advance
-- Reduced fuel volumes
-- Lower Argos, general merchandise and clothing sales
Having modelled a wide range of scenarios for financial
resilience purposes, we are confident that we have sufficient cash
and committed funding in place to meet our obligations for the
foreseeable future.
Preliminary Results for the 52 weeks to 7 March 2020(1)
Creating a leading multi brand, multi channel retailer
-- Underlying profit before tax(2) down two per cent to GBP586
million; profit before tax up 26 per cent to GBP255 million
-- Strong Free Cash Flow(3) and non-lease net debt(4) reduction
of GBP343 million, in line with guidance
-- Grocery sales improved through the year(5) , following
investment in the customer offer, resulting in outperformance of
main peers
-- Customer service scores consistently improving, reflecting
store investments and digital innovations
-- Limited impact of COVID-19 on these results due to year end timing
Strategic highlights
-- Improving grocery sales, outperforming our main supermarket
peers, driven by investment in low prices, entry price point ranges
and new and improved products. We were named the UK's cheapest
supermarket for branded groceries in 2019 by Which? consumer
magazine
-- Sainsbury's customer service scores consistently increasing
as customers respond to improvements in 451 supermarkets and 362
convenience stores and rollout of technology including
SmartShop
-- Groceries Online sales grew 7.6 per cent, Convenience grew
1.3 per cent and supermarket sales declined 0.1 per cent, impacted
particularly by general merchandise sales declines
-- General Merchandise markets remain challenging, with weakness
in toy and gaming categories. Clothing grew 1.2 per cent and
performed well online, growing 47 per cent
-- We are making progress against our five year Financial
Services strategy. We stopped underwriting new mortgages, are
simplifying our product portfolio and reducing costs
-- We launched our ambitious plan to invest GBP1 billion over 20
years to become Net Zero for greenhouse gas emissions by 2040
across all our operations by 2040
-- Following Mike Coupe's retirement, Simon Roberts will become
Chief Executive Officer on 1 June
Financial highlights
-- Underlying profit before tax(2) down two per cent to GBP586
million year on year. Underlying profit(2) was up eight per cent in
the second half, following a 15 per cent decline in the first half
due to phasing of cost savings, higher marketing costs and tough
weather comparatives
-- Statutory profit before tax of GBP255 million, up 26 per cent
from GBP202 million and statutory profit after tax of GBP152
million, down from GBP186 million, due to a higher tax charge
-- Strong cash generation with retail free cash flow(3) of
GBP611 million, up 34 per cent year on year
-- Retail underlying operating profit(2) down four per cent to GBP938 million
-- Financial Services underlying profits(2) up by 55 per cent to GBP48 million
-- Non-lease net debt(4) reduced by GBP343 million, in line with
guidance to reduce non-lease net debt by at least GBP300 million in
19/20
-- Underlying net finance costs(2) reduced by five per cent to GBP400 million
-- Underlying basic earnings per share(2) decreased 4.3 per cent to 19.8 pence per share
Dividend
Given a wide range of potential profit and cash flow outcomes,
the Board believes it is prudent to defer any dividend payment
decisions until later in the financial year, when there will be
improved visibility on the potential impact of COVID-19 on the
business.
(1) The Group has defined and outlined the purpose of its
alternative performance measures, including the measures used
within the financial highlights, on pages 61 to 65.
(2) 'Underlying profit before tax', 'underlying earnings per
share', and 'underlying net finance costs' measures exclude items
which by virtue of their size or nature may obscure understanding
of the Group's underlying performance.
(3) Net cash generated from retail operations, after perpetual
security coupons and cash capital expenditure but before strategic
capital expenditure, and including payments of lease obligations,
cash flows from joint ventures and associates and Sainsbury's Bank
capital injections.
(4) Net debt includes the capital injections into Sainsbury's
Bank, but excludes the net debt of Sainsbury's Bank and its
subsidiaries. Non-lease net debt excludes lease liabilities
following the adoption of IFRS 16.
(5) Kantar Total Grocers Till Roll 52 weeks to 23 February
2020
2019/20 2018/19 Variance
---------------------------------------------- ----------- ----------- ---------
Business Performance
-----------------------------------------------------------------------------------
Group sales (inc. VAT)(6) GBP32,394m GBP32,412m (0.1)%
----------- ----------- ---------
Group like-for-like sales (inc. VAT, excl.
fuel) (0.6)%
----------- ----------- ---------
Underlying profit before tax(2) GBP586m GBP601m (2)%
----------- ----------- ---------
Underlying basic earnings per share(2) 19.8p 20.7p (4.3)%
----------- ----------- ---------
Proposed final dividend 0 7.9p -
----------- ----------- ---------
Proposed full year dividend 3.3p 11.0p (70)%
----------- ----------- ---------
Net debt (including perpetual securities)(4) GBP6,947m GBP7,346m GBP399m
----------- ----------- ---------
Non-lease net debt(4) GBP1,179m GBP1,522m GBP343m
----------- ----------- ---------
Return on capital employed(7) 7.4% 7.4% -
----------- ----------- ---------
2019/20 2018/19
-------------------------------------- ----------- -----------
Statutory Reporting
----------------------------------------------------------------
Group revenue (excl. VAT, inc. fuel) GBP28,993m GBP29,007m
----------- -----------
Profit before tax GBP255m GBP202m
----------- -----------
Profit after tax GBP152m GBP186m
----------- -----------
Basic earnings per share 5.8p 7.6p
----------- -----------
(6) Group sales represents total sales less acquisition fair
value unwinds on Argos Financial Services. Like-for-like sales
represents the year-on-year growth in sales including VAT,
excluding fuel, excluding Financial Services, for stores that have
been open for more than one year.
(7) Calculated as return divided by average capital employed.
See page 65 for further details.
Trading Statement data for the 52 weeks to 7 March 2020
Like-for-like 2019/20
sales growth(6) 2018/19
------------------
Q3 Q4 Q1 Q2 H1 Q3 Q4 H2 FY
------- ------- ------- ------- ------- ------- ----- ------- -------
Like-for-like
sales (excl.
fuel) (1.1)% (0.9)% (1.6)% (0.2)% (1.0)% (0.7)% 1.3% 0.0% (0.6)%
------- ------- ------- ------- ------- ------- ----- ------- -------
Like-for-like
sales (inc.
fuel) 0.3% (0.5)% (1.0)% (0.4)% (0.7)% (1.1)% 1.3% (0.3)% (0.5)%
------- ------- ------- ------- ------- ------- ----- ------- -------
Total sales 2018/19 2019/20
growth
---------------------
Q3 Q4 Q1 Q2 H1 Q3 Q4 H2 FY
------- ------- ------- ------- ------- ------- ------- ------- -------
Grocery 0.4% (0.6)% (0.5)% 0.6% (0.1)% 0.4% 2.0% 1.0% 0.4%
------- ------- ------- ------- ------- ------- ------- ------- -------
General Merchandise (2.3)% 1.5% (3.1)% (2.0)% (2.5)% (3.9)% (1.3)% (3.2)% (2.9)%
------- ------- ------- ------- ------- ------- ------- ------- -------
Clothing (0.2)% (1.6)% (4.5)% 3.3% (1.2)% 4.4% 2.5% 3.8% 1.2%
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Retail
(excl. fuel) (0.4)% (0.2)% (1.2)% 0.1% (0.6)% (0.7)% 1.3% 0.0% (0.4)%
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Retail
(inc. fuel) 0.8% 0.0% (0.6)% 0.1% (0.3)% (0.9)% 1.9% 0.0% (0.1)%
------- ------- ------- ------- ------- ------- ------- ------- -------
Notes
All sales figures contained in this trading statement are stated
including VAT from 2019/20 and in accordance with IFRS 15
Notes
Certain statements made in this announcement are forward-looking
statements. Such statements are based on current expectations and
are subject to a number of risks and uncertainties that could cause
actual events or results to differ materially from any expected
future events or results referred to in these forward-looking
statements. They appear in a number of places throughout this
announcement and include statements regarding our intentions,
beliefs or current expectations and those of our officers,
directors and employees concerning, amongst other things, our
results of operations, financial condition, liquidity, prospects,
growth, strategies and the business we operate. Unless otherwise
required by applicable law, regulation or accounting standard, we
do not undertake any obligation to update or revise any
forward-looking statements, whether as a result of new information,
future developments or otherwise.
A webcast presentation will be available to view on our website
at 8am. The webcast can be accessed at the following link:
https://webcasts.j-sainsbury.co.uk/sainsbury153
Following the release of the webcast, a Q&A conference call
will be held at 9:30am. This will be available to listen to on our
website at the following link:
https://webcasts.j-sainsbury.co.uk/sainsbury151
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 2020/21 First Quarter Trading
Statement at 07:00 (BST) on 1 July 2020.
Ends
Tim Fallowfield, Company Secretary and Corporate Services
Director, was responsible for the disclosure of this announcement
for the purposes of MAR.
Enquiries
Investor Relations Media
James Collins Rebecca Reilly
+44 ( 0) 7801 813 074 +44 (0) 20 7695 7295
Our strategy
Our purpose is to help our customers live well for less. To do
this we will focus on seven priorities which are designed to ensure
we continue to give our customers what they want in a rapidly
changing retail marketplace, while also driving value for our
shareholders.
These priorities are: to be competitive on price; to offer
distinctive products and categories; to provide personalised and
seamless physical and digital experiences; to be fast, friendly and
convenient; to drive efficiency to reinvest; to be a place where we
all love to work and to be Net Zero in our own operations by
2040.
Be competitive on price
To help customers live well for less we are focused on offering
them quality products at affordable prices.
Through the year our food and grocery sales have been on an
improving trend and we are outperforming our main supermarket
peers. This is driven by strategic investments in our customer
offer, reducing our prices and ensuring customers always get great
value.
In January we lowered the price of some of our most popular
produce lines - including apples, mangos and avocados - to 60 pence
and we have now achieved our target to launch 200 entry price point
products across 15 owned brand ranges such as Daily's, Farmhouse
and J. James. We have moved away from short term promotions in
favour of offering customers great every day value with regular
Price Lockdown events, featuring hundreds of high-volume food lines
across meat, fish, poultry, dairy, grocery and household products.
This year around 2,300 products have been reduced or held at lower
prices. We hold these prices for at least eight weeks, giving
customers confidence that they will always get a great deal on food
at Sainsbury's. We were named the UK's cheapest supermarket in 2019
for branded groceries by the consumer magazine, Which?.
The general merchandise market remains challenging and this
year's performance was impacted by weakness in the toy and gaming
markets. We are focusing on offering customers everyday low prices
and have made choices to reduce our promotional activity, including
our 3 for 2 toy stunts.
Tu clothing performed well during the year, growing by 1.2 per
cent and gaining share in a highly competitive market. Tu clothing
online grew by 47 per cent as more people choose to order clothing
online for collection or home delivery. Tu clothing online, through
both Sainsbury's and Argos's websites, has been very successful and
we have seen strong and profitable sales growth through this
channel. Our strategic decision to reduce the number of promotions
and change their timing has led to better markdown management.
Offer distinctive products and new categories
Because of our distinctive offer, customers visit our stores to
buy new and interesting products they cannot find elsewhere. We can
also serve more of our customers' needs by selling distinctive and
exclusive ranges.
Taste the Difference accounts for over GBP1 billion of sales and
we relaunched our range this year, introducing nearly 700 new,
reformulated or repackaged products in the financial year. This
year Taste the Difference volumes grew by 0.3 per cent. We
outperform the market in meat alternative, plant-based food ranges,
catering for the increasing number of people who choose to limit
their meat consumption for health or lifestyle reasons. We launched
our Plant Pioneers brand in October, adding 26 new products across
fresh, frozen and ambient categories to our existing range of over
200 meat alternative lines. These include banana blossom, a popular
alternative to white fish, Smokey Vacon Rashers and meat-free
Southern Fried Bites.
By bringing distinctive and innovative brands to the market we
give our customers better choice and our stores benefit from
incremental sales as a result. Our in-house Future Brands team
gives these distinctive brands the opportunity to showcase their
products exclusively in our stores and online. Since June 2018, we
have introduced over 1,700 lines across 146 Future Brand ranges
including Wasabi ready meals, Beavertown beer and Jude's ice cream.
Future Brands delivered GBP146 million in sales this year, an
increase of 77 per cent year on year. We also entered into a three
year exclusive partnership with Leon to sell its fast and healthy
food to go in over 600 of our stores.
We are creating dedicated hubs and aisles in growing categories
where we can gain market share. For example, we now have 134 Beauty
Halls which feature 19 new branded ranges. These Beauty Halls have
been well received by customers, driving sales and frequency of
visits to our stores. We have opened 48 Wellness Hubs in our
stores, offering over 1,000 health-focused SKUs, from specialist
food and drink to supplements and vitamins. This financial year we
also invested in the pet market with new ranges and 20 in-store Pet
Hubs.
This year we have made further progress to bring our Sainsbury's
and Argos ranges and buying and merchandising teams together which
enables us to buy better and offer customers a more integrated
product offer in our stores and online.
The iconic Habitat brand is available in five stand-alone
stores, 11 stores in Sainsburys supermarkets and online through
habitat.co.uk, which accounts for over 68 per cent of its sales. We
launched Habitat's first ever spa fragrance collection, sold
exclusively in Sainsbury's stores and online in time for Christmas
gifting, as well as a range of Habitat branded floral products. We
see opportunities to further grow the Habitat brand and we will
integrate Habitat into our home and furniture business and increase
the accessibility and appeal of the brand.
Our Tu branded clothing continues to grow and gain market share
in a highly competitive market. We launched new ranges in our Tu
premium collection and we invested in building the brand through
our branded above line and digital advertising campaigns.
Personalised and seamless physical and digital
Financial Services and Nectar provide our customers with
affordable ways to manage their finances and reward them for their
loyalty. Our Nectar loyalty programme is the biggest in the UK with
over 18 million members and over 4.5 million people have now
downloaded the new app. The app enhances customer engagement by
offering personalised offers and access to promotions and rewards.
We have 2.1 million active Sainsbury's Bank customers and 2.2
million Argos Financial Services customers. Over 75 per cent of
Sainsbury's Bank customers are Nectar card holders and, by
combining Sainsbury's and Argos's connected services into one
digital ecosystem, we can reward customers in a meaningful and
personalised way.
This year we extended our Nectar programme to Argos customers,
making it possible for them to earn their Nectar points across all
Argos channels. We also launched Nectar360, the
business-to-business arm of the loyalty programme that enables
brands to understand, reach and engage more effectively with their
customers by giving them access to leading data, insights, digital
and media capability. Over 500 brands have signed up to date.
In September, we unveiled a five year strategy for Sainsbury's
Bank and Argos Financial Services to become an agile, capital and
cost efficient provider of simple, mobile-led financial services to
loyal Sainsbury's and Argos customers and we have made good
progress. We have a leaner structure, greater digital uptake and we
have stopped underwriting new mortgages. We will provide an update
in November on the impact of COVID-19 on the financial services
five year targets we announced in September 2019.
Fast, friendly and convenient
Great service and availability and faster ways to pay mean
customers can save time as well as money by shopping with us. We
are consistently improving our customer service scores, driven by
investment in more than 450 supermarkets and 362 convenience
stores. We now have 306 Argos stores in Sainsbury's supermarkets.
We further maximise our supermarket space by introducing carefully
selected concession partners that give our customers a range of
essential services, as well as a broader choice of fantastic
quality products, including 61 Specsavers and over 123 Sushi
Gourmet counters.
Our convenience strategy is to deliver a relevant, flexible
offer tailored to local customer needs. Over 184 convenience stores
have Argos Click & Collect and this year we introduced more
innovative new convenience formats. These include neighbourhood hub
stores that offer local communities a convenient, one-stop shop for
a broad range of groceries and general merchandise and two 'On the
Go' city stores tailored to match the needs of busy city
workers.
GBP6 billion of sales across the business are digital and we
continue to invest to deliver easy, speedy and seamless shopping.
At Argos, Black Friday broke records, with GBP60 million in online
sales on the day. Argos Click & Collect grew by nearly eight
per cent and Argos Fast Track delivery grew by nearly five per cent
year on year. In Food and Grocery, Groceries Online grew by nearly
eight per cent and we have over 141,000 Delivery Pass
customers.
Sainsbury's has rolled out SmartShop technology to all
supermarkets, delivering easier and convenient ways for customers
to shop using in-store handsets or their own smartphone. Customers
are increasingly choosing to shop with us in this way and SmartShop
sales account for up to 20 per cent of sales in some stores. To
further improve our supermarkets, we upgraded 3,639 self-checkouts.
Recent customer service scores show that customers value these
improvements. Ease of checkout is up three per cent and speed of
checkout is up nearly four per cent.
At Argos, we rapidly rolled out Pay@Browse to 386 Argos stores,
offering customers a quicker way to pay in 548 Argos stores.
Drive efficiency to reinvest
We have met our objective to make savings to cover the impact of
cost inflation and we are making good early progress with our
target to structurally reduce our costs by approximately GBP500
million over five years by bringing Sainsbury's and Argos together.
Reducing our costs means we can run our business more efficiently
and continue to invest in the areas that customers value: choice,
quality, low prices, convenience and great service.
We have reviewed our central support functions including
logistics, supply and shared services and we are looking at ongoing
capital prioritisation and procurement. In January we announced a
major head office restructure which saw a reduction of hundreds of
management roles.
We are developing an in-house 'Internet of Things' platform
which connects multiple store elements including refrigeration,
lighting, heating, ventilation and air conditioning and we are
currently rolling this out to our supermarket estate. Behind the
scenes we have rebuilt our entire data and analytics eco-system and
have transformed store connectivity by replacing and updating the
WiFi technology in the majority of our stores.
More colleagues have devices and are better connected than ever
before. We are creating smarter stores, digitising day-to-day
processes through a range of app developments, such as
replenishment and stock apps, to drive efficiency and availability
and give store colleagues more time to serve customers.
At our Capital Markets Day in September we unveiled our new five
year property strategy, which included a review of our current
estate to ensure we have the right stores in the right places for
our customers. We announced a plan to open 10 Sainsbury's
supermarkets, 95 convenience stores and 18 larger format
convenience stores. We also said we would open more than 80 new
Argos stores within Sainsbury's supermarkets. The review also means
a closure programme of around 125 shops.
We opened two new supermarkets this year and closed two less
profitable ones. We also opened 13 convenience stores and closed
27. We currently have 573 standalone Argos stores. Our model of
Argos stores in Sainsbury's drives efficiencies and enables us to
maximise our supermarket space. There are now 306 Argos stores in
Sainsbury's supermarkets.
Be a place where we all love to work
Being a company that people love to work for means being an
inclusive employer where colleagues are encouraged to develop their
skills and fulfil their potential. It's about playing an active
role in our communities and about having high ethical standards
that we and our suppliers adhere to.
It is important for the long-term success of the business that
our colleagues remain engaged and we measure this twice a year
through our colleague engagement survey. We retained our Gold
accreditation from Investors in People (IIP) for the fourth
consecutive time over 10 years, despite the level of change in the
business.
We have made good progress with our inclusivity agenda. We are a
Disability Confident Leader for our work on disability and
inclusivity and, looking ahead, we aim to increase our employment
of Black, Asian and Minority Ethnic (BAME) representation at senior
manager level. We also aim to increase the percentage of colleagues
who agree with the statement 'I feel I am able to be myself at
work' in our colleague engagement survey.
We continue to work on our gender pay balance across the
business and have further reduced our gender pay gap by 1.6 per
cent to 10.5 per cent this year, while our median gender pay gap
remains at 3.8 per cent. Female representation at Board level is 33
per cent and female representation at senior levels has increased
to 35 per cent by the year end. Across the entire business, female
representation is 54.6%. There are 94,992 women and 78,983 men and
the remaining colleagues did not identify as either women or men.
We are committed to achieving our aspirational target of 40 per
cent female representation in senior positions by 2021. For more
information, see our Gender Pay Report on our corporate
website.
In this complex retail environment, excellent leadership of our
store teams is crucial. We have an award winning leadership
programme for store colleagues and managers. We are also focused on
ensuring that more junior colleagues can develop their skills and
progress and measure the number of colleagues enrolled on an
apprenticeship programme and the completion rate for those
apprenticeships.
We play an active role in local communities and we raised GBP29
million this year for local and national causes. As part of our
150(th) birthday, we launched 150 Days of Community and over 35,000
colleagues pledged their time to volunteer during working hours for
over 2,400 local community projects. For more information on how
our colleagues support the communities we serve, see our
Sustainability update on our corporate website.
We are committed to complying with laws and regulations and set
high ethical standards for our colleagues and suppliers. We expect
all colleagues to abide by our Ethical Conduct Policy, covering
areas including anti-bribery and corruption, conflicts of interest,
suppliers, fraud and whistleblowing. Training on these policies is
provided to colleagues in the commercial divisions as part of their
inductions and then annually. This year we also updated policies
and processes for our suppliers to gain a better understanding of
risk, and updated our Human Rights policy which can also be found
on our corporate website.
Alongside our community investment, we make positive economic
contributions through our supply chain, our market-leading pay for
colleagues and our responsible approach to tax, contributing GBP2.1
billion in taxes borne and collected this year.
Net Zero by 2040
Living well means living sustainably and we have committed to
invest GBP1 billion over 20 years to become Net Zero across all our
operations by 2040. We have seven key areas of focus and we will
report progress against each of them at our interim results in
November.
We are the only UK food retailer to receive an A rating in the
Climate Disclosure Project for six consecutive years. We are proud
to have achieved a 42 per cent reduction in carbon emissions over
fifteen years, despite a 46 per cent increase in our estate. We
have committed to reduce carbon emissions within our own operations
to net zero greenhouse gas emissions, increasing the use of
renewable energy.
We were also the f irst retailer to achieve The Carbon Trust
Water Standard in 2017 as well as this past year achieving the
Climate Disclosure Project A-rating for water disclosure. We
achieved our 2020 water reduction targets early, saving one billion
litres since 2005 . We have committed to minimise the use of water
in our own operations, driving towards water neutral by 2040.
In 2005 we were the first retailer to introduce multiple traffic
light labelling on the front of our own-brand packaging and we have
reduced the number of red traffic lights since 2015. Through
reformulation, 97 per cent of our own-brand products meet Public
Health England's salt reduction targets and we have reduced the
amount of sugar across soft drinks, ice cream, cereals and more by
over 20 per cent since 2015. As part of our Net Zero commitment we
will continue to develop healthy, tasty nutritious food for our
customers and expand our popular meat alternative range.
We have committed to reduce our use of plastic packaging by 50
per cent by 2025 and then go further. We were the first retailer to
remove plastic bags from our produce aisles and bakery counters;
customers now use their own bags or buy a reusable bag made from a
recycled plastic bottle. Among a large number of initiatives, we
removed plastic bags from online deliveries and reduced the weight
of plastic used in milk and water packaging.
We were the first retailer to achieve zero waste to landfill and
we plan to reduce food waste by 50 per cent by 2030. Most of our
stores redistribute good quality food safely to local charities and
community groups through our food donation partnerships.
We will also increase the use of recycling in our own operations
and make it easier for customers and colleagues to recycle. All our
plastic hangers are made from 100 per cent recycled materials and
last year we recycled 300 tonnes of them. As we move forward we
will expand recycling facilities at our stores to help customers
recycle metal cans, glass, plastic, paper, clothing and other
materials.
Finally, we will ensure that the impact of our operation is net
positive for biodiversity. We have planted nearly four million
trees in partnership with the Woodland Trust since 2004 and we
expect to plant more than 1.5 million trees by 2025. 99.1 per cent
of the palm oil used in our products is sustainably sourced as is
all our farmed seafood.
Financial Review of the year results for the 52 weeks to 7 March
2020
This is Sainsbury's first full year set of results prepared
under IFRS 16, the new financial reporting standard on lease
accounting. As previously indicated, we have adopted the standard
fully retrospectively. The new standard results in material changes
to the financial statements. All affected comparative figures
included within this announcement have accordingly been restated.
Further detail on this can be found in note 5 on page 34.
Please note a number of Alternative Performance Measures
('APMs') have been adopted by the Directors to provide additional
information on the underlying performance of the Group. These
measures are intended to supplement, rather than replace the
measures provided under IFRS. Please see pages 61 to 65 for further
information.
In the 52 weeks to 7 March 2020 the Group generated profit
before tax of GBP255 million (2018/19: GBP202 million) and
underlying profit before tax of GBP586 million (2018/19: GBP601
million)
Summary income statement 52 weeks to 52 weeks to
07 March 09 March Change
2020 2019
GBPm GBPm %
Group sales (including VAT) 32,394 32,412 (0.1)
Retail sales (including VAT) 31,825 31,871 (0.1)
Group sales (excluding VAT) 28,993 29,007 (0.0)
Retail sales (excluding VAT) 28,424 28,466 (0.1)
Underlying operating profit
Retail 938 981 (4)
Financial services 48 31 55
------------------------------------------------- ------------ ------------ -------
Total underlying operating profit 986 1,012 (3)
Underlying net finance costs(1) (400) (419) 5
Underlying share of post-tax profit from JVs(2) - 8 (100)
------------------------------------------------- ------------ ------------ -------
Underlying profit before tax 586 601 (2)
Items excluded from underlying results (331) (399) 17
------------------------------------------------- ------------ ------------ -------
Profit before tax 255 202 26
Income tax expense (103) (16) 544
------------------------------------------------- ------------ ------------ -------
Profit for the financial period 152 186 (18)
------------------------------------------------- ------------ ------------ -------
Underlying basic earnings per share 19.8p 20.7p (4.3)
Basic earnings per share 5.8p 7.6p (23.7)
Dividend per share 3.3p 11.0p (70.0)
------------------------------------------------- ------------ ------------ -------
1 Net finance costs including perpetual securities coupons
before non-underlying finance movements.
2 The underlying share of post-tax profit from joint ventures
and associates ('JVs') is stated before investment property fair
value movements, non-underlying finance movements and profit on
disposal of properties.
Group sales
Group and Retail sales (including VAT, including fuel) both
decreased by 0.1 per cent year-on-year. Retail sales (including
VAT, excluding fuel) decreased by 0.4 per cent driven by General
Merchandise sales declines.
Total sales performance by category 52 weeks to 52 weeks to
07 March 2020 09 March 2019 Change
GBPbn GBPbn %
------------------------------------- -------------- -------------- -------
Grocery 19.5 19.5 0.4%
General Merchandise 6.4 6.5 (2.9)%
Clothing 1.0 1.0 1.2%
------------------------------------- -------------- -------------- -------
Retail (exc. fuel) 26.9 27.0 (0.4)%
------------------------------------- -------------- -------------- -------
Fuel sales 4.9 4.9 1.1%
Retail (inc. fuel) 31.8 31.9 (0.1)%
------------------------------------- -------------- -------------- -------
Grocery sales grew by 0.4 per cent year-on-year. A weak start to
the year in the first quarter was offset by a strong performance in
the second quarter which continued in to the second half as
customers responded positively to price investment and new entry
price ranges and investments in our store estate. Clothing sales
grew by 1.2 per cent with a strong performance in the second half
as cooler weather helped drive sales in the winter ranges. General
Merchandise sales declined by 2.9 per cent driven by the
annualisation of last summer's hot weather and challenging market
conditions particularly in toys and gaming.
Fuel sales grew 1.1 per cent, driven by both retail price
inflation and volumes.
Year-on-year sales performance by channel 52 weeks to 52 weeks to
07 March 2020 09 March 2019
------------------------------------------------- -------------- --------------
Supermarkets (inc. Argos stores in Sainsbury's) (0.1)% 1.0%
Convenience 1.3% 3.7%
Groceries Online 7.6% 6.9%
-------------------------------------------------- -------------- --------------
Supermarket sales declined by 0.1 per cent, impacted by weaker
General Merchandise sales. Convenience sales grew by 1.3 per cent
despite 27 store closures across the second half. Groceries Online
sales grew by 7.6 per cent driven by order growth.
Retail like-for-like sales performance 52 weeks to 52 weeks to
07 March 09 March
2020 2019
Like-for-like sales (exc. fuel) (0.6)% (0.2)%
Like-for-like sales (inc. fuel) (0.5)% 1.5%
----------------------------------------- ------------ ------------
Retail like-for-like sales, excluding fuel, decreased by 0.6 per
cent (2018/19: 0.2 per cent decrease) as a result of General
Merchandise declines.
Space
In 2019/20, Sainsbury's opened 2 new supermarkets and closed 2
(2018/19: opened 3 new supermarkets and closed 3 ). There were 14
new Convenience stores, including 1 replacement, opened in the year
and 27 were closed (2018/19: 10 opened and 5 stores closed).
During the period Argos opened 25 new stores in Sainsbury's and
one new standalone and closed 25 standalone Argos stores and 2
Argos in Homebase stores. The number of Argos collection points in
Sainsbury's stores reduced from 317 to 281. As at 7 March 2020,
Argos had 882 stores and 281 collection points. Habitat had 16
stores, of which 11 are in Sainsbury's.
Store numbers and retailing
space
As at New stores Disposals / closures Extensions / refurbs / As at
downsizes / replacements
09 March 07 March
2019 2020
------------------------------ --------- ----------- --------------------- ---------------------------- ---------
Supermarkets 608 2 (2) - 608
Supermarkets area '000 sq.
ft. 21,210 54 (43) (54) 21,167
Convenience 820 13 (27) 1 807
Convenience area '000 sq. ft. 1,934 35 (74) 3 1,898
Sainsbury's total store
numbers 1,428 15 (29) 1 1,415
------------------------------ --------- ----------- --------------------- ---------------------------- ---------
Argos stores 594 1 (25) - 570
Argos stores in Sainsbury's 281 25 - - 306
Argos in Homebase 8 - (2) - 6
Argos total store numbers 883 26 (27) - 882
Argos collection points 317 6 (42) - 281
Habitat 16 - - - 16
------------------------------ --------- ----------- --------------------- ---------------------------- ---------
Subject to potential disruption from COVID-19, in 2020/21,
Sainsbury's expects to open 2 new supermarkets and around 15 new
convenience stores. Sainsbury's also expects to close around 8
supermarkets and around 14 convenience stores. Sainsbury's also
expects to open 35-40 Argos in Sainsbury's, and close around 50
Argos standalone stores.
Retail underlying operating profit
Retail underlying operating profit decreased by 4.4 per cent to
GBP938 million (2018/19: GBP981 million), largely driven by tough
weather comparatives and higher marketing costs in the first half
of the year and a challenging General Merchandise market.
Retail underlying operating margin reduced by 15 basis points
year-on-year to 3.30 per cent (2018/19: 3.45 per cent).
Retail underlying operating profit
52 weeks to 52 weeks to Change at
07 March 09 March constant fuel
2020 2019 Change prices
Retail underlying operating profit (GBPm)(1) 938 981 (4.4)%
Retail underlying operating margin (%)(2) 3.30 3.45 (15)bps (15)bps
Retail underlying EBITDAR (GBPm)(3) 2,125 2,152 (1.3)%
Retail underlying EBITDAR margin (%)(4) 7.48 7.56 (8)bps (8)bps
---------------------------------------------- ------------ ------------ -------- --------------
1 Retail underlying earnings before interest, tax and
Sainsbury's underlying share of post-tax profit from joint
ventures. Numbers are restated with the introduction of IFRS 16,
this results in a material increase in Retail underlying operating
profit, compared to previously reported numbers, due to the
interest component being recognised below operating profit as a
finance cost. Refer to note 4 for a reconciliation of Retail
underlying operating profit pre and post IFRS 16.
2 Retail underlying operating profit divided by underlying retail sales excluding VAT.
3 Retail underlying operating profit before net rental income of
GBP10 million and underlying depreciation and amortisation of
GBP1,197 million.
4 Retail underlying EBITDAR divided by underlying retail sales excluding VAT.
In 2020/21, Sainsbury's expects a depreciation and amortisation
charge of around GBP1,200 million, including around GBP500 million
right of use asset depreciation.
Financial Services
Financial Services results
12 months to 29 February 2020
2020 2019 Change
--------------------------------------------
Underlying revenue (GBPm) 569 541 5%
Interest and fees payable (GBPm) (125) (102) 23%
Total income (GBPm) 444 439 1%
Underlying operating profit (GBPm) 48 31 55%
-------------------------------------------- ------ ------ --------------
Cost:income ratio (%) 71 71 0bps
Active customers (m) - Bank 2.12 2.01 5%
Active customers (m) - AFS(6) 2.24 2.14 5%
Net interest margin (%)(1) 3.4 3.8 (40)bps
Bad debt as a percentage of lending (%)(2) 1.1 1.6 (50)bps
Tier 1 capital ratio (%)(3) 14.1 13.7 40bps
Total capital ratio (%)(4) 17.0 16.7 30bps
Customer lending (GBPbn)(5) 7.4 7.0 6%
Customer deposits (GBPbn) (6.3) (6.0) 5%
-------------------------------------------- ------ ------ --------------
1 Net interest receivable divided by average interest-bearing assets.
2 Bad debt expense divided by average net lending.
3 Common equity Tier 1 capital divided by risk-weighted assets.
4 Total capital divided by risk-weighted assets.
5 Amounts due from customers at the Balance Sheet date in
respect of loans, mortgages, credit cards and store cards net of
provisions.
6 Prior year restated
Financial Services total income remained broadly flat
year-on-year at GBP444 million, as higher interest and commission
income was offset by increased interest payable, driven in part by
selective lending growth impacting income whilst improving capital
efficiency and a timing impact from the August 2018 Bank base rate
rise. Net commission income increased GBP3 million driven by Travel
Money and Banking fees. Financial Services underlying operating
profit increased by 55 per cent year-on-year to GBP48 million, as
guided in November 2019 (2018/19: GBP31 million), primarily due to
an increase in contribution from Argos Financial Services as a
result of changes to transfer pricing rules, the income factors
noted and a reduction in impairment from both the harmonisation of
policy and increased debt sales.
The Financial Services cost:income ratio was flat at 71 per
cent. The costs of supporting new operating platforms and product
growth were offset by a reduction in royalties payments to Argos
linked to changes in transfer pricing. Further actions to reduce
costs were delivered towards the end of the financial year so did
not materially impact this ratio. The number of Bank active
customers increased by five per cent year-on-year to 2.12 million,
with Argos Financial Services customers also up five per cent to
2.24 million.
Net interest margin decreased by 40 basis points year-on-year to
3.4 per cent (2018/19: 3.8 per cent) driven primarily by the growth
of the mortgage book and higher funding costs following the base
rate rise. The mortgage book was closed to new business in
September 2019. Bad debt expense as a percentage of lending
decreased by 50 basis points to 1.1 per cent, primarily driven by
the alignment of policy between AFS and Sainsbury's Bank and growth
in mortgages.
The CET 1 capital ratio increased by 40 basis points
year-on-year to 14.1 per cent, reflecting the effect of the
additional GBP35m capital injection (2018/19: GBP110 million).
Customer lending increased by six per cent to GBP7.4 billion,
mainly due to growth across credit cards and mortgages. To support
this lending, customer deposits also grew a similar five per cent
to GBP6.3 billion.
Due to the negative impact of COVID-19, Financial Services are
expected to report an operating loss in 2020/21. However, no
further capital injections are expected into Financial Services
following the GBP35 million injection in the first half of
2019/20.
Underlying net finance costs
Underlying net finance costs reduced by five per cent to GBP400
million (2018/19: GBP419 million). These costs include GBP77
million of net non-lease interest (2018/19: GBP86 million). The
reduction of net non-lease interest is driven by the repayment of
the GBP450 million Convertible Bond and reduced interest on
inflation-linked loans. The interest costs on lease liabilities
have reduced to GBP323 million (2018/19: GBP333 million) due to
reduced lease liabilities and lower interest rates on new
lease.
Sainsbury's expects underlying net finance costs in 2020/21 of
between GBP370 million - GBP380 million, including around GBP310
million lease interest in 2020/21, following the introduction of
IFRS 16.
Items excluded from underlying results
In order to provide shareholders with insight into the
underlying performance of the business, items recognised in
reported profit or loss before tax which, by virtue of their size
and or nature, do not reflect the Group's underlying performance
are excluded from the Group's underlying results and shown in the
table below.
Items excluded from underlying results 52 weeks to 52 weeks to
07 March 09 March
2020 2019
GBPm GBPm
----------------------------------------------------- ------------ ------------
Store closure write-downs (126) -
Impairment charges (126) -
Other closure costs (44) -
Property strategy programme (296) -
Retail restructuring programme (32) (81)
Financial Services transition and other (29) (70)
Argos integration costs - (40)
Asda transaction costs - (46)
IAS 19 pension financing charge and scheme expenses 19 (118)
Other 7 (44)
Items excluded from underlying results (331) (399)
----------------------------------------------------- ------------ ------------
- Property strategy programme costs of GBP296 million (2018/19:
nil) within property, plant and equipment, intangible assets and
right of use assets, relate to store closures and asset write downs
that are part of our broader Property Strategy Programme announced
on 25(th) September 2019 as part of Capital Markets Day.
- Retail restructuring costs of GBP32 million (2018/19: GBP81
million) relate to changes to store management structures; the
closure of one Argos depot and costs incurred following announced
head-office restructures during the year.
- Financial Services transition and other costs of GBP29 million
(2018/19: GBP70 million) were predominantly the previously
announced costs incurred in transitioning to a new banking platform
and write-downs of ATMs.
- 2018/19 IAS 19 pension costs of GBP118 million largely relate
to equalising historic pension benefits between men and women
following the High Court judgement in October 2018 against the
Lloyds Banking Group.
- Other movements of GBP7 million (2018/19: cost of GBP44
million) relate to property profits and acquisition
adjustments.
The Property Strategy Programme one off costs are expected to be
GBP330 million - GBP350 million in total (2019/20: GBP296 million).
Since the initial announcement at Capital Markets Day in September
2019 the programme has been revisited and this has resulted in
additional planned closures. Total cash costs for the programme are
expected to be around GBP50 million (2019/20: GBP8 million) versus
original guidance of GBP30m to GBP40m .
Taxation
The tax charge was GBP103 million (2018/19: GBP16 million), with
an underlying tax rate of 25.4 per cent (2018/19: 24.5 per cent)
and an effective tax rate of 40.4 per cent (2018/19: 7.9 per
cent).
The effective tax rate ('ETR') of 40.4 per cent (2018/19: 7.9
per cent) is higher than the prior year (as restated). In 2019/20
the ETR is increased by the impact of non-tax deductible
exceptional costs including the impairment of fixed assets, and by
prior year Bruce adjustments, partially offset by the tax impact of
property disposals. In 2018/19 the ETR was reduced by prior year
adjustments, including a c.GBP50 million deferred tax credit which
arose on the recognition of a UK capital loss which crystallised as
part of transactions undertaken by the group in 2015/16, and the
tax impact of property disposals.
The underlying tax rate ('UTR') is higher than the prior year
(as restated), largely as a result of a year-on-year reduction in
the underlying profit before tax. The adoption of IFRS 16 further
increases the UTR as an element of the depreciation of the
right-of-use assets is non-tax deductible to the extent it relates
to capital items. The UTR is also impacted by prior year tax
adjustments. However, the UTR is reduced in respect of the interest
expense on the perpetual securities which, further to a recent
amendment to IAS 12, is now recognised in the Income Statement
rather than Statement of Changes in Equity as it was in prior
years.
Sainsbury's expects an underlying tax rate in 2020/21 of around
25 per cent.
Earnings per share
Underlying basic earnings per share decreased to 19.8 pence
(2018/19: 20.7 pence) driven by the decrease in underlying earnings
and the higher income tax charge in the year. Basic earnings per
share decreased to 5.8 pence (2018/19: 7.6 pence).
Dividends
Given the wide range of potential profit and cash flow outcomes,
the Board believes it is prudent to defer any dividend payment
decisions until later in the financial year, when there will be
improved visibility on the potential impact of COVID-19 on the
business.
Net debt and retail cash flows
As at 7 March 2020, net debt was GBP6,947 million (9 March 2019:
GBP7,346 million), a decrease of GBP399 million (2018/19: GBP229
million reduction). Excluding the impact of lease liabilities on
net debt, Sainsbury's reduced net debt by GBP343 million in the
year. Sainsbury's remains on track to reduce non lease net debt by
GBP750 million over a three-year period compared to 2018/19 year
end net debt excluding lease liabilities of GBP1,522 million. We
will provide further guidance on net debt expectations for 2020/21
with our interim results.
Group net debt includes the impact of capital injections into
Sainsbury's Bank, but excludes Financial Services' own net debt
balances. Financial Services balances are excluded because they are
part of the daily operating cycle of the Bank rather than for
financing purposes.
Net debt includes lease liabilities under IFRS 16 of GBP5,768
million (2018/19: GBP5,824 million) and the perpetual securities of
GBP496 million (2018/19: GBP496 million restated).
Summary cash flow statement (1,2) Retail Retail
52 weeks to 52 weeks to
07 March 09 March
2020 2019
GBPm GBPm
-------------------------------------------------------------------------- ------------ ------------
Adjusted retail operating cash flow before changes in working capital(2) 2,094 2,022
-------------------------------------------------------------------------- ------------ ------------
Increase in working capital (71) (38)
Net interest paid(3) (405) (423)
Pension cash contributions (52) (63)
Corporation tax paid (113) (61)
------------ ------------
Net cash generated from/(used in) operating activities 1,453 1,437
-------------------------------------------------------------------------- ------------ ------------
Cash capital expenditure before strategic capital(4) (599) (508)
Repayments of obligations under leases (419) (430)
Initial direct costs on right-of-use assets (13) (11)
Proceeds from disposal of property, plant and equipment 81 64
Bank capital injections (35) (110)
JV capital injections - (5)
Dividends and distributions received 143 19
Retail free cash flow 611 456
-------------------------------------------------------------------------- ------------ ------------
Strategic capital expenditure - Argos integration(3) - (36)
Dividends paid on ordinary shares (247) (224)
Repayment of borrowings(3) (379) (446)
Other (3) (8)
Net increase/(decrease) in cash and cash equivalents (18) (258)
-------------------------------------------------------------------------- ------------ ------------
Decrease in Debt 798 876
Other non-cash and net interest movements(5) (381) (389)
Movement in net debt 399 229
-------------------------------------------------------------------------- ------------ ------------
Opening net debt (7,346) (7,575)
--------------------------------------------------------------------------
Closing net debt (6,947) (7,346)
-------------------------------------------------------------------------- ------------ ------------
of which:
Lease Liabilities (5,768) (5,824)
Net Debt Excluding Lease Liabilities (1,179) (1,522)
-------------------------------------------------------------------------- ------------ ------------
1 See note 7 for a reconciliation between Retail and Group cash
flow.
2 Excludes working capital and pension contributions.
3 Refer to the Alternative Performance Measures on page 63 for
reconciliation.
4 Excludes Argos integration capital expenditure in 2018/19
5 Other non-cash includes new leases and lease modifications and
fair value movements on derivatives used for hedging long term
borrowings.
Adjusted retail operating cash flow before changes in working
capital increased by GBP72 million year-on-year to GBP2,094 million
(2018/19: GBP2,022 million) and working capital increased by GBP71
million . Cash capital expenditure excluding strategic capital was
GBP599 million (2018/19: GBP508 million). In the year capital
injections into the Bank were GBP35 million (2018/19: GBP110
million).
Dividends and distributions received of GBP143 million (2018/19:
GBP19 million) were predominantly as a result of the sale of
properties held in a joint venture with British Land.
Retail free cash flow increased by GBP155 million year-on-year
to GBP611 million (2018/19: GBP456 million). Free cash flow was
used to fund dividends and reduce borrowings.
Dividends of GBP247 million were paid in the year, which were
covered 2.5 times by free cash flow (2018/19 2.0 times). Strategic
capital expenditure incurred in the prior year of GBP36 million
related to Argos integration capital expenditure.
The Group held undrawn committed credit facilities of GBP1,450
million and undrawn uncommitted facilities of GBP195 million as at
7 March 2020.
Capital expenditure
Core retail cash capital expenditure was GBP599 million
(2018/19: GBP508 million).
Sainsbury's expects core retail cash capital expenditure
(excluding Financial Services) to be around GBP550-GBP600 million
per annum over the medium term. Further guidance for 2020/21 will
be provided with our interim results.
Financial ratios
Key financial ratios 52 weeks to 52 weeks to
07 March 09 March
2020 2019
----------------------------------- ------------ ------------
Return on capital employed (%)(1) 7.4 7.4
Net debt to EBITDAR(2) 3.2 times 3.3 times
Fixed charge cover(3) 2.7 times 2.6 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 GBP6,947 million includes lease obligations under
IFRS 16 and perpetual securities treated as debt, divided by Group
underlying EBITDAR of GBP2,203 million.
3 Group underlying EBITDAR divided by rent (both capital and
interest) and underlying net finance costs, where interest on
perpetual securities is treated as an underlying finance cost.
Property value
As at 7 March 2020, Sainsbury's estimated market value of
properties, including our 50 per cent share of properties held
within property joint ventures, was GBP9.9 billion (9 March 2019:
GBP10.4 billion), the reduction largely a result of the sale of 15
British Land joint venture properties and the decline in rental
values.
Defined benefit pensions
The Pension Scheme is valued on different bases for different
purposes. For the corporate annual accounts, the value of the
retirement benefit is calculated under IAS19 while the funding of
the Scheme is determined by the Trustee's triennial valuation.
At 7 March 2020, the net defined benefit surplus under IAS19 for
the Group was GBP1,119 million (excluding deferred tax). The GBP160
million movement from 9 March 2019 was primarily driven by asset
gains in both sections of the Scheme on matching and hedging assets
due to the fall in gilt yields, reflected in the discount rate
moving from 2.8 per cent to 1.6 per cent, along with most asset
classes having positive returns over the period. In the Argos
section, there was a gain from no longer having to make an
adjustment for IFRIC 14 as a result of a revision to the Scheme
rules as part of the 2018 triennial valuation agreement.
The Scheme was subject to a triennial actuarial valuation, as at
30 September 2018, which was completed during the first half. The
actuarial deficit reduced to GBP538 million, from GBP1,055 million
in 2015.
As part of the agreement reached with the Trustee to complete
the 2018 triennial valuation of the Sainsbury's Pension Scheme (the
defined benefit scheme), we established a new asset backed
contribution ('ABC') structure on 17 July 2019, replacing the
existing property partnership.
Under the new ABC, properties with a value of GBP1.35 billion
were transferred into a newly formed 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 will be made
through three payment streams:
1) Payments to the Sainsbury's section (approximately GBP15 million per year)
2) Payments to the Argos section (approximately GBP20 million per year)
3) Switching payment stream, paid to either the Sainsbury's
section or Argos section (initially approximately GBP23 million per
year, increasing to GBP33 million by 2038)
In addition to the above, further cash contributions of GBP40
million have been agreed for 2020/21, and GBP10 million in 2021/22.
No additional cash contributions have been agreed for subsequent
years.
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 switching stream is initially paid to the Sainsbury's
section. Once that funding target is achieved, payments switch to
the Argos section. Payments continue until 2038 or until both
sections have reached their funding targets if earlier.
The level of property in the Propco reduces as the Scheme
reaches the funding targets.
Retirement benefit obligations
Sainsbury's Argos Group Group
as at as at as at as at
07 March 07 March 07 March 09 March
2020 2020 2020 2019
GBPm GBPm GBPm GBPm
Present value of funded obligations (8,914) (1,421) (10,335) (8,856)
Fair value of plan assets 10,025 1,466 11,491 9,983
Additional liability due to minimum funding requirements (IFRIC 14) - - - (134)
--------------------------------------------------------------------- ------------ --------- --------- ---------
Pension surplus/(deficit) 1,111 45 1,156 993
Present value of unfunded obligations (21) (16) (37) (34)
--------------------------------------------------------------------- ------------ --------- --------- ---------
Retirement benefit obligations 1,090 29 1,119 959
Deferred income tax (liability)/asset (198) (16) (214) (216)
--------------------------------------------------------------------- ------------ --------- --------- ---------
Net retirement benefit obligations 892 13 905 743
--------------------------------------------------------------------- ------------ --------- --------- ---------
Consolidated income statement
for the 52 weeks to 7 March 2020
2020 2019 (restated)
------------------ ----- --------------------------------------------
Before Non-underlying Total Before Non-underlying Total
non-underlying items non-underlying items
items items
Note GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ----- --------------- ---------------- --------- ---------------- ---------------- ---------
Revenue 7 28,993 - 28,993 29,007 - 29,007
Cost of sales (26,699) (278) (26,977) (26,708) (11) (26,719)
------------------ ----- --------------- ---------------- --------- ---------------- ---------------- ---------
Gross profit 2,294 (278) 2,016 2,299 (11) 2,288
Administrative expenses (1,345) (114) (1,459) (1,342) (383) (1,725)
Other income 37 56 93 55 (17) 38
------------------ ----- --------------- ---------------- --------- ---------------- ---------------- ---------
Operating profit 986 (336) 650 1,012 (411) 601
Finance income 9 4 28 32 5 19 24
Finance costs 9 (404) 6 (398) (424) (3) (427)
Share of post-tax
(loss)/profit
from joint
ventures and
associates - (29) (29) 8 (4) 4
------------------ ----- --------------- ---------------- --------- ---------------- ---------------- ---------
Profit before tax 586 (331) 255 601 (399) 202
Income tax
(expense)/credit 10 (149) 46 (103) (147) 131 (16)
------------------ ----- --------------- ---------------- --------- ---------------- ---------------- ---------
Profit for the financial
year 437 (285) 152 454 (268) 186
------------------------- --------------- ---------------- --------- ---------------- ---------------- ---------
Earnings per
share 11 pence pence
------------------ ----- --------------- ---------------- --------- ---------------- ---------------- ---------
Basic earnings 5.8 7.6
Diluted earnings 5.8 7.5
------------------ ----- --------------- ---------------- --------- ---------------- ---------------- ---------
The restatements relate to the adoption of IFRS 16 as explained
in note 5.
Consolidated statement of comprehensive income
for the 52 weeks to 7 March 2020
2020 2019
------ ----- ------
GBPm GBPm
------ ----- ------
Profit for the financial year Note 152 186
--------------------------------------------------------------------------------------------- ------ ----- ------
Items that will not be reclassified subsequently to the income statement
------ ----- ------
Remeasurement on defined benefit pension schemes 20 89 1,269
Movements on financial assets at fair value through other comprehensive income 17 -
Deferred tax relating to items not reclassified (18) (216)
88 1,053
--------------------------------------------------------------------------------------------- ------ ----- ------
Items that may be reclassified subsequently to the income statement
Currency translation differences - 1
Movements on financial assets at fair value through other comprehensive income 4 55
Items reclassified from financial assets at fair value through other comprehensive income
reserve - (10)
Cash flow hedges effective portion of fair value movements (1) 71
Items reclassified from cash flow hedge reserve (19) (45)
Current tax on items that may be reclassified - 2
Deferred tax on items that may be reclassified 3 (15)
------ ----- ------
(13) 59
Total other comprehensive income for the year (net of tax) 75 1,112
Total comprehensive income for the year 227 1,298
--------------------------------------------------------------------------------------------- ------ ----- ------
The restatements relate to the adoption of IFRS 16 as explained
in note 5.
Consolidated balance sheet
At 7 March 2020 and 9 March 2019
2020 2019 (restated)
Note GBPm GBPm
------------------------------------------------------------------- ----- --------- ----------------
Non-current assets
Property, plant and equipment 13 8,911 9,193
Right of use assets 14 4,826 4,993
Intangible assets 15 1,012 1,043
Investments in joint ventures and associates 9 205
Financial assets at fair value through other comprehensive income 972 645
Trade and other receivables 43 57
Amounts due from Financial Services customers 3,453 3,349
Derivative financial assets 6 9
Net retirement benefit surplus 20 1,119 959
------------------------------------------------------------------- ----- --------- ----------------
20,351 20,453
------------------------------------------------------------------- ----- --------- ----------------
Current assets
Inventories 1,732 1,929
Trade and other receivables 811 630
Amounts due from Financial Services customers 3,951 3,638
Financial assets at fair value through other comprehensive income 82 211
Derivative financial assets 12 21
Cash and cash equivalents 18 994 1,121
------------------------------------------------------------------- ----- --------- ----------------
7,582 7,550
Assets held for sale 4 8
------------------------------------------------------------------- ----- --------- ----------------
7,586 7,558
------------------------------------------------------------------- ----- --------- ----------------
Total assets 27,937 28,011
------------------------------------------------------------------- ----- --------- ----------------
Current liabilities
Trade and other payables (4,275) (4,373)
Amounts due to Financial Services customers and other deposits (6,890) (5,797)
Borrowings (48) (816)
Lease liabilities 14 (510) (533)
Derivative financial liabilities (53) (17)
Taxes payable (163) (204)
Provisions 17 (108) (109)
------------------------------------------------------------------- ----- --------- ----------------
(12,047) (11,849)
------------------------------------------------------------------- ----- --------- ----------------
Net current liabilities (4,461) (4,291)
------------------------------------------------------------------- ----- --------- ----------------
Non-current liabilities
Other payables (11) (87)
Amounts due to Financial Services customers and other deposits (1,204) (1,804)
Borrowings (1,248) (844)
Lease liabilities 14 (5,264) (5,298)
Derivative financial liabilities (36) (17)
Deferred income tax liability (265) (235)
Provisions 17 (89) (95)
(8,117) (8,380)
------------------------------------------------------------------- ----- --------- ----------------
Total liabilities (20,164) (20,229)
------------------------------------------------------------------- ----- --------- ----------------
Net assets 7,773 7,782
------------------------------------------------------------------- ----- --------- ----------------
Equity
Called up share capital 634 630
Share premium 1,159 1,147
Merger reserve 568 568
Capital redemption reserve 680 680
Other reserves 168 172
Retained earnings 4,068 4,089
------------------------------------------------------------------- ----- --------- ----------------
Total equity before perpetual securities 7,277 7,286
Perpetual capital securities 248 248
Perpetual convertible bonds 248 248
------------------------------------------------------------------- ----- --------- ----------------
Total equity 7,773 7,782
------------------------------------------------------------------- ----- --------- ----------------
Consolidated cash flow statement
for the 52 weeks to 7 March 2020
2020 2019
(restated)
Note GBPm GBPm
------------------------------------------------------------------------------------ --------- -------- -----------
Cash flows from operating activities
Profit before tax 255 202
Net finance costs 9 366 403
Share of post-tax loss/(profit) from joint ventures 29 (4)
Operating profit 650 601
Adjustments for:
Depreciation expense 13,14 1,127 1,119
Amortisation expense 15 129 143
Net impairment loss on property, plant and equipment, right of use assets,
intangible assets 13,14,15 263 3
Non-cash adjustments arising from acquisitions 6 (2) (2)
Financial Services impairment losses on loans and advances 80 98
(Profit)/loss on sale of properties and early termination of leases 6 (56) 17
Share-based payments expense 37 39
Defined benefit scheme expenses 20 9 108
Cash contributions to benefit schemes 20 (52) (63)
Operating cash flows before changes in working capital 2,185 2,063
Changes in working capital
Increase/(decrease) in inventories 197 (118)
Increase in financial assets at fair value through other comprehensive income (177) (97)
(Increase)/decrease in trade and other receivables (129) 92
Increase in amounts due from Financial Services customers and other deposits (499) (1,480)
(Decrease)/increase in trade and other payables (195) 71
Increase in amounts due to Financial Services customers and other deposits 492 1,077
Decrease in provisions and other liabilities (8) (93)
Cash generated from operations 1,866 1,515
Interest paid (384) (404)
Corporation tax paid (110) (68)
Net cash generated from operating activities 1,372 1,043
------------------------------------------------------------------------------------ --------- -------- -----------
Cash flows from investing activities
Purchase of property, plant and equipment (519) (474)
Initial direct costs on new leases (13) (11)
Purchase of intangible assets (120) (116)
Proceeds from disposal of property, plant and equipment 81 64
Proceeds from financial assets at fair value through other comprehensive income - 39
Investment in joint ventures - (5)
Interest received 2 4
Dividends and distributions received 143 18
Net cash used in investing activities (426) (481)
------------------------------------------------------------------------------------ --------- -------- -----------
Cash flows from financing activities
Proceeds from issuance of ordinary shares 15 22
Proceeds from borrowings 250 135
Repayment of borrowings (169) (593)
Repayment upon maturity of convertible bonds (450) -
Purchase of own shares (18) (30)
Repayment of capital element of lease obligations (420) (430)
Repayment of capital element of obligations under hire purchase arrangements (10) (27)
Dividends paid on ordinary shares 12 (247) (224)
Dividends paid on perpetual securities (23) (23)
Net cash used in financing activities (1,072) (1,170)
------------------------------------------------------------------------------------ --------- -------- -----------
Net decrease in cash and cash equivalents (126) (608)
Opening cash and cash equivalents 1,120 1,728
Closing cash and cash equivalents 18 994 1,120
------------------------------------------------------------------------------------ --------- -------- -----------
Restatements relate to the adoption of IFRS 16 as explained in
note 5.
Consolidated statement of changes in equity
for the 52 weeks to 7 March 2020
Total
Called Capital equity
up Share redemption before Perpetual Perpetual
share premium Merger and other Retained perpetual capital convertible Total
capital account reserve reserves earnings securities securities bonds equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
At 10 March 2019
(as previously
reported) 630 1,147 568 852 4,763 7,960 248 248 8,456
Cumulative
adjustment to
opening balance
on adoption of
IFRS 16 - - - - (674) (674) - - (674)
At 10 March 2019
(restated) 630 1,147 568 852 4,089 7,286 248 248 7,782
----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Profit for the
year - - - - 129 129 16 7 152
Other
comprehensive
income - - - 1 89 90 - - 90
Tax relating to
other
comprehensive
income - - - - (15) (15) - - (15)
Total
comprehensive
income for the
year ended 7
March 2020 - - - 1 203 204 16 7 227
------------------ ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Transactions with
owners:
Dividends 12 - - - - (247) (247) - - (247)
Distribution to
holders of
perpetual
securities - - - - - - (16) (7) (23)
Amortisation of
convertible
bond equity
component - - - (5) 5 - - - -
Share-based
payment - - - - 37 37 - - 37
Purchase of own
shares - - - - (18) (18) - - (18)
Allotted in
respect of
share option
schemes 4 12 - - (1) 15 - - 15
Tax on items
charged to
equity - - - - - - - - -
At 7 March 2020 634 1,159 568 848 4,068 7,277 248 248 7,773
------------------ ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
At 11 March 2018
(as previously
reported) 627 1,130 568 801 3,789 6,915 248 248 7,411
Cumulative
adjustment to
opening balance
on adoption of
IFRS 16 - - - - (641) (641) - - (641)
At 11 March 2018
(restated) 627 1,130 568 801 3,148 6,274 248 248 6,770
------------------ ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Day 1 accounting
adjustments(1) - - - - (74) (74) - - (74)
Profit for the
period
(restated) - - - - 168 168 12 6 186
Other
comprehensive
income/(expense) - - - 72 1,269 1,341 - - 1,341
Tax relating to
other
comprehensive
income - - - (13) (216) (229) - - (229)
Total
comprehensive
(expense)/income
for the period
ended 9 March
2019 (restated) - - - 59 1,147 1,206 12 6 1,224
------------------ ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Transactions with
owners:
Dividends paid 12 - - - - (224) (224) - - (224)
Distributions to
holders of
perpetual
subordinated
convertible
bonds - - - - - - (16) (7) (23)
Amortisation of
convertible bond
equity component - - - (8) 8 - - - -
Share-based
payment - - - - 37 37 - - 37
Purchase of own
shares - - - - (30) (30) - - (30)
Allotted in
respect of share
option schemes 3 17 - - 2 22 - - 22
Tax on items
charged to
equity - - - - 1 1 4 1 6
At 9 March 2019
(restated) 630 1,147 568 852 4,089 7,286 248 248 7,782
------------------ ----- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
(1) This is comprised of IFRS 9 'Financial Instruments' and IFRS
15 'Revenue from Contracts with Customers' day 1 adjustments.
Restatements relate to the adoption of IFRS 16 as explained in
note 5.
Notes to the consolidated financial statements
1 General information
The financial information, which comprises the Group income
statement, Group statement of comprehensive income, Group balance
sheet, Group cash flow statement, Group statement of changes in
equity and related notes, is derived from the full Group financial
statements for the 52 weeks to 7 March 2020 and does not constitute
full accounts within the meaning of section 435 (1) and (2) of the
Companies Act 2006.
The Group Annual Report and Financial Statements 2020 on which
the auditors have given an unqualified report and which does not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006, will be delivered to the Registrar of Companies in due
course, and made available to shareholders in June 2020.
J Sainsbury plc is a public limited company (the 'Company')
incorporated in the United Kingdom, whose shares are publicly
traded on the London Stock Exchange. The Company is domiciled in
the United Kingdom and its registered address is 33 Holborn, London
EC1N 2HT, United Kingdom.
The financial year represents the 52 weeks to 7 March 2020
(prior financial year: 52 weeks to 9 March 2019). The consolidated
financial statements for the 52 weeks to 7 March 2020 comprise the
financial statements of the Company and its subsidiaries (the
'Group') and the Group's share of the post-tax results of its joint
ventures and associates.
The Group's principal activities are Food, General Merchandise
and Clothing retailing and Financial Services.
2 Basis of preparation
Sainsbury's Bank Plc and its subsidiaries have been consolidated
for the twelve months to 29 February 2020 being the Bank's year-end
date (prior financial year: 28 February 2019). Adjustments have
been made for the effects of significant transactions or events
that occurred between this date and the Group's balance sheet
date.
The Group's financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union and International Financial
Reporting Interpretations Committee (IFRIC) and with those parts of
the Companies Act 2006 applicable to companies reporting under
IFRSs.
The financial statements are presented in sterling, rounded to
the nearest million ('GBPm') unless otherwise stated. They have
been prepared under the historical cost convention, except for
derivative financial instruments, defined benefit pension scheme
assets and financial assets at fair value through other
comprehensive income that have been measured at fair value. The
financial statements have been prepared on a going concern basis.
In reaching this conclusion, the Directors have reviewed liquidity
forecasts for the Group, which have been updated for the expected
impact of COVID-19 trading. The Directors also considered
sensitivities in respect of potential downside scenarios and the
mitigating actions available in concluding that the Group is able
to continue in operation for a period of at least twelve months
from the date of approving the financial statements.
The Group has adopted IFRS 16 'Leases' effective for the 52
weeks ending 7 March 2020. IFRS 16 has been applied fully
retrospectively and therefore comparatives for prior periods have
been restated. Further details regarding the impact of IFRS 16 are
included in note 5.
Accounting policies have been applied consistently to all
periods presented in the financial statements with the exception of
the item noted below.
Tax treatment for dividends on perpetual securities
In December 2017, the International Accounting Standards Board
issued their annual cycle of improvements to IFRS, 'Annual
Improvements to IFRS Standards 2015-2017 Cycle'. This included
amendments to IAS 12 'Income Taxes' which became effective for
reporting periods beginning on or after 1 January 2019, and was
therefore adopted by the Group in the current financial year.
The amendments clarified that an entity must recognise all
income tax consequences of dividends in profit or loss, other
comprehensive income or equity, depending on where the entity
recognised the originating transaction or event that generated the
distributable profits giving rise to the dividend. Previously the
tax on dividends paid on the perpetual securities was recognised in
equity, however under the amended standard, this is now recognised
in the income statement.
Impact of COVID-19
The COVID-19 outbreak has developed rapidly in 2020, with a
significant number of infections across many countries. Management
has exercised significant judgement when determining whether any
adjustments are required to the financial statements as at 7 March
2020.
The conditions that existed at the balance sheet date were that
a disease, present in a number of countries globally, was in
existence. It had stabilised in China, however had caused a level
of uncertainty in the market. The UK response to the outbreak was
still minor and day-to-day life in the UK where the Group operates
was unchanged. Despite the lockdown in China, a UK lockdown and
subsequent economic impact was not readily apparent at this stage.
As a result none of the conditions at the balance sheet date
indicated that any adjustments would be required to the Group's
financial statements.
The subsequent rise in infections in the UK, significant market
movements and global lockdowns occurred after the year-end date,
but do not provide additional information about conditions that
existed at the balance sheet date. In particular, it was on 11
March that the World Health Organisation declared the virus a
pandemic, and from 16 March that the UK Government announced major
government-backed loans. It is also this date that day-to-day life
in the UK began to be impacted through announced social distancing
measures, with additional, stay at home measures being enforced
even later. The scale of these Government interventions and impact
on daily life in the UK were not apparent at the balance sheet date
and therefore represent non-adjusting events to the Group. Given
the significance of these events, additional disclosures, including
sensitivities, are included in note 21.
3 Amendments to published standards
Effective for the Group and Company in these financial
statements:
The Group considered the following amendments to published
standards that are effective for the Group for the financial year
beginning 10 March 2019 and concluded that, with the exception of
IFRS 16 'Leases', they are either not relevant to the Group or they
do not have a significant impact on the Group's financial
statements other than disclosures. These standards and
interpretations have been endorsed by the European Union.
- IFRS 16 'Leases'
- IFRIC Interpretation 23 'Uncertainty over Income Tax
Treatments'
- Amendments to IFRS 9 'Financial Instruments' on prepayment
features with negative compensation
- Amendments to IAS 19 'Employee Benefits' on plan amendments,
curtailments or settlements
- Amendments to IAS 28 'Investments in Associates and Joint
Ventures' on long term interests in associates and joint
ventures
- Annual Improvements Cycle 2015-2017 (issued in December
2017)
Further information on the impact of IFRS 16 is included in note
5.
Standards and revisions effective for future periods:
The following standards and revisions will be effective for
future periods:
- Amendments to References to Conceptual Framework in IFRS
Standards
- Amendments to IFRS 3 'Business Combinations' on the definition
of a Business
- Amendments to IAS 1 'Presentation of Financial Statements' and
IAS 8 'Accounting Policies, Changes in Accounting Estimates and
Errors' on the definition of material
- Amendments to IFRS 9 'Financial Instruments', IAS 39
'Financial Instruments: Presentation and IFRS 7 'Financial
Instruments: Disclosures' on interest rate benchmark reform
- IFRS 17 'Insurance Contracts'
The Group has considered the impact of the remaining above
standards and revisions and have concluded that they will not have
a significant impact on the Group's financial statements.
4 Alternative Performance Measures (APMs)
In the reporting of financial information, the Directors use
various APMs. These APMs should be considered in addition to, and
are not intended to be a substitute for, IFRS measurements. As they
are not defined by International Financial Reporting Standards,
they may not be directly comparable with other companies' APMs.
4.1 Purpose of APMs
The Directors believe that these APMs provide additional useful
information for understanding the financial performance and health
of the Group. They are also used to enhance the comparability of
information between reporting periods (such as like-for-like sales
and underlying profit) by adjusting for non-recurring or
uncontrollable factors which affect IFRS measures, to aid users in
understanding the Group's performance.
Consequently, APMs are used by the Directors and management for
performance analysis, planning, reporting and incentive setting
purposes.
The APMs that the Group has focused on in the period are
detailed on page 61. All of the APMs relate to the current period's
results and comparative periods.
4.2 Changes to APMs
The following APMs have been updated during the period:
APM Prior Updated Explanation
definition definition
Retail Net cash Net cash IFRS 16 replaces rental payments presented
free generated generated within operating profit with interest
cash from retail from retail payments and capital repayments of the
flow operations, operations, lease liability, with no overall change
adjusted for after in total cash flow for the Group. Redefining
exceptional perpetual Retail free cash flow to include payments
pension security of lease obligations ensures that the
contributions, coupons Group's reported free cash flow measures
after cash and cash are consistent with those previously
capital capital reported.
expenditure expenditure
but before but
strategic before
capital strategic
expenditure, capital
and after expenditure,
investments and including
in joint payments of
ventures lease
and associates obligations,
and cash flows
Sainsbury's from
Bank capital joint
injections. ventures
and
associates
and
Sainsbury's
Bank capital
injections.
--------------- -------------- -------------------------------------------------------------------------------------------
Net debt Net debt Net debt Following the adoption of IFRS 16, the
includes includes definition of net debt has been updated
the capital the capital to include lease obligations.
injections injections Whilst not impacted by IFRS 16, perpetual
into into securities are now included within net
Sainsbury's Sainsbury's debt. Although accounted for as equity
Bank, but Bank, but in the financial statements, they have
excludes the excludes similarities to debt instruments due
net debt of the net debt to the coupons, and are included by
Sainsbury's of management when assessing Group borrowing.
Bank and its Sainsbury's As net debt is a measure of Group indebtedness,
subsidiaries. Bank and its the derivatives included have been amended
It is subsidiaries. to only include derivatives used to
calculated It is hedge borrowings. All other derivatives
as: financial calculated are used as part of operating activities
assets at as: financial rather than financing activities, and
fair value assets at have therefore now been excluded from
through other fair net debt.
comprehensive value through A reconciliation of net debt as previously
income other reported to restated net debt for all
(excluding comprehensive comparative periods is shown below: 11 March 9 March
equity income 2018 2019
investments) (excluding GBPm GBPm
+ net equity --------------------------------- --------- --------
derivatives investments) Net debt as previously
+ net cash + net reported (1,364) (1,142)
and cash derivatives Remove previously reported
equivalents to hedge finance leases (including
+ loans + borrowings hire purchase arrangements) 127 122
finance lease + net cash Add perpetual securities (496) (496)
obligations. and Remove derivatives not
cash linked to borrowings 55 (6)
equivalents Lease liabilities and hire
+ loans + purchase arrangements (Retail) (5,897) (5,824)
lease Restated net debt (7,575) (7,346)
obligations + --------------------------------- --------- --------
perpetual
securities.
Hire purchase arrangements included
in the above lease liabilities are as
follows: 11 March 9 March
2018 2019
GBPm GBPm
---------------------------- --------- --------
Hire purchase arrangements (37) (10)
---------------------------- --------- --------
These are GBPnil at 7 March 2020.
--------------- -------------- -------------------------------------------------------------------------------------------
Adjusted Net debt plus Net debt Due to updates to net debt (see above),
net debt capitalised divided lease liabilities are now already included
to lease by Group within net debt.
EBITDAR obligations underlying
divided by EBITDAR.
Group
underlying
EBITDAR.
--------------- -------------- -------------------------------------------------------------------------------------------
Return Return on Return on capital Perpetual securities are now included
on capital capital employed employed is calculated within net debt (see above). They are
employed is calculated as return divided excluded for ROCE as they are accounted
(ROCE) as return by average capital for as equity in the financial statements
divided by employed. and therefore not included within net
average capital assets.
employed. Return is defined
as 52 week rolling
Return is underlying profit
defined as before interest
underlying and tax.
profit before
interest and Capital employed
tax. is defined as
Group net assets
Capital employed excluding pension
is defined deficit/surplus,
as net assets less net debt
excluding (excluding perpetual
net debt. securities).
The average The average is
is calculated calculated on
on a 14 point a 14 point basis.
basis.
APM Prior definition Updated definition Explanation
-------------------- ------------------------ -------------------------------------------
Interest Underlying N/A Interest cover is no longer included
cover operating as an APM used by management.
profit, plus
underlying
share of post-tax
profit from
joint ventures
and associates,
divided by
underlying
net finance
costs, where
interest on
perpetual
securities
is included
in underlying
finance costs.
-------------------- ------------------------ -------------------------------------------
Gearing Retail net N/A Gearing is no longer included as an
debt divided APM used by management.
by Group net
assets.
-------------------- ------------------------ -------------------------------------------
Retail Underlying Whilst the definition of Retail underlying operating
underlying earnings before profit has not changed, the prior period comparatives
operating interest, have been restated as a result of adopting IFRS 16.
profit tax, Financial A reconciliation between the previously disclosed
Services operating amounts and restated balances is included below:
profit and 52 weeks to
Sainsbury's 9 March
underlying 2019
share of post-tax GBPm
profit from ------------------------------ ------------
joint ventures Underlying operating profit
and associates. pre IFRS 16 692
Add back rent 747
Depreciation on right-of-use
assets (470)
Other 12
------------------------------- ------------
Underlying operating profit
post IFRS 16 981
------------------------------- ------------
-------------------- ---------------------------------------------------------------------
Fixed Group underlying Group underlying Redefining fixed charge cover to include
charge EBITDAR divided EBITDAR divided payments of lease obligations ensures
cover by net rent by rent (representing that the Group's reported fixed charge
and underlying capital and underlying cover measures are consistent with those
net finance interest repayments previously reported.
costs, where on leases) and
interest on net underlying
perpetual finance costs,
securities where interest
is included on perpetual
in underlying securities is
finance costs. treated as an
underlying finance
cost. All items
are calculated
on a 52 week
rolling basis.
-------------------- ------------------------ -------------------------------------------
5 Adoption of IFRS 16 'Leases'
IFRS 16 'Leases' supersedes IAS 17 'Leases', IFRIC 4
'Determining whether an Arrangement contains a Lease', SIC-15
'Operating Leases-Incentives' and SIC-27 'Evaluating the Substance
of Transactions Involving the Legal Form of a Lease'. The standard
sets out the principles for the recognition, measurement,
presentation and disclosure of leases and requires lessees to
account for most leases under a single on-balance sheet model.
The Group has adopted IFRS 16 with a date of initial application
of 10 March 2019. The Group adopted IFRS 16 using the full
retrospective method of adoption as if it had already been
effective at the commencement date of existing lease contracts.
Accordingly, the comparative information in the consolidated
financial statements has been restated.
The Group has elected to use the recognition exemptions for
lease contracts that, at the commencement date, have a lease term
of 12 months or less and do not contain a purchase option
('short-term leases'), and lease contracts for which the underlying
asset is of low value ('low-value assets').
Effect of adoption of IFRS 16
The Group's lease portfolio consists of properties including
retail, distribution and office properties, as well as vehicles and
other equipment. Before the adoption of IFRS 16, the Group
classified each of its leases (as lessee) at the inception date as
either a finance lease or an operating lease. A lease was
classified as a finance lease if it transferred substantially all
of the risks and rewards incidental to ownership of the leased
asset to the Group; otherwise it was classified as an operating
lease. Assets funded through finance leases were capitalised as
property, plant and equipment and depreciated over the shorter of
their estimated useful lives or the lease term. The amount
capitalised was the lower of the fair value of the asset or the
present value of the minimum lease payments during the lease term.
The resulting lease obligations were included in liabilities net of
finance charges. Lease payments were apportioned between interest
(recognised as finance costs) and reduction of the lease liability.
For operating leases under IAS 17, the lease payments were
recognised as rental expense in the income statement on a
straight-line basis over the lease term. Any prepaid rent and
accrued rent were recognised within "Other receivables" and "Trade
and other payables", respectively.
Upon adoption of IFRS 16, the Group now applies a single
recognition and measurement approach for all leases for which it is
the lessee, except for short-term leases and leases of low-value
assets. The Group recognises a right-of-use asset and a lease
liability at the lease commencement date, and the rental charge is
replaced with depreciation on the right-of-use asset and interest
on the lease liability.
The effect of adoption of IFRS 16 on the consolidated balance
sheet as at 10 March 2018 is as follows:
10 March
2018
GBPm
------------------------------- ---------
Assets
Property, plant and equipment (500)
Right-of-use asset 5,091
Intangible assets (1)
Other receivables 33
Non-current assets 4,623
-------------------------------- ---------
Trade and other receivables (25)
Current assets (25)
-------------------------------- ---------
Liabilities
Trade and other payables 50
Lease liabilities (503)
Provisions 15
--------------------------------
Current liabilities (438)
-------------------------------- ---------
Other payables 245
Lease liabilities (5,275)
Deferred income tax liability 158
Provisions 71
Non-current liabilities (4,801)
-------------------------------- ---------
Net assets (641)
-------------------------------- ---------
Equity
Retained earnings (641)
-------------------------------- ---------
Total equity (641)
-------------------------------- ---------
Reconciliation from previously reported operating lease
commitments
GBPm
-------------------------------------------------------- --------
Operating lease commitments (discounted) as previously
reported at 10 March 2018(1) (5,939)
Application of lease specific discount rates 178
Effect of extension / break periods (107)
-------------------------------------------------------- --------
IFRS 16 lease liability (5,868)
Add back finance lease liability already recognised 90
-------------------------------------------------------- --------
Net impact of IFRS 16 on lease liability (5,778)
-------------------------------------------------------- --------
1. Comprised of GBP5,931m retail discounted operating lease
commitments and GBP8m relating to financial services
A full reconciliation of the impact of IFRS 16 on the Group
income statement and balance sheet as at 9 March 2019 is set out
below:
Group income statement
52 weeks IFRS 16 52 weeks
9 March Impact 9 March
2019 2019
(reported) (restated)
GBPm GBPm GBPm
------------------------------------- ----------- -------- -----------
Revenue 29,007 - 29,007
Cost of sales(a) (27,000) 281 (26,719)
--------------------------------------
Gross profit 2,007 281 2,288
Administrative expenses(a) (1,733) 8 (1,725)
Other income 38 - 38
--------------------------------------
Operating profit 312 289 601
Finance income(b) 22 2 24
Finance costs(a) (99) (328) (427)
Share of post-tax profit from joint
ventures and associates 4 - 4
--------------------------------------
Profit before tax 239 (37) 202
Analysed as:
Underlying profit before tax 635 (34) 601
Non-underlying items (396) (3) (399)
239 (37) 202
------------------------------------- ----------- -------- -----------
Income tax credit/(expense) (20) 4 (16)
Profit for the financial period 219 (33) 186
-------------------------------------- ----------- -------- -----------
Earnings per share pence pence
------------------------------------- ----------- -------- -----------
Basic earnings 9.1 (1.5) 7.6
Diluted earnings 8.9 (1.4) 7.5
Underlying basic earnings 22.0 (1.3) 20.7
Underlying diluted earnings 20.3 (1.2) 19.1
-------------------------------------- ----------- -------- -----------
(a) Adjustments to cost of sales, administrative expenses and
finance costs reflect rental expenses under IAS 17 being replaced
with interest on lease liabilities and depreciation on right-of-use
assets
(b) Adjustment to finance income relates to interest income on
leases where the Group acts as lessor
There is no material impact on other comprehensive income.
Group balance sheet
52 weeks 52 weeks
to IFRS 16 to
9 March Impact 9 March
2019 2019
(reported) (restated)
GBPm GBPm GBPm
--------------------------------------------- ----------- -------- -----------
Non-current assets
Property, plant and equipment(a) 9,708 (515) 9,193
Right-of-use asset(b) - 4,993 4,993
Intangible assets 1,044 (1) 1,043
Investments in joint ventures and
associates 205 - 205
Financial assets at fair value through
other comprehensive income 645 - 645
Other receivables(c) 33 24 57
Amounts due from Financial Services
customers 3,349 - 3,349
Derivative financial instruments 9 - 9
Net retirement benefit surplus 959 - 959
15,952 4,501 20,453
--------------------------------------------- ----------- -------- -----------
Current assets
Inventories 1,929 - 1,929
Trade and other receivables(c) 661 (31) 630
Amounts due from Financial Services
customers 3,638 - 3,638
Financial assets at fair value through
other comprehensive income 211 - 211
Derivative financial instruments 21 - 21
Cash and cash equivalents 1,121 - 1,121
-----------------------------------------------
7,581 (31) 7,550
Assets held-for-sale 8 - 8
7,589 (31) 7,558
--------------------------------------------- ----------- -------- -----------
Total assets 23,541 4,470 28,011
----------------------------------------------- ----------- -------- -----------
Current liabilities
Trade and other payables(d) (4,444) 71 (4,373)
Amounts due to Financial Services
customers and other deposits (5,797) - (5,797)
Borrowings (including lease liabilities)(e) (832) (517) (1,349)
Derivative financial instruments (17) - (17)
Taxes payable (204) - (204)
Provisions(g) (123) 14 (109)
-----------------------------------------------
(11,417) (432) (11,849)
Net current liabilities (3,828) (463) (4,291)
----------------------------------------------- ----------- -------- -----------
Non-current liabilities
Other payables(d) (340) 253 (87)
Amounts due to Financial Services
customers and other deposits (1,804) - (1,804)
Borrowings (including lease liabilities)(e) (950) (5,192) (6,142)
Derivative financial instruments (17) - (17)
Deferred income tax liability(f) (397) 162 (235)
Provisions(g) (160) 65 (95)
(3,668) (4,712) (8,380)
--------------------------------------------- ----------- -------- -----------
Net assets 8,456 (674) 7,782
----------------------------------------------- ----------- -------- -----------
Equity
Called up share capital 630 - 630
Share premium account 1,147 - 1,147
Merger reserve 568 - 568
Capital redemption reserve 680 - 680
Other reserves 172 - 172
Retained earnings 4,763 (674) 4,089
-----------------------------------------------
Total equity before perpetual securities 7,960 (674) 7,286
Perpetual capital securities 248 - 248
Perpetual convertible bonds 248 - 248
Total equity 8,456 (674) 7,782
----------------------------------------------- ----------- -------- -----------
(a) Reduction in property, plant and equipment reflects
previously capitalised direct costs in relation to leases now being
included within right-of-use assets, and removal of finance leases
recognised under IAS 17
(b) Recognition of right-of-use assets
(c) Adjustments to receivables reflect the recognition of lease
receivables where the Group sublets leased properties, offset by
the removal of any rent prepayments
(d) Predominantly the removal of any liabilities previously
recognised due to lease incentives, along with rent accruals
(e) Recognition of lease liabilities
(f) Deferred tax asset recognised on transition
(g) Predominantly relates to the removal of onerous lease provisions
Impact on Group cash flow statement
Prior to the adoption of IFRS 16, the repayment of interest on
obligations under finance leases was presented within cash flows
from financing activities. This was to be consistent with the
presentation of payments of capital elements of finance leases. The
repayment of interest on all lease obligations is now presented
within cash flows from operating activities, as lease arrangements
are part of the operating activities of the business. The impact of
adopting IFRS 16 on the Group consolidated cash flow statement as
at 9 March 2019 is as follows:
52 weeks 52 weeks
to IFRS 16 to
9 March Impact 9 March
2019 2019
(reported) (restated)
GBPm GBPm GBPm
------------------------------------------------ ----------- -------- -----------
Cash flows from operating activities
Profit before tax (a) 239 (37) 202
Net finance costs (b) 77 326 403
Share of post-tax-profit from joint ventures
and associates (4) - (4)
Operating profit 312 289 601
Adjustments for:
Depreciation expense (c) 649 470 1,119
Amortisation expense 143 - 143
Non-cash adjustments arising from acquisitions (2) - (2)
Financial Services impairment losses on
loans and advances 98 - 98
Loss on sale of properties 17 - 17
Impairment charge of property, plant and
equipment 3 - 3
Share-based payments expense 39 - 39
Non-cash defined benefit scheme expenses 108 - 108
Cash contributions to benefit schemes (63) - (63)
Operating cash flows before changes in
working capital 1,304 759 2,063
Changes in working capital
Increase in inventories (118) - (118)
Increase in current financial assets (97) - (97)
Decrease in trade and other receivables
(d) 74 18 92
Increase in amounts due from Financial
Services customers and other deposits (1,480) - (1,480)
Increase in trade and other payables (d) 94 (23) 71
Increase in amounts due to Financial Services
customers and other deposits 1,077 - 1,077
Decrease in provisions and other liabilities
(e) (105) 12 (93)
Cash generated from operations 749 766 1,515
Interest paid (f) (63) (341) (404)
Corporation tax paid (68) - (68)
Net cash generated from operating activities 618 425 1,043
------------------------------------------------- ----------- -------- -----------
Cash flows from investing activities
Purchase of property, plant and equipment
(g) (478) 4 (474)
Initial direct costs on right-of-use assets
(g) - (11) (11)
Purchase of intangible assets (116) - (116)
Proceeds from disposal of property, plant
and equipment 64 - 64
Proceeds from financial assets at fair
value through other comprehensive income 39 - 39
Investment in joint ventures (5) - (5)
Interest received 4 - 4
Dividends and distributions received 18 - 18
Net cash used in investing activities (474) (7) (481)
------------------------------------------------- ----------- -------- -----------
Cash flows from financing activities
Proceeds from issuance of ordinary shares 22 - 22
Proceeds from borrowings 135 - 135
Repayment of borrowings (593) - (593)
Purchase of own shares (30) - (30)
Repayment of capital element of lease
obligations (h) (5) (425) (430)
Repayment of capital element of obligations
under hire purchase arrangements (27) - (27)
Interest elements of lease obligations
(i) (7) 7 -
Dividends paid on ordinary shares (224) - (224)
Dividends paid on perpetual securities (23) - (23)
Net cash used in financing activities (752) (418) (1,170)
------------------------------------------------- ----------- -------- -----------
Net decrease in cash and cash equivalents (608) - (608)
Opening cash and cash equivalents 1,728 - 1,728
Closing cash and cash equivalents 1,120 - 1,120
------------------------------------------------- ----------- -------- -----------
(a) Reduction in profit due to recognition of IFRS 16
depreciation and interest being greater than derecognised IAS 17
costs, predominantly rent
(b) Add back of additional interest expense on recognition of lease liabilities
(c) Depreciation on right-of-use assets added back as non-cash
(d) Movement year-on-year of de-recognised accrual balances,
predominantly prepaid and accrued rent
(e) Movement year-on-year of de-recognised onerous leases
(f) IFRS 16 interest paid offset by de-recognised existing IAS 17 finance leases
(g) Initial direct costs capitalised as part of right-of-use
assets removed from the purchase of property, plant and equipment
with outflow now recognised in right-of-use asset along with
initial direct costs previously expensed
(h) Repayment of IFRS 16 lease liability capital element offset
by repayment of IAS 17 finance lease liabilities de-recognised
(i) De-recognition of IAS 17 finance leases replaced by IFRS 16
6 Profit before non-underlying items
In order to provide shareholders with additional insight into
the underlying performance of the business, items recognised in
reported profit or loss before tax which, by virtue of their size
and/or nature do not reflect the Group's underlying performance,
are excluded from the Group's underlying results. The adjusted
items are as follows:
-- Financial Services transition - multi-year costs incurred in
transitioning to a new, more flexible banking platform as part of
the previously announced New Bank Programme. These principally
comprise contractor and service provider costs relating to the
migration of data and other services to the Bank's new
infrastructure and operating model.
-- Profit on disposal of properties - such disposals are not
part of the Group's underlying business
-- Investment property fair value movements - these reflect the
difference between the fair value of an investment property at the
reporting date and its carrying amount at the previous reporting
date and are held within the property JVs. The valuations are
impacted by external market factors and can therefore vary
significantly year-on-year.
-- Perpetual securities coupons - these are accounted for as
equity in line with IAS 32 'Financial instruments: Presentation',
however are accrued on a straight-line basis and included as an
expense within underlying profit as they are included by management
when assessing Group borrowing.
-- Non-underlying finance movements - these include fair value
remeasurements on derivatives not in a hedging relationship. The
fair value measurements are impacted by external market factors and
can fluctuate significantly year-on-year. Lease interest on
impaired non-trading sites, including site closures, is excluded
from underlying profit as those sites do not contribute to the
underlying business.
-- IAS 19 pension expenses include the financing element and
scheme expenses of the Group's defined benefit scheme. These are
reported outside underlying profit as they no longer relate to the
Group's on-going activities following closure of the scheme to
future accrual.
-- Acquisition adjustments - these reflect the adjustments
arising from acquisitions including the fair value unwind and
amortisation of acquired intangibles.
-- Other - these are items which are material and infrequent in
nature and do not relate to the Group's underlying performance and
in the current year include the property strategy programme and
retail restructuring programme.
The effect of these adjusted items is as follows:
Cost Administrative Other Net finance Share Total Tax Total
of expenses income income/(costs) of adjustments adjustments
sales loss before
from tax
JVs
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ------- --------------- -------- ---------------- ------ ------------- ----- -------------
Property strategy
programme (255) (41) - - - (296) 28 (268)
Retail
restructuring
programme (21) (11) - - - (32) 6 (26)
Financial Services
transition
and other (2) (27) - - - (29) 4 (25)
------------------- ------- --------------- -------- ---------------- ------ ------------- ----- -------------
Total strategic
programmes (278) (79) - - - (357) 38 (319)
Property, finance, pension and acquisition
adjustments
Profit/(loss) on
disposal
of properties - - 56 - (21) 35 3 38
Investment
property fair
value movements - - - - (3) (3) - (3)
Perpetual
securities
coupons - - - 23 - 23 (4) 19
Non-underlying
finance movements - - - (17) (5) (22) 3 (19)
IAS 19 pension
expenses - (9) - 28 - 19 (4) 15
Acquisition
adjustments - (26) - - - (26) 5 (21)
------------------- ------- --------------- -------- ---------------- ------ ------------- ----- -------------
Total property,
finance,
pension and
acquisition
adjustments - (35) 56 34 (29) 26 3 29
Tax adjustments
Over provision in
prior years - - - - - - 8 8
Revaluation of
deferred tax
balances - - - - - - (3) (3)
Total adjustments (278) (114) 56 34 (29) (331) 46 (285)
------------------- ------- --------------- -------- ---------------- ------ ------------- ----- -------------
(a) Property strategy programme
-- The Group identified an impairment indicator during the
period following an approved programme of store closures during the
year. This programme was initially announced at the Capital Markets
Day in September. It was subsequently revisited during the second
half of the year resulting in additional planned closures. An
impairment charge of GBP(252) million has been recognised on
property, plant and equipment (GBP154 million), right-of-use assets
(GBP80 million) and goodwill allocated to stores (GBP18 million).
GBP(126) million of the charge is in relation to properties
identified for closure. The remaining GBP(126) million relates to
unprofitable and marginally profitable sites for which the cash
flows no longer support the carrying amount. Further information on
the impairment charges, including sensitivities can be found in
note 16.
-- In addition, store closure costs have been recognised in the
period of GBP(44) million. They comprise GBP(41) million onerous
contract charges and dilapidation costs, and GBP(3) million of
redundancy provisions.
(b) Retail restructuring programme
-- Restructuring costs of GBP(32) million in the year mostly
comprise redundancy payments following changes to the Group's store
management structure, responding to changing customer shopping
habits and reducing costs throughout the store estate, as well as
the closure of one Argos distribution centre, prior to the wider
store closure programme announced at the Capital Markets Day.
-- Also includes costs incurred following announced head-office
restructures during the year.
(c) Financial Services transition and other
-- These predominantly comprise Financial Services transition
costs of GBP(19) million and were incurred in transitioning to a
new, more flexible banking platform as part of the previously
announced New Bank Programme. These principally comprise contractor
and service provider costs relating to the migration of data and
other services to the Bank's new infrastructure and operating
model.
-- In addition, a number of ATMs were decommissioned during the
year, leading to write-downs of GBP(6) million within property,
plant and equipment.
(d) Property, finance, pension and acquisition adjustments
-- Profit on disposal of properties for the financial period
comprised GBP56 million for the Group and GBP(21) million for the
joint ventures.
-- The coupons on the perpetual subordinated capital securities
and the perpetual subordinated convertible bonds are accounted for
as equity in line with IAS 32 'Financial Instruments:
Presentation', however are accrued on a straight-line basis and
included as an expense within underlying profit before tax.
-- Non-underlying finance movements for the financial year
comprised GBP(17) million for the Group and GBP(5) million for the
joint ventures. These are presented separately in note 9.
-- Defined benefit pension expenses comprise pension finance
income of GBP28 million and scheme expenses of GBP(9) million (see
note 20). Included in the prior year were GBP(98) million non-cash
past service costs relating to Guaranteed Minimum Pension (GMP)
equalisation and GBP(2) million of pension related expenses
incurred directly by the Group.
-- Acquisition adjustments of GBP(26) million reflect the unwind
of non-cash fair value adjustments arising from the Sainsbury's
Bank, Home Retail Group and Nectar UK acquisitions and are
recognised as follows:
2020 2019
------------------------------------- ------------------------------------
Financial Argos Nectar Total Financial Argos Nectar Total
Services Group Services Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ----------- ------ ------- ------- ---------- ------ ------- -------
Revenue - - - - - - - -
Cost of
sales - 2 - 2 - 2 - 2
Depreciation - (2) - (2) - (13) - (13)
Amortisation - (18) (8) (26) (1) (16) (25) (42)
--------------
- (18) (8) (26) (1) (27) (25) (53)
-------------------------- ------ ------- ------- ---------- ------ ------- -------
Comparative information
2019 (restated)
Share
Net of Total
Cost finance loss adjustments
of Admin Other (costs) from before Total
Revenue sales expenses income / income JVs tax Tax adjustments
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- --------- ------- ---------- -------- ---------- ------ ------------- ----- -------------
Retail
restructuring
programme - - (81) - - - (81) 15 (66)
Financial Services
transition
and other - - (70) - - - (70) 13 (57)
Argos integration
costs - - (40) - - - (40) 8 (32)
Asda transaction
costs - - (37) - (9) - (46) 2 (44)
------------------- --------- ------- ---------- -------- ---------- ------ ------------- ----- -------------
Total strategic
programmes - - (228) - (9) - (237) 38 (199)
Property, finance, pension and acquisition
adjustments
Loss on disposal
of properties - - - (17) - - (17) 9 (8)
Impairments and
investment
property fair
value movements - - (3) - - (2) (5) - (5)
Perpetual
securities
coupons - - - - 23 - 23 (5) 18
Non-underlying
finance
movements - - - - 10 (2) 8 (3) 5
IAS 19 pension
expenses - - (110) - (8) - (118) 23 (95)
Acquisition
adjustments - (11) (42) - - - (53) 10 (43)
------------------- --------- ------- ---------- -------- ---------- ------ ------------- ----- -------------
Total property,
finance,
pension and
acquisition
adjustments - (11) (155) (17) 25 (4) (162) 34 (128)
Tax adjustments
Over provision in
prior
years - - - - - - - 61 61
Revaluation of
deferred
tax balances - - - - - - - (2) (2)
Total adjustments - (11) (383) (17) 16 (4) (399) 131 (268)
------------------- --------- ------- ---------- -------- ---------- ------ ------------- ----- -------------
Cash flow statement
The table below shows the impact of non-underlying items on the
Group cash flow statement:
2020 2019
GBPm GBPm
-------------------------------------------- ----- --------
Cash flows from operating activities
IAS 19 pension expenses (9) (10)
Sainsbury's Bank transition (22) (66)
Argos integration costs (2) (52)
Property strategy programme (8) -
Restructuring costs (26) (152)
Transaction costs relating to the proposed
merger with Asda (13) (39)
----------------------------------------------- ----- --------
Cash used in operating activities (80) (319)
Cash flows from investing activities
Proceeds from property disposals 81 64
----------------------------------------------- --------
Cash generated from investing activities 81 64
Net cash flows 1 (255)
--------------------------------------------- ----- --------
7 Segment reporting
Background
The Group's businesses are organised into three (previously
four) operating segments:
- Retail - Food;
- Retail - General Merchandising and Clothing;
- Financial Services (Sainsbury's Bank plc and Argos Financial Services entities).
Previously the Group has disclosed a Property Investment
segment, relating to its joint ventures with The British Land
Company PLC and Land Securities Group PLC. Following the sale of
properties from the joint venture with British Land to Reality
Income Corporation during the year, management has reassessed this
segment, and determined that it no longer meets the definition of
an operating segment due to its results not being reviewed by the
chief operating decision maker to make decisions about resource
allocations. As a result, financial information relating to this
component is now included in the Group's Retail segment.
Comparative information has been restated.
The Food and General Merchandise and Clothing segments have been
aggregated into a Retail segment in the financial statements.
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 6. All material operations and
assets are in the UK.
Segment results, assets and liabilities include items directly
attributable to a segment as well as those that can be allocated on
a reasonable basis. Segment capital expenditure is the total cost
incurred during the period to acquire segment assets that are
expected to be used for more than one period.
Income statement and balance sheet
Financial
Retail Services Group
52 weeks to 7 March 2020 GBPm GBPm GBPm
--------------------------------------------- --------- ---------- ---------
Segment revenue
Retail sales to external customers 28,424 - 28,424
Financial Services to external customers(1) - 569 569
---------------------------------------------- --------- ---------- ---------
Underlying revenue 28,424 569 28,993
---------------------------------------------- --------- ---------- ---------
Revenue 28,424 569 28,993
Underlying operating profit 938 48 986
Underlying finance income 4 - 4
Underlying finance costs (404) - (404)
Underlying share of post-tax profit from
joint ventures and associates - - -
--------------------------------------------- --------- ---------- ---------
Underlying profit before tax 538 48 586
Non-underlying expense (note 6) (331)
---------------------------------------------- --------- ---------- ---------
Profit before tax 255
Income tax expense (note 10) (103)
---------------------------------------------- --------- ---------- ---------
Profit for the financial period 152
---------------------------------------------- --------- ---------- ---------
Assets 18,463 9,465 27,928
Investment in joint ventures and associates 9 - 9
---------------------------------------------- --------- ---------- ---------
Segment assets 18,472 9,465 27,937
---------------------------------------------- --------- ---------- ---------
Segment liabilities (11,738) (8,426) (20,164)
---------------------------------------------- --------- ---------- ---------
Other segment items
Capital additions(2) 1,021 37 1,058
Depreciation expense(3) 1,119 8 1,127
Amortisation expense(4) 106 23 129
Net impairment and onerous contract charge 300 6 306
Share based payments 34 3 37
---------------------------------------------- --------- ---------- ---------
1 Financial Services income includes GBP405 million recognised
using the effective interest rate method.
2 Retail capital additions consists of right of use asset
additions of GBP406 million, property, plant and equipment
additions of GBP527 million and intangible asset additions of GBP88
million. Financial Services capital additions consists of right of
use asset additions of GBPnil, property, plant and equipment
additions of GBP1 million and intangible asset additions of GBP36
million.
3 Depreciation within the Retail segment includes a GBP2 million
charge in relation to the unwind of fair value adjustments
recognised on acquisition of HRG and Nectar UK.
4 Amortisation expense within the Retail segment includes GBP26
million charge in relation to the unwind of fair value adjustments
recognised on acquisition of HRG and Nectar UK.
Financial
Retail services Group
(restated) (restated) (restated)
52 weeks to 9 March 2019 GBPm GBPm GBPm
--------------------------------------------- ----------- ----------- -----------
Segment revenue
Retail sales to external customers 28,466 - 28,466
Financial Services to external customers(1) - 541 541
Underlying revenue 28,466 541 29,007
Revenue 28,466 541 29,007
--------------------------------------------- ----------- ----------- -----------
Underlying operating profit 981 31 1,012
Underlying finance income 5 - 5
Underlying finance costs (424) - (424)
Underlying share of post-tax profit from
joint ventures and associates 8 - 8
Underlying profit before tax 570 31 601
Non-underlying expense (note 6) (399)
Profit before tax 202
Income tax expense (note 10) (16)
Profit for the financial period 186
--------------------------------------------- ----------- ----------- -----------
Assets 18,885 8,921 27,806
Investment in joint ventures and associates 205 - 205
Segment assets 19,090 8,921 28,011
--------------------------------------------- ----------- ----------- -----------
Segment liabilities (12,284) (7,945) (20,229)
--------------------------------------------- ----------- ----------- -----------
Other segment items
Capital additions(2) 941 44 985
Depreciation expense(3) 1,111 8 1,119
Amortisation expense(4) 127 16 143
Net impairment and onerous contract charge 3 - 3
Share based payments 36 3 39
--------------------------------------------- ----------- ----------- -----------
1 Financial Services income includes GBP385 million recognised
using the effective interest rate method.
2 Retail capital additions consists of right of use asset
additions of GBP388 million, property, plant and equipment
additions of GBP473 million and intangible asset additions of GBP80
million. Financial Services capital additions consists of right of
use asset additions of GBPnil, property, plant and equipment
additions of GBP8 million and intangible asset additions of GBP36
million.
3 Depreciation within the Retail segment includes a GBP13
million charge in relation to the unwind of fair value adjustments
recognised on acquisition of HRG and Nectar UK.
4 Amortisation expense within the Retail segment includes GBP41
million charge in relation to the unwind of fair value adjustments
recognised on acquisition of HRG and Nectar UK. Amortisation
expense within the Financial Services segment includes a GBP1
million charge in relation to the unwind of fair value adjustments
recognised on acquisition of Sainsbury's Bank.
Geographical segments
The Group trades predominantly in the UK and the Republic of
Ireland and consequently the majority of revenues, capital
expenditure and segment net assets arise there. The profits,
turnover and assets of the businesses in the Republic of Ireland
are not material to the Group.
Cash flow
52 weeks to 7 52 weeks to 9
March 2020 March 2019
APM Financial Financial
reference Retail Services Group Retail Services Group
(restated) (restated) (restated)
GBPm GBPm GBPm GBPm GBPm GBPm
Profit/(loss) before tax 235 20 255 223 (21) 202
--------------------------------------------- -------- ---------- -------- ----------- ----------- -----------
Net finance costs 363 3 366 403 - 403
Share of post-tax loss/(profit)
from joint ventures and associates 29 - 29 (4) - (4)
Operating profit 627 23 650 622 (21) 601
Adjustments for:
Depreciation and amortisation
expense 1,225 31 1,256 1,238 24 1,262
Net impairment charge on property,
plant and equipment, right-of-use
assets, investment property
and intangible assets 257 6 263 3 - 3
Non-cash adjustments arising
from acquisitions (2) - (2) (2) - (2)
Financial Services impairment
losses on loans and advances - 80 80 - 98 98
(Profit)/loss on sale of properties
and early termination of leases (56) - (56) 17 - 17
Share-based payments expense 34 3 37 36 3 39
Defined benefit scheme expenses 9 - 9 108 - 108
Cash contributions to defined
benefit scheme (52) - (52) (63) - (63)
Operating cash flows before
changes in working capital 2,042 143 2,185 1,959 104 2,063
Changes in working capital
Increase in working capital (71) (248) (319) (38) (510) (548)
Cash generated from operations 1,971 (105) 1,866 1,921 (406) 1,515
Interest paid a (384) - (384) (404) - (404)
Corporation tax paid (113) 3 (110) (61) (7) (68)
Net cash generated/(used) from
operating activities 1,474 (102) 1,372 1,456 (413) 1,043
--------------------------------------------- -------- ---------- -------- ----------- ----------- -----------
Cash flows from investing
activities
Purchase of property, plant
and equipment excluding strategic
capital expenditure (517) (2) (519) (430) (8) (438)
Strategic capital expenditure b - - - (36) - (36)
Purchase of property, plant
and equipment (517) (2) (519) (466) (8) (474)
Initial direct costs on new
leases (13) - (13) (11) - (11)
Purchase of intangible assets (82) (38) (120) (78) (38) (116)
Proceeds from disposal of property,
plant and equipment 81 - 81 64 - 64
Proceeds from financial assets
at fair value through other
comprehensive income d - - - 39 - 39
Investment in joint ventures f - - - (5) - (5)
Interest received a 2 - 2 4 - 4
Dividends and distributions
received f 143 - 143 18 - 18
Net cash used in investing
activities (386) (40) (426) (435) (46) (481)
--------------------------------------------- -------- ---------- -------- ----------- ----------- -----------
Cash flows from financing
activities
Proceeds from issuance of
ordinary
shares e 15 - 15 22 - 22
Proceeds from borrowings d 250 - 250 135 - 135
Repayment of borrowings d (169) - (169) (593) - (593)
Repayment upon maturity of
convertible bonds d (450) - (450) - - -
Purchase of own shares e (18) - (18) (30) - (30)
Repayment of capital element
of obligations under lease
liabilities c (419) (1) (420) (429) (1) (430)
Repayment of capital element
of obligations under hire
purchase
agreements d (10) - (10) (27) - (27)
Dividends paid on ordinary
shares (247) - (247) (224) - (224)
Dividends paid on perpetual
securities a (23) - (23) (23) - (23)
Net cash used in financing
activities (1,071) (1) (1,072) (1,169) (1) (1,170)
--------------------------------------------- -------- ---------- -------- ----------- ----------- -----------
Intra group funding
Bank capital injections (35) 35 - (110) 110 -
Net cash (used in)/generated
from intra group funding (35) 35 - (110) 110 -
--------------------------------------------- -------- ---------- -------- ----------- ----------- -----------
Net decrease in cash and cash
equivalents (18) (108) (126) (258) (350) (608)
--------------------------------------------- -------- ---------- -------- ----------- ----------- -----------
8 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
arrangements can be complex, with amounts spanning multiple
products over different time periods, and there can be multiple
triggers and discounts. The accrued value at the reporting date is
included in trade receivables or trade payables, depending on the
right of offset. The four key types 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. These involve a degree of judgement and estimation
in ensuring the appropriate cut-off of arrangements for fixed
amounts which span period-end. These require judgement to determine
when the terms of the arrangement are satisfied and that amounts
are recognised in the correct period.
- 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 and requires
estimates of the amount earned up to the balance sheet date, for
each relevant supplier contract. Where agreements span a financial
period-end, estimations are required of projected turnover and
judgement may also need to be applied to determine the rebate level
earned as agreements may involve multiple tiers. In order to
minimise any risk arising from estimation, agreements from
suppliers are obtained to agree the value to be recognised at
year-end, prior to it being invoiced. By aligning the agreements to
the Group's financial year, where possible, the judgements required
are minimised.
- Marketing and advertising income - relates to income which is
directly linked to the cost of producing the Argos catalogue as
well as advertising income from suppliers through the Group's
subsidiary Nectar 360 Services LLP (previously Insight 2
Communication). Income relating to the Argos catalogue is
recognised once agreed with the supplier and when the catalogue is
made available to the Group, which is the point at which the
catalogue costs are recognised. Advertising income within Nectar
360 involves a level of judgement to ensure amounts are recognised
in the correct period.
Of the above categories, fixed amounts, supplier rebates and
marketing and advertising income involve a level of judgement and
estimation. The amounts recognised in the income statement for
these three categories in the financial year are as follows:
2020 2019
GBPm GBPm
---------------------------------- ----- -----
Fixed amounts 278 281
Supplier rebates 68 69
Marketing and advertising income 105 107
Total supplier arrangements 451 457
----------------------------------- ----- -----
Of the above amounts, the following was outstanding and held on
the balance sheet at the period-end:
2020 2019
GBPm GBPm
---------------------------------- ----- -----
Within inventory (7) (7)
Within current trade receivables
Supplier arrangements due 44 39
Accrued supplier arrangements 38 39
Within current trade payables
Supplier arrangements due 12 22
Deferred income due (2) (1 )
----------------------------------- ----- -----
Total supplier arrangements 85 92
----------------------------------- ----- -----
9 Finance income and finance costs
2020 2019 (restated)
Underlying Non-Underlying Total Underlying Non-Underlying Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ----------- --------------- ------ ----------- --------------- --------
Interest on bank deposits and
other financial assets 2 - 2 3 - 3
Fair value measurements - - - - 19 19
IAS 19 pension financing income - 28 28 - - -
Finance income on net investment
in leases 2 - 2 2 - 2
------------------------------------- ----------- --------------- ------ ----------- --------------- --------
Finance Income 4 28 32 5 19 24
------------------------------------- ----------- --------------- ------ ----------- --------------- --------
Borrowing costs:
Secured borrowings (50) - (50) (55) - (55)
Unsecured borrowings (12) - (12) (19) - (19)
Lease liabilities (323) (9) (332) (333) (9) (342)
Fair value measurements - (8) (8) - - -
------------------------------------- ----------- --------------- ------ ----------- --------------- --------
(385) (17) (402) (407) (9) (416)
------------------------------------- ----------- --------------- ------ ----------- --------------- --------
Other finance costs:
Interest capitalised - qualifying
assets 4 - 4 6 - 6
IAS 19 pension financing charge - - - - (8) (8)
Transaction financing costs - - - - (9) (9)
Perpetual securities coupon (23) 23 - (23) 23 -
------------------------------------- ----------- --------------- ------ ----------- --------------- --------
(19 ) 23 4 (17) 6 (11)
Finance costs (404) 6 (398) (424) (3) (427)
------------------------------------- ----------- --------------- ------ ----------- --------------- --------
Fair value remeasurements relate to net fair value movements on
derivative financial instruments not designated in a hedging
relationship. The prior year includes a GBP10 million fair value
gain on financial assets at fair value through other comprehensive
income that was reclassified to the income statement on disposal of
the related debt-securities.
10 Taxation
2020 2019 (restated)
GBPm GBPm
--------------------------------------------------- ------ ----------------
Current tax expense:
Current year UK tax 96 102
Current year overseas tax 5 5
Over provision in prior years (13) (26)
Total current tax expense 88 81
----------------------------------------------------- ------ ----------------
Deferred tax expense/(credit):
Origination and reversal of temporary differences (2) (35)
Under/(over) provision in prior years 17 (30)
----------------------------------------------------- ------ ----------------
Total deferred tax expense/(credit) 15 (65 )
----------------------------------------------------- ------ ----------------
Total income tax expense in income statement 103 16
Analysed as:
--------------------------------------------------- ------ ----------------
Underlying tax 149 147
Non-underlying tax (46) (131)
----------------------------------------------------- ------ ----------------
Total income tax expense in income statement 103 16
----------------------------------------------------- ------ ----------------
Underlying tax rate 25.4% 24.5%
Effective tax rate 40.4% 7.9%
----------------------------------------------------- ------ ----------------
11 Earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the year, excluding those
held by the Employee Share Ownership Trusts, which are treated as
cancelled.
For diluted earnings per share, the earnings attributable to the
ordinary shareholders are adjusted by the interest on the senior
convertible bonds (net of tax) and by the coupons on the perpetual
subordinated convertible bonds. 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 6. 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.
2020 2019
(restated)
million million
------------------------------------------------------------------- ---------- -----------
Weighted average number of shares in issue 2,207.6 2,197.6
Weighted average number of dilutive share options 24.1 42.1
Weighted average number of dilutive senior convertible
bonds 153.7 148.1
Weighted average number of dilutive subordinated perpetual
convertible bonds 84.6 80.8
Total number of shares for calculating diluted earnings
per share 2,470.0 2,468.6
------------------------------------------------------------------- ---------- -----------
GBPm GBPm
------------------------------------------------------------------- ---------- -----------
Profit for the financial year (net of tax) 152 186
Less profit attributable to:
Holders of perpetual capital securities (16) (12)
Holders of perpetual convertible bonds (7) (6)
Profit for the financial year attributable to ordinary
shareholders 129 168
------------------------------------------------------------------- ---------- -----------
GBPm GBPm
------------------------------------------------------------------- ---------- -----------
Profit for the financial year attributable to ordinary
shareholders 129 168
Add interest on senior convertible bonds (net of tax) 9 12
Add coupon on subordinated perpetual convertible bonds
(net of tax) 6 6
Diluted earnings for calculating diluted earnings per
share 144 186
------------------------------------------------------------------- ---------- -----------
GBPm GBPm
------------------------------------------------------------------- ---------- -----------
Profit for the financial year attributable to ordinary
shareholders of the parent 129 168
Adjusted for non-underlying items (note 6) 331 399
Tax on non-underlying items (46) (131)
Add back coupons on perpetual securities(1) 23 18
-------------------------------------------------------------------
Underlying profit after tax attributable to ordinary shareholders
of the parent 437 454
Add interest on convertible bonds (net of tax) 9 12
Add coupon on subordinated perpetual convertible bonds
(net of tax) 6 6
Diluted underlying profit after tax attributable to ordinary
shareholders of the parent 452 472
------------------------------------------------------------------- ---------- -----------
Pence Pence
per share per share
------------------------------------------------------------------- ---------- -----------
Basic earnings 5.8 7.6
Diluted earnings 5.8 7.5
Underlying basic earnings 19.8 20.7
Underlying diluted earnings 18.3 19.1
------------------------------------------------------------------- ---------- -----------
1 Underlying earnings per share calculation is based on
underlying profit after tax attributable to ordinary shareholders.
Therefore the coupons on the perpetual securities are added
back.
12 Dividends
2020 2019 2020 2019
Pence Pence
per per
share share GBPm GBPm
------------------------------------------------- ------- ------- ----- -----
Amounts recognised as distributions to ordinary
shareholders in the year:
Final dividend of prior financial year 7.9 7.1 174 156
Interim dividend of current financial year 3.3 3.1 73 68
11.2 10.2 247 224
------------------------------------------------- ------- ------- ----- -----
No final dividend is proposed. Given the wide range of potential
profit and cash flow outcomes of COVID-19, the Board believes it is
prudent to defer any dividend payment decisions until later in the
financial year, when there will be improved visibility on the
potential impact of COVID-19 on the business.
13 Property, plant and equipment
Land and Fixtures and
buildings equipment Total
GBPm GBPm GBPm
------------------------------------------- ----------- ------------- -------
Cost
At 10 March 2019 (restated) 9,917 5,111 15,028
Additions 31 497 528
Disposals (245) (305) (550)
Transfer from/(to) asset held for
sale 9 - 9
At 7 March 2020 9,712 5,303 15,015
------------------------------------------- ----------- ------------- -------
Accumulated depreciation and impairment
At 10 March 2019 (restated) 2,644 3,191 5,835
Depreciation expense for the year 184 450 634
Impairment loss for the year 123 37 160
Disposals (269) (264) (533)
Transfer from/(to) asset held for
sale 8 - 8
At 7 March 2020 2,690 3,414 6,104
------------------------------------------- ----------- ------------- -------
Net book value at 7 March 2020 7,022 1,889 8,911
------------------------------------------- ----------- ------------- -------
Capital work-in-progress included
above 141 295 436
------------------------------------------- ----------- ------------- -------
Cost
At 11 March 2018 (restated) 9,939 5,076 15,015
Additions 63 418 481
Disposals (85) (384) (469)
At 9 March 2019 (restated) 9,917 5,110 15,027
------------------------------------------- ----------- ------------- -------
Accumulated depreciation and impairment
At 11 March 2018 (restated) 2,504 3,112 5,616
Depreciation expense for the year 177 456 633
Impairment loss for the year 2 1 3
Disposals (39) (379) (418)
At 9 March 2019 (restated) 2,644 3,190 5,834
------------------------------------------- ----------- ------------- -------
Net book value at 9 March 2019 (restated) 7,273 1,920 9,193
------------------------------------------- ----------- ------------- -------
Capital work-in-progress included
above 135 107 242
------------------------------------------- ----------- ------------- -------
Impairment charges include GBP6 million in relation to
decommissioned ATMs within the Financial Services business, and
GBP154 million in relation to the property strategy review.
14 Leases
Set out below are the carrying amounts of right-of-use assets
recognised and the movements during the period.
Land and buildings Equipment Total
Net book value GBPm GBPm GBPm
----------------------------- ------------------- ---------- ------
At 10 March 2019 (restated) 4,747 246 4,993
Additions(1) 285 121 406
Depreciation charge (416) (77) (493)
Impairment charge (80) - (80)
At 7 March 2020 4,536 290 4,826
----------------------------- ------------------- ---------- ------
At 11 March 2018 (restated) 4,858 233 5,091
----------------------------- ------------------- ---------- ------
Additions(1) 303 85 388
Depreciation charge (414) (72) (486)
At 9 March 2019 (restated) 4,747 246 4,993
----------------------------- ------------------- ---------- ------
1 Additions include cash and non-cash indirect costs and are
offset by terminations which occurred during the period.
Set out below are the carrying amounts of lease liabilities and
the movements during the period:
2020 2019
GBPm GBPm
------------------------------------ ------ ------
At 10 March 2019 and 11 March 2018 5,831 5,905
Additions(1) 373 382
Interest expense 332 342
Payments (762) (798)
At 7 March 2020 and 9 March 2019 5,774 5,831
------------------------------------ ------ ------
Current 510 533
Non-current 5,264 5,298
------------------------------------ ------ ------
1 Additions are net of terminations which occurred during the period.
The following are the amounts recognised in profit or loss:
2020 2019
GBPm GBPm
------------------------------------------------- ------ ------
Depreciation of right-of-use assets (493) (486)
Interest on lease liabilities (332) (342)
Variable lease payments not included in the
measurement of lease liabilities (1) (1)
Finance income from sub-leasing of right-of-use
assets 2 2
Operating sublet income 47 51
Expenses relating to short term leases (28) (29)
Expenses relating to leases of low value assets (8) (9)
--------------------------------------------------- ------ ------
Total amount recognised in profit or loss (813) (814)
--------------------------------------------------- ------ ------
Total cash outflow for leases (798) (836)
--------------------------------------------------- ------ ------
There were no leases with residual value guarantees nor leases
not yet commenced to which the Group is committed. The Group
assumes contractual terms unless it is reasonably certain that an
extension or break option will be applied. There have been no sale
or leaseback transactions during the period.
The Group does not hold any leases as investment properties
under IAS 40. All right-of-use assets are recognised on a
historical cost convention.
Maturity analysis
Lease liabilities:
2020 2019
GBPm GBPm
--------------------------------------------- ------- -------
Contractual undiscounted cash flows
Less than one year 820 789
One to five years 2,722 2,690
More than five years 8,245 7,927
Total undiscounted lease liability 11,787 11,406
----------------------------------------------- ------- -------
Lease liabilities included in the statement
of financial position 5,774 5,831
----------------------------------------------- ------- -------
Current 510 533
Non-current 5,264 5,298
----------------------------------------------- ------- -------
The group is committed to payments totalling GBP38m (2019:
GBP96m) in relation to leases that have been signed but have not
yet commenced.
15 Intangible assets
Computer Acquired Customer
Goodwill software brands relationships Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------- --------- ---------- --------- --------------- ------
Cost
At 10 March 2019 (restated) 400 617 231 32 1,280
Additions - 124 - - 124
Disposals - (247) - - (247)
At 7 March 2020 400 494 231 32 1,157
-------------------------------- --------- ---------- --------- --------------- ------
Accumulated amortisation and
impairment
At 10 March 2019 (restated) 4 122 89 22 237
Amortisation expense for the
year - 105 20 4 129
Impairment loss for the year 18 5 - - 23
Disposals - (244) - - (244)
At 7 March 2020 22 (12) 109 26 145
-------------------------------- --------- ---------- --------- --------------- ------
Net book value at 7 March 2020 378 506 122 6 1,012
-------------------------------- --------- ----------
Cost
At 11 March 2018 (restated) 401 524 231 32 1,188
Additions - 116 - - 116
Disposals (1) (23) - - (24)
At 9 March 2019 (restated) 400 617 231 32 1,280
-------------------------------- --------- ---------- --------- --------------- ------
Accumulated amortisation and
impairment
At 11 March 2018 (restated) 4 45 66 2 117
Amortisation expense for the
year - 100 23 20 143
Disposals - (23) - - (23)
At 9 March 2019 (restated) 4 122 89 22 237
-------------------------------- --------- ---------- --------- --------------- ------
Net book value at 9 March 2019
(restated) 396 495 142 10 1,043
-------------------------------- --------- ----------
Goodwill impairments of GBP18 million are detailed in note 16.
The GBP5 million software impairment relates to assets written off
in full for which replacements are planned.
16 Impairment of non-financial assets
At the Capital Markets Day on 25 September 2019, a programme of
store closures was announced. In doing so, the performance of all
stores, including pipeline developments, was reviewed, identifying
stores whose economic performance was worse than expected and thus
triggering a full impairment review by management on the Group's
property portfolio.
A total impairment charge of GBP(252) million has been
recognised during the year, allocated as follows:
-- GBP154 million on property, plant and equipment;
-- GBP80 million on right-of-use assets; and,
-- GBP18 million on goodwill allocated to stores.
GBP(126) million of the charge is in relation to properties
identified for closure - in these instances the carrying amounts of
these stores has been written down to GBPnil. The remaining
GBP(126) million relates to unprofitable and marginally profitable
sites for which the cash flows no longer support the carrying
amount. Assets with a carrying amount of GBP578 million were
written down to their recoverable amount of GBP452 million.
The recoverable amounts for trading store CGUs has been
determined using value in use calculations which are based on the
cash flows expected to be generated by the stores using the latest
budget and forecast data, the results of which are reviewed by the
Board. Budget and forecast data reflect both past experience and
future expectation of market conditions. The key assumptions in the
value in use calculation are as follows:
Composition of CGU
* Property, plant and equipment and any goodwill
attributable to individual stores.
* For leased assets, the CGU also includes right-of-use
assets and corresponding lease liabilities as
management has concluded that lease liabilities need
to be considered when determining the recoverable
amount of the CGU.
Cash flow years /
assumptions * Board approved cash flow projections for five years
are used and then extrapolated for a further 20 years
for supermarkets and 10 years for convenience stores
with no assumed growth rate, representing the typical
time between refits.
* Where lease terms are shorter than this, the
remaining lease term has been used.
Terminal value
* For owned sites, a terminal value is included in the
final cash flow year, representing the net cash flows
expected to be received for the disposal of the
assets at the end of their useful life.
* It is calculated using an assumed market rent for the
stores, with an investment yield based on similar
properties in the area.
Discount rate
* A post-tax discount rate representing the Group's
weighted average cost of capital (WACC), subsequently
grossed up to a pre-tax rate of 9%
* The post-tax WACC been calculated using the capital
asset pricing model, the inputs of which include a
risk-free rate for the UK, a UK equity risk premium,
levered debt premium and a risk adjustment using a 10
year average beta for the Group.
For store pipeline development sites the carrying value of the
asset is compared with its value in use using a methodology
consistent with that described above for sites that will be
developed. Future cash flows include the estimated costs to
completion. For sites where there is no plan to develop a store,
the recoverable amount is based on its fair value less costs to
dispose.
Sensitivities
Of the above assumptions, the value-in-use calculations are most
sensitive to changes in the discount rate, cash flows and inputs
underpinning the terminal value. The table below sets out the key
sensitivities performed on the trading value-in-use model.
Sensitivity area Sensitivity Increase / (decrease) in
impairment
GBPm
Increase of
Discount rate 1% 38
Decrease of
1% (21)
Increase of
Cash flows 1% (2)
Decrease of
1% 2
Rental yield (input for terminal Increase of
values) 1% 4
Decrease of
1% (5)
Market rent (input for terminal Increase of
values) 5% (1)
Decrease of
5% 1
17 Provisions
Onerous Insurance Restructuring Financial Other Other Total
contracts provisions Services Financial provisions
loan commitment Services
provisions related
provisions
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ------------ ------------
At 10 March 2019
(restated) 34 71 22 18 39 20 204
Additional
provisions 46 25 22 2 9 14 118
Unused amounts
reversed (4) (9) - - (13) (10) (36)
Utilisation of
provision (15) (24) (24) - (18) (8) (89)
At 7 March 2020
(restated) 61 63 20 20 17 16 197
------------ ------------ ------------
At 11 March 2018
(restated) 37 78 94 - 52 19 280
IFRS 9 opening
adjustment - - - 17 (3) - 14
Additional
provisions 20 29 67 2 8 18 144
Unused amounts
reversed (6) (6) - (1) (5) - (18)
Utilisation of
provision (17) (30) (139) - (13) (17) (216)
At 9 March 2019
(restated) 34 71 22 18 39 20 204
------------ ------------ ------------
2020 2019
(restated)
GBPm GBPm
------------ ------------ ------------
Disclosed as:
Current 108 109
Non-current 89 95
197 204
------------ ------------ ------------
18 Cash and cash equivalents
2020 2019
GBPm GBPm
Cash in hand and bank balances 519 609
Money market funds and deposits 202 204
Deposits at central banks 273 308
Cash and bank balances 994 1,121
Bank overdrafts - (1)
Net cash and cash equivalents 994 1,120
Of the above balance, GBP21 million (2019: GBP49 million) was
restricted as at year-end.
19 Analysis of net debt
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. Sainsbury's Bank's net debt
balances are excluded because they are part of the daily operating
cycle of the Bank rather than for financing purposes. The Group's
definition of net debt has been updated and now includes lease
liabilities as recognised under IFRS 16 and perpetual securities.
In addition, net debt now excludes derivatives that are not used to
hedge borrowings. Refer to note 4 for further information. All
comparative periods have been restated.
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.
Liabilities arising from hire purchase arrangements are included
within lease liabilities on the balance sheet - further information
on these is included within note 4.
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.
Other non-cash movements relate to interest accruals and new
leases.
Cash Movements Non-Cash Movements
Cash Net Changes
flows interest Other in
9 March excluding (received) Accrued non-cash fair 7 March
2019 interest / paid Interest movements value 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBP
Retail
Financial assets at fair value
through other comprehensive income 1 - - - - - 1
Net derivative financial instruments
(restated) (9) - 4 (5) 5 (10) (15)
Cash and cash equivalents 466 (19) (2) 2 - - 447
Bank overdrafts (1) 1 - - - - -
Borrowings (excluding overdrafts
and finance leases) (1,483) 369 48 (50) - - (1,116)
Lease liabilities and hire purchase
arrangements (restated) (5,824) 429 332 (332) (373) - (5,768)
Retail net debt (excluding perpetual
securities) (restated) (6,850) 780 382 (385) (368) (10) (6,451)
Financial Services
Financial assets at fair value
through other comprehensive income 622 177 - - - 3 802
Net derivative financial instruments
(restated) - - - - - 4 4
Cash and cash equivalents 655 (108) - - - - 547
Bank overdrafts - - - - - - -
Borrowings (excluding overdrafts
and finance leases) (176) - - - - (4) (180)
Lease liabilities and hire purchase
arrangements (restated) (7) 1 - - - - (6)
Financial Services net debt (restated) 1,094 70 - - - 3 1,167
Group
Financial assets at fair value
through other comprehensive income 623 177 - - - 3 803
Net derivative financial instruments
(restated) (9) - 4 (5) 5 (6) (11)
Cash and cash equivalents 1,121 (127) (2) 2 - - 994
Bank overdrafts (1) 1 - - - - -
Borrowings (excluding overdrafts
and finance leases) (1,659) 369 48 (50) - (4) (1,296)
Lease liabilities and hire purchase
arrangements (restated) (5,831) 430 332 (332) (373) - (5,774)
Group net debt (excluding perpetual
securities) (restated) (5,756) 850 382 (385) (368) (7) (5,284)
Retail net debt (excluding perpetual
securities) (restated) (6,850) 780 382 (385) (368) (10) (6,451)
Perpetual capital securities (248) (248)
Perpetual convertible bonds (248) (248)
Retail net debt (including perpetual
securities) (restated) (7,346) 780 382 (385) (368) (10) (6,947)
Of which:
Leases (5,824) (5,768)
Net debt excluding lease liabilities (1,522) (1,179)
Other non-cash movements relate to interest accruals and new
leases.
Cash changes Non-cash changes
Cash Net Changes
flows interest Other in
11 March excluding (received) Accrued non-cash fair 9 March
2018 interest / paid interest movements value 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Retail
Financial assets at fair value
through other comprehensive
income 40 (39) - - - - 1
Net derivative financial instruments
(restated) (8) - (1) 1 - (1) (9)
Cash and cash equivalents 725 (259) - - - - 466
Bank overdrafts (2) 1 - - - - (1)
Borrowings (1,937) 458 60 (64) - - (1,483)
Lease liabilities and hire
purchase arrangements (restated) (5,897) 456 341 (342) (382) - (5,824)
Retail net debt (excluding
perpetual securities) (restated) (7,079) 617 400 (405) (382) (1) (6,850)
Financial Services
Financial assets at fair value
through other comprehensive
income 526 97 - - - (1) 622
Net derivative financial instruments
(restated) (2) - - - - 2 -
Cash and cash equivalents 1,005 (350) - - - - 655
Borrowings (174) - - - - (2) (176)
Lease liabilities and hire
purchase arrangements (restated) (8) 1 - - - - (7)
Financial Services net debt
(restated) 1,347 (252) - - - (1) 1,094
Group
Financial assets at fair value
through other comprehensive
income 566 58 - - - (1) 623
Net derivative financial instruments
(restated) (10) - (1) 1 - 1 (9)
Cash and cash equivalents 1,730 (609) - - - - 1,121
Bank overdrafts (2) 1 - - - - (1)
Borrowings (2,111) 458 60 (64) - (2) (1,659)
Lease liabilities and hire
purchase arrangements (restated) (5,905) 457 341 (342) (382) - (5,831)
Group net debt (excluding perpetual
securities) (restated) (5,732) 365 400 (405) (382) (2) (5,756)
Retail net debt (excluding
perpetual securities) (restated) (7,079) 617 400 (405) (382) (1) (6,850)
Perpetual capital securities (248) (248)
Perpetual convertible bonds (248) (248)
Retail net debt (including
perpetual securities) (restated) (7,575) 617 400 (405) (382) (1) (7,346)
Of which:
Leases (5,897) (5,824)
Net debt excluding lease liabilities (1,678) (1,522)
20 Retirement benefit obligations
All retirement benefit obligations related to the Sainsbury's
Pension Scheme plus two unfunded pension liabilities relating to
former senior employees of Sainsbury's and Home Retail Group.
On 20 March 2018, the Home Retail Group Pension Scheme was
merged into the Sainsbury's Pension Scheme. The Sainsbury's Pension
Scheme has two sections, the Sainsbury's Section which holds all
the Scheme assets and liabilities relating to members who were in
the original Sainsbury's Pension Scheme, and the Argos Section
which holds all the assets and liabilities relating to former
members of the Home Retail Group Pension Scheme. Each section's
assets are segregated by deed and ring fenced for the benefit of
the members of that section. The Scheme has nine Trustee
directors.
The retirement benefit obligations at the year-end have been
calculated by Isio, the actuarial advisers to the Group, using the
projected unit credit method and based on adjusting the position at
the date of the previous triennial valuations (see below) for known
events and changes in market conditions as allowed under IAS 19
'Employee Benefits'. Assets are valued at bid price and are held
separately from the Group's assets.
Sainsbury's section
The Sainsbury's section of the Scheme has three different
benefit categories: final salary, career average and cash balance.
For final salary and career average members, benefits at retirement
are determined by length of service and salary. For cash balance
members, benefits are determined by the accrued retirement account
credits.
The section was closed to new employees on 31 January 2002 and
closed to future accrual on 28 September 2013. The Scheme is also
used to pay life assurance benefits to current (including new)
colleagues.
Argos section
The section holds the assets and liabilities of the former Home
Retail Group Pension Scheme, which was closed to new employees in
2009 and to future accrual in January 2013. Pension benefits at
retirement are based on service and final salary.
Triennial valuation
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,
carried out by Willis Towers Watson for the Trustee, as at 30
September 2018 on the projected unit basis and a recovery plan was
agreed. On the basis of the assumptions agreed, the actuarial
deficit as at 30 September 2018 was GBP538 million.
Under the revised funding plan, Sainsbury's established a new
Scottish Limited partnership - Sainsbury's Thistle Scottish Limited
Partnership ("The Partnership") with the Scheme on 17 July 2019.
This replaced the existing property partnership (Sainsbury's
Property Scottish Partnership).
In respect of the establishment of the Partnership, properties
with a valuation of GBP1,350 million were transferred into a newly
formed property holding company - Sainsbury's Property Holdings Ltd
("Propco") from the Sainsbury's Property Scottish Partnership and
other Sainsbury's Group Companies. The Propco is a wholly owned
subsidiary of the Group and leases the transferred properties to
other Group companies. Rental receipts facilitate payments of
interest and capital on loan notes issued to the Partnership, in
which the Scheme holds an interest.
The Partnership is controlled by Sainsbury's and its results are
consolidated by the Group. The Group's balance sheet, IAS 19
deficit and income statement are unchanged by the establishment of
the Partnership. The investment held by the Scheme in the
Partnership does not qualify as a plan asset for the purposes of
the Group's consolidated financial statements and is therefore not
included within the fair value of plan assets.
The value of the properties transferred to the Propco remains
included within the Group's property, plant and equipment on the
balance sheet. In addition, the Group retains full operational
flexibility to extend, develop and substitute the properties within
the Propco.
The Scheme's interest in the Partnership entitles it to annual
distributions over up to 20 years. The distributions will be made
through three payment streams:
1) Payments to the Sainsbury's section (approximately GBP15 million per year)
2) Payments to the Argos section (approximately GBP20 million per year)
3) Switching payment stream, paid to either the Sainsbury's
section or Argos section (initially approximately GBP23 million per
year, increasing to GBP33 million by 2038)
In addition to the above, further cash contributions of GBP40
million have been agreed in FY2021 and GBP10 million in FY2022. No
additional cash contributions have been agreed for subsequent
years.
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 switching stream is initially paid to the Sainsbury's
section. Once that funding target is achieved, payments switch to
the Argos section. Payments continue until 2038 or until both
sections have reached their funding targets, if earlier.
The level of property in the Propco reduces as the Scheme
reaches the funding targets.
IFRIC 14
IFRIC 14 is the interpretation that details when a company can
recognise any pension surplus that exists. If the company has a
funding commitment in excess of the IAS 19 deficit, then IFRIC 14
requires recognition of this excess in those circumstances when the
surplus that would result on fulfilling that commitment cannot be
recognised. A surplus may be recognised either because of an
unconditional right to a refund to the company, or on grounds of a
future contribution reduction where schemes are still open to
future accrual.
For the Sainsbury's Section, management is of the view that it
has an unconditional right to a refund of surplus under IFRIC 14.
As such no adjustment has been made for potential additional
liabilities.
As part of the 2018 triennial valuation agreement, the Argos
section rules were amended. As a result of the amendments,
management is of the view that it has an unconditional right to a
refund of surplus under IFRIC 14. As such, no adjustment has been
made for potential additional liabilities. In the prior year,
additional balance sheet liabilities in respect of a 'minimum
funding requirement' of GBP134 million as at 9 March 2019 were
recognised. The resulting movement in the liability is included
within remeasurement gains in other comprehensive income.
Unfunded pension liabilities
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 leaving or retiring
and choosing to take the provision as a one-off cash payment.
The amounts recognised in the balance sheet are as follows:
Sainsbury's Argos Group Sainsbury's Argos Group
2020 2020 2020 2019 2019 2019
GBPm GBPm GBPm GBPm GBPm GBPm
-------- --------- --------
Present value of funded
obligations (8,914) (1,421) (10,335) (7,654) (1,202) (8,856)
Fair value of plan assets 10,025 1,466 11,491 8,759 1,224 9,983
---------
1,111 45 1,156 1,105 22 1,127
Additional liability
due to minimum funding
requirements (IFRIC 14) - - - - (134) (134)
Retirement benefit surplus/(deficit) 1,111 45 1,156 1,105 (112) 993
Present value of unfunded
obligations (21) (16) (37) (20) (14) (34)
Retirement benefit surplus/(deficit) 1,090 29 1,119 1,085 (126) 959
-------- --------- --------
The movements in the Group's net defined benefit obligation are
as follows:
2020 2019
GBPm GBPm
As at the beginning of the year 959 (257)
Interest cost 28 (8)
Remeasurement gains 89 1,269
Pension scheme expenses (9) (10)
Contributions by employer 52 63
Past service (charge)/credit - (98)
As at the end of the year 1,119 959
--------------------------------
The principal actuarial assumptions used at the balance sheet
date are as follows:
2020 2019
% %
Discount rate 1.6 2.8
Inflation rate - RPI 2.7 3.2
Inflation rate - CPI 1.7 2.2
Future pension increases 1.65 - 2.00 -
2.70 3.05
The base mortality assumptions are based on the SAPS S2 tables,
with adjustments to reflect the Scheme's population. Future
mortality improvements are CMI 2018 projections with a long-term
rate of improvement of 1.25 per cent per annum.
21 Post balance sheet events
Impact of coronavirus (COVID-19)
The COVID-19 pandemic has developed rapidly in 2020, with a
significant number of infections across many countries. As detailed
in note 2 it has been concluded that none of the conditions at the
balance sheet date indicated that any adjustments would be required
to the Group's financial statements. However, given the
significance of these events, further disclosure is provided below
indicating where there may be material changes in the Group's
judgements and estimates impacting the balance sheet as at 7 March
2020.
Impairment of non-current assets
Subsequent to the balance sheet date, the Group closed Argos
standalone stores - the effect of this is to decrease cash flows
attributable to Argos clusters and therefore the recoverable amount
used for impairment testing purposes.
In addition, operating expenses will be materially higher than
forecast, particularly in the areas of retail labour and absence
costs and instore costs where we assume disruption will continue
for most of the first half of our financial year. There will
however be some offset from approximately GBP450m of business rates
relief on shops in England, Scotland and Northern Ireland.
The Group has carried out sensitivity analyses, including on
forecast cash flows, for its portfolio of store and store cluster
CGUs as part of the impairment review conducted during the year
which are included in note 16. As the outbreak continues to
progress and evolve, it is challenging at this time, to predict the
full extent and duration of its business and economic impact. For
Argos clusters, a decrease in cash flows has been modelled in line
with the assumptions included within the Group's viability
statement with no additional impairments noted. For Sainsbury's
stores, it is likely that the additional instore costs and
reduction in general merchandise and clothing sales will be mostly
offset by the grocery sales growth and business rates relief. It is
therefore not anticipated that the resulting cash flow impacts will
cause material impairment charges on the Group's non-current
assets.
Financial Services expected credit loss implications
As at the balance sheet date, a multi-scenario economic model is
used which includes an assessment of downside risk reflective of
future economic uncertainty that existed at that time.
Subsequent to the balance sheet date, there has been a
deterioration in the economic outlook in the UK as a consequence of
the COVID-19 pandemic and measures taken by the government to
control the spread of the virus. A significant reduction in UK
economic output is now expected over an uncertain period, with
increases in unemployment resulting in increased expected credit
losses. These losses will be mitigated, to some degree, by UK
government actions such as subsidies to businesses for furloughed
employees and the self-employed. In order to estimate the increased
credit losses resulting from this deterioration in outlook, the
Group has developed three unemployment scenarios which have been
risk-weighted to determine an overlay rate applied to the existing
IFRS 9 models. In line with guidance from the Bank of England,
these scenarios assume that there will be significant economic
disruption while social distancing measures are in place, followed
by an expected recovery when these are lifted. The three scenarios
assume peak unemployment over the next 12 months of 6%, 8% and 10%
respectively, with the weighted average resulting in an expected
credit loss (ECL) uplift of approximately GBP30m.
Pension surplus
The defined benefit pension scheme (the Scheme) has been
affected by the impact of COVID-19 on financial markets and the
global economy.
An approximate reassessment of the IAS 19 retirement benefit
surplus as at 31 March 2020 has been performed, resulting in an
estimated revised surplus of GBP1,340 million (excluding the
unfunded obligations), an increase of 16 per cent compared to 7
March 2020. A valuation date of 31 March has been selected as it
aligns with the Scheme's quarter-end date and captures movements
following the COVID-19 lockdown.
When considering the ongoing funding of the Scheme, the exposure
to falling asset values has been reduced as a result of the
continued reduction in equities held in recent years. Although
there was an absolute reduction in the value of the Scheme's assets
(some of which have been estimated) over this period, when valuing
the Scheme on an IAS19 basis, this reduction was more than offset
by the increase in yields on AA corporate bonds (mainly due to a
widening of credit spreads) over the same period and a reduction in
inflation expectations over the long-term.
Although there has been no formal update to the official
mortality tables since the 31st March, it is expected that any
decline in longevity, due to the Coronavirus, will be minimal.
Equity prices have recovered some of the losses experienced in
March, with bond prices also higher, albeit only slightly. There is
also a slight decrease to the discount rate applied to the expected
liability cash flows, suggesting that whilst the overall pension
surplus will have decreased since the 31st March, we do not believe
the movement to be significant relative to the size of the assets,
liabilities or surplus.
Note 20 includes detail of the Group contributions which are set
by the Trustee's triennial valuation and will not be impacted by
COVID-19. The Group contributions framework allows for short-term
changes in volatility, so the Scheme can continue its longer-term
journey to being funded on a low dependency basis, giving members a
greater level of security.
Inventory
The inventory provisions in our General Merchandise and Clothing
areas have been reviewed for post year-end changes in expected net
realisable value, driven by changes in customer buying behaviour as
a result of COVID-19. All inventory provisioning requires
judgement, and is based on a number of factors including current
and expected sales performance, stock cover, current trends and
changes in technology. Following the review it is not anticipated
that further material provisioning is required against the
inventory held at the balance sheet date of 7 March 2020.
Financial risk management
The Group has prepared additional cash flow forecasts in
connection to COVID-19, to identify associated liquidity
requirements and ensure these are closely managed. The counterparty
credit, foreign currency, interest rate, inflation and commodity
risks detailed have been considered in light of the current
economic environment and the sensitivities remain reasonable. The
Group's policies on foreign currency, interest rate, commodity and
counterparty credit risk management are unchanged.
Alternative performance measures (APMs)
In the reporting of financial information, the Directors use
various APMs which they believe provide additional useful
information for understanding the financial performance and
financial health of the Group. These APMs should be considered in
addition to, and are not intended to be a substitute for IFRS
measurements. As they are not defined by International Financial
Reporting Standards, they may not be directly comparable with other
companies who use similar measures.
All of the following APMs relate the current period's results
and comparative periods where provided.
APM Closest Definition/ Purpose Reconciliation
equivalent
IFRS
measure
Income statement
- Revenue
Underlying Revenue A reconciliation of the measure is
Group * Total sales less acquisition fair value unwinds on provided in note 7 of the financial
sales Argos Financial Services. statements.
* This is the headline measure of revenue for the
Group. It shows the annual rate of growth in the
Group's sales and is considered a good indicator of
how rapidly the Group's core business is growing.
Underlying Revenue A reconciliation of the measure is
Retail * Underlying Group sales as above, less underlying provided in note 7 of the financial
sales Financial Services revenue. statements.
* Shows the annual rate of growth in the Group's Retail
business sales.
Like-for-like No direct The reported retail 52 52 weeks
sales equivalent like-for-like weeks to 9
sales (excluding fuel) to 7 March
decrease of (0.6) per March 2019
cent is based on a combination 2020
of Sainsbury's like-for-like
sales and Argos like-for-like
sales for the 52 weeks
to 7 March 2020. See movements
below:
Underlying retail like-for-like
(exc. fuel) (0.6) (0.2)
Underlying net new space
impact 0.2 0.6
Underlying total retail
sales growth (exc. fuel) (0.4) 0.4
Fuel Impact 0.3 1.7
* Year-on-year growth in sales including VAT, excluding
fuel, excluding Financial Services, for stores that
have been open for more than one year.
* The relocation of Argos stores into Sainsbury's
supermarkets are classified as new space, while the
host supermarket is classified like-for-like.
* Stores closed in the period are also excluded from
like-for-like at the point in which they close with
prior year comparatives then removed from the
calculation in the equivalent closure weeks.
* The measure is used widely in the retail industry as
an indicator of current trading performance and is
useful when comparing growth between retailers that
have different profiles of expansion, disposals and Underlying total retail
closures. sales growth (inc. fuel) (0.1) 2.1
Income statement - Profit
Retail Profit A reconciliation of the measure is
underlying before * Underlying earnings before interest, tax, Financial provided in note 7 of the financial
operating tax Services operating profit and Sainsbury's underlying statements.
profit share of post-tax profit from joint ventures and
associates.
APM Closest Definition/ Purpose Reconciliation
equivalent
IFRS
measure
Underlying Profit Underlying profit before tax is bridged
profit before * Profit or loss before tax excluding items which by to statutory profit before tax in the
before tax virtue of their size or nature may obscure income statement and note 6 of the
tax understanding of the Group's underlying performance. financial statements.
The adjusted items are as follows:
* Financial Services transition - multi-year costs
incurred in transitioning to a new, more flexible
banking platform as part of the previously announced
New Bank Programme. These principally comprise
contractor and service provider costs relating to the
migration of data and other services to the Bank's
new infrastructure and operating model.
* Profit on disposal of properties - such disposals are
not part of the Group's underlying business
* Investment property fair value movements - these
reflect the difference between the fair value of an
investment property at the reporting date and its
carrying amount at the previous reporting date and
are held within the property JVs. The valuations are
impacted by external market factors and can therefore
vary significantly year-on-year.
* Perpetual securities coupons - these are accounted
for as equity in line with IAS 32 'Financial
instruments: Presentation', however are accrued on a
straight-line basis and included as an expense within
underlying profit as they are included by management
when assessing Group borrowing.
* Non-underlying finance movements - these include fair
value remeasurements on derivatives not in a hedging
relationship. The fair value measurements are
impacted by external market factors and can fluctuate
significantly year-on-year. Lease interest on
impaired non-trading sites, including site closures,
is excluded from underlying profit as those sites do
not contribute to the underlying business.
* IAS 19 pension expenses include the financing element
and scheme expenses of the Group's defined benefit
scheme. These are reported outside underlying profit
as they no longer relate to the Group's ongoing
activities following closure of the scheme to future
accrual.
* Acquisition adjustments - these reflect the
adjustments arising from acquisitions including the
fair value unwind and amortisation of acquired
intangibles.
* Other - these are items which are material and
infrequent in nature and do not relate to the Group's
underlying performance and in the current year
include the property strategy programme and retail
restructuring programme.
Underlying Basic A reconciliation of the measure is
basic earnings * Earnings per share using underlying profit as provided in note 11 of the financial
earnings per share described above. statements.
per share
Retail No direct A reconciliation of the measure is
underlying equivalent * Retail underlying operating profit as above, before provided on page 17 of the Financial
EBITDAR rent, depreciation and amortisation. Review.
Underlying Finance A reconciliation of this measure is
net income * Net finance costs before any non-underlying items as included in note 9 of the financial
finance less defined above that are recognised within finance statements.
costs finance income / expenses
costs The adjusted items are as follows:
* Fair value remeasurements on derivatives not in a
hedging relationship. The fair value measurements are
impacted by external market factors and can fluctuate
significantly year-on-year.
* Lease interest on impaired non-trading sites,
including site closures, is excluded from underlying
profit as those sites do not contribute to the
underlying business.
* The financing element of the Group's defined benefit
scheme. These are reported outside underlying profit
as they no longer relate to the Group's ongoing
activities following closure of the scheme to future
accrual.
* Perpetual securities coupons - these are accounted
for as equity in line with IAS 32 'Financial
instruments: Presentation', however are accrued on a
straight-line basis and included as an expense within
underlying profit as they are included by management
when assessing Group borrowing
Underlying Effective The tax on non-underlying items is
tax rate tax rate * Tax on underlying items, divided by underlying profi included in note 6 of the financial
t statements
before tax.
* Provides an indication of the tax rate across the
Group before the impact of non-underlying items.
APM Closest Definition/Purpose Reconciliation
equivalent
IFRS
measure
Cash flows and
net debt
Retail No direct
cash flow equivalent
items in 52
Financial weeks 52 weeks
Review to to
7
March 9 March
2020 2019
(restated)
Ref GBPm GBPm
Net interest
paid a (405) (423)
Strategic
capital
expenditure b - (36)
Repayment of
lease
liabilities c (419) (429)
(Repayment)/
proceeds
from
borrowings d (379) (446)
Other e (3) (8)
* To help the reader understand cash flows of the
business a summarised cash flow statement is included
within the Financial Review.
* As part of this a number of line items have been
combined. The cash flow in note 7 of the financial
statements includes a reference to show what has been Joint
combined in these line items. ventures f 143 13
Retail Net cash
free cash generated
flow from 52
operating Reconciliation of retail weeks 52 weeks
activities free cash flow to to
7
March 9 March
2020 2019
(restated)
GBPm GBPm
Cash generated from
retail operations 1,971 1,921
Net interest paid (ref
(a) above) (405) (423)
Corporation
tax (113) (61)
Retail purchase of
property,
plant and equipment (517) (466)
Retail purchase of
intangible
assets (82) (78)
Retail proceeds from
disposal of property,
plant and equipment 81 64
Initial direct costs
on right-of-use assets (13) (11)
Repayments of
obligations
under leases(1) (419) (429)
Add back: Strategic
capital expenditure - 36
Dividends and
distributions
received 143 18
Investment in joint
ventures and associates - (5)
Bank capital
injections (35) (110)
* Net cash generated from retail operations, after
perpetual security coupons and cash capital
expenditure but before strategic capital expenditure,
and including payments of lease obligations, cash
flows from joint ventures and associates and
Sainsbury's Bank capital injections.
* This measures cash generation, working capital
efficiency and capital expenditure of the retail
business. Free cash flow 611 456
1 "Repayments of obligations under leases" excludes repayments of hire purchase arrangements
APM Closest Definition/Purpose Reconciliation
equivalent
IFRS
measure
Net cash Cash 52 weeks 52 weeks
generated generated * This enables management to assess the cash generated to to
from from from its core retail operations. 7 March 9 March
retail operations 2020 2019
operations (restated)
(per * A reconciliation between this and cash generated from GBPm GBPm
Financial operations per the accounts is shown here: Retail cash generated from
Review) operating activities (per note
7) 1,474 1,456
Perpetual security coupons (23) (23)
Interest received 2 4
Net retail cash generated from
operations in Financial Review 1,453 1,437
Core No direct
retail equivalent 52
capital weeks 52 weeks
expenditure to to
7
March 9 March
2020 2019
(restated)
GBPm GBPm
Purchase of property,
plant and equipment (517) (430)
Purchase of intangibles (82) (78)
Cash capital expenditure before
strategic capital expenditure
(note 7) (599) (508)
* Capital expenditure excludes Sainsbury's Bank, before
proceeds on disposals and before strategic capital
expenditure.
* This allows management to assess core retail capital
expenditure in the period in order to review the
strategic business performance.
* The reconciliation from the cash flow statement is
included here.
Net debt Borrowings, A reconciliation of the measure is provided
cash, * Net debt includes the capital injections into in note 19 of the financial statements. In
derivatives Sainsbury's Bank, but excludes the net debt of addition, to aid comparison to the balance
, Sainsbury's Bank and its subsidiaries. sheet, reconciliations between financial
financial assets at FVTOCI and derivatives per the
assets balance sheet and Group net debt (i.e. including
at FVTOCI, Financial Services) is included below:,
lease 7 March 9 March
liabilities 2020 2019
(restated)
GBPm GBPm
Financial instruments at FVTOCI
per balance sheet 1,054 856
Less equity-related securities (251) (233)
Financial instruments at FVTOCI
included in Group net debt 803 623
Net derivatives per balance
sheet (71) (4)
Less derivatives not used
to hedge borrowings 60 (5)
Derivatives included in Group
net debt (11) (9)
* It is calculated as: financial assets at fair value
through other comprehensive income (excluding equity
investments) + net derivatives to hedge borrowings +
net cash and cash equivalents + loans + lease
obligations + perpetual securities.
* This shows the overall strength of the balance sheet
alongside the liquidity and its indebtedness and
whether the Group can cover its debt commitments.
APM Closest Definition/ Purpose Reconciliation
equivalent
IFRS
measure
Other
Net debt/ No direct A reconciliation of this is provided
underlying equivalent * Net debt divided by Group underlying EBITDAR. in the Financial Review on page 22.
EBITDAR
* This helps management measure the ratio of the
business's debt to operational cash flow.
Return No direct An explanation of the calculation is
on capital equivalent * Return on capital employed is calculated as return provided in the Financial Review on
employed divided by average capital employed. page 22.
* Return is defined as 52 week rolling underlying
profit before interest and tax.
* Capital employed is defined as Group net assets
excluding pension deficit/surplus, less net debt
(excluding perpetual securities). The average is
calculated on a 14 point basis.
* This represents the total capital that the Group has
utilised in order to generate profits. Management us
e
this to assess the performance of the business.
Fixed No direct EBITDAR is reconciled in the Financial
charge equivalent * Group underlying EBITDAR divided by rent Review on page 22.
cover (representing capital and interest repayments on
leases) and underlying net finance costs, where
interest on perpetual securities is treated as an
underlying finance cost. All items are calculated on
a 52 week rolling basis.
Underlying net finance costs as per
* This helps assess the Group's ability to satisfy note 9 of the financial statements.
fixed financing expenses from performance of the
business.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EADLNADNEEAA
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April 30, 2020 02:00 ET (06:00 GMT)
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