TIDMSBRY
RNS Number : 3152E
Sainsbury(J) PLC
05 November 2020
J Sainsbury plc
5 November 2020
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES
OF ARTICLE 7 OF REGULATION (EU) NO 596/2014 (MAR)
Strategy Update and Interim Results for the 28 weeks ended 19
September 2020
-- Total Retail sales up 7.1 per cent (excluding fuel) with
like-for-like sales up 6.9 per cent. Grocery sales up 8.2 per cent
and General Merchandise sales up 7.4 per cent
-- Digital sales up 117 per cent to GBP5.8 billion, nearly 40
per cent of total sales. Groceries Online sales up 102 per cent
-- Statutory Group sales (excluding VAT) down 1.1 per cent, with fuel sales down 44.6 per cent
-- Loss before tax GBP(137) million, reflecting GBP438 million
of one-off costs associated with Argos store closures and other
strategic and market changes
-- Underlying profit before tax GBP301 million
-- Retail costs of approximately GBP290 million to protect
customers and colleagues from COVID-19, partially offset by GBP230
million business rates relief
-- Free cash flow GBP943 million
-- Non-lease net debt down by GBP912 million to GBP267 million
-- Special dividend of 7.3p to be paid in lieu of final dividend
for the 2019/20 financial year, aligned to policy of 1.9x full year
dividend cover by underlying earnings
-- Interim dividend of 3.2p, in line with policy of paying 30
per cent of prior full year dividend
-- Full year underlying profit before tax now expected to be at
least five per cent higher than last year, reflecting stronger than
expected sales, particularly at Argos
Strategy Update: Driven by our passion for food, together we
serve and help every customer
We are refocusing on our core food business, putting food back
at the heart of Sainsbury's. We will:
-- Lower food prices, focusing on offering customers consistently good value
-- Accelerate food innovation, tripling the number of new products we launch each year
-- Profitably grow Groceries Online sales to meet further demand
-- Increase the rate of new Convenience store and Neighbourhood
Hub openings over the next three years
-- Continue to reduce plastic and food waste and inspire
customers to eat healthier products, which will be better for the
climate and environment, as we work towards becoming Net Zero by
2040
-- Close our meat, fish and deli counters, based on reduced
customer demand. This will make stores simpler to run and reduce
food waste. We will keep adding more quality and innovation in our
aisles
Our other businesses and brands must deliver in their own right
and actively support our ambition in food
-- We are building on the success of integrating Argos stores
into Sainsbury's and accelerating the final stages:
o By March 2024 we will open up to 150 more Argos stores in
Sainsbury's and add 150-200 more Argos collection points in
supermarkets and convenience stores, so that every Sainsbury's
supermarket will have either an Argos store in store or a
collection point
o As we add more Argos stores and collection points in
Sainsbury's, we will close around 420 Argos standalone stores,
reducing the UK Argos standalone store estate to around 100 by
March 2024
-- We are expanding our ambition for Habitat, which will become
our main home and furniture brand in Argos and Sainsbury's
-- We are accelerating our plans for Nectar, bringing greater
support for food and faster profit growth
-- We expect Financial Services returns and profits to double in
five years, despite the challenges of COVID-19
We will accelerate the pace of change across our business,
simplifying our operations, delivering structural cost savings to
support investment into our core food offer and driving an
inflection in profit momentum.
-- We will transform our approach to costs across the business,
delivering a reduction in our retail operating costs to sales ratio
of at least two percentage points by March 2024
-- This will create at least GBP600 million of annual additional
funding by March 2024 to reinvest in the customer offer and deliver
improved financial returns. This will be after driving efficiencies
to cover inflationary cost pressures, volume-related cost increases
and the cost of meeting increasing customer demand for online
groceries
-- We are investing in the integration of our logistics and
supply chain network and the accelerated restructuring of the Argos
store estate, reducing costs and delivering working capital
benefits
-- Reflecting our commitments to focus our resources and move
faster, we are open to partnering or outsourcing where this
efficiently accelerates our plans to improve our customer offer
We expect this new plan to drive an inflection in underlying
profit momentum, with pre-tax profits in the year to March 2022 to
exceed those reported in the year to March 2020 (which were not
impacted by COVID-19)
-- We will continue our track record of strong cash generation,
meeting our target of at least GBP750 million net debt reduction in
the three years to March 2022 and generating average retail free
cash flow of GBP500 million per year over the following three years
to March 2025
-- Capital expenditure will increase to between GBP700 million
and GBP750 million per year in the three years to March 2024 to
support high returning infrastructure transformation investments
before returning to around GBP600 million per year
-- We will incur one off costs from infrastructure, operating
model and structure changes of GBP900 million to GBP1 billion in
the period to March 2024 (approximately GBP300 million cash). We
expect total non-underlying costs of around GBP625 million to be
booked in the current financial year (around GBP100 million
cash)
Simon Roberts, Chief Executive of J Sainsbury plc said :
"As we go into lockdown in England for the second time this year
and restrictions are in place across the UK, we know our customers
and colleagues are feeling anxious and we will do all we can to
support them. Our colleagues have done an exceptional job going
above and beyond for our customers every day which is why we are
giving our frontline colleagues a second 10 per cent thank you
payment. Above all else today, I want to express my heartfelt
thanks to every one of my colleagues in our stores, in our depots,
and across our store support centres for all your hard work and for
your outstanding team effort. We also want to support our
communities and those in need and are creating a GBP5 million
community fund for local charities and good causes, in addition to
the GBP7 million we donated to Fareshare and Comic Relief earlier
this year. We want to do our bit to ensure that no one goes hungry
at Christmas and to support those most in need.
"COVID-19 has accelerated a number of shifts in our industry.
Investments over recent years in digital and technology have laid
the foundations for us to flex and adapt quickly as customers
needed to shop differently. Around 19 per cent of our sales were
digital this time last year and nearly 40 per cent of our sales are
digital today.
"While we are working hard to help feed the nation through the
pandemic, we have also spent time thinking about how we deliver for
our customers and our shareholders over the longer term.
"We will put food back at the heart of Sainsbury's. We are
already working to make this happen - we have lowered prices on
over 1,500 every day grocery products over the past few months and
we will do more of this, focusing on the staple products that our
customers buy every day. We know that customers are feeling the
pinch and we want them to feel confident they will get always get
great value, quality and service from Sainsbury's. We will focus on
accelerating product innovation and will bring new and exclusive
products to our customers much more often. To support our ambition
in food, we are accelerating our ambition to structurally reduce
our cost base right across the business so we can invest faster
back into our core food offer.
"Our other brands - Argos, Habitat, Tu, Nectar and Sainsbury's
Bank - must deliver for their customers and for our shareholders in
their own right. Argos sales have been strong over the past six
months and we have gained almost two million new customers as
people have re-connected with Argos. Over the next three years we
will make Argos a simpler, more efficient and more profitable
business while still offering customers great convenience and value
and improving availability. We will also make Habitat more widely
available in Sainsbury's and Argos, giving customers access to
stylish home and furniture products at more affordable prices. We
are talking to colleagues today about where the changes we are
announcing in Argos standalone stores and food counters impact
their roles. We will work really hard to find alternative roles for
as many of these colleagues as possible and expect to be able to
offer alternative roles for the majority of impacted
colleagues.
"Given the unprecedented circumstances of this year and the
challenges facing our colleagues, including the changes we are
announcing today, I have informed the Board that if a bonus is
payable, I will waive any bonus entitlement for this financial
year.
"We are raising our ambitions. By delivering improvements in
value and quality and simplifying this business, we will do a
better job for our customers and deliver an improved financial
performance and stronger shareholder returns.
"Right here and now I and all the team are focused on supporting
and delivering for our customers in the days and weeks ahead."
Tables
28 weeks to 19 September 28 weeks to
2020 21 September
2019
Statutory Reporting
Group sales (exc. VAT, inc. fuel) GBP14,934m GBP15,097m
------------------------- --------------
Items excluded from underlying results GBP(438)m GBP(229)m
------------------------- --------------
(Loss)/profit before tax GBP(137)m GBP9m
------------------------- --------------
(Loss) for the financial period GBP(179)m GBP(38)m
------------------------- --------------
Basic loss per share (8.3)p (2.2)p
------------------------- --------------
28 weeks to 28 weeks to
19 September 2020 21 September
2019
Business Performance
Underlying group sales (inc. VAT) GBP16,557m GBP16,856m
------------------- --------------
Underlying profit before tax GBP301m GBP238m
------------------- --------------
Underlying basic earnings per share 10.1p 7.9p
------------------- --------------
Net debt GBP(6,168)m GBP(6,778)m
------------------- --------------
Non-lease net debt GBP(267)m GBP(1,008)m
------------------- --------------
Interim dividend 3.2p 3.3p
------------------- --------------
Special dividend 7.3p -
------------------- --------------
Like-for-like sales growth 2019/20 2020/21
--------------------------------- ----------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 H1
------- ------- ------- ------- -------- -------- --------
Like-for-like sales (exc. fuel) (1.6)% (0.2)% (0.7)% 1.3% 8.2% 5.1% 6.9%
------- ------- ------- ------- -------- -------- --------
Like-for-like sales (inc. fuel) (1.0)% (0.4)% (1.1)% 1.3% (2.3)% (0.5)% (1.6)%
------- ------- ------- ------- -------- -------- --------
2019/20 2020/21
Total sales growth Q1 Q2 Q3 Q4 Q1 Q2 H1
--------------------------------- ------- ------- ------- ------- -------- -------- --------
Grocery (0.5)% 0.6% 0.4% 2.0% 10.5% 5.1% 8.2%
------- ------- ------- ------- -------- -------- --------
Total General Merchandise (3.1)% (2.0)% (3.9)% (1.3)% 7.2% 7.6% 7.4%
------- ------- ------- ------- -------- -------- --------
GM (Argos) 0.4% 10.7% 10.9% 10.8%
------- ------- ------- ------- -------- -------- --------
GM(Sainsbury's Supermarkets) (8.1)% (9.3)% (6.9)% (8.2)%
------- ------- ------- ------- -------- -------- --------
Clothing (4.5)% 3.3% 4.4% 2.5% (26.7)% (7.5)% (18.3)%
------- ------- ------- ------- -------- -------- --------
Total Retail (excl. fuel) (1.2)% 0.1% (0.7)% 1.3% 8.5% 5.2% 7.1%
------- ------- ------- ------- -------- -------- --------
Fuel 4.9% (56.1)% (29.3)% (44.6)%
------- ------- ------- ------- -------- -------- --------
Total Retail (inc. fuel) (0.6)% 0.1% (0.9)% 1.9% (2.1)% (0.4)% (1.4)%
------- ------- ------- ------- -------- -------- --------
Outlook
Sales during the first half were stronger than the base case
assumptions we outlined in April, particularly at Argos, driving a
strong underlying profit increase against a soft comparative base.
Retail costs of around GBP290 million associated with protecting
customers and colleagues from COVID-19 were partially offset by
GBP230 million of business rates relief.
Grocery sales and general merchandise sales have remained strong
to date in the second half of the year and we expect Financial
Services to return to profit in the second half. Retail profits
will, however, also reflect a tougher comparative base, investment
in improving value for customers and ongoing costs associated with
protecting customers and colleagues from COVID-19. We cannot fully
predict the impact of COVID-19 and lockdown restrictions on retail
sales and costs for the remainder of the second half of the year
but our current assumptions would result in full year Group
underlying profit before tax increasing by at least five per cent
year on year.
Looking beyond this financial year, we will invest significantly
to accelerate innovation, improve the quality of our food, lower
our prices and meet the growing demand for online groceries. We
will fund these investments through simplifying our business and
accelerating our cost savings plans and expect underlying profits
in the year to March 2021/22 to be higher than those reported in
the year to March 2019/20(1) (which were not impacted by
COVID-19).
Capital expenditure will increase over the next three years to
fund high-returning logistics and Argos transformation plans. We
expect these projects to generate working capital improvements and
expect cash generation to remain strong. We will meet our target of
reducing net debt by at least GBP750 million in the three years to
March 2022 while maintaining our dividend policy. In outer years we
expect to continue our track record of strong cash generation, with
average retail free cash flow of GBP500 million per annum over the
three years to March 2025.
Dividend
In April the Board chose, due to limited visibility at the time
on the potential impact of COVID-19 on the business, to defer
dividend payment decisions and did not pay a final dividend for the
2019/20 financial year. In the light of improved visibility, strong
trading and a strong balance sheet position, the Board has chosen
to pay a special dividend in lieu of a final dividend for the
2019/20 financial year. The dividend of 7.3p is aligned to policy
of 1.9x full year dividend cover by underlying earnings. This will
be paid on 18 December 2020 to shareholders on the Register of
Members at the close of business on 13 November 2020.
The Board has approved an interim dividend of 3.2p, in line with
our policy of paying 30 per cent of prior full year dividend. This
will also be paid on 18 December 2020 to shareholders on the
Register of Members at the close of business on 13 November
2020.
Notes
Certain statements made in this announcement are forward-looking
statements. Such statements are based on current expectations and
are subject to a number of risks and uncertainties that could cause
actual events or results to differ materially from any expected
future events or results referred to in these forward-looking
statements. They appear in a number of places throughout this
announcement and include statements regarding our intentions,
beliefs or current expectations and those of our officers,
directors and employees concerning, amongst other things, our
results of operations, financial condition, liquidity, prospects,
growth, strategies and the business we operate. Unless otherwise
required by applicable law, regulation or accounting standard, we
do not undertake any obligation to update or revise any
forward-looking statements, whether as a result of new information,
future developments or otherwise.
A webcast presentation will be available to view on our website
at 7.30am. The webcast can be accessed at the following link:
https://webcasts.sainsburys.co.uk/sainsbury157
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.sainsburys.co.uk/sainsbury158
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 Third Quarter Trading
Statement at 07:00 (BST) on 13 January 2021.
S
1 2019/20 UPBT GBP586 million
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
Strategy Update: Driven by our passion for food, together we
serve and help every customer
We will put food back at the heart of our business and will
build on the changes we have made as we helped our customers
through the COVID-19 pandemic. We are raising our ambitions and
will speed up the pace of change across our business, simplifying
our operations and accelerating our cost savings programmes so that
we can invest more in food quality, choice, innovation and
consistently lower prices for our customers. We will reduce
complexity, transform our cost base and ensure that our portfolio
of brands supports our focus on food, thereby improving financial
performance and delivering stronger shareholder returns.
Food First
Our clear priority is to build on our strong brand heritage and
reputation for quality, range and innovation and offer more
consistent value to customers while making shopping more
convenient. This is what we mean by putting food back at the heart
of Sainsbury's. We will deliver delicious, great value food
wherever and however customers want to shop with us.
-- We have lowered prices on over 1,500 products and will go
much further. We will lower prices on thousands of every day food
products, focusing on staple products that our customers buy every
day
-- We will accelerate food product innovation by recruiting more
product developers. Working closely with our suppliers, we will
triple the number of new products and increase speed to market by
at least 30 per cent. In September we launched 200 new fresh food
products as part of the biggest re-vamp of our fresh food aisles in
more than a decade
-- We closed our meat, fish and delicatessen counters in March
as we focused all our efforts on feeding the nation. Customers have
told us they are happy buying these products in the aisle. We have
therefore decided to close permanently our meat, fish and
delicatessen counters. Our pizza and patisserie counters remain
open and we continue to freshly bake bread in 1,348 stores. These
changes will help us focus on quality, value and availability,
while reducing store complexity and waste
-- We have more than doubled our Groceries Online capacity and
volume since March. 17 per cent of our grocery sales are now online
compared with seven per cent in March. We are currently fulfilling
over 700,000 online customer orders per week across home delivery
and click and collect. By the end of this year we expect to be able
to fulfil 760,000 orders per week and we will continue to grow
capacity in order to meet customer demand going forward. Our
groceries online business is profitable due to its scale and
in-store pick model and we will focus on driving efficiencies to
continually improve profitability. Our Chop Chop one hour food
delivery service is now in 15 cities across the UK and our
agreements with Uber Eats and Deliveroo will help us to reach even
more new customers and serve more shopping missions
-- Our Net Zero sustainability plan is key to putting food at
the heart of Sainsbury's. Customers want tasty food, great quality,
low prices and they want to ensure that the food they buy is having
the lowest impact on the environment, now and in the future. We are
committed to helping customers to eat more healthy products, which
is good for them and good for the climate and the environment. We
will reduce our plastic usage by 50 per cent by 2025 and reduce our
food waste
-- We will adapt our supermarkets and convenience stores to
reflect changing shopping habits and local demand. We will expand
the successful introduction of fresh food prepared on site - such
as hot meals, sushi, freshly baked bread and hot coffee - and make
more space available for our in-aisle fresh food ranges and food to
go. To do this profitably, we will free up space, reduce complexity
and cut excess costs in our supermarkets
-- We plan to open around 18 more 'Neighbourhood Hub'
convenience stores over the next three years. These stores are
larger than a typical convenience store and offer locally-tailored
choice across food, beauty, clothing, seasonal and general
merchandise. They are conveniently located, easy to shop and have
all the benefits of the Argos offer. We expect them to be very
popular one-stop shops for their local communities. We will also
increase our rate of new convenience store openings to at least 20
per year over the next three years
Brands that Deliver
We will refocus the role of our portfolio brands to ensure that
they contribute positively in their own right, actively support our
ambition in food and do not dilute returns or divert focus and
resources from the core.
Argos, Habitat, Tu, Nectar and Sainsbury's Bank will deliver for
their customers and drive strong, sustainable, profitable growth to
support our core food business.
-- Argos sales grew by nearly 11 per cent in the first half,
with 90 per cent of sales originating online and almost two million
customers re-discovering Argos despite standalone Argos stores
being closed for 12 weeks. Building on this success we will
accelerate the structural integration of Sainsbury's and Argos and
further simplify the Argos business model, making it more efficient
and profitable and improving our customer offer at the same
time
-- 120 of our standalone Argos stores have not reopened since we
closed them back in March. These stores will now close permanently.
We currently have 315 Argos stores in our supermarkets and 296
collection points across supermarkets and convenience stores. Over
the next three years we will open up to another 150 Argos Stores in
supermarkets and a further 150-200 collection points. In total, we
will close around 420 Argos stores by March 2024, reducing the
total number of standalone stores to around 100
-- To support this streamlined infrastructure we will build a
total of 32 Local Fulfilment Centres across the UK that will
operate our fast track delivery operations, delivering to
customers' homes and to Argos stores and collection points across
the country within hours. Through this transformation, we will
significantly reduce our cost base and stock holding while
improving speed, convenience and availability for customers
-- We stopped printing the Argos catalogue as customers are
increasingly shopping online. By focusing our resources on our
website we are able to deliver a more modern, dynamic and flexible
approach to both pricing and new products. We will continue to
print the iconic Christmas Gift Guide, which is bigger and better
than ever this year
-- We are investing in Habitat, which will become our main home
and furniture brand across Sainsbury's and Argos. Habitat is a
strong brand and, by increasing its visibility in Sainsbury's and
Argos stores and online, expanding the product range and making
prices more affordable, we have a significant opportunity to grow
market share
-- Tu Clothing has delivered very strong online sales growth and
the range is growing both value and volume market share(1)
-- Nectar gives us a strong competitive advantage, supports our
food business and is valued by our customers. It is also central to
how we understand our customers because it identifies, in real
time, how they shop with us and what they want. We will continue to
grow our portfolio of coalition partners and build our Nectar360
digital media business
-- We have made good progress with our Financial Services
transformation plan and streamlined our product offer . We still
expect to double profit and returns in our Financial Services
business within five years, despite the challenges of COVID-19.
This reflects a strong balance sheet and effective cost management
and we remain confident that no capital injections will be required
from the Group
1 Kantar Total Clothing, Footwear and Acc for 24 weeks to 20 September 2020
Colleague impact
We are talking to colleagues today where the changes we are
announcing impact their roles. We recruit 55,000 Retail colleagues
every year and have already hired 52,000 people since March,
including 29,000 additional colleagues to support our efforts to
feed the nation. We have many job opportunities for colleagues who
work on our food counters or in our Argos standalone stores that
are closing, but vacancies might not always be in the right
location or at suitable hours for all colleagues. Whilst we will
aim to find alternative roles for as many colleagues as possible,
around 3,500 of our colleagues could lose their roles as a result
of our proposals. Including these proposals, we expect to increase
our colleague population by 6,000 roles by the end of the financial
year. We have an excellent track record of finding alternative
roles for colleagues - for example, where we have moved colleagues
from Argos standalone stores to stores in Sainsbury's supermarkets,
we have retained 90 per cent of colleagues. We will do everything
possible to find alternative roles for our colleagues.
Save to Invest
We will deliver a step change in efficiency by transforming our
approach to costs, simplifying our organisation and delivering a
structural reduction in our operating cost base. We are
accelerating our cost saving plans to unlock new opportunities in
order to fund the improvement of our food offer and to ensure we
can meet the growth in customers shopping across a broad range of
channels.
-- We will simplify our business and lower the overall cost base
in our operations. We will deliver a step change reduction in our
retail operating costs to sales ratio of at least two percentage
points by March 2024, creating around GBP600 million of annualised
additional capacity to invest in the customer offer and deliver
improved financial returns. The money we save will enable us to
reinvest in our food business to give our customers better
products, improved service and lower prices
-- This will require total cost savings significantly higher
than GBP600 million given the need to additionally address
inflationary cost pressures, volume-related cost increases and the
cost of meeting increasing customer demand for online groceries. We
have extensive plans in place to deliver these cost savings across
the business. Some key examples are:
o Creating a new supply chain and logistics operating model,
moving to a single integrated supply chain and logistics network
across Sainsbury's and Argos. This will structurally reduce our
costs by GBP150 million by March 2024
o Moving 150 Argos standalone stores into Sainsbury's and
reducing the number of Argos standalone stores to 100 over the next
three years will reduce our operating costs by GBP105 million by
March 2024
o Reducing significantly our costs by further adapting our store
operating model to better reflect customer demand and the way
customers shop in our stores now and in the future. The closure of
our meat, fish and delicatessen counters will save at least GBP60
million in operating costs and will reduce food waste and energy
consumption in our stores
o Building on last year's property strategy programme, where we
said 10 to 15 supermarkets and 30 to 40 convenience stores would
close over two years, we now expect that 15 to 20 supermarkets and
50 to 60 convenience stores will close over the next three years.
We expect to open 100 convenience stores over the next three
years
Strategy Update - Key Financials
-- We expect an inflection in underlying profit momentum, driven
by an improved food performance, improved financial services and
general merchandise profits, lower interest costs and funding from
the accelerated cost savings programmes outlined above
-- Based on an expectation that the impact of COVID-19 on
profits will be limited to the financial year to March 2021, we
expect underlying pre-tax profits in the financial year to March
2022 to exceed those reported in the financial year to March
2020
-- We expect to meet our target of reducing net debt by at least
GBP750 million in the three years to March 2022 while maintaining a
policy of paying a dividend covered 1.9x by underlying earnings and
to generate average retail free cash flow of GBP500 million per
year over the following three years
-- Capital expenditure will increase to around GBP700-750
million per year in the three years to March 2024 to support high
returning investments in the transformation of our logistics
platform and accelerated restructuring of the Argos store estate,
before returning to around GBP600 million per year
-- The changes required to our physical infrastructure, store
operating models and central structures will incur one-off costs of
GBP900 million to GBP1 billion in the period to March 2024, of
which around GBP300 million will be cash costs. We expect total
non-underlying costs of around GBP625 million to be booked in the
current financial year, of which around GBP100 million will be cash
costs
Targets and metrics
We will better align internal and external metrics and targets
and will report against these consistently. Key metrics will
be:
-- Customer Satisfaction
-- Grocery market share
-- Colleague engagement
-- Movement in operating costs as a percentage of sales
-- Underlying Profit Before Tax
-- Retail Free Cash Flow
-- Net Zero by 2040 in our own operations
Financial Review for the 28 weeks to 19 September 2020
A number of Alternative Performance Measures ('APMs') have been
adopted by the Directors to provide additional information on the
underlying performance of the Group. These measures are intended to
supplement, rather than replace the measures provided under IFRS.
Please see Note 2.5 on page 30 for further information.
In the 28 weeks to 19 September 2020, the Group generated a loss
before tax of GBP137 million (HY 2019/20: profit before tax of GBP9
million) and an underlying profit before tax of GBP301 million (HY
2019/20: GBP238 million).
Summary income statement
28 weeks 28 weeks Change 52 weeks
to to to 7 March
19 September 21 September
2020 2019 2020
GBPm GBPm % GBPm
Underlying Group sales (including
VAT) 16,557 16,856 (1.8) 32,394
Underlying Retail sales (including
VAT) 16,338 16,567 (1.4) 31,825
Underlying Group sales (excluding
VAT) 14,934 15,097 (1.1) 28,993
Underlying Retail sales (excluding
VAT) 14,715 14,808 (0.6) 28,424
Underlying operating profit/(loss)
Retail 555 437 27 938
Financial services (55) 20 N/A 48
------------------------------------ -------------- -------------- ------- ------------
Total underlying operating profit 500 457 9 986
Underlying net finance costs(1) (199) (219) 9 (400)
Underlying profit before tax 301 238 26 586
Items excluded from underlying
results (438) (229) (91) (331)
------------------------------------ -------------- -------------- ------- ------------
(Loss)/profit before tax (137) 9 N/A 255
Income tax expense (42) (47) 11 (103)
------------------------------------ -------------- -------------- ------- ------------
(Loss)/profit for the financial
period (179) (38) (372) 152
------------------------------------ -------------- -------------- ------- ------------
Underlying basic earnings per
share 10.1p 7.9p 28 19.8p
Basic (loss)/earnings per share (8.3)p (2.2)p (277) 5.8p
Interim dividend per share 3.2p 3.3p (3) 3.3p
Special dividend per share 7.3p N/A N/A N/A
------------------------------------ -------------- -------------- ------- ------------
1 Net finance costs including perpetual securities coupons
before non-underlying finance movements.
Group sales
Group sales including VAT decreased by 1.8 per cent year-on-year
whilst Retail sales (including VAT, including fuel) decreased by
1.4 per cent year-on-year. Retail sales (including VAT, excluding
fuel) increased by 7.1 per cent driven by Grocery and General
Merchandise sales.
Total sales performance by category 28 weeks to 28 weeks to
19 September 2020 21 September 2019 Change
GBPbn GBPbn %
------------------------------------- ------------------ ------------------ --------
Grocery 11.2 10.3 8.2%
General Merchandise 3.2 3.0 7.4%
Clothing 0.4 0.5 (18.3)%
------------------------------------- ------------------ ------------------ --------
Retail (exc. fuel) 14.8 13.9 7.1%
------------------------------------- ------------------ ------------------ --------
Fuel sales 1.5 2.7 (44.6)%
Retail (inc. fuel) 16.3 16.6 (1.4)%
------------------------------------- ------------------ ------------------ --------
A number of factors contributed to an 8.2 per cent growth in
Grocery sales, with the primary driver being customers consuming
more meals at home instead of at out of home locations such as
pubs, restaurants and work places in response to the COVID-19
pandemic.
COVID-19 provided and continues to provide a challenging
backdrop for customers and colleagues, but we have a clear mission
as we focus on helping feed the nation. We have sought to make the
customer journey convenient, whether in store or online, supported
by great service from our colleagues across the business. We have
invested in our estate to ensure customers and colleagues are able
to shop and work safely, through protective measures such as
checkout screens, personal protective equipment and increased
cleaning. We continue to innovate and invest in customer experience
through key initiatives such as SmartShop providing customers with
scan as you go technology, which is increasingly popular.
We responded at great pace to the increase in demand for
Groceries Online by more than doubling our online delivery and
click and collect capacity. This was achieved at very little
capital expense, as the capacity increase was driven predominantly
through stores that already fulfilled online orders, with an
increase of only 15 stores versus H1 last year (259 versus 244). We
helped to protect and serve the most vulnerable in society through
offering priority slots. In stores, customers are choosing to shop
less frequently and buying more during each visit.
General Merchandise sales grew 7.4 per cent, with Argos sales up
nearly 11 per cent despite all Argos standalone stores being closed
for a number of weeks. Our strong execution combined with the
strength and flexibility of the Argos supply chain and digital
platform meant we were able to fulfil a 78 per cent increase in
sales ordered online and delivered to home or collected in a
Sainsbury's store. Customer shopping patterns were influenced by
the pandemic with a notable increase in demand for Office equipment
as customers transitioned towards working from home. Gaming also
saw a year on year uplift driven by customer purchases of Hardware
and Software whilst Seasonal sales benefitted from longer periods
of warm weather in comparison to last year.
Clothing sales declined by 18.3 per cent as customers
deprioritised non-essential spend during the pandemic.
Nevertheless, Online Clothing sales grew by 75 per cent as
customers switched to shopping digitally. Clothing was the hardest
hit in the first few months of the pandemic, with sales steadily
improving over the summer months.
Fuel sales declined by 44.6 per cent, due to both retail price
deflation and lower volumes as a result of reduced travel during
the pandemic.
Total sales performance by channel 28 weeks to 28 weeks to
19 September 21 September
2020 2019
------------------------------------ ------------- -------------
Supermarkets (inc Argos stores
in Sainsbury's) 3.2% (0.7)%
Convenience (8.0)% 2.0%
Groceries Online 102.2% 7.0%
------------------------------------- ------------- -------------
Supermarket sales increased by 3.2 per cent. Our investment into
adapting our supermarket space to serve a wide variety of shopping
missions has enabled us to serve customers as they consume more
meals at home and move towards 'less frequent but larger' shops. We
have been able to offer customers a broad range of products and
services under one roof, through Argos stores in Sainsbury's and
initiatives such as our Beauty Halls and Wellness aisles.
Convenience sales declined by 8.0 per cent partly due to
COVID-19 resulting in the temporary closure of 26 stores, of which
15 have since reopened. Sales have grown strongly in neighbourhood
locations, with customers spending more time at home and preferring
to shop locally, but this was more than offset by reduced footfall
in urban locations and reduced demand for Food on the Move.
Groceries Online sales increased by 102.2 per cent,
predominantly driven by an increase in the number of orders. This
increase in capacity has enabled us to serve and protect the most
vulnerable in society and provide our customers with a more
convenient shopping experience.
Retail like-for-like sales performance 28 weeks to 28 weeks to
19 September 21 September
2020 2019
Like-for-like sales (exc. fuel) 6.9% (1.0)%
Like-for-like sales (inc. fuel) (1.6)% (0.7)%
----------------------------------------- ------------- -------------
Retail like-for-like ('LFL') sales, excluding fuel, increased by
6.9 per cent (HY 2019/20: 1.0 per cent decrease).
583 Argos stores were closed on Tuesday 24(th) March 2020 as a
result of COVID-19 lockdown restrictions prohibiting the opening of
non-essential retail stores. This included 570 standalone stores
within the UK and Republic of Ireland ('ROI'); seven Argos in
Sainsbury's stores and six Argos in Homebase stores. 38 ROI stores
were reopened in May whilst the other stores were opened in phases
between June and September. 137 reopened as part of phase one in
June and July; 115 reopened as part of phase two in late July and
131 opened as part of phase three in September. As at 19 September
2020, 14 stores have been permanently closed and 148 stores,
including 142 standalone stores and 6 Argos in Homebase stores,
remain closed. A decision was made at the end of the half as
announced as part of the Restructuring Programme (refer to Strategy
Update on page 1), to permanently close these 148 stores. Of these
148 stores, 28 stores had previously been identified for closure in
future periods as part of the programme announce at the Capital
Markets Day on 25th September 2019. These closures have now been
accelerated. The closure of the 120 additional stores has been
announced today.
The impact on sales of stores which were temporarily closed due
to COVID-19 have been included within LFL sales. Only permanently
closed sites and those temporarily closed for non COVID-19 related
reasons are treated as non LFL. The 148 stores which remained
closed as of 19 September 2020, and which will now not reopen, will
be treated as permanently closed from H2 for the purpose of
like-for-like calculations.
Space
In the first half of 2020/21, Sainsbury's opened five new
Convenience stores and closed two. During the period Argos opened
four new stores in Sainsbury's and closed 14 standalone Argos
stores. The number of Argos collection points in Sainsbury's stores
increased from 281 to 308. In total Argos had 872 stores and 308
collection points at the end of the period. Habitat had 16 stores,
of which 11 are in Sainsbury's.
As at 19 September 2020, closed stores due to COVID-19 include
11 Sainsbury's Convenience stores; 142 standalone Argos stores and
six Argos in Homebase stores. A decision was made at the end of the
half, as announced as part of the Restructuring Programme, to not
reopen the 142 standalone Argos stores and six Argos in Homebase
stores.
Store numbers and
retailing space
As at New stores Disposals / Extensions / As at
closures(1,2) refurbishments /
downsizes
7 March 19 September
2020 2020
-------------------------- -------- ----------- ------------------------- ------------------------- -------------
Supermarkets 608 - - - 608
Supermarkets area '000
sq. ft. 21,167 - - (1) 21,166
Convenience 807 5 (2) - 810
Convenience area '000 sq.
ft. 1,898 14 (5) 6 1,913
Sainsbury's total store
numbers 1,415 5 (2) - 1,418
-------------------------- -------- ----------- ------------------------- ------------------------- -------------
Argos stores 570 - (14) - 556
Argos stores in
Sainsbury's 306 4 - - 310
Argos in Homebase 6 - - - 6
Argos total store numbers 882 4 (14) - 872
Argos collection points 281 31 (4) - 308
Habitat 16 - - - 16
-------------------------- -------- ----------- ------------------------- ------------------------- -------------
1 Disposals/closures exclude those stores temporarily closed during the half.
2 Disposals/closures exclude the 148 Argos stores, to be closed
permanently, following the decision made at the end of the half as
part of the Restructuring Programme.
Subject to further disruption from COVID-19, in this financial
year, Sainsbury's expects to open two supermarkets and 15-20 new
convenience stores and to close around 11 supermarkets and around
16 convenience stores.
In FY 2020/21, Argos expects to open 30-35 stores in
Sainsbury's, and close around 170 Argos standalone stores, of which
142 were already closed as at 19 September 2020.
The standalone Argos store estate will reduce to around 100
stores by March 2024, while we expect to open up to 150 new Argos
stores in Sainsbury's supermarkets and 150-200 collection
points.
Retail underlying operating profit
Retail underlying operating profit increased by 27 per cent to
GBP555 million (HY 2019/20: GBP437 million). Retail underlying
operating margin increased by 82 basis points year-on-year to 3.77
per cent (HY 2019/20: 2.95 per cent).
We invested heavily in our estate to ensure our customers and
colleagues were able to operate safely under the challenging
circumstances presented by the pandemic. We implemented protective
measures in store such as checkout screens, personal protective
equipment and increased cleaning. We supported our colleagues
through absence caused by COVID-19 and saw an overall increase in
labour hours as a result of social distancing, marshalling and the
increase in online demand. We also incurred additional costs due to
the pandemic within our Groceries Online channel from lower picking
speeds as a result of social distancing measures and the
reintroduction of bags as a COVID-19 precaution. We made a Thank
You payment to our store colleagues in recognition of their efforts
helping feed the nation, despite the challenging backdrop of the
pandemic. We benefited from Rates Relief during the period,
partially offsetting COVID-19 related costs.
We experienced higher operating cost inflation during the half
but were able to more than offset this through savings. This was
partly driven by improvements to our central operating model, which
delivered efficiencies within a number of areas, including
Logistics and Distribution. Changes to our store estate continue to
bring our businesses together, lowering costs and providing a
better integrated customer offer. We also achieved in Store
efficiencies through initiatives such as Smart Shop and the Stock
Replenishment App for colleagues. These investments in technology
provide a more convenient shopping experience for our customers
whilst simultaneously lowering our cost to serve. Fuel operating
profit declined year-on-year, driven by lower volumes following
reduced travel as a result of COVID-19 measures.
Retail underlying operating profit
28 weeks to 28 weeks to Change at
19 September 21 September constant fuel
2020 2019 Change prices
Retail underlying operating profit (GBPm)(1) 555 437 27.0%
Retail underlying operating margin (%)(2) 3.77 2.95 82bps 78bps
Retail underlying EBITDAR (GBPm)(3) 1,194 1,067 11.9%
Retail underlying EBITDAR margin (%)(4) 8.11 7.20 91bps 82bps
---------------------------------------------- ------------- ------------- ------- --------------
1 Retail underlying earnings before interest, tax and
Sainsbury's underlying share of post-tax profit from joint
ventures.
2 Retail underlying operating profit divided by underlying retail sales excluding VAT.
3 Retail underlying operating profit before net rental expense
of GBP4 million and underlying depreciation and amortisation of
GBP635 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 GBP1.2 billion, including around GBP500 million
right of use asset depreciation.
Financial Services
Financial Services results
6 months to 31 Aug 2020
2020 2019 Change
--------------------------------------------
Underlying revenue (GBPm) 219 289 (24)%
Interest and fees payable (GBPm) (54) (62) (13)%
Total income (GBPm) 165 227 (27)%
Underlying operating (loss)/profit (GBPm) (55) 20 N/A
-------------------------------------------- ------ ------ --------
Cost:income ratio (%) 77 70 700bps
Active customers (m) - Bank 2.0 2.1 (5)%
Active customers (m) - AFS 2.3 2.2 5%
Net interest margin (%)(1) 3.1 3.5 (40)bps
Bad debt as a percentage of lending (%)(2) 2.7 1.3 140bps
Tier 1 capital ratio (%)(3) 14.9 13.7 120bps
Total capital ratio (%)(4) 17.8 16.7 110bps
Customer lending (GBPbn)(5) 6.2 7.4 (16)%
Customer deposits (GBPbn)(5) (5.4) (6.3) (14)%
-------------------------------------------- ------ ------ --------
1 Net interest receivable divided by average interest-bearing assets.
2 Bad debt expense divided by average net lending.
3 Common equity Tier 1 capital divided by risk-weighted assets.
4 Total capital divided by risk-weighted assets.
5 Amounts due from customers at the Balance Sheet date in
respect of loans, mortgages, credit cards and store cards net of
provisions. The prior year comparative is as at the Year End
balance sheet date.
Financial Services underlying operating loss of GBP55 million
reflects the changed economic environment driven by COVID-19. We
have seen significantly reduced demand across consumer credit, and
less activity in our fee based products, particularly Travel Money
and ATMs. We have also made a significant provision in anticipation
of future credit losses, largely reflective of predictions for
unemployment, partially offset by management actions on funding and
costs.
Financial Services total income of GBP165 million has declined
year-on-year (HY 2019/20: GBP227 million). The fall in interest
income reflects a significant contraction in balances due to lower
consumer demand and a tightening of credit appetite. Fee income has
dropped markedly due to the closure of Travel Money Bureaux, and a
decline in ATM income due to lower cash usage, particularly during
lockdown.
The Financial Services cost:income ratio increased 700 basis
points to 77 per cent (HY 2019/20: 70 per cent) and is reflective
of the material drop in income in the half. However, we have also
materially reduced costs, with cost savings being delivered through
management actions including reducing FTE; digitising and improving
customer journeys; transitioning credit card customers to
paperless; efficiencies reducing resource required in call centres
and reduced fraud costs due to enhanced fraud detection
controls.
Net interest margin decreased by 40 basis points year-on-year to
3.1 per cent (HY 2019/20: 3.5 per cent) driven by a combination of
some changes in customer behaviour, particularly in terms of spend
and retention, and the reduction in base rate (with the associated
impact on our interest rate swap portfolio). We have significantly
reduced our savings rates which should recover some of the fall in
the second half.
Bad debt expense as a percentage of lending increased by 1.4 per
cent to 2.7 per cent (HY 2019/20: 1.3 per cent), mainly to account
for the expected unemployment increases of COVID-19.
The number of Bank active customers reduced by five per cent
year-on-year to 2.0 million driven by lower acquisition of new
business in the half, particularly on Cards and Loans, whilst Argos
Financial Services customers are up five per cent to 2.3 million
driven by more customers taking out an AFS store card following
improvements made to the customer online journey.
The Bank offered payment holidays across all of its lending
products to support customers who were impacted by COVID-19. 61,000
payment holidays were granted, 84 per cent of which have matured
and have returned to normal payment schedules following the initial
3 months. A small element requested a further 3 month
extension.
The capital position is strong with the CET 1 capital ratio
increasing by 120 basis points since August 2019 to 14.9 per cent
(HY 2019/20: 13.7 per cent) with the capital released as a result
of the contraction in balances more than offsetting the loss.
Customer lending decreased by 16 per cent to GBP6.2 billion, driven
by management actions to tighten credit and a decline in demand for
loans, credit cards and store cards. Customer deposits decreased by
14 per cent to GBP5.4 billion, reflecting the reduced funding
required due to the decline in lending.
We have made good progress with our Financial Services
transformation plan and streamlined our product offering. We still
expect to double profit and returns in our Financial Services
business within 5 years, despite the challenges of the current
environment. The Group's exposure to Financial Services has reduced
in the half driven by lower demand and customers deleveraging. The
level of credit provisions held against lending balances increased
by 1.2% to 5.0%. This largely reflects an additional overlay of
GBP43 million we booked in relation to COVID-19, reflecting our
best estimate of future losses. We expect Financial Services will
return to profit in the second half. Given our very strong capital
and liquidity positions, together with effective cost management we
remain confident that Financial Services will not require capital
injections from the Group.
Underlying net finance costs
Underlying net finance costs reduced by nine per cent to GBP199
million (HY 2019/20: GBP219 million). These costs include GBP37
million of net non-lease interest (HY 2019/20: GBP45 million). The
reduction of net non-lease interest is driven by the repayment of
the GBP450 million Convertible Bond in November 2019 and redemption
of the GBP250 million Hybrid Bond at the first call date in July
2020. Net Interest costs on lease liabilities have reduced to
GBP162 million (HY 2019/20: GBP174 million), mainly due to lower
interest rates on new leases.
Sainsbury's expects underlying net finance costs in 2020/21 of
around GBP360 million, including around GBP300 million lease
interest in 2020/21.
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 28 weeks to 28 weeks to
19 September 21 September
2020 2019
GBPm GBPm
----------------------------------------------- ------------- -------------
Restructuring programmes (259) (131)
Impairment charges (214) (97)
Financial Services transition (7) (15)
Restructuring, impairment and integration (480) (243)
ATM business rates reimbursement 42 -
IAS 19 pension interest and expenses 8 11
Property, finance and acquisition adjustments (8) 3
Items excluded from underlying results (438) (229)
----------------------------------------------- ------------- -------------
Restructuring programmes:
- During the financial period, it has been agreed to accelerate
the structural integration of Sainsbury's and Argos and further
simplify the Argos business model. As a result, around 420 Argos
stores will be closed by March 2024, leaving the total number of UK
standalone stores at around 100. To support this, a total of 32
Local Fulfilment Centres will be built across the UK that will
operate the Group's fast track delivery operations, delivering to
customers' homes and to Argos stores and collection points across
the country.
- In addition, the Group is creating a new supply chain and
logistics operating model, moving to a single integrated supply
chain and logistics network across Sainsbury's and Argos. As a
result of this, a number of existing depots are closing.
- Further opportunities to rationalise the Group's supermarkets
and convenience estate have been identified, building on last
year's property strategy programme that was announced at the
Capital Markets Day in September 2019. At that time it was
communicated that 10 to 15 supermarkets and 30 to 40 convenience
stores would close. It is now expected that 15 to 20 supermarkets
and 50 to 60 convenience stores will close or be sold.
- Costs totalling GBP259 million have been recognised in the
period in relation to the above and comprise impairment charges,
property closure costs and redundancy costs.
Impairment charges:
- The Group has concluded that the combination of COVID-19 and
the accelerated integration programme is an impairment indicator
during the period.
- Additional impairment charges of GBP214 million have therefore
been recognised over and above those recognised as part of the
strategy review.
- Of this, GBP105 million has been recognised in relation to
assets within the Financial Services Business, and GBP109 million
in relation to Retail assets.
We estimate that we will incur one off costs from
infrastructure, operating model and structure changes of GBP900
million to GBP1 billion in the period to March 2024 (approximately
GBP300 million cash). We expect total non-underlying costs of
around GBP625 million to be booked in the current financial year
(around GBP100 million cash).
Other non-underlying items:
- Financial Services transition costs of GBP7 million (HY
2019/20: GBP15 million) were predominantly the previously announced
costs incurred in transitioning to a new banking platform and
write-downs of ATMs.
- ATM income of GBP42 million (HY 2019/20: GBPnil) arises
following the Supreme Court's ruling that ATMs outside stores
should not be assessed for additional business rates on top of
normal store rates.
- IAS 19 Pension income of GBP8 million (HY 2019/20: GBP11
million) comprises pension finance income of GBP11 million and
scheme expenses of GBP3 million.
- Property, Finance and Acquisition adjustments result in a cost
of GBP8 million (HY 2019/20: GBP3 million income)
Taxation
The tax charge for the interim period was GBP42 million (2019/20
Interim tax charge: GBP47 million).
Despite the interim loss before tax, a tax charge rather than a
tax credit was recognised in the first half of the year. This was
mainly due to the derecognition of capital losses for deferred tax
purposes reflecting a legislative change in the half resulting in
GBP178 million gross costs, non-deductible one-off gross costs of
GBP54 million and prior year adjustments with a tax effect of GBP12
million.
The resulting effective tax rate (ETR) in the 2020/21 interim
accounts of negative 30.7 per cent (2019/20 interim: 522.2 per
cent) differs significantly to the full year forecast ETR (297.9
per cent) because of the movement in profit (from a loss at
interim) as well as the fact that the capital loss derecognition
and most of the non-deductible one-off costs are recognised in full
in first half of the year and thus reflected in the interim
ETR.
The underlying tax rate (UTR) for the interim period was 27.6
per cent (2019/20 interim: 26.5 per cent). Sainsbury's expects an
underlying tax rate for FY 2020/21 of around 26 per cent. As in
prior years the most significant factor in the UTR being higher
than the statutory rate (19.0 per cent) relates to adjustments in
respect of non-qualifying property (4.9 per cent).
(Loss)/Earnings per share
Underlying basic earnings per share increased to 10.1 pence (HY
2019/20: 7.9 pence) driven by an increase in underlying earnings.
Basic earnings per share decreased to negative 8.3 pence (HY
2019/20: negative 2.2 pence).
Dividends
In April the Board chose, due to limited visibility at the time
on the potential impact of COVID-19 on the business, to defer
dividend payment decisions and did not pay a final dividend for the
2019/20 financial year. In the light of improved visibility, strong
trading and a strong balance sheet position, the Board has chosen
to pay a special dividend in lieu of a final dividend for the
2019/20 financial year. The dividend of 7.3p is aligned to policy
of 1.9x full year dividend cover by underlying earnings. This will
be paid on 18 December 2020 to shareholders on the Register of
Members at the close of business on 13 November 2020.
The Board has approved an interim dividend of 3.2 pence per
share (21 September 2019: 3.3 pence per share), in line with our
policy of paying 30 per cent of prior full year dividend. This will
be paid on 18 December 2020 to shareholders on the Register of
Members at the close of business on 13 November 2020.
Net debt and retail cash flows
As at 19 September 2020, net debt was GBP6,168 million (21
September 2019: GBP6,778 million), a decrease of GBP610 million
(2019/20: GBP367 million reduction). Excluding the impact of lease
liabilities on net debt, Sainsbury's reduced non lease net debt by
GBP912 million in the half (21 September 2019: GBP514 million in
the half). We remains on track to meet our target of at least
GBP750 million net debt reduction in the three years to March 2022
and generate average retail free cash flow of GBP500 million per
year over the following three years.
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 GBP5,901 million (HY 2019/20: GBP5,770 million) and the
perpetual securities of GBP248 million (HY 2019/20: GBP496
million). Lease liabilities are analysed in more detail in note 11.
Although the perpetual securities are accounted for as equity in
the financial statements, they have similarities to debt
instruments due to the coupons, and are therefore included by
management when assessing Group borrowings.
The presentation of the summary cash flow statement has been
updated to provide useful additional information of the build from
Retail Underlying Operating Profit to the movement in net debt.
Working capital movements also now exclude any movements due to
non-underlying items. Additional reconciliations are included on
pages 65 to 69 to bridge to statutory measures, with prior year
comparatives adjusted accordingly.
Summary cash flow statement (1) Retail Retail Retail
28 weeks to 28 weeks to 52 weeks to
19 September 21 September 7 March
2020 2019 2020
GBPm GBPm GBPm
Retail underlying operating profit 555 437 938
-------------------------------------------------------------------------- ------------- ------------- ------------
Adjustments for:
Retail underlying depreciation and amortisation 635 636 1,197
Share based payments and other 15 17 34
Retail exceptional operating cash flows (excluding pensions) 3 (18) (49)
Adjusted retail operating cash flow before changes in working
capital(2,3) 1,208 1,072 2,120
-------------------------------------------------------------------------- ------------- ------------- ------------
Decrease/(increase) in working capital(3) 571 251 (97)
Net interest paid(3) (213) (226) (405)
Pension cash contributions (60) (48) (52)
Corporation tax paid (88) (8) (113)
------------- ------------- ------------
Net cash generated from operating activities 1,418 1,041 1,453
-------------------------------------------------------------------------- ------------- ------------- ------------
Cash capital expenditure before strategic capital (290) (248) (599)
Repayments of obligations under leases (223) (230) (419)
Initial direct costs on right-of-use assets (3) (2) (13)
Proceeds from disposal of property, plant and equipment 19 54 81
Bank capital injections - (35) (35)
Dividends and distributions received(3) 22 118 143
Retail free cash flow 943 698 611
-------------------------------------------------------------------------- ------------- ------------- ------------
Dividends paid on ordinary shares - (174) (247)
Repayment of borrowings(3) (519) (160) (379)
Other(3) (26) 1 (3)
Net increase/(decrease) in cash and cash equivalents 398 365 (18)
-------------------------------------------------------------------------- ------------- ------------- ------------
Decrease in Debt 742 390 798
Other non-cash and net interest movements(4) (361) (187) (381)
Movement in net debt 779 568 399
-------------------------------------------------------------------------- ------------- ------------- ------------
Opening net debt (6,947) (7,346) (7,346)
-------------------------------------------------------------------------- ------------- ------------- ------------
Closing net debt (6,168) (6,778) (6,947)
-------------------------------------------------------------------------- ------------- ------------- ------------
of which
Lease Liabilities (5,901) (5,770) (5,768)
Net Debt Excluding Lease Liabilities (267) (1,008) (1,179)
-------------------------------------------------------------------------- ------------- ------------- ------------
1 See note 4b for a reconciliation between Retail and Group cash flow.
2 Excludes working capital and pension contributions.
3 Refer to the Alternative Performance Measures on pages 67 to 68 for reconciliation.
4 Other non-cash includes new leases and lease modifications and
fair value movements on derivatives used for hedging long term
borrowings.
Adjusted retail operating cash flow before changes in working
capital was GBP1,208 million (HY 2019/20: GBP1,072 million) and
working capital decreased by GBP571 million since the year end.
Working capital typically decreases between year end and half year,
driven by seasonality and the phasing of payables. This impact is
more pronounced this year as a result of the strong trading
performance driving lower inventories and increased payables
balances. In addition, challenges sourcing stock on certain product
ranges have further reduced inventory, notably in our non-food
business. This is partially offset by the impact of lower fuel
sales. We expect most of the working capital benefit to reverse
once trading and supply stabilises following the pandemic.
Cash capital expenditure was GBP290 million (HY 2019/20: GBP248
million). There were no capital injections into the Bank (HY
2019/20: GBP35 million). Dividends and distributions received
declined to GBP22 million (HY 2019/20: GBP118 million), reflecting
the sale of 12 British Land joint venture properties in the prior
year.
Corporation tax of GBP88 million was paid (HY 2019/20: GBP8
million). This has increased with the change to the quarterly
payment regime, whereby in this half year Sainsbury's has had to
pay the first two quarterly instalments for 2020/21 based on early
estimates for taxable profit for the year, as well as finalising
quarterly payments for 2019/20.
Retail free cash flow increased by GBP245 million year-on-year
to GBP943 million (HY 2019/20: GBP698 million).
As previously announced, Sainsbury's deferred the decision on
the final dividend payment for 2019/20, and accordingly there was
no dividend payment in the half (HY 2019/20: GBP174 million).
As at 19 September 2020 Sainsbury's has drawn debt facilities of
GBP1.08 billion including the Perpetual securities (HY 2019/20
GBP1.82 billion). The Group holds undrawn committed credit
facilities of GBP1.45 billion and undrawn uncommitted facilities of
GBP195 million.
Compared to the 2018/19 year end net debt excluding lease
liabilities of GBP1,522 million, Sainsbury's expects a reduction of
at least GBP750 million over a three year period and to generate
average retail free cash flow of GBP500 million per year over the
following three years.
Capital expenditure
Core retail cash capital expenditure was GBP290 million (HY
2019/20: GBP248 million).
Sainsbury's expects core retail cash capital expenditure
(excluding Financial Services) to be around GBP600 million in the
2020/21 financial year and for this to increase to around GBP700
million - GBP750 million in the 3 years to March 2024, reflecting
investment in high-returning supply chain, logistics and
infrastructure projects.
Financial ratios
Key financial ratios 52 weeks to 52 weeks to 52 weeks to
19 September 2020 21 September 2019 7 March
2020
Return on capital employed (%)(1) 7.9 7.1 7.4
Net debt to EBITDAR(2) 2.7 times 3.1 times 3.2 times
Fixed charge cover(3) 2.8 times 2.6 times 2.7 times
----------------------------------- ------------------ ------------------ ------------
1 ROCE: Return is defined as a 52 week rolling underlying profit
before interest and tax. Capital employed is defined as group net
assets excluding the pension deficit/surplus and excluding net
debt. The average is calculated on a 14 point basis.
2 Net debt of GBP6,168 million includes lease obligations under
IFRS 16 and perpetual securities treated as debt, divided by Group
underlying EBITDAR of GBP2,253 million, calculated for a 52-week
period to 19 September 2020.
3 Group underlying EBITDAR divided by rent (both capital and
interest) and net underlying finance costs, where interest on
perpetual securities is treated as an underlying finance cost.
Property value
As at 19 September 2020, Sainsbury's estimated market value of
properties was GBP9.9 billion (7 March 2020: GBP9.9 billion). This
includes the Group's beneficial interest in a property investment
pool.
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 19 September 2020, the net defined benefit surplus under
IAS19 for the Group was GBP1,012 million (excluding deferred tax).
The GBP107 million movement from 7 March 2020 was driven by an
increase in the scheme liabilities due to changes in the financial
assumptions, offset by favourable movements on plan assets, which
are held at fair value. The discount rate has remained constant
since year-end at 1.6 per cent.
As disclosed in April, the Scheme was subject to a triennial
actuarial valuation, as at 30 September 2018, which was completed
last year. As part of the agreement reached with the Trustee, we
established a new asset backed contribution ('ABC') structure on 17
July 2019, replacing the existing property partnership.
The actuarial deficit reduced to GBP538 million, from GBP1,055
million in 2015.
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)
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.
Cash contributions and ABC distributions of GBP60 million have
been paid in H1, with a further GBP42 million agreed in H2. Cash
contributions and ABC distributions for 2021/22 are expected to be
GBP76 million.
Retirement benefit obligations
Sainsbury's Argos Group Group
as at as at as at as at
19 September 19 September 19 September 7 March
2020 2020 2020 2020
GBPm GBPm GBPm GBPm
Present value of funded
obligations (9,043) (1,457) (10,500) (10,335)
Fair value of plan assets 10,072 1,478 11,550 11,491
Pension surplus/(deficit) 1,029 21 1,050 1,156
Present value of unfunded
obligations (21) (17) (38) (37)
--------------------------------------- ------------- ------------- ------------- ---------
Retirement benefit obligations 1,008 4 1,012 1,119
Deferred income tax (liability)/asset (191) (1) (192) (214)
--------------------------------------- ------------- ------------- ------------- ---------
Net retirement benefit
obligations 817 3 820 905
--------------------------------------- ------------- ------------- ------------- ---------
Group income statement (unaudited)
for the 28 weeks to 19 September 2020
28 weeks to 19 September 28 weeks to 21 September
2020 2019
------------------ ----- ------------------------------------------- -------------------------------------------
Before Non-underlying Total Before Non-underlying Total
non-underlying items non-underlying items
items items
Note GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ----- --------------- --------------- --------- --------------- --------------- ---------
Revenue 4a 14,934 - 14,934 15,097 - 15,097
Cost of sales (13,644) (298) (13,942) (13,970) (177) (14,147)
------------------ ----- --------------- --------------- --------- --------------- --------------- ---------
Gross
profit/(loss) 1,290 (298) 992 1,127 (177) 950
Administrative
expenses (801) (154) (955) (694) (86) (780)
Other income 11 (5) 6 24 44 68
------------------ ----- --------------- --------------- --------- --------------- --------------- ---------
Operating
profit/(loss) 500 (457) 43 457 (219) 238
Finance income 6 2 14 16 2 16 18
Finance costs 6 (201) 5 (196) (221) 4 (217)
Share of post-tax
loss from joint
ventures and
associates - - - - (30) (30)
------------------ ----- --------------- --------------- --------- --------------- --------------- ---------
Profit/(loss)
before
tax 301 (438) (137) 238 (229) 9
Income tax
(expense)/credit 7 (83) 41 (42) (63) 16 (47)
------------------ ----- --------------- --------------- --------- --------------- --------------- ---------
Profit/(loss) for the
financial period 218 (397) (179) 175 (213) (38)
------------------------- --------------- --------------- --------- --------------- --------------- ---------
Loss per share 8 pence pence
------------------ ----- -------------------------------- --------------------------------
Basic loss (8.3) (2.2)
Diluted loss (8.3) (2.2)
------------------ ----- -------------------------------- --------- -------------------------------- ---------
52 weeks to 7 March 2020
----------------------------- ----- --------------------------------------------------
Before non-underlying Non-underlying Total
items items
Note GBPm GBPm GBPm
----------------------------- ----- ---------------------- --------------- ---------
Revenue 4a 28,993 - 28,993
Cost of sales (26,699) (278) (26,977)
----------------------------- ----- ---------------------- --------------- ---------
Gross profit/(loss) 2,294 (278) 2,016
Administrative
expenses (1,345) (114) (1,459)
Other income 37 56 93
----------------------------- ----- ---------------------- --------------- ---------
Operating profit/(loss) 986 (336) 650
Finance income 6 4 28 32
Finance costs 6 (404) 6 (398)
Share of post-tax
loss from joint
ventures and associates - (29) (29)
----------------------------- ----- ---------------------- --------------- ---------
Profit/(loss) before
tax 586 (331) 255
Income tax (expense)/credit 7 (149) 46 (103)
----------------------------- ----- ---------------------- --------------- ---------
Profit/(loss) for the
financial period 437 (285) 152
------------------------------------ ---------------------- --------------- ---------
Earnings per share 8 pence
----------------------------- ----- ---------------------------------------
Basic earnings 5.8
Diluted earnings 5.8
----------------------------- ----- --------------------------------------- ---------
The notes on pages 27 to 61 form an integral part of these
Condensed Consolidated Interim Financial Statements.
Group statement of comprehensive income (unaudited)
for the 28 weeks to 19 September 2020
52
28 weeks 28 weeks weeks
to 19 to 21 to
September September 7 March
2020 2019 2020
----- ----------- ----------- ---------
Note GBPm GBPm GBPm
----- ----------- ----------- ---------
(Loss)/profit for the financial year (179) (38) 152
--------------------------------------------------- ----- ----------- ----------- ---------
Items that will not be reclassified subsequently
to the income statement
----- ----------- ----------- ---------
Remeasurement on defined benefit pension schemes 18 (175) 364 89
-----
Movements on financial assets at fair value
through other comprehensive income 28 - 17
Current tax relating to items not reclassified 23 - -
Deferred tax relating to items not reclassified (24) (62) (18)
(148) 302 88
--------------------------------------------------- ----- ----------- ----------- ---------
Items that may be reclassified subsequently
to the income statement
-----
Currency translation differences - 3 -
-----
Movements on financial assets at fair value
through other comprehensive income 1 (12) 4
-----
Cash flow hedges effective portion of fair
value movements 6 58 (1)
-----
Items reclassified from cash flow hedge reserve - (30) (19)
-----
Deferred tax on items that may be reclassified (2) (2) 3
----- ----------- ---------
5 17 (13)
-----
Total other comprehensive (loss)/income for
the year (net of tax) (143) 319 75
Total comprehensive (loss)/income for the year (322) 281 227
--------------------------------------------------- ----- ----------- ----------- ---------
The notes on pages 27 to 61 form an integral part of these
Condensed Consolidated Interim Financial Statements.
Group balance sheet (unaudited)
at 19 September 2020
19 September 21 September 7 March
2020 2019 2020
Note GBPm GBPm GBPm
----------------------------------------------- ----- ------------- ------------- ---------
Non-current assets
Property, plant and equipment 10 8,721 8,943 8,911
Right of use assets 11 4,796 4,878 4,826
Intangible assets 12 896 1,008 1,012
Investments in joint ventures and associates 5 56 9
Financial assets at fair value through
other comprehensive income 14a 863 838 972
Trade and other receivables 52 50 43
Amounts due from Financial Services customers 14a 2,812 3,593 3,453
Derivative financial assets 14c 4 8 6
Net retirement benefit surplus 18 1,012 1,382 1,119
----------------------------------------------- ----- ------------- ------------- ---------
19,161 20,756 20,351
----------------------------------------------- ----- ------------- ------------- ---------
Current assets
Inventories 1,635 1,953 1,732
Trade and other receivables 748 693 811
Amounts due from Financial Services customers 14a 3,380 3,808 3,951
Financial assets at fair value through
other comprehensive income 14a 61 182 82
Derivative financial assets 14c 28 41 12
Cash and cash equivalents 17 1,453 1,468 994
----------------------------------------------- ----- ------------- ---------
7,305 8,145 7,582
Assets held for sale 2 5 4
----------------------------------------------- ----- ------------- ---------
7,307 8,150 7,586
----------------------------------------------- ----- ------------- ------------- ---------
Total assets 26,468 28,906 27,937
----------------------------------------------- ----- ------------- ------------- ---------
Current liabilities
Trade and other payables (4,702) (4,710) (4,275)
Amounts due to Financial Services customers
and other deposits 14a (5,906) (6,573) (6,890)
Borrowings 16 (257) (495) (48)
Lease liabilities 11 (538) (536) (510)
Derivative financial liabilities 14c (38) (12) (53)
Taxes payable (29) (185) (163)
Provisions (136) (127) (108)
----------------------------------------------- ----- ------------- ---------
(11,606) (12,638) (12,047)
----------------------------------------------- ----- ------------- ------------- ---------
Net current liabilities (4,299) (4,488) (4,461)
----------------------------------------------- ----- ------------- ------------- ---------
Non-current liabilities
Other payables (1) (69) (11)
Amounts due to Financial Services customers
and other deposits 14a (904) (1,594) (1,204)
Borrowings 16 (772) (1,023) (1,248)
Lease liabilities 11 (5,369) (5,240) (5,264)
Derivative financial liabilities 14c (60) (41) (36)
Deferred income tax liability (328) (291) (265)
Provisions (241) (104) (89)
(7,675) (8,362) (8,117)
----------------------------------------------- ----- ------------- ------------- ---------
Total liabilities (19,281) (21,000) (20,164)
----------------------------------------------- ----- ------------- ------------- ---------
Net assets 7,187 7,906 7,773
----------------------------------------------- ----- ------------- ------------- ---------
Equity
Called up share capital 635 632 634
Share premium 1,163 1,151 1,159
Merger reserve 568 568 568
Capital redemption reserve 680 680 680
Other reserves 194 184 168
Retained earnings 3,699 4,195 4,068
----------------------------------------------- ----- ------------- ------------- ---------
Total equity before perpetual securities 6,939 7,410 7,277
Perpetual capital securities - 248 248
Perpetual convertible bonds 248 248 248
----------------------------------------------- ----- ------------- ------------- ---------
Total equity 7,187 7,906 7,773
----------------------------------------------- ----- ------------- ------------- ---------
The notes on pages 27 to 61 form an integral part of these
Condensed Consolidated Interim Financial Statements.
Group cash flow statement (unaudited)
for the 28 weeks to 19 September 2020
28 weeks 28 weeks 52 weeks
to to to
19 September 21 September 7 March
2020 2019 2020
Note GBPm GBPm GBPm
--------------------------------------------------- --------- ------------- ------------- ---------
Cash flows from operating activities
(Loss)/profit before tax (137) 9 255
Net finance costs 180 199 366
Share of post-tax loss from joint ventures - 30 29
Operating profit 43 238 650
Adjustments for:
Depreciation expense 10,11 596 597 1,127
Amortisation expense 12 65 70 129
Net impairment loss on property, plant
and equipment, right of use assets and
intangible assets 10,11,12 292 177 263
Non-cash adjustments arising from acquisitions (1) (1) (2)
Financial Services impairment losses on
loans and advances 39 47 80
Loss/(profit) on sale of properties and
early termination of leases 7 (44) (56)
Share-based payments expense 16 19 37
Non-cash defined benefit scheme expenses 18 3 4 9
Cash contributions to benefit schemes 18 (60) (48) (52)
Operating cash flows before changes in
working capital 1,000 1,059 2,185
Changes in working capital
Decrease/(increase) in inventories 97 (24) 197
Decrease/(increase) in financial assets
at fair value through other comprehensive
income 159 (176) (177)
Decrease/(increase) in trade and other
receivables 58 (69) (129)
Decrease/(increase) in amounts due from
Financial Services customers and other
deposits 1,173 (461) (499)
Increase/(decrease) in trade and other
payables 409 316 (195)
(Decrease)/increase in amounts due to Financial
Services customers and other deposits (1,284) 566 492
Increase/(decrease) in provisions and other
liabilities 180 27 (8)
Cash generated from operations 1,792 1,238 1,866
Interest paid 15 (193) (208) (384)
Corporation tax paid (88) (6) (110)
Net cash generated from operating activities 1,511 1,024 1,372
--------------------------------------------------- --------- ------------- ------------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (257) (213) (519)
Initial direct costs on new leases (3) (2) (13)
Purchase of intangible assets (44) (52) (120)
Proceeds from disposal of property, plant
and equipment 19 54 81
Interest received 15 - 2 2
Dividends and distributions received 22 118 143
Net cash used in investing activities (263) (93) (426)
--------------------------------------------------- --------- ------------- ------------- ---------
Cash flows from financing activities
Proceeds from issuance of ordinary shares 4 5 15
Proceeds from borrowings 15 - 80 250
Proceeds from short term borrowings 15 660 - -
Repayment of borrowings 15 (269) (230) (169)
Repayment of short term borrowings 15 (660) - -
Repayment upon maturity of convertible
bonds - - (450)
Repayment of perpetual capital securities 15 (250) - -
Purchase of own shares (30) (4) (18)
Repayment of capital element of lease obligations 15 (224) (231) (420)
Repayment of capital element of obligations
under hire purchase arrangements 15 - (10) (10)
Dividends paid on ordinary shares 9 - (174) (247)
Dividends paid on perpetual securities (20) (20) (23)
Net cash used in financing activities (789) (584) (1,072)
--------------------------------------------------- --------- ------------- ------------- ---------
Net increase/(decrease) in cash and cash
equivalents 459 347 (126)
Opening cash and cash equivalents 994 1,120 1,120
Closing cash and cash equivalents 1,453 1,467 994
--------------------------------------------------- --------- ------------- ------------- ---------
The notes on pages 27 to 61 form an integral part of these
Condensed Consolidated Interim Financial Statements.
Group statement of changes in equity (unaudited)
for the 28 weeks to 19 September 2020
Capital Total
Called redemption equity
up Share and before Perpetual Perpetual
share premium Merger other Retained perpetual capital convertible Total
capital account reserve reserves earnings securities securities bonds equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 8 March 2020 634 1,159 568 848 4,068 7,277 248 248 7,773
-------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Loss for the
period - - - - (183) (183) - 4 (179)
Other
comprehensive
income/(loss) - - - 35 (175) (140) - - (140)
Tax relating to
other
comprehensive
income/(loss) - - - (9) 6 (3) - - (3)
Total
comprehensive
income/(loss)
for the period
ended 19
September
2020 - - - 26 (352) (326) - 4 (322)
---------------- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Transactions
with owners:
Distribution
to holders of
perpetual
securities - - - - - - - (4) (4)
Share-based
payment - - - - 16 16 - - 16
Purchase of
own shares - - - - (30) (30) - - (30)
Allotted in
respect of
share
option
schemes 1 4 - - (1) 4 - - 4
Redemption of
perpetual
capital
securities - - - - (2) (2) (248) - (250)
Tax on items
charged to
equity - - - - - - - - -
At 19 September
2020 635 1,163 568 874 3,699 6,939 - 248 7,187
---------------- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
At 10 March
2019 630 1,147 568 852 4,089 7,286 248 248 7,782
-------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Loss for the
period - - - - (40) (40) - 2 (38)
Other
comprehensive
income - - - 19 364 383 - - 383
Tax relating to
other
comprehensive
income - - - (2) (62) (64) - - (64)
Total
comprehensive
income
for the period
ended 21
September
2019 - - - 17 262 279 - 2 281
---------------- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Transactions
with owners:
Dividends paid - - - - (174) (174) - - (174)
Distribution
to holders of
perpetual
convertible
bonds - - - - - - - (4) (4)
Amortisation
of
convertible
bond equity
component - - - (5) 5 - - - -
Share-based
payment - - - - 19 19 - - 19
Purchase of
own shares - - - - (4) (4) - - (4)
Allotted in
respect of
share
option
schemes 2 4 - - (1) 5 - - 5
Tax on items
charged to
equity - - - - (1) (1) - 2 1
At 21 September
2019 632 1,151 568 864 4,195 7,410 248 248 7,906
-------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Capital Total
Called redemption equity
up Share and before Perpetual Perpetual
share premium Merger other Retained perpetual capital convertible Total
capital account reserve reserves earnings securities securities bonds equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 10 March
2019 630 1,147 568 852 4,089 7,286 248 248 7,782
-------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Profit for the
period - - - - 129 129 16 7 152
Other
comprehensive
income - - - 1 89 90 - - 90
Tax relating to
other
comprehensive
income - - - - (15) (15) - - (15)
Total
comprehensive
income
for the year
ended 7 March
2020 - - - 1 203 204 16 7 227
---------------- -------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
Transactions
with owners:
Dividends paid - - - - (247) (247) - - (247)
Distribution
to holders
of perpetual
convertible
bonds - - - - - - (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
-------- -------- -------- ----------- --------- ----------- ----------- ------------ -------
The notes on pages 27 to 61 form an integral part of these
Condensed Consolidated Interim Financial Statements.
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
1. General information
J Sainsbury plc is a public limited company (the 'Company')
incorporated in the United Kingdom, whose shares are publicly
traded on the London Stock Exchange. The Company is domiciled in
the United Kingdom and its registered address is 33 Holborn, London
EC1N 2HT, United Kingdom.
The Condensed Consolidated Interim Financial Statements are
unaudited but have been reviewed by the auditors whose report is
set out on page 64. The financial information presented herein does
not amount to statutory accounts within the meaning of Section 434
of the Companies Act 2006. The Annual Report and Financial
Statements 2020 have been filed with the Registrar of Companies.
The Independent Auditors' report on the Annual Report and Financial
Statements 2020 was unqualified and did not contain a statement
under Section 498 of the Companies Act 2006.
The financial period represents the 28 weeks to 19 September
2020 (comparative financial period 28 weeks to 21 September 2019;
prior financial year 52 weeks to 7 March 2020). The financial
information comprises the results of the Company and its
subsidiaries (the 'Group') and the Group's interests in joint
ventures and associates.
The Group's principal activities are Food, General Merchandise
& Clothing Retailing and Financial Services.
2. Basis of preparation and accounting policies
2.1 Basis of preparation
The Interim Results, comprising the Condensed Consolidated
Interim Financial Statements and the Interim Management Report,
have been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Conduct Authority and with IAS
34 'Interim Financial Reporting' as adopted by the European
Union.
The financial information contained in the Interim Results is
presented in sterling, rounded to the nearest million (GBPm) unless
otherwise stated.
The financial information contained in the Condensed
Consolidated Interim Financial Statements should be read in
conjunction with the Annual Report and Financial Statements 2020,
which were prepared in accordance with International Financial
Reporting Standards ('IFRSs') as adopted by the European Union.
Sainsbury's Bank plc and its subsidiaries have been consolidated
for the six months to 31 August 2020 (21 September 2019: six months
to 31 August 2019; 7 March 2020: twelve months to 29 February
2020). Adjustments have been made for the effects of significant
transactions or events that occurred between this date and the
Group's balance sheet date.
2.2 Going concern
The Directors are satisfied that the Group has sufficient
resources to continue in operation for a period of at least 12
months from the date of approval. Accordingly, they continue to
adopt the going concern basis in preparing the financial
statements. The assessment period for the purposes of considering
going concern is the 16 months to 5 March 2022.
In assessing the Group's ability to continue as a going concern,
the Directors have considered the Group's most recent corporate
planning process. This includes an annual review which considers
profitability, the Group's cash flows, committed funding and
liquidity positions and forecasted future funding requirements over
three years, with a further two years of indicative movements. The
most recent corporate plan was prepared in October 2020 and was
reviewed by the Operating Board and ultimately by the PLC Board
with involvement throughout from both the Chief Financial Officer
and Chief Executive.
The Group manages its financing by diversifying funding sources,
structuring core borrowings with long-term maturities and
maintaining sufficient levels of standby liquidity via the
Revolving Credit Facility. This seeks to minimise liquidity risk by
maintaining a suitable level of undrawn additional funding
capacity.
In September 2019 the maturity of part of the GBP1,450 million
Revolving Credit Facility was extended by one year. The Revolving
Credit Facility is split into two Facilities, a GBP300 million
Facility (A) and a GBP1,150 million Facility (B). Facility A has a
final maturity of April 2025 and Facility B has a final maturity of
October 2024. As at 19 September 2020, the Revolving Credit
Facility was undrawn. In addition, the Group maintains uncommitted
facilities of GBP195m to provide additional capacity to fund short
term working capital requirements. The uncommitted facilities were
undrawn at 19 September 2020.
In assessing going concern, scenarios in relation to the Group's
principal risks have been considered in line with those disclosed
at year-end by overlaying them into the corporate plan and
assessing the impact on cash flows, net debt and funding
headroom.
COVID-19 continues to be an area of uncertainty, developing
rapidly in 2020 with significant impacts on customer behaviour, and
a second national lockdown now being implemented in the UK. In
particular, the Group is exposed to a number of areas as
follows:
-- Sales impact from the closure of certain stores, predominantly Argos
-- Changing customer behaviours during lockdown
-- Operational cost increases, such as increased labour and
other in-store costs, which are partly mitigated by business rates
holiday until March 2021
-- Supply chain disruptions
-- Exposure to credit risk within the Financial Services business
At the year-end, the Group outlined details of the base case
scenario that was used for modelling the potential impact of
COVID-19. Since then, costs of around GBP290 million associated
with protecting customers and colleagues from COVID-19 were
partially offset by GBP230 million of business rates relief
received to date. These are broadly in line with the base case,
whilst sales during the first half have been stronger than the base
case assumptions, particularly at Argos.
For the going concern period, the impact of COVID-19 on sales
and costs continues to be uncertain. Therefore for the going
concern assessment, scenarios have been modelled that apply GDP
movements seen during the recession of FY2008/09 to forecast sales,
however to differing extents per category, as well as increased
cash outflows over and above those in the corporate plan. The
scenarios are hypothetical and severe for the purpose of assessing
the Group's ability to continue as a going concern.
In performing the above analysis, the Directors have made
certain assumptions around the availability and effectiveness of
the mitigating actions available to the Group. These include
reducing any non-essential capital expenditure and operating
expenditure on projects, bonuses and dividend payments.
As a consequence of the work performed, the Directors considered
it appropriate to adopt the going concern basis in preparing the
Condensed Consolidated Interim Financial Statements with no
material uncertainties to disclose.
2.3 Accounting judgements and estimates
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
In preparing these Condensed Consolidated Interim Financial
Statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
Consolidated Financial Statements for the year ended 7 March 2020
unless otherwise stated.
In light of the ongoing COVID-19 pandemic, the Group has
provided more information in relation to its consideration of the
following areas of estimation uncertainty.
-- Note 3: Profit before non-underlying items
-- Note 13: Impairment of non-financial assets
-- Note 14: Financial instruments
-- Note 18: Retirement benefit obligations
The Group has updated its assumptions over the exercising of
breaks for a number of its leases. More information is included in
note 11.
2.4 New standards, interpretations and amendments adopted by the Group
The Group has considered the following amendments to published
standards that are effective for the Group for the financial year
beginning 8 March 2020 and concluded that they are either not
relevant to the Group or that they do not have a significant impact
on the Group's financial statements other than disclosures. These
standards and interpretations have been endorsed by the European
Union.
- Amendments to References to Conceptual Framework in IFRS
Standards
- Amendments to IFRS 3 'Business Combinations' on the definition
of a business
- Amendments to IAS 1 'Presentation of Financial Statements' and
IAS 8 'Accounting Policies, Changes in Accounting Estimates and
Errors' on the definition of material
- Amendments to IFRS 9 'Financial Instruments', IAS 39
'Financial Instruments: Recognition and Measurement' and IFRS 7
'Financial Instruments: Disclosures' on the Interest Rate Benchmark
Reform
The Group has noted the exemption granted in the
'COVID-19-related rent concessions' amendment to IFRS 16 'Leases'.
This exemption applies for periods commencing on or after 1 June
2020, with an option to early adopt. The Group has elected not to
apply the exemption granted as the Group has not received material
COVID-19-related rent concessions as a lessee.
The accounting policies have remained unchanged from those
disclosed in the Annual Report for the year ended 7 March 2020.
Interest Rate Benchmark Reform
During the period, the Group has adopted the 'Interest Rate
Benchmark Reform' amendments to IFRS 9, as indicated above. A
hedging relationship is affected by the reform if it gives rise to
uncertainties about the timing and or amount of benchmark-based
cash flows of the hedged item or the hedging instrument. The
amendments allow the Group to continue hedge accounting for its
benchmark interest rate exposures during the period of uncertainty
arising from the reform. The Group will continue to apply these
amendments until the uncertainty arising from the reform is no
longer present with respect to the timing and amount of the
interest rate benchmark cash flows.
Details of the hedging relationships for which the Group has
applied the reform amendments are provided in note 14. These relate
to the utilisation of derivatives to achieve the desired mix of
fixed and floating debt.
2.5 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 who use
similar measures.
Purpose of APMs
The Directors believe that these APMs assist in providing
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.
Changes to APMs
The following APMs have been updated during the period:
-- Like-for-like sales: Previously temporary closures have been
excluded from like-for-like sales. The impact on sales of stores
which were temporarily closed due to COVID-19 have been included
within like-for-like sales. During the current period due to
temporary store closures as a result of the COVID-19 pandemic there
has been a material increase in digital sales. It is not possible
to calculate the exact transfer of sales from temporarily closed
stores to online as a result of the pandemic therefore the
like-for-like definition has been adjusted to include temporary
store closures as a result of COVID-19. Only permanently closed
sites and those temporarily closed for non COVID-19 related reasons
are excluded from like-for-like sales.
-- Cash flow presentation in Financial Review: The presentation
of the summary cash flow statement within the Financial Review has
been updated to provide useful additional information of the build
from Retail Underlying Operating Profit to the movement in net
debt. Working capital movements also now exclude any movements due
to non-underlying items. Additional reconciliations are included on
pages 65 to 69 to bridge to statutory measures, with prior year
comparatives adjusted accordingly.
3. 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.
Underlying profit is how the Group measures performance
internally, but is not an IFRS measure and therefore not directly
comparable to other companies.
The most significant non-underlying items in the current year
relate to restructuring programmes, impairment charges and income
relating to the Supreme Court ruling on ATM business rates. More
details on each are included further below.
The Group has also chosen to exclude the following items from
underlying profit:
-- Financial Services transition - multi-year costs incurred in
transitioning to a new, more flexible banking platform as part of
the previously announced New Bank Programme. These principally
comprise contractor and service provider costs relating to the
migration of data and other services to the Bank's new
infrastructure and operating model.
-- Profit or loss on disposal of properties - such disposals are
not part of the Group's underlying business.
-- Investment property fair value movements - these reflect the
difference between the fair value of an investment property at the
reporting date and its carrying amount at the previous reporting
date and are held within the property JVs. The valuations are
impacted by external market factors and can therefore vary
significantly year-on-year.
-- Perpetual securities coupons - these are accounted for as
equity in line with IAS 32 'Financial instruments: Presentation',
however are accrued on a straight-line basis and included as an
expense within underlying profit as they are included by management
when assessing Group borrowings.
-- Non-underlying finance movements - these include fair value
remeasurements on derivatives not in a hedging relationship. The
fair value measurements are impacted by external market factors and
can fluctuate significantly year-on-year. Lease interest on
impaired non-trading sites, including site closures, is excluded
from underlying profit as those sites do not contribute to the
underlying business.
-- IAS 19 pension interest and expenses include the financing
element and scheme expenses of the Group's defined benefit scheme.
These are reported outside underlying profit as they no longer
relate to the Group's on-going activities following closure of the
scheme to future accrual.
-- Acquisition adjustments - these reflect the adjustments
arising from acquisitions including the fair value unwind and
amortisation of acquired intangibles.
The Group has not included any additional costs incurred or
credits received directly in relation to the impacts of COVID-19
within non-underlying items. Whilst some items (such as business
rates relief and additional expenses incurred protecting colleagues
and customers) are discrete and can be separately quantified
others, such as incremental food sales cannot be reliably
disaggregated from the Group's underlying performance. The Group
has therefore concluded that presenting some movements as
underlying and others as non-underlying would give an imbalanced
view that is not easily comparable to past and subsequent
periods.
28 weeks to 19
September
2020
------------------- ------- --------------- -------- ---------------- ------ ------------- ----- -------------
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
------------------- ------- --------------- -------- ---------------- ------ ------------- ----- -------------
Restructuring
programmes (244) (15) - - - (259) 45 (214)
Impairment of
non-financial
assets (96) (118) - - - (214) 37 (177)
Financial Services
transition - (7) - - - (7) - (7)
------------------- ------- --------------- -------- ---------------- ------ ------------- ----- -------------
Total
restructuring,
impairment
and integration (340) (140) - - - (480) 82 (398)
Property, finance,
pension
and acquisition
adjustments
ATM business rates
reimbursement 42 - - - - 42 (8) 34
Loss on disposal
of properties - - (5) - - (5) 1 (4)
Investment
property fair
value movements - - - - - - - -
Perpetual
securities
coupons - - - 10 - 10 - 10
Non-underlying
finance movements - - - (2) - (2) - (2)
IAS 19 pension
interest
and expenses - (3) - 11 - 8 (2) 6
Acquisition
adjustments - (11) - - - (11) 2 (9)
------------------- ------- --------------- -------- ---------------- ------ ------------- ----- -------------
Total property,
finance,
pension and
acquisition
adjustments 42 (14) (5) 19 - 42 (7) 35
Tax adjustments
Under provision in
prior
years - - - - - - - -
Revaluation of
deferred
tax balances - - - - - - (34) (34)
Total adjustments (298) (154) (5) 19 - (438) 41 (397)
------------------- ------- --------------- -------- ---------------- ------ ------------- ----- -------------
Restructuring programmes
During the financial period, it has been agreed to accelerate
the structural integration of Sainsbury's and Argos and further
simplify the Argos business model. As a result, around 420 Argos
stores will be closed by March 2024, leaving the total number of UK
standalone stores at around 100. To support this, a total of 32
Local Fulfilment Centres will be built across the UK that will
operate the Group's fast track delivery operations, delivering to
customers' homes and to Argos stores and collection points across
the country.
In addition, the Group is creating a new supply chain and
logistics operating model, moving to a single integrated supply
chain and logistics network across Sainsbury's and Argos. As a
result of this, a number of existing depots are closing.
Further opportunities to rationalise the Group's supermarkets
and convenience estate have been identified, building on last
year's property strategy programme that was announced at the
Capital Markets Day in September 2019. At that time it was
communicated that 10 to 15 supermarkets and 30 to 40 convenience
stores would close. It is now expected that 15 to 20 supermarkets
and 50 to 60 convenience stores will close or be sold.
Costs totalling GBP259 million have been recognised in the
period in relation to the above and comprise the following:
GBPm
---------------------------------------------- -----
Write downs of property, plant and equipment 9
Write downs of leased assets 66
Write downs of intangible assets 3
Closure provisions 151
Redundancy provisions 30
---------------------------------------------- -----
259
---------------------------------------------- -----
Closure provisions relate to onerous contract costs,
dilapidations and strip out costs.
Impairment of non-financial assets
In addition to the above, in line with IAS 36 'Impairment of
non-financial assets', the Group is required to assess whether
there is any indication that an asset (or CGU) may be impaired
(i.e. its carrying amount may be higher than its recoverable
amount).
The COVID-19 pandemic has resulted in changes to customer
shopping habits, patterns and sources of finance. Despite this, the
Group has proved resilient through the pandemic, with additional
in-store costs mostly offset by the grocery sales growth and
business rates relief. However the changes in customer behaviour
have led to an acceleration of the Group's structural integration
of Sainsbury's and Argos during the period and through this, a
review of the economic performance of the Group's assets has been
performed as a result of store rationalisation, changes in channel
mix, and changes in customer borrowing and cash usage behaviour.
This has been deemed an indicator of impairment and a full
impairment review has therefore been performed covering both Retail
and Financial Services non-financial assets.
An impairment charge of GBP214 million has been recognised in
the period and comprises:
GBPm
--------------------------------------------- -----
Impairment of property, plant and equipment 60
Impairment of leased assets 62
Impairment of intangible assets 92
--------------------------------------------- -----
214
--------------------------------------------- -----
Of the total charge of GBP214 million, GBP105 million is in
relation to assets within the Financial Services segment, with the
remaining GBP109 million within the Retail segment. Further details
of the impairment charge are included within note 13.
With regards to the above restructuring and impairment charges,
the costs incurred arise as a result of implementing changes for
the future to evolve and reshape the business. They are therefore
different in nature to the COVID-19-related income and costs that
were incurred to maintain business as usual activity and which have
been reported within underlying profit. In addition, they can be
separately identified, are material in size / nature, and not
related to the underlying operations of the business. This is
consistent with the Group's existing accounting policy for
non-underlying items and are therefore reported outside underlying
profit.
Financial Services transition
These predominantly comprise Financial Services transition costs
of GBP(7) million and were incurred in transitioning to new banking
platforms as part of the previously announced New Bank Programme.
These principally comprise contractor and service provider costs
relating to the migration of data and other services to the Bank's
new infrastructure and operating model. These also include circa
GBP(1) million for the decommissioning of ATMs.
ATM business rates reimbursement
GBP42 million of income is due to be received from the Valuation
Office following the Supreme Court's ruling that ATMs outside
stores should not be assessed for additional business rates on top
of normal store rates.
Property, finance, pension and acquisition adjustments
-- Loss on disposal of properties for the financial period
comprised GBP(5) million for the Group and nil for the joint
ventures.
-- The coupons on the perpetual subordinated capital securities
and the perpetual subordinated convertible bonds are accounted for
as equity in line with IAS 32 'Financial Instruments:
Presentation', however are accrued on a straight-line basis and
included as an expense within underlying profit before tax. During
the year, the perpetual capital securities were redeemed.
-- Non-underlying finance movements for the financial year
comprised GBP(2) million for the Group and nil for the joint
ventures. These are presented separately in note 6.
-- Defined benefit pension interest and expenses comprises
pension finance income of GBP11 million and scheme expenses of
GBP(3) million (see note 18).
-- Acquisition adjustments of GBP(11) million reflect the unwind
of non-cash fair value adjustments arising from Home Retail Group
and Nectar UK acquisitions and are recognised as follows:
28 weeks to 28 weeks to 52 weeks to
19 September 21 September 7 March 2020
2020 2019
-------------- ------------------------ ------------------------ ------------------------
Argos Nectar Total Argos Nectar Total Argos Nectar Total
Group Group Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------ ------- ------- ------ ------- ------- ------ ------- -------
Cost of
sales 1 - 1 1 - 1 2 - 2
Depreciation 1 - 1 (2) - (2) (2) - (2)
Amortisation (10) (3) (13) (10) (5) (15) (18) (8) (26)
--------------
(8) (3) (11) (11) (5) (16) (18) (8) (26)
-------------- ------ ------- ------- ------ ------- ------- ------ ------- -------
Comparative information
28 weeks to 21 September 2019
---------------------------------------------------- -------- --------- ------ ------------- ----- -------------
Cost Admin Other Net Share Total Tax Total
of expenses income finance of adjustments adjustments
sales income/ loss before
from tax
JVs
(costs)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ------- ---------- -------- --------- ------ ------------- ----- -------------
Property strategy programme(1) (176) (27) - - - (203) 14 (189)
Retail restructuring
programme(1) - (25) - - - (25) 5 (20)
Financial Services transition
and other - (15) - - - (15) - (15)
------------------------------- ------- ---------- -------- --------- ------ ------------- ----- -------------
Total strategic programmes (176) (67) - - - (243) 19 (224)
Property, finance, pension
and acquisition adjustments
Profit/(loss) on disposal
of properties - - 44 - (21) 23 (1) 22
Investment property fair
value movements - - - - (4) (4) - (4)
Perpetual securities coupons - - - 13 - 13 (2) 11
Non-underlying finance
movements - - - (8) (5) (13) - (13)
IAS 19 pension expenses - (4) - 15 - 11 1 12
Acquisition adjustments (1) (15) - - - (16) 3 (13)
------------------------------- ------- ---------- -------- --------- ------ ------------- ----- -------------
Total property, finance,
pension and acquisition
adjustments (1) (19) 44 20 (30) 14 1 15
Tax adjustments
Under provision in prior
years - - - - - - (7) (7)
Revaluation of deferred
tax balances - - - - - - 3 3
Total adjustments (177) (86) 44 20 (30) (229) 16 (213)
------------------------------- ------- ---------- -------- --------- ------ ------------- ----- -------------
52 weeks to 7
March 2020
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(1) (255) (41) - - - (296) 28 (268)
Retail
restructuring
programme(1) (21) (11) - - - (32) 6 (26)
Financial Services
transition
and other (2) (27) - - - (29) 4 (25)
------------------- ------- --------------- -------- ---------------- ------ ------------- ----- -------------
Total strategic
programmes (278) (79) - - - (357) 38 (319)
Property, finance,
pension
and acquisition
adjustments
Profit/(loss) on
disposal
of properties - - 56 - (21) 35 3 38
Investment
property fair
value movements - - - - (3) (3) - (3)
Perpetual
securities
coupons - - - 23 - 23 (4) 19
Non-underlying
finance
movements - - - (17) (5) (22) 3 (19)
IAS 19 pension
expenses - (9) - 28 - 19 (4) 15
Acquisition
adjustments - (26) - - - (26) 5 (21)
------------------- ------- --------------- -------- ---------------- ------ ------------- ----- -------------
Total property,
finance,
pension and
acquisition
adjustments - (35) 56 34 (29) 26 3 29
Tax adjustments
Over provision in
prior
years - - - - - - 8 8
Revaluation of
deferred
tax balances - - - - - - (3) (3)
Total adjustments (278) (114) 56 34 (29) (331) 46 (285)
------------------- ------- --------------- -------- ---------------- ------ ------------- ----- -------------
Prior year property strategy programme
During the prior year, the Group identified an impairment
indicator following an approved programme of store closures. This
programme was initially announced at the Capital Markets Day in
September. It was subsequently revisited during the second half of
the year resulting in additional planned closures. Impairment
charges and closure costs were therefore recognised in the prior
year as follows:
28 weeks to 21 September 52 weeks to 7 March
2019 2020
Property Impairment Property Impairment
strategy review strategy review
programme programme
GBPm GBPm GBPm GBPm
--------------------------------- ------------- ------------ ----------- -----------
Impairment of property, plant
and equipment 51 69 70 84
Impairment of leased assets 24 15 51 29
Impairment of intangible assets 5 13 5 13
Store closure provisions 23 - 41 -
Redundancy provisions 3 - 3 -
--------------------------------- ------------- ------------ ----------- -----------
106 97 170 126
--------------------------------- ------------- ------------ ----------- -----------
Prior year retail restructuring programme
Restructuring costs of GBP(32) million in the prior year mostly
comprise redundancy payments following changes to the Group's store
management structure, responding to changing customer shopping
habits and reducing costs throughout the store estate, as well as
the closure of one Argos distribution centre, prior to the wider
store closure programme announced at the Capital Markets Day. Also
included costs incurred following announced head-office
restructures during the year.
Cash flow statement
The table below shows the impact of non-underlying items on the
Group cash flow statement:
28 weeks 28 weeks 52 weeks
to to to
19 September 21 September 7 March
2020 2019 2020
GBPm GBPm GBPm
-------------------------------------------- ------------- ------------- ---------
Cash flows from operating activities
IAS 19 pension expenses (3) (4) (9)
Financial Services transition (7) (13) (22)
Argos integration costs - (3) (2)
Restructuring programmes (9) (4) (34)
ATM Rates reimbursement 12 - -
Transaction costs relating to the proposed
merger with Asda - (11) (13)
----------------------------------------------- ------------- ------------- ---------
Cash used in operating activities (7) (35) (80)
Cash flows from investing activities
Proceeds from property disposals 19 54 81
----------------------------------------------- -------------
Cash generated from investing activities 19 54 81
Net cash flows 12 19 1
--------------------------------------------- ------------- ------------- ---------
The Property strategy and Retail restructuring programmes
disclosed in prior years are included within Restructuring
programmes in the current year.
4. Segment reporting
The Group's businesses are organised into three operating
segments:
-- Retail - Food
-- Retail - General Merchandise & Clothing
-- Financial Services (Sainsbury's Bank plc and Argos Financial Services entities)
Management has considered the economic characteristics,
similarity of products, production processes, customers, sales
methods and regulatory environment of its two Retail segments. In
doing so, it has been concluded that they be aggregated into one
'Retail' segment in the financial statements. This aggregated
information provides users the financial information needed to
evaluate the business and the environment in which it operates.
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 prior year, management 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 Operating Board assesses the performance of all segments on
the basis of underlying profit before tax. 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.
a. Income statement and balance sheet
Retail Financial Group
Services
28 weeks to 19 September 2020 GBPm GBPm GBPm
------------------------------------ --------- ---------- ---------
Segment revenue
Retail sales to external customers 14,715 - 14,715
Financial Services to external
customers(1) - 219 219
------------------------------------ --------- ---------- ---------
Underlying revenue 14,715 219 14,934
------------------------------------ --------- ---------- ---------
Revenue 14,715 219 14,934
------------------------------------ --------- ---------- ---------
Underlying operating profit/(loss) 555 (55) 500
Underlying finance income 2 - 2
Underlying finance costs (201) - (201)
------------------------------------ --------- ---------- ---------
Underlying profit/(loss) before
tax 356 (55) 301
Non-underlying expense (note
3) (438)
------------------------------------ --------- ---------- ---------
Loss before tax (137)
Income tax expense (note 7) (42)
------------------------------------ --------- ---------- ---------
Loss for the financial period (179)
------------------------------------ --------- ---------- ---------
Assets 18,412 8,051 26,463
Investment in joint ventures
and associates 5 - 5
------------------------------------ --------- ---------- ---------
Segment assets 18,417 8,051 26,468
------------------------------------ --------- ---------- ---------
Segment liabilities (12,133) (7,148) (19,281)
------------------------------------ --------- ---------- ---------
(1) Financial Services income includes GBP176 million recognised
using the effective interest rate method.
Financial
Retail Services Group
28 weeks to 21 September 2019 GBPm GBPm GBPm
--------------------------------------------- --------- ---------- ---------
Segment revenue
Retail sales to external customers 14,808 - 14,808
Financial Services to external customers(1) - 289 289
--------------------------------------------- --------- ---------- ---------
Underlying revenue 14,808 289 15,097
--------------------------------------------- --------- ---------- ---------
Revenue 14,808 289 15,097
Underlying operating profit 437 20 457
Underlying finance income 2 - 2
Underlying finance costs (221) - (221)
Underlying share of post-tax profit
from joint ventures and associates - - -
--------------------------------------------- --------- ---------- ---------
Underlying profit before tax 218 20 238
Non-underlying expense (note 3) (229)
--------------------------------------------- --------- ---------- ---------
Profit before tax 9
Income tax expense (note 7) (47)
--------------------------------------------- --------- ---------- ---------
Loss for the financial period (38)
Assets 19,308 9,542 28,850
Investment in joint ventures and
associates 56 - 56
--------------------------------------------- --------- ---------- ---------
Segment assets 19,364 9,542 28,906
Segment liabilities (12,478) (8,522) (21,000)
--------------------------------------------- --------- ---------- ---------
(1) Financial Services income includes GBP204 million recognised
using the effective interest rate method.
Retail Financial Group
Services
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 3) (331)
--------------------------------------------- --------- ---------- ---------
Profit before tax 255
Income tax expense (note 7) (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)
--------------------------------------------- --------- ---------- ---------
(1) Financial Services income includes GBP405 million recognised
using the effective interest rate method.
b. Segmented cash flow statement
28 weeks to 19 28 weeks to 21 September
September 2020 2019
APM Financial Financial
reference Retail Services Group Retail Services Group
GBPm GBPm GBPm GBPm GBPm GBPm
Profit/(loss) before tax 31 (168) (137) 2 7 9
---------------------------------------------------- ------- ---------- ------ -------- ----------- ------
Net finance costs 180 - 180 196 3 199
Share of post-tax loss from
joint ventures - - - 30 - 30
Operating profit/(loss) 211 (168) 43 228 10 238
Adjustments for:
Depreciation and amortisation
expense 647 14 661 653 14 667
Net impairment loss on property,
plant and equipment, right
of use assets and intangible
assets 187 105 292 177 - 177
Non-cash adjustments arising
from acquisitions (1) - (1) (1) - (1)
Financial Services impairment
losses on loans and advances - 39 39 - 47 47
Loss/(profit) on sale of properties
and early termination of leases 5 2 7 (44) - (44)
Share-based payments expense 14 2 16 17 2 19
Non-cash defined benefit scheme
expenses 3 - 3 4 - 4
Cash contributions to defined
benefit scheme (60) - (60) (48) - (48)
Operating cash flows before
changes in working capital 1,006 (6) 1,000 986 73 1,059
Changes in working capital
Decrease/(increase) in working
capital 713 79 792 289 (110) 179
Cash generated from/(used in)
operations 1,719 73 1,792 1,275 (37) 1,238
Interest paid a (193) - (193) (208) - (208)
Corporation tax paid (88) - (88) (8) 2 (6)
Net cash generated/(used) from
operating activities 1,438 73 1,511 1,059 (35) 1,024
---------------------------------------------------- ------- ---------- ------ -------- ----------- ------
Cash flows from investing activities
Purchase of property, plant
and equipment excluding strategic
capital expenditure (257) - (257) (213) - (213)
Initial direct costs on new
leases (3) - (3) (2) - (2)
Purchase of intangible assets (33) (11) (44) (35) (17) (52)
Proceeds from disposal of property,
plant and equipment 19 - 19 54 - 54
Interest received a - - - 2 - 2
Dividends and distributions
received e 22 - 22 118 - 118
Net cash used in investing
activities (252) (11) (263) (76) (17) (93)
---------------------------------------------------- ------- ---------- ------ -------- ----------- ------
Cash flows from financing activities
Proceeds from issuance of ordinary
shares d 4 - 4 5 - 5
Proceeds from borrowings c - - - 80 - 80
Proceeds from short term borrowings c 660 - 660 - - -
Repayment of borrowings c (269) - (269) (230) - (230)
Repayment of short term borrowings c (660) - (660) - - -
Repayment of perpetual capital
securities c (250) - (250) - - -
Purchase of own shares d (30) - (30) (4) - (4)
Repayment of capital element
of obligations under lease
liabilities b (223) (1) (224) (230) (1) (231)
Repayment of capital element
of obligations under hire purchase
agreements c - - - (10) - (10)
Dividends paid on ordinary
shares - - - (174) - (174)
Dividends paid on perpetual
securities a (20) - (20) (20) - (20)
Net cash used in financing
activities (788) (1) (789) (583) (1) (584)
---------------------------------------------------- ------- ---------- ------ -------- ----------- ------
Intra group funding
Bank capital injections - - - (35) 35 -
Net cash (used in)/generated
from intra group funding - - - (35) 35 -
---------------------------------------------------- ------- ---------- ------ -------- ----------- ------
Net increase/(decrease) in
cash and cash equivalents 398 61 459 365 (18) 347
---------------------------------------------------- ------- ---------- ------ -------- ----------- ------
52 weeks to 7 March 2020
APM Financial
reference Retail Services Group
GBPm GBPm GBPm
Profit before tax 235 20 255
------------------------------------------------- -------- ---------- --------
Net finance costs 363 3 366
Share of post-tax loss
from joint ventures and
associates 29 - 29
Operating profit 627 23 650
Adjustments for:
Depreciation and amortisation
expense 1,225 31 1,256
Net impairment charge on
property, plant and equipment,
right-of-use asset, investment
property and intangible
assets 257 6 263
Non-cash adjustments arising
from acquisitions (2) - (2)
Financial Services impairment
losses on loans and advances - 80 80
(Profit)/loss on sale of
properties and early termination
of leases (56) - (56)
Loss on disposal of intangibles - - -
Share-based payments expense 34 3 37
Non-cash defined benefit
scheme expenses 9 - 9
Cash contributions to defined
benefit scheme (52) - (52)
Operating cash flows before
changes in working capital 2,042 143 2,185
Changes in working capital
Decrease/(increase) in
working capital (71) (248) (319)
Cash generated from operations 1,971 (105) 1,866
Interest paid a (384) - (384)
Corporation tax paid (113) 3 (110)
Net cash generated/(used)
from operating activities 1,474 (102) 1,372
------------------------------------------------- -------- ---------- --------
Cash flows from investing
activities
Purchase of property, plant
and equipment excluding
strategic capital expenditure (517) (2) (519)
Strategic capital expenditure - - -
Purchase of property, plant
and equipment (517) (2) (519)
Initial direct costs on
new leases (13) - (13)
Purchase of intangible
assets (82) (38) (120)
Proceeds from disposal
of property, plant and
equipment 81 - 81
Interest received a 2 - 2
Dividends and distributions
received e 143 - 143
Net cash used in investing
activities (386) (40) (426)
------------------------------------------------- -------- ---------- --------
Cash flows from financing
activities
Proceeds from issuance
of ordinary shares d 15 - 15
Proceeds from borrowings c 250 - 250
Repayment of borrowings c (169) - (169)
Repayment upon maturity
of convertible bonds c (450) - (450)
Purchase of own shares d (18) - (18)
Repayment of capital element
of obligations under lease
liabilities b (419) (1) (420)
Repayment of capital element
of obligations under hire
purchase agreements c (10) - (10)
Dividends paid on ordinary
shares (247) - (247)
Dividends paid on perpetual
securities a (23) - (23)
Net cash used in financing
activities (1,071) (1) (1,072)
------------------------------------------------- -------- ---------- --------
Intra group funding
Bank capital injections (35) 35 -
Net cash (used in)/generated
from intra group funding (35) 35 -
------------------------------------------------- -------- ---------- --------
Net decrease in cash and
cash equivalents (18) (108) (126)
------------------------------------------------- -------- ---------- --------
5. 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 types that involve a level of judgement and estimation are
as follows:
-- Fixed amounts - these are agreed with suppliers primarily to
support in-store activity including promotions, such as utilising
specific space.
-- Supplier rebates - these are typically agreed on an annual
basis, aligned with the Group's financial year. The rebate amount
is linked to pre-agreed targets such as sales volumes.
-- Marketing and advertising income - advertising income from
suppliers through the Group's subsidiary Nectar 360 Services
LLP.
The amounts recognised in the income statement for the above
types of supplier arrangements are as follows (excluding
non-judgemental discounts and supplier incentives outside the above
categories):
28 weeks to 28 weeks to 52 weeks
to
19 September 21 September 7 March
2020 2019 2020
GBPm GBPm GBPm
----------------------------- ------------- ------------- ---------
Fixed amounts 89 108 278
Supplier rebates 32 34 68
Marketing and advertising
income 34 58 105
Total supplier arrangements 155 200 451
------------------------------ ------------- ------------- ---------
Of the above amounts, the following was outstanding and held on
the balance sheet at the period-end:
28 weeks 28 weeks 52 weeks
to to to
19 September 21 September 7 March
2020 2019 2020
GBPm GBPm GBPm
---------------------------------- ------------- ------------- ---------
Within inventory (7) (7) (7)
Within current trade receivables
Supplier arrangements due 32 31 44
Accrued supplier arrangements 45 53 38
Within current trade payables
Supplier arrangements due 8 12 12
Accrued supplier arrangements 3 2 -
Deferred income due (1) (4) (2)
----------------------------------- ------------- ------------- ---------
Total supplier arrangements 80 87 85
----------------------------------- ------------- ------------- ---------
6. Finance income and finance costs
28 weeks to 19 28 weeks to 21 52 weeks to 7
September 2020 September 2019 March 2020
Underlying Non-Underlying Total Underlying Non-Underlying Total Underlying Non-Underlying Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ----------- --------------- ------ ----------- --------------- ------ ----------- --------------- ------
Interest on
bank deposits
and other
financial
assets 1 - 1 1 - 1 2 - 2
Fair value
measurements - 3 3 - 1 1 - - -
IAS 19 pension
financing
income - 11 11 - 15 15 - 28 28
Finance income
on net
investment in
leases 1 - 1 1 - 1 2 - 2
--------------- ----------- --------------- ------ ----------- --------------- ------ ----------- --------------- ------
Finance Income 2 14 16 2 16 18 4 28 32
--------------- ----------- --------------- ------ ----------- --------------- ------ ----------- --------------- ------
Borrowing
costs:
Secured
borrowings (29) - (29) (26) - (26) (50) - (50)
Unsecured
borrowings (1) - (1) (9) - (9) (12) - (12)
Lease
liabilities (163) (5) (168) (175) (5) (180) (323) (9) (332)
Fair value
measurements - - - - - - - (8) (8)
--------------- ----------- --------------- ------ ----------- --------------- ------ ----------- --------------- ------
(193) (5) (198) (210) (5) (215) (385) (17) (402)
Other finance
costs:
Interest
capitalised
- qualifying
assets 2 - 2 2 - 2 4 - 4
Fair value
measurements - - - - (4) (4) - - -
Perpetual
securities
coupon (10) 10 - (13) 13 - (23) 23 -
--------------- ----------- --------------- ------ ----------- --------------- ------ ----------- --------------- ------
(8) 10 2 (11) 9 (2) (19) 23 4
Finance costs (201) 5 (196) (221) 4 (217) (404) 6 (398)
--------------- ----------- --------------- ------ ----------- --------------- ------ ----------- --------------- ------
Fair value remeasurements relate to net fair value movements on
derivative financial instruments not designated in a hedging
relationship.
7. Income tax expense
52 weeks
28 weeks to 28 weeks to to
19 September 21 September 7 March
2020 2019 2020
GBPm GBPm GBPm
------------------------------------- ------------- ------------- ---------
Current tax expense 5 55 88
Deferred tax expense/(credit) 37 (8) 15
------------------------------------- ------------- ------------- ---------
Total income tax expense in income
statement 42 47 103
------------------------------------- ------------- ------------- ---------
Underlying tax rate 27.6% 26.5% 25.4%
Effective tax rate (30.7)% 522.2% 40.4%
------------------------------------- ------------- ------------- ---------
GBPm GBPm GBPm
------------------------------------- ------------- ------------- ---------
Income tax expense on underlying
profit 83 63 149
Income tax credit on non-underlying
items (41) (16) (46)
------------------------------------- ------------- ------------- ---------
Total income tax expense in income
statement 42 47 103
------------------------------------- ------------- ------------- ---------
The interim tax charge is calculated in accordance with IAS 34.
The annual effective tax rate (excluding discrete items) is
calculated and applied to the interim profit before tax. The tax
effect of discrete items in the reporting period is then included
to calculate the reported tax expense. Discrete items include
non-underlying items (see note 3) and prior year deferred tax
adjustments.
The effective tax rate of (30.7) per cent (28 weeks to 21
September 2019: 522.2 per cent) is lower than the standard rate of
corporation tax in the UK of 19 per cent and results in a tax
charge, rather than a tax credit, on the interim loss before tax.
This is largely a result of the amount of non-deductible expenses,
particularly in respect of non-underlying discrete items, the
de-recognition of previously recognised deferred tax assets on
capital losses, and prior year adjustments.
The main rate of UK corporation tax reduced from 20 per cent to
19 per cent from 1 April 2017. A further reduction in the
corporation tax rate to 17 per cent, effective from 1 April 2020,
was substantively enacted in a prior period, so its effect was
reflected in the Group's balance sheet as at 7 March 2020. Deferred
tax on temporary differences and tax losses as at the balance sheet
date is calculated at the substantively enacted rates at which the
temporary differences and tax losses are expected to reverse. A
change to the corporation tax rate, so that it remains at 19 per
cent rather than reducing to 17 per cent from 1 April 2020, was
announced in the 2020 Budget and substantively enacted prior to 19
September 2020. Therefore, its effect is recognised in the current
period.
Finance Act 2020 also includes legislation restricting the
amount of chargeable gains that a company can relieve with its
carried-forward capital losses from previous accounting periods.
Broadly, from 1 April 2020 a company is only able to offset up to
50 per cent of chargeable gains using carried forward capital
losses. The Group's carried forward capital losses were fully
recognised at 7 March 2020. The Group has considered the expected
impact of these changes in tax law in respect of the utilisation of
carried-forward tax losses in future accounting periods.
Accordingly approximately GBP178 million of the Group's carried
forward capital losses have not been recognised as at 19 September
2020.
8. (Loss)/Earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the year, excluding those
held by the Employee Share Ownership Plan trusts, which are treated
as cancelled.
For diluted earnings per share, the earnings attributable to the
ordinary shareholders are adjusted by the coupons on the perpetual
subordinated convertible bonds (net of tax), and prior to
redemption, interest on the senior convertible bonds (net of tax).
The weighted average number of ordinary shares in issue is adjusted
to assume conversion of all potentially dilutive ordinary shares.
These represent share options granted to employees where the
exercise price is less than the average market price of the
Company's ordinary shares during the year and the number of shares
that would be issued if all senior convertible bonds and perpetual
subordinated convertible bonds are assumed to be converted.
Underlying earnings per share is provided by excluding the
effect of any non-underlying items as defined in note 3. This
alternative measure of earnings per share is presented to reflect
the Group's underlying trading performance. All operations are
continuing for the periods presented.
28 weeks 28 weeks 52 weeks
to to to
19 September 21 September 7 March
2020 2019 2020
million million million
------------------------------------------------------ ------------- ------------- ----------
Weighted average number of shares in issue(1) 2,211.7 2,207.4 2,207.6
Weighted average number of dilutive share options(1) 18.7 16.5 24.1
Weighted average number of dilutive senior
convertible bonds(1) - 153.6 153.7
Weighted average number of dilutive subordinated
perpetual convertible bonds 86.7 83.8 84.6
Total number of shares for calculating diluted
(loss)/earnings per share 2,317.1 2,461.3 2,470.0
------------------------------------------------------ ------------- ------------- ----------
GBPm GBPm GBPm
------------------------------------------------------ ------------- ------------- ----------
(Loss)/profit for the financial period (net
of tax) (179) (38) 152
Less profit attributable to:
Holders of perpetual capital securities - (8) (16)
Holders of perpetual convertible bonds (4) (3) (7)
(Loss)/profit for the financial period attributable
to ordinary shareholders (183) (49) 129
------------------------------------------------------ ------------- ------------- ----------
GBPm GBPm GBPm
------------------------------------------------------ ------------- ------------- ----------
(Loss)/profit for the financial period attributable
to ordinary shareholders (183) (49) 129
Add interest on senior convertible bonds (net
of tax)(1) - - 9
Add coupon on subordinated perpetual convertible
bonds (net of tax)(1) - - 6
Diluted (loss)/earnings for calculating diluted
(loss)/earnings per share (183) (49) 144
------------------------------------------------------ ------------- ------------- ----------
GBPm GBPm GBPm
------------------------------------------------------ ------------- ------------- ----------
(Loss)/profit for the financial period attributable
to ordinary shareholders of the parent (183) (49) 129
Adjusted for non-underlying items (note 3) 438 229 331
Tax on non-underlying items (41) (16) (46)
Add back perpetual securities coupons (net
of tax)(2) 10 11 23
------------------------------------------------------
Underlying profit after tax attributable to
ordinary shareholders of the parent 224 175 437
Add interest on convertible bonds (net of tax) - 6 9
Add coupon on subordinated perpetual convertible
bonds (net of tax) 3 3 6
Diluted underlying profit after tax attributable
to ordinary shareholders of the parent 227 184 452
------------------------------------------------------ ------------- ------------- ----------
Pence Pence Pence
per share per share per share
------------------------------------------------------ ------------- ------------- ----------
Basic (loss)/earnings (8.3) (2.2) 5.8
Diluted (loss)/earnings (8.3) (2.2) 5.8
Underlying basic earnings 10.1 7.9 19.8
Underlying diluted earnings 9.8 7.5 18.3
------------------------------------------------------ ------------- ------------- ----------
(1) In accordance with IAS 33, 'Earnings per share', dilutive
share options and their respective earnings adjustments are
excluded from the calculation of diluted earnings per share when
the impact is anti-dilutive.
(2) Underlying earnings per share calculation is based on
underlying profit after tax attributable to ordinary shareholders.
Therefore the perpetual securities coupons are added back.
9. Dividends
28 weeks 28 weeks 52 weeks
to to to
19 September 21 September 7 March
2020 2019 2020
Amounts recognised as distributions to equity
holders in the period:
Dividend per share (pence) - 7.9 11.2
Total dividend charge (GBPm) - 174 247
In April the Board chose, due to limited visibility at the time
on the potential impact of COVID-19 on the business, to defer
dividend payment decisions and did not pay a final dividend for the
2019/20 financial year. In the light of improved visibility, strong
trading and a strong balance sheet position, the Board has chosen
to pay a special dividend in lieu of a final dividend for the
2019/20 financial year. The dividend of 7.3p was approved by the
Board of Directors on 4 November 2020.
An interim dividend of 3.2 pence per share (21 September 2019:
3.3 pence per share), has been approved by the Board of Directors
for the financial year ending 6 March 2021, resulting in an interim
dividend of GBP71 million (21 September 2019: GBP73 million). The
interim dividend was approved by the Board on 4 November 2020 and
as such has not been included as a liability at 19 September
2020.
10. Property, plant and equipment
28 weeks to 28 weeks to 52 weeks
19 September 21 September to 7 March
2020 2019 2020
GBPm GBPm GBPm
Net book value
At the beginning of the period 8,911 9,193 9,193
Additions 230 210 528
Disposals (20) (6) (17)
Transfer to assets held for sale - - 1
Depreciation charge (331) (334) (634)
Impairment charge (69) (120) (160)
At the end of the period 8,721 8,943 8,911
The net book value of property, plant and equipment comprises
land & buildings of GBP6,937 million (21 September 2019:
GBP7,108 million; 7 March 2020: GBP7,022 million) and fixtures
& fittings of GBP1,784 million (21 September 2019: GBP1,835
million; 7 March 2020: GBP1,889 million).
At 19 September 2020, capital commitments contracted, but not
provided for by the Group, amounted to GBP113 million (21 September
2019: GBP174 million; 7 March 2020: GBP112 million), and GBPnil for
the property joint ventures (21 September 2019: GBP2 million; 7
March 2020: GBPnil).
11. Leases
Set out below are the carrying amounts of right-of-use assets
and the movements during the period:
28 weeks to 28 weeks to 52 weeks
19 September 21 September to 7 March
2020 2019 2020
GBPm GBPm GBPm
Net book value
At the beginning of the period 4,826 4,993 4,993
New leases and modifications 363 187 406
Depreciation charge (265) (263) (493)
Impairment charge (128) (39) (80)
At the end of the period 4,796 4,878 4,826
Included within the above are land and buildings with a net book
value of GBP4,496 million (21 September 2019: GBP4,650 million; 7
March 2020: GBP4,536 million), and equipment with a net book value
of GBP300 million (21 September 2019: GBP228 million; 7 March 2020:
GBP290 million).
Set out below are the carrying amounts of lease liabilities and
the movements during the period:
28 weeks to 28 weeks to 52 weeks
19 September 21 September to 7 March
2020 2019 2020
GBPm GBPm GBPm
At the beginning of the period 5,774 5,831 5,831
New leases and modifications 357 186 373
Interest expense 168 180 332
Payments (392) (421) (762)
At the end of the period 5,907 5,776 5,774
Current 538 536 510
Non-current 5,369 5,240 5,264
The Group presents additions to lease liabilities and right of
use assets in line with the disclosure requirements of IFRS 16
'Leases'. In doing so, additions to right of use assets and lease
liabilities above include the net impact of new leases, lease
extensions, terminations and the exercise of lease breaks.
Right-of-use assets are measured at cost (which includes the
amount of any corresponding lease liability), less any accumulated
depreciation and impairment losses, and adjusted for any subsequent
remeasurement of lease liabilities. Lease liabilities are measured
at the present value of lease payments to be made over the lease
term, discounted using the incremental borrowing rate at the lease
commencement date if the interest rate implicit in the lease is not
readily determinable. After the commencement date of the lease, the
lease liability is subsequently measured at amortised cost using
the effective interest rate method, increasing to reflect the
accretion of interest and reducing for the lease payments made.
The Group determines the lease term as the non-cancellable term
of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or
any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised. The inclusion of a lease
extension period or lease break period in the lease term is a key
judgement for the Group and considers all relevant factors that
create an economic incentive for it to exercise them. For leased
properties, this includes the current and expected profitability of
the respective site, as well as the length of time until the option
can be exercised. Any changes to the Group's judgement over lease
terms will impact both the right of use asset and lease
liability.
The accelerated structural integration of Sainsbury's and Argos
which commenced in the prior year has led to changes in the IFRS 16
right of use asset and lease liability balances.
The judgements applied in the exercising of lease breaks have
changed. The store rationalisation programme is deemed a change in
circumstances within the control of the Group and means that lease
breaks will be exercised, whereas the judgement applied to these in
FY 2020 was that the break would not be exercised. The Group has
also revisited its assumptions about the way that lease breaks will
be exercised across the portfolio and made it more specific for
each part of the store estate. This acts to decrease the lease
liability and right of use asset by circa GBP200m. With hindsight,
the trigger for the recognition of this modification should have
been the Capital Markets Day in September 2019.
In conjunction with store rationalisation, the Group has been
actively pursuing lease extension opportunities across
well-performing supermarket sites. This ensures key stores remain
in the portfolio as the Group seeks to open more Argos
store-in-stores, as well as increasing its online capacity through
its in-store picking model. The extensions act to increase the
lease liability and right of use asset as a result of committing to
future additional rental payments, as well as reflecting updated
discount rates which are typically lower than those previously
used. Certain extensions agreed in the prior year were not
reflected in lease modifications in the prior year. This acts to
increase the lease liability and right of use asset by circa
GBP375m.
The net impact of these items is an increase to lease liability
and right of use assets of circa GBP175m. Since the impact on the
2020 income statement was less than GBP2m and considering a number
of other qualitative factors, the Group has concluded this is not
material and has therefore been reported within the GBP357m new
leases and modifications in the current period above.
Income statement disclosures
The following are the amounts recognised in profit or loss:
28 weeks 28 weeks 52 weeks
to 19 September to 21 September to 7 March
2020 2019 2020
GBPm GBPm GBPm
Depreciation of right-of-use assets (265) (263) (493)
Interest on lease liabilities (168) (180) (332)
Variable lease payments not included
in the measurement of lease liabilities (1) (1) (1)
Finance income from sub-leasing of right-of-use
assets 1 1 2
Operating sublet income 17 23 47
Expenses relating to short term leases (19) (15) (28)
Expenses relating to leases of low value
assets (1) (4) (8)
At the end of the period (436) (439) (813)
Total cash outflow for leases (412) (439) (798)
12. Intangible assets
28 weeks to
28 weeks to 19 21 September 52 weeks to
September 2020 2019 7 March 2020
GBPm GBPm GBPm
Net book value
At beginning of the period 1,012 1,043 1,043
Additions 64 54 124
Disposals (20) (1) (3)
Amortisation charge (65) (70) (129)
Impairment charge (95) (18) (23)
At the end of the period 896 1,008 1,012
The net book value of goodwill and intangible assets
predominantly comprises goodwill of GBP367 million (21 September
2019: GBP378 million; 7 March 2020: GBP378 million), software
assets of GBP412 million (21 September 2019: GBP494 million; 7
March 2020: GBP506 million) and acquired brands of GBP111 million
(21 September 2019: GBP130 million; 7 March 2020: GBP122
million).
13. Impairment of non-financial assets
Approach and identification of cash generating units
At each reporting date, the Group reviews the carrying amounts
of its property, plant and equipment and intangible assets to
determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset, being the higher of its fair value
less costs to dispose and its value in use, is estimated in order
to determine the extent of the impairment loss.
Where the asset does not generate cash flows that are
independent from other assets, the Group estimates the recoverable
amount of the cash-generating unit (CGU) or groups of CGUs to which
the asset belongs. For Retail property, plant and equipment, the
CGU is deemed to be each trading store, store pipeline development
site or in certain cases for Argos, a cluster of stores. For
non-store assets, including depots and IT assets, the CGU
represents all depot and IT assets, combined with either the
population of Sainsbury's or Argos stores that they support as this
is the lowest identifiable group of assets that generate cash
inflows.
Previously Argos stores have been clustered together and tested
as CGUs comprising a hub store (that holds and distributes
inventory) and spoke stores (that hold smaller amounts of
inventory). Argos clusters relate to its multi-channel network that
enables customers to source the most convenient pick-up point for a
product from a number of local stores. If unavailable at their
chosen store, a customer can be directed to an alternative nearby
store that holds the necessary inventory, or it can be delivered to
their chosen store from another within the same catchment area. As
a result, customers regularly switch between stores for their
benefit and convenience. Clusters are created using store location,
proximity to other stores and postcode catchment areas.
Typically, inventory would be moved between stores within a
cluster, and hence they were assessed together. As a result of the
Group's restructuring programme as detailed in note 3, this model
has been re-assessed. In particular, to support the streamlined
Argos infrastructure, a total of 32 Local Fulfilment Centres will
be built across the UK that will operate the Group's fast track
delivery operations, delivering to customers' homes and to Argos
stores and collection points across the country. Consequently it
has been concluded that spokes will now be considered based on
their individual cash flows. The clustering approach is deemed
appropriate for hubs only which will hold and transfer inventory to
spokes as required.
For Financial Services, the CGU is deemed to be each respective
product or product group that is capable of generating cash flows
independent of other products. Non-product assets are reviewed
separately as collective CGUs with the products that they
support.
Any impairment loss is recognised in the income statement in the
year in which it occurs. Where an impairment loss subsequently
reverses due to a change in the original estimate, the carrying
amount of the asset is increased to the revised estimate of its
recoverable amount, or its original carrying value less notional
accumulated depreciation if lower.
Identification of a triggering event
As detailed in note 3, the COVID-19 pandemic has resulted in
changes to customer shopping habits, patterns and sources of
finance. Despite this, the Group has proved resilient through the
pandemic, with additional in-store costs mostly offset by the
grocery sales growth and business rates relief. However the changes
in customer behaviour have led to an acceleration of the Group's
structural integration of Sainsbury's and Argos during the period
and through this, a review of the economic performance of the
Group's assets has been performed as a result of store
rationalisation, changes in channel mix, and changes in customer
borrowing and cash usage behaviour. This has been deemed an
indicator of impairment and a full impairment review has therefore
been performed covering both Retail and Financial Services
non-financial assets.
Approach and assumptions
The recoverable amounts for CGUs have been determined using
value in use calculations which are based on the cash flows
expected to be generated, derived from the latest budget and
forecast data which are reviewed by the Board. Budget and forecast
data reflect both past experience and future expectation of market
conditions. The key assumptions in the value in use calculation are
as follows:
Assumption Retail segment Financial Services segment
Composition Stores including Argos spokes
of CGU / pipeline developments * Property, plant and equipment and intangible assets
* Property, plant and equipment and any goodwill attributable to each product (or group of products
attributable to individual stores. capable of generating independent cash flows).
* 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.
Depots and IT and other assets
* Combined with the respective Sainsbury's or Argos
stores that they support
Argos hubs
* Combined with the cluster of local stores that they
support
Cash flow
years / * Derived from Board approved cash flow projections for * Derived from Board approved cash flow projections for
assumptions five years and then extrapolated for a further 20 five years and then extrapolated over the remaining
years for supermarkets and 10 years for convenience useful lives of the assets being tested for
stores with no assumed growth rate, representing the impairment.
typical time between refits.
* Where lease terms are shorter than this, the
remaining lease term has been used.
* In the case of properties identified for closure,
cash flows years relate to the remaining period that
the store will trade for.
Terminal
value * For owned sites, a terminal value is included in the * No terminal value is applied within the Financial
final cash flow year, representing the net cash flows Services segment, as cashflows are limited to the
expected to be received for the disposal of the period of the remaining useful lives of the assets
assets at the end of their useful life. being tested for impairment.
* It is calculated using an assumed market rent for the
stores, with an investment yield based on similar
properties in the area.
Discount
rate * A post-tax discount rate representing the Retail * A post-tax discount rate representing the Financial
segment's weighted average cost of capital (WACC), Services segment's weighted average cost of capital
subsequently grossed up to a pre-tax rate of 7.7 per (WACC), subsequently grossed up to a pre-tax rate of
cent. 12.8 per cent.
* The post-tax WACC been calculated using the capital * The post-tax WACC has been calculated using a
asset pricing model, the inputs of which include a combination of adjusted market analysis and the
risk-free rate for the UK, a UK equity risk premium, actual cost of debt on Tier 2 capital instruments.
levered debt premium and a risk adjustment using a 10
year average beta for the Group.
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.
Outputs and sensitivities
Impairment charges recognised in the Retail segment relate to
both sites identified for closure as part of the restructuring
programme, as well as other impairments on stores that will
continue to trade, but for which the cash flows no longer support
the carrying amount of assets. Impairment charges recognised in the
Financial Services segment are a result of forecast cashflows
reflecting the uncertain macro-economic environment and changes to
customer behaviour no longer supporting the carrying amount of
underlying IT systems and ATM assets. The overall charges are as
follows:
Restructuring
programme Other impairments Total
GBPm GBPm GBPm
Impairment of property, plant and equipment 9 60 69
Impairment of leased assets 66 62 128
Impairment of intangible assets 3 92 95
78 214 292
Of the total impairment charge of GBP(292) million, GBP(187)
million is in relation to assets within the Retail segment, with
the remaining GBP(105) million within the Financial Services
segment.
Of the above assumptions, the value-in-use calculations are most
sensitive to changes in the discount rate, cash flows and inputs
underpinning the terminal value. The tables below set out the key
sensitivities performed on the value-in-use models. The sensitivity
analysis performed considers the reasonably possible changes in
these assumptions, which incorporates increased uncertainty caused
by the COVID-19 pandemic.
Retail segment
Sensitivity area Sensitivity Increase / (decrease)
in impairment
GBPm
Discount rate Increase of 1% 15
Decrease of 1% (3)
Cash flows Increase of 5% (3)
Decrease of 5% 6
Rental yield (input
for terminal values) Increase of 1% 2
Decrease of 1% (3)
Financial Services segment
Sensitivity area Sensitivity Increase / (decrease)
in impairment
GBPm
Discount rate Increase of 1% 10
Decrease of 1% (10)
Cash flows Increase of 5% (18)
Decrease of 5% 18
14. Financial instruments
a. Financial assets and liabilities by category
Set out below are the accounting classification of each class of
financial assets and liabilities:
Fair value through
Fair value through profit
Amortised cost OCI or loss Total
Group GBPm GBPm GBPm GBPm
At 19 September 2020
Cash and cash equivalents 1,342 - 111 1,453
Trade and other receivables 453 - 190 643
Amounts due from Financial
Services customers 6,192 - - 6,192
Financial assets at fair
value through other comprehensive
income - 924 - 924
Trade and other payables (4,332) - - (4,332)
Current borrowings (257) - - (257)
Non-current borrowings (772) - - (772)
Amounts due to Financial
Services customers and
other deposits (6,810) - - (6,810)
Derivative financial
instruments - - (66) (66)
Lease liabilities (5,907) - - (5,907)
(10,091) 924 235 (8,932)
Fair value
Fair value through profit
Amortised cost through OCI or loss Total
Group GBPm GBPm GBPm GBPm
At 21 September 2019
Cash and cash equivalents 1,296 - 172 1,468
Trade and other receivables 375 - 182 557
Amounts due from Financial
Services customers 7,401 - - 7,401
Financial assets at
fair value through other
comprehensive income - 1,020 - 1,020
Trade and other payables (4,437) - - (4,437)
Current borrowings (495) - - (495)
Non-current borrowings (1,023) - - (1,023)
Amounts due to Financial
Services customers and
other deposits (8,167) - - (8,167)
Derivative financial
instruments - - (4) (4)
Lease liabilities (5,776) - - (5,776)
(10,826) 1,020 350 (9,456)
Fair value
Fair value through profit
Amortised cost through OCI or loss Total
Group GBPm GBPm GBPm GBPm
At 7 March 2020
Cash and cash equivalents 841 - 153 994
Trade and other receivables 506 - 169 675
Amounts due from Financial
Services customers 7,404 - - 7,404
Financial assets at fair
value through other comprehensive
income - 1,054 - 1,054
Trade and other payables (3,835) - - (3,835)
Current borrowings (48) - - (48)
Non-current borrowings (1,248) - - (1,248)
Amounts due to Financial
Services customers and other
deposits (8,094) - - (8,094)
Derivative financial instruments - - (71) (71)
Lease liabilities (5,774) - - (5,774)
(10,248) 1,054 251 (8,943)
b. Carrying amount versus fair value
Set out below is a comparison of the carrying amount and the
fair value of financial instruments that are carried in the
financial statements at a value other than fair value. The fair
value of financial assets and liabilities are based on prices
available from the market on which the instruments are traded.
Where market values are not available, the fair values of financial
assets and liabilities have been calculated by discounting expected
future cash flows at prevailing interest rates. The fair values of
short-term deposits, trade receivables, overdrafts and payables are
assumed to approximate to their book values.
Carrying Fair value
amount
At 19 September 2020 GBPm GBPm
Financial assets
Amounts due from Financial Services
customers(1) 6,192 6,235
Financial liabilities
Loans due 2031 (649) (791)
Bank loans due 2021 (200) (200)
Tier 2 Capital due 2023 (180) (179)
Lease liabilities (5,907) (5,907)
Amounts due to Financial Services customers
and banks (6,810) (6,820)
1 Includes GBP3,685 million of interest rate swaps in a
portfolio fair value hedging relationship.
Carrying Fair value
amount
At 21 September 2019 GBPm GBPm
Financial assets
Amounts due from Financial Services
customers(1) 7,401 7,440
Financial liabilities
Loans due 2031 (687) (872)
Bank overdrafts (1) (1)
Bank loans due 2019 (200) (200)
Convertible bond due 2019 (450) (451)
Tier 2 Capital due 2023 (180) (181)
Lease liabilities (5,776) (5,776)
Amounts due to Financial Services
customers and banks (8,167) (8,176)
1 Includes GBP4,145 million of interest rate swaps in a
portfolio fair value hedging relationship.
Carrying Fair value
amount
At 7 March 2020 GBPm GBPm
Financial assets
Amounts due from Financial Services customers(1) 7,405 7,455
Financial liabilities
Loans due 2031 (667) (888)
Bank loans due 2019 (199) (199)
Bank loans due 2024 (250) (250)
Tier 2 Capital due 2023 (180) (177)
Lease liabilities (5,774) (5,774)
Amounts due to Financial Services customers and
banks (8,093) (8,100)
1 Includes GBP4,512 million of interest rate swaps in a
portfolio fair value hedging relationship.
c. Fair value measurements recognised in the balance sheet
The following table provides an analysis of financial
instruments that are recognised at fair value, grouped into Levels
1 to 3 based on the degree to which the fair value is
observable:
-- Level 1 fair value measurements are derived from quoted
market prices (unadjusted) in active markets for identical assets
or liabilities at the balance sheet date. This level includes
listed equity securities and debt instrument on public
exchanges;
-- Level 2 fair value measurements are derived from inputs other
than quoted prices included within Level 1 that are observable for
the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices). The fair value of financial
instruments is determined by discounting expected cash flows at
prevailing interest rates; and
-- Level 3 fair value measurements are derived from valuation
techniques that include inputs for the asset or liability that are
not based on observable market data (unobservable inputs).
Level Level Level Total
1 2 3
At 19 September 2020 GBPm GBPm GBPm GBPm
Cash & cash equivalents 111 - - 111
Trade & other receivables 190 - - 190
Financial instruments at fair value through other
comprehensive income
Interest bearing financial assets - 1 - 1
Other financial assets - 14 265 279
Investment securities 644 - - 644
Derivative financial assets - 30 2 32
Derivative financial liabilities - (98) - (98)
Level Level Level Total
1 2 3
At 21 September 2019 GBPm GBPm GBPm GBPm
Cash & cash equivalents 172 - - 172
Trade & other receivables 182 - - 182
Financial instruments at fair value through other
comprehensive income
Interest bearing financial assets - 1 - 1
Other financial assets - 14 206 220
Investment Securities 799 - - 799
Derivative financial assets - 47 2 49
Derivative financial liabilities - (53) - (53)
Level 1 Level 2 Level 3 Total
At 7 March 2020 GBPm GBPm GBPm GBPm
Cash & cash equivalents 153 - - 153
Trade & other receivables 169 - - 169
Financial instruments at fair value
through other comprehensive income
Interest bearing financial assets - 1 - 1
Other financial assets - 14 237 251
Investment securities 802 - - 802
Derivative financial assets - 18 - 18
Derivative financial liabilities - (86) (3) (89)
Level 3 Financial assets
Details of the determination of Level 3 fair value measurements
are set out below:
Financial
instruments Commodity
at FVOCI derivatives Total
28 weeks to 19 September 2020 GBPm GBPm GBPm
Opening balance 237 (3) 234
Included in finance income in the income
statement - 5 5
Included in other comprehensive income 28 - 28
Total Level 3 financial assets
and liabilities 265 2 267
Financial
instruments Commodity
at FVOCI derivatives Total
28 weeks to 21 September 2019 GBPm GBPm GBPm
Opening balance 220 1 221
Included in finance income in the income
statement - 1 1
Included in other comprehensive income (14) - (14)
Total Level 3 financial assets
and liabilities 206 2 208
Financial
instruments Commodity
at FVOCI derivatives Total
52 weeks to 7 March 2020 GBPm GBPm GBPm
Opening balance 220 1 221
Included in finance income in the income
statement - (4) (4)
Included in other comprehensive income 17 - 17
Total Level 3 financial assets
and liabilities 237 (3) 234
Other financial assets relate to the Group's beneficial interest
in a property investment pool. The net present value of the Group's
interest in the various freehold reversions owned by the property
investment pool has been derived by assuming a property growth rate
of zero per cent per annum (21 September 2019: 0.6 per cent; 7
March 2020: 0.6 per cent) and a discount rate of 7.7 per cent (21
September 2019: nine per cent; 7 March 2020: nine per cent). The
sensitivity of this balance to changes of one per cent in the
assumed rate of property rental growth and one per cent in the
discount rate holding other assumptions constant is shown
below:
19 September 2020 21 September 2019
Change in Change in Change in Change in
discount rate growth rate discount rate growth rate
+/- 1.0% +/- 1.0% +/- 1.0% +/- 1.0%
GBPm GBPm GBPm GBPm
Financial assets (7)/7 10/(10) (7)/7 11/(10)
7 March 2020
Change in Change in
discount rate growth rate
+/- 1.0% +/- 1.0%
GBPm GBPm
Financial assets (7)/7 11/(10)
Level 3 derivative financial liabilities - power purchase
agreement
The Group has entered into several long-term fixed-price power
purchase agreements with independent producers. Included within
derivative financial instruments is a net asset of GBP2 million
relating to these agreements at 19 September 2020 (at 21 September
2019: GBP2 million; at 7 March 2020: GBP(4) million). The Group
values its power purchase agreements as the net present value of
the estimated future usage at the contracted fixed price less the
market implied forward energy price discounted back at the
prevailing swap rate. The Group also makes an assumption regarding
expected energy output based on the historical performance and the
producer's estimate of expected electricity output. The sensitivity
of this balance to changes of 20 per cent in the assumed rate of
energy output and 20 per cent in the implied forward energy prices
holding other assumptions constant is shown below:
19 September 2020 21 September 2019
Change in Change in
Change in electricity Change in electricity
volume forward price volume forward price
+/- 20.0% +/- 20.0% +/- 20.0% +/- 20.0%
GBPm GBPm GBPm GBPm
Derivative financial
instruments 0/(1) 6/(8) 0/(0) 9/(9)
7 March 2020
Change in
Change in electricity
volume forward price
+/- 20.0% +/- 20.0%
GBPm GBPm
Derivative financial
instruments (1)/1 6/(8)
d. Financial risk management activities
IBOR reform
The Group has adopted the 'Interest rate benchmark reform'
amendments to IFRS 9 'Financial Instruments' in the current
financial year. These allow the Group to continue hedge accounting
for its benchmark interest rate exposures during the period of
uncertainty arising from interest rate benchmark reforms. The Group
will continue to apply these amendments until the uncertainty
arising from interest rate benchmark reform is no longer present
with respect to the timing and amount of the interest rate
benchmark cash flows.
The Group initiated its London Interbank Offered Rate (LIBOR)
transition plan in the prior financial year and, from August 2019,
hedged balance sheet interest rate exposures within the Financial
Services business using swaps referencing the Sterling Overnight
Index Average (SONIA) index, being a risk-free rate. At 19
September 2020, the Group (within Financial Services) had remaining
exposures to LIBOR impacted by the reform with a notional amount of
GBP2,856 million, of which GBP2,847 million were designated in fair
value hedge accounting relationships and GBP9 million not in a
hedge relationship. Of these, GBP1,723 million are due to mature by
December 2021. The Group expects to transition the remaining
GBP1,133 million to SONIA by 31 December 2021. Further
clarifications on hedge accounting implications for the financial
statements are expected to be provided by IASB following
endorsement of Phase 2 of the IASB IBOR Reform project.
Details of the hedging relationships for which the Group has
applied the 'Interest rate benchmark reform'
amendments are given below. These relate to the utilisation of
derivatives to achieve the desired mix of fixed and floating debt.
The following table sets out the extent of the risk exposure
associated with managing the fixed and floating debt mix as at 19
September 2020.
Carrying amount Line item in
Interest financial statements
Notional Asset Liability rate benchmark Hedge relationship
GBPm GBPm GBPm
Amounts due
Interest rate from Financial
swaps 2,784 - (39) LIBOR Fair Value Services customers
Financial assets
Interest rate at fair value
swaps 63 - (2) LIBOR Fair Value through OCI
The Group's Retail cash flow hedge interest rate swaps, that are
in a hedging relationship, mature prior to the transition,
therefore the Group continues to apply hedge accounting for
these.
e. Financial Services expected credit loss
Loans and advances are initially recognised at fair value and
subsequently held at amortised cost, using the effective interest
method, less provision for impairment and recognised on the balance
sheet when cash is advanced:
19 September 21 September 7 March
2020 2019 2020
GBPm GBPm GBPm
Non-current
Loans and advances to customers 2,890 3,670 3,528
Impairment of loans and advances (78) (77) (75)
2,812 3,593 3,453
Current
Loans and advances to customers 3,608 4,004 4,143
Impairment of loans and advances (228) (196) (192)
3,380 3,808 3,951
Loan commitment provisions (22) (20) (20)
Total impairment provisions
for loans and advances to
customers and loan commitments (328) (293) (287)
Impairment provisions as a
percentage of loans and advances
to customers 5.05% 3.82% 3.74%
During the reporting period there has been a deterioration in
the economic outlook in the UK as a consequence of the COVID-19
pandemic and the measures taken by the government to control the
spread of the virus. A significant reduction in UK economic output
has begun to be observed and is expected to continue over an
uncertain period, with a subsequent rise in unemployment expected
to be a key driver of increased expected credit losses.
The full impact of the COVID-19 pandemic is unlikely to be known
until a vaccine is widely available and government support has been
withdrawn. For instance, the effects of the initial rollback of the
Coronavirus Job Retention Scheme and the ending of initial
Emergency Payment Freezes were only beginning to be observed as at
19 September 2020, and it is too early to understand the impact of
further social restrictions imposed in Autumn 2020.
Due to the unprecedented nature of the COVID-19 pandemic and the
UK government actions to support businesses and employees, the
decision was made to overlay the impact of COVID-19 on top of the
existing modelled outputs. The modelled outputs apply multiple
economic scenarios which include an assessment of downside risk
reflective of economic uncertainty prior to COVID-19. When the
latest economic scenarios were applied to existing models they did
not respond appropriately due to the unique nature of the current
economic environment.
In order to estimate the increased credit losses resulting from
COVID-19, the Group has developed 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 and have
been triangulated with third-party data.
During the period expectations of a potential increase in peak
unemployment and additional uncertainty involved in the nature of
the recovery has resulted in an increase of approximately 50 per
cent to the provision uplift of GBP30 million reported in note 41
of the Annual Report and Financial Statements 2020. Including risks
to the economic outlook driven by the United Kingdom's departure
from the European Union, the total economic overlay as at 19
September 2020 was GBP50 million.
15. 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 required for business as
usual activities. The Group's definition of net debt includes lease
liabilities as recognised under IFRS 16 and perpetual securities,
and excludes derivatives that are not used to hedge borrowings.
A reconciliation of opening to closing net debt is included
below. Balances and movements for the total Group and Financial
Services are shown in addition to Retail to enable reconciliation
between the Group balance sheet and Group cash flow statement.
Financial assets at fair value through other comprehensive
income exclude equity related financial assets which predominantly
relate to the Group's beneficial interest in a commercial property
investment pool. Derivatives exclude those not used to hedge
borrowings, and borrowings exclude bank overdrafts as they are
disclosed separately.
Cash Movements Non-Cash Movements
Cash Changes
flows Interest Other in
8 March excluding (received)/ Accrued non-cash fair 19 September
2020 interest paid Interest movements value 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Retail
Financial assets at fair value
through other comprehensive
income 1 - - - - - 1
Net derivative financial instruments (15) - 3 (3) 2 (3) (16)
Cash and cash equivalents 447 398 - - - - 845
Borrowings (excluding overdrafts) (1,116) 269 22 (24) - - (849)
Lease liabilities (5,768) 223 168 (168) (356) - (5,901)
Retail net debt (excluding
perpetual securities) (6,451) 890 193 (195) (354) (3) (5,920)
Financial Services
Financial assets at fair value
through other comprehensive
income 802 (159) - - - 1 644
Net derivative financial instruments 4 - - - - (6) (2)
Cash and cash equivalents 547 61 - - - - 608
Borrowings (excluding overdrafts) (180) - - - - - (180)
Lease liabilities (6) 1 - - (1) - (6)
Financial Services net debt 1,167 (97) - - (1) (5) 1,064
Group
Financial assets at fair value
through other comprehensive
income 803 (159) - - - 1 645
Net derivative financial instruments (11) - 3 (3) 2 (9) (18)
Cash and cash equivalents 994 459 - - - - 1,453
Borrowings (excluding overdrafts) (1,296) 269 22 (24) - - (1,029)
Lease liabilities (5,774) 224 168 (168) (357) - (5,907)
Group net debt (excluding perpetual
securities) (5,284) 793 193 (195) (355) (8) (4,856)
Retail net debt (excluding
perpetual securities) (6,451) 890 193 (195) (354) (3) (5,920)
Perpetual capital securities (248) 250 - - (2) - -
Perpetual convertible bonds (248) - - - - - (248)
Retail net debt (including
perpetual securities) (6,947) 1,140 193 (195) (356) (3) (6,168)
Of which:
Leases (5,768) (5,901)
Net debt excluding lease liabilities (1,179) (267)
Other non-cash movements predominantly comprise new leases and
lease modifications.
Cash Movements Non-Cash Movements
Cash Net Changes
flows interest Other in
9 March excluding (received)/ Accrued non-cash fair 21 September
2019 interest paid Interest movements value 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Retail
Financial assets at fair value
through other comprehensive
income 1 - - - - - 1
Net derivative financial instruments (9) - 1 (3) - 5 (6)
Cash and cash equivalents 466 365 - - - - 831
Bank overdrafts (1) - - - - - (1)
Borrowings (excluding overdrafts
and finance leases) (1,483) 150 25 (29) - - (1,337)
Lease liabilities and hire purchase
arrangements (5,824) 240 180 (180) (186) - (5,770)
Retail net debt (excluding perpetual
securities) (6,850) 755 206 (212) (186) 5 (6,282)
Financial Services
Financial assets at fair value
through other comprehensive
income 622 176 - - - 1 799
Net derivative financial instruments - - - - - 2 2
Cash and cash equivalents 655 (18) - - - - 637
Bank overdrafts - - - - - - -
Borrowings (excluding overdrafts
and finance leases) (176) - - - - (4) (180)
Lease liabilities and hire purchase
arrangements (7) 1 - - - - (6)
Financial Services net debt 1,094 159 - - - (1) 1,252
Group
Financial assets at fair value
through other comprehensive
income 623 176 - - - 1 800
Net derivative financial instruments (9) - 1 (3) - 7 (4)
Cash and cash equivalents 1,121 347 - - - - 1,468
Bank overdrafts (1) - - - - - (1)
Borrowings (excluding overdrafts
and finance leases) (1,659) 150 25 (29) - (4) (1,517)
Lease liabilities and hire purchase
arrangements (5,831) 241 180 (180) (186) - (5,776)
Group net debt (excluding perpetual
securities) (5,756) 914 206 (212) (186) 4 (5,030)
Retail net debt (excluding perpetual
securities) (6,850) 755 206 (212) (186) 5 (6,282)
Perpetual capital securities (248) (248)
Perpetual convertible bonds (248) (248)
Retail net debt (including perpetual
securities) (7,346) 755 206 (212) (186) 5 (6,778)
Of which:
Leases (5,824) (5,770)
Net debt excluding lease liabilities (1,522) (1,008)
Cash Movements Non-Cash Movements
Cash Net
flows interest Other Changes
9 March excluding (received) Accrued non-cash in fair 7 March
2019 interest / paid Interest movements value 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Retail
Financial assets at fair value
through other comprehensive income 1 - - - - - 1
Net derivative financial instruments (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 (5,824) 429 332 (332) (373) - (5,768)
Retail net debt (excluding perpetual
securities) (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 - - - - - 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 (7) 1 - - - - (6)
Financial Services net debt 1,094 70 - - - 3 1,167
Group
Financial assets at fair value
through other comprehensive income 623 177 - - - 3 803
Net derivative financial instruments (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 (5,831) 430 332 (332) (373) - (5,774)
Group net debt (excluding perpetual
securities) (5,756) 850 382 (385) (368) (7) (5,284)
Retail net debt (excluding perpetual
securities) (6,850) 780 382 (385) (368) (10) (6,451)
Perpetual capital securities (248) (248)
Perpetual convertible bonds (248) (248)
Retail net debt (including perpetual
securities) (7,346) 780 382 (385) (368) (10) (6,947)
Of which:
Leases (5,824) (5,768)
Net debt excluding lease liabilities (1,522) (1,179)
Reconciliation of net cash flow to movement in net debt
28 weeks to 28 weeks to 52 weeks to
19 September 21 September 7 March
2020 2019 2020
GBPm GBPm GBPm
Opening net debt (6,947) (7,346) (7,346)
Cash flow movements
Net
increase/(decrease)
in cash
and cash equivalents 459 347 (126)
Elimination of
Financial Services
movement in cash and
cash equivalents (61) 18 108
Repayment of
perpetual capital
securities 250 - -
Decrease in Retail
borrowings
and overdrafts 269 150 369
Decrease in Retail
lease obligations 223 240 429
Net interest paid on
components
of Retail net debt 193 206 382
Changes in net debt
resulting
from cash flow 1,333 961 1,162
Non-cash movements
Accrued interest (195) (212) (385)
Retail fair value and
other
non-cash movements (359) (181) (378)
Changes in net debt
resulting
from non-cash
movements (554) (393) (763)
Movement in net debt 779 568 399
Closing net debt (6,168) (6,778) (6,947)
16. Borrowings
28 weeks to 19 September 28 weeks to 21 September
2020 2019
Current Non-current Total Current Non-current Total
GBPm GBPm GBPm GBPm GBPm GBPm
Loan due 2031 53 596 649 44 643 687
Bank overdrafts - - - 1 - 1
Bank loans due 2021 200 - 200 - 200 200
Bank loans due 2024 - - - - - -
Convertible bond due 2019 - - - 450 - 450
Sainsbury's Bank Tier 2
Capital due 2023 4 176 180 - 180 180
Total borrowings 257 772 1,029 495 1,023 1,518
52 weeks to 7 March
2020
Current Non-current Total
GBPm GBPm GBPm
Loan due 2031 45 622 667
Bank loans due 2021 - 199 199
Bank loans due 2024 - 250 250
Sainsbury's Bank Tier 2 Capital due 2023 3 177 180
Total borrowings 48 1,248 1,296
Available facilities
In September 2019 the maturity of part of the GBP1,450 million
Revolving Credit Facility was extended by one year. The Revolving
Credit Facility is split into two Facilities, a GBP300 million
Facility (A) and a GBP1,150 million Facility (B). Facility A has a
final maturity of April 2025 and Facility B has a final maturity of
October 2024. As at 19 September 2020, the Revolving Facility was
undrawn (21 September 2019: nil; 7 March 2020: nil).
The Revolving Credit Facility incurs commitment fees at market
rates and drawdowns bear interest at a margin above LIBOR.
The Group maintains uncommitted facilities to provide additional
capacity to fund short term working capital requirements. Drawdowns
on these uncommitted facilities bear interest at a margin over
LIBOR. The uncommitted facilities were undrawn at 19 September 2020
(21 September 2019: nil; 7 March 2020: nil).
In July 2020 the Group prepaid in full the secured GBP250m
Bilateral Loan Facility due July 2024.
17. Cash and cash equivalents
Cash and cash equivalents comprise the following:
28 weeks to 28 weeks to 52 weeks to
19 September 21 September 7 March
2020 2019 2020
GBPm GBPm GBPm
Cash in hand and bank balances 461 467 519
Money market funds and deposits 580 639 202
Deposits at central banks 412 362 273
Cash and bank balances 1,453 1,468 994
Bank overdrafts - (1) -
Net cash and cash equivalents 1,453 1,467 994
Of the above balance, GBP22 million (21 September 2019: GBP18
million; 7 March 2020: GBP21 million) was restricted at
half-year.
18. Retirement benefit obligations
All retirement benefit obligations relate to the Sainsbury's
Pension Scheme plus two unfunded pension liabilities relating to
former senior employees of Sainsbury's and Home Retail Group.
The Sainsbury's Pension Scheme has two segregated sections: the
Sainsbury's Section and the Argos Section.
The unfunded pension liabilities are unwound when each employee
reaches retirement and takes their pension from the Group payroll
or is crystallised in the event of an employee retiring and
choosing to take the provision as a one-off cash payment.
The amounts recognised in the balance sheet, based on valuations
performed by Isio are as follows:
19 September 2020 21 September 2019
Sainsbury's Argos Group Sainsbury's Argos Group
GBPm GBPm GBPm GBPm GBPm GBPm
Present value of funded
obligations (9,043) (1,457) (10,500) (8,521) (1,356) (9,877)
Fair value of plan assets 10,072 1,478 11,550 9,856 1,441 11,297
Retirement benefit surplus 1,029 21 1,050 1,335 85 1,420
Present value of unfunded
obligations (21) (17) (38) (23) (15) (38)
Retirement benefit surplus 1,008 4 1,012 1,312 70 1,382
7 March 2020
Sainsbury's Argos Group
GBPm GBPm GBPm
Present value of funded obligations (8,914) (1,421) (10,335)
Fair value of plan assets 10,025 1,466 11,491
Retirement benefit surplus 1,111 45 1,156
Present value of unfunded obligations (21) (16) (37)
Retirement benefit surplus 1,090 29 1,119
The principal actuarial assumptions used at the balance sheet
date are as follows:
19 September 21 September 7 March
2020 2019 2020
% % %
Discount rate 1.60 2.15 1.60
Inflation rate - RPI 2.90 3.10 2.70
Inflation rate - CPI 1.90 2.10 1.70
1.65 -
Future pension increases 1.80 - 2.85 1.90 - 3.00 2.70
The amounts recognised in the income statement in respect of the
IAS 19 charges for the defined benefit schemes are as follows:
28 weeks to 28 weeks 52 weeks
19 September to 21 September to 7 March
2020 2019 2020
GBPm GBPm GBPm
Excluded from underlying profit before
tax:
Interest cost on pension liabilities (88) (134) (248)
Interest income on plan assets 99 149 276
Total included in finance income (note
6) 11 15 28
Defined benefit pension scheme expenses (3) (4) (9)
Total income statement credit 8 11 19
The movements in the net defined benefit obligations are as
follows:
28 weeks to 28 weeks to 52 weeks
19 September 21 September to 7 March
2020 2019 2020
GBPm GBPm GBPm
As at the beginning of the period 1,119 959 959
Interest cost 11 15 28
Remeasurement (loss)/gains (175) 364 89
Pension scheme expenses (3) (4) (9)
Contributions by employer 60 48 52
As at the end of the period 1,012 1,382 1,119
Cash contributions
Cash contributions for the full-year are expected to be
approximately GBP102 million.
Valuation of pension assets
The Pension Scheme has circa GBP2 billion of private market
assets, split between private debt, private equity and property.
These assets are held as they are expected to deliver a greater
risk/return profile vs public market equivalents over the long
term. The assets are illiquid (likely to be realised over 5+ years)
but the Pension Scheme holds sufficient liquid assets (cash, gilts
and other liquid securities) to be confident that it can meet its
pension and collateral obligations over time.
The valuation of these assets is based on the audited accounts
of the funds, where available, and net asset value statements from
the investment managers where recent accounts are not available.
For many of the investments the valuations provided are at 30 June.
To reflect the high level of market volatility caused by the
COVID-19 crisis, the Group has performed a roll-forward for these
valuations using relevant liquid indices as follows:
Asset Class Return
Global equity USD return 7.9%
Global High Yield Debt GBP return 1.0%
US loans GBP return 0. 2 %
Global High Yield Debt local currency return 5.6%
US loans USD return 4.8%
UK REITS return 0.3%
This has increased the asset valuations by GBP36 million.
Sensitivities
The following sensitivities are based on management's best
estimate of a reasonably anticipated change. The sensitivities are
calculated using the same methodology used to calculate the
retirement benefit obligation, by considering the change in the
retirement benefit obligation for a given change in assumption. The
net retirement benefit obligation is the difference between the
retirement benefit obligation and the fair value of plan assets.
Changes in the assumptions may occur at the same time as changes in
the fair value of plan assets. There has been no change in the
calculation methodology since the prior period.
Sainsbury's Argos Total
GBPm GBPm GBPm
An increase of 0.5% in the discount rate would decrease
the present value of funded obligations by 841 145 986
A decrease of 0.5% in the discount rate would increase
the present value of funded obligations by 968 168 1,136
An increase of 0.5% in the inflation rate would increase
the present value of funded obligations by 642 146 788
A decrease of 0.5% in the inflation rate would decrease
the present value of funded obligations by 579 130 709
An increase of one year to the life expectancy would
increase the present value of funded obligations
by 399 49 448
19. Related party transactions
The Group's related parties are its joint ventures as disclosed
in its Annual Report and Financial Statements 2020.
Transactions with joint ventures and associates
For the 28 weeks to 19 September 2020, the Group entered into
various transactions with joint ventures and associates as set out
below:
28 weeks 28 weeks 52 weeks
to to to
19 September 21 September 7 March
2020 2019 2020
GBPm GBPm GBPm
Services and loans provided to joint
ventures
Dividends and distributions received 4 118 141
Disposal of joint ventures - - (21)
Rental expenses paid (3) (4) (14)
Balances arising from transactions with joint ventures and
associates
19 September 21 September 7 March
2020 2019 2020
GBPm GBPm GBPm
Receivables
Other Receivables - - 18
Payables
Other Payables (1) (1) -
GBP18 million of dividends have been included within dividends
and distributions in the cash flow statement in the current period
for dividends which relate to the prior period but were received
after 7 March 2020.
20. Contingent liabilities
The Group has a number of contingent liabilities in respect of
historic guarantees, particularly in relation to disposed assets,
which if the current tenant and their ultimate parents become
insolvent, may expose the Group to a material liability. This is
not expected to materialise.
Along with other retailers, the Group is currently subject to
approximately 8,100 claims from current and ex-employees in the
Employment Tribunal for equal pay under the Equality Act 2010
and/or the Equal Pay Act 1970. Typically, claims of this nature can
take many years to be determined. Given that the claims against the
Group are still at a relatively early stage and the outcome of such
claims is highly uncertain at this stage, the Group considers the
likelihood of a material pay-out to be remote.
21. Post balance sheet events
On 31 October 2020, the UK Government announced a four-week
national lockdown, commencing 5th November. As this is after the
Group's interim reporting date of 19 September 2020, it has been
concluded that no adjustments are required to the Group's interim
financial statements.
Further details of the Group's judgements and estimates in
relation to COVID-19 are included in note 2 of the financial
statements. As these already include COVID-related estimates, it is
not expected that the additional lockdown will have a material
effect on the Group's reported balances. Additionally, sensitivity
analysis on the identified impairments during the period have been
disclosed in note 13, and the COVID-19 impacts considered as part
of the Group's going concern assessment are detailed in note 2.
Principal risks and uncertainties
Risk is an inherent part of doing business. The J Sainsbury plc
Board has overall responsibility for the identification and
management of the principal risks, emerging risks and internal
control of the Company. The Board has identified the following
principal potential risks to the successful operation of the
business. These risks, along with the events in the financial
markets and their potential impacts on the wider economy, remain
those most likely to affect the Group in the second half of the
year.
-- Brand perception
-- Brexit
-- Business continuity, operational resilience and major incidents response
-- Business strategy and change
-- Colleague engagement, attraction, retention and capability
-- Data security
-- Environment and sustainability
-- Financial and treasury
-- Health and safety - people and product
-- Political and regulatory environment
-- Sainsbury's Bank
-- Trading environment and competitive landscape
The impact of COVID-19 on our customers, colleagues, business
operations and supply chain continues to be actively monitored as
the situation evolves, allowing ways of working and other
mitigations to be flexed so that risks are managed.
The above Principal Risks remain unchanged from those reported
in the Group's Annual Report and Financial Statements 2020. For
more information on these risks, please refer to pages 36 to 45 of
the J Sainsbury plc Annual Report and Financial Statements 2020, a
copy of which is available on the Group's corporate website
www.j-sainsbury.co.uk .
Statement of Directors' responsibilities
The Directors confirm that this set of Condensed Consolidated
Interim Financial Statements has been prepared in accordance with
IAS 34 'Interim Financial Reporting' as adopted by the European
Union, and that the Interim Management Report herein includes a
fair review of the information required by DTR 4.2.7R and DTR
4.2.8R.
The Directors of J Sainsbury plc are listed in the J Sainsbury
plc Annual Report and Financial Statements 2020.
A list of current directors is maintained on the Group's
website: www.about.sainsburys.co.uk/about-us/our-management .
By order of the Board
Simon Roberts
Chief Executive
4 November 2020
Kevin O'Byrne
Chief Financial Officer
4 November 2020
INDEPENT REVIEW REPORT TO J SAINSBURY PLC
Introduction
We have been engaged by J Sainsbury plc (the company) to review
the condensed consolidated set of financial statements in the
interim financial report for the 28 weeks ended 19 September 2020
which comprises the Group income statement, the Group statement of
comprehensive income, the Group balance sheet, the Group cash flow
statement and the Group statement of changes in equity and the
related explanatory notes. We have read the other information
contained in the interim financial report and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the condensed consolidated set of interim
financial statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The interim financial report is the responsibility of, and has
been approved by, the directors. The directors are responsible for
preparing the interim financial report in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the European Union. The condensed
set of financial statements included in this interim financial
report has been prepared in accordance with International
Accounting Standard 34, "Interim Financial Reporting", as adopted
by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed consolidated set of financial statements in the
interim financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated set of
financial statements in the interim financial report for the 28
weeks ended 19 September 2020 is not prepared, in all material
respects, in accordance with International Accounting Standard 34
as adopted by the European Union and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Ernst & Young LLP
London
4 November 2020
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 4 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 4 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 28 weeks 28 weeks
sales equivalent retail to 19 to 21
like-for-like September September
sales growth of 2020 2019
6.9 per
cent is based on
a combination
of Sainsbury's
like-for-like
sales and Argos
like-for-like
sales for the 28
weeks
to 19 September
2020.
See movements
below:
Underlying retail
like-for-like
(exc. fuel) 6.9% (1.0)%
Underlying net new
space
impact 0.2% 0.4%
Underlying total
retail
sales growth (exc.
fuel) 7.1% (0.6)%
Fuel Impact (8.5)% 0.3%
Underlying total
retail
sales growth (inc.
fuel) (1.4)% (0.3)%
* Year-on-year growth in sales including VAT, excluding
fuel, excluding Financial Services, for stores that
have been open for more than one year.
* The relocation of Argos stores into Sainsbury's
supermarkets are classified as new space, while the
host supermarket is classified like-for-like.
* The impact on sales of stores which were temporarily
closed due to COVID-19 have been included within LFL
sales. Only permanently closed sites and those
temporarily closed for non COVID-19 related reasons
are treated as non LFL.
* The measure is used widely in the retail industry as
an indicator of current trading performance and is
useful when comparing growth between retailers that
have different profiles of expansion, disposals and
closures.
Income statement - Profit
Retail Profit 28 weeks 28 weeks 52 weeks
underlying before * Underlying earnings before interest, tax, Financial to to to
operating tax Services operating profit and Sainsbury's underlying 19 September 21 September 7 March
profit share of post-tax profit from joint ventures and 2020 2019 2020
associates. GBPm GBPm GBPm
Group PBT (note
4a) (137) 9 255
Add back Group
non-underlying
items (note
3) 438 229 331
Group UPBT (note
4a) 301 238 586
Less: Bank underlying
operating loss/(profit)
(note 4a) 55 (20) (48)
Retail underlying
operating profit
(note 4a) 356 218 538
Net underlying
finance costs
(note 6) 199 219 400
Retail underlying
operating profit
(note 4a) 555 437 938
APM Closest Definition/ Purpose Reconciliation
equivalent
IFRS
measure
Underlying Profit Underlying profit before tax is bridged
profit before * Profit or loss before tax before any items recognised to statutory profit before tax in the
before tax which, by virtue of their size and/or nature, do not income statement and note 3 of the financial
tax reflect the Group's underlying performance. 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/(loss) on disposal of properties - such
disposals are not part of the Group's underlying
business.
* Investment property fair value movements - these
reflect the difference between the fair value of an
investment property at the reporting date and its
carrying amount at the previous reporting date and
are held within the property JVs. The valuations are
impacted by external market factors and can therefore
vary significantly year-on-year.
* Perpetual securities coupons - these are accounted
for as equity in line with IAS 32 'Financial
instruments: Presentation', however are accrued on a
straight-line basis and included as an expense within
underlying profit as they are included by management
when assessing Group 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 interest and expenses include the
financing element and scheme expenses of the Group's
defined benefit scheme. These are reported outside
underlying profit as they no longer relate to the
Group's on-going activities following closure of the
scheme to future accrual.
* Acquisition adjustments - these reflect the
adjustments arising from acquisitions including the
fair value unwind and amortisation of acquired
intangibles.
* Other - these are items which are material and
infrequent in nature and do not relate to the Group's
underlying performance and in the current year
include restructuring programmes, impairment of
non-financial assets and ATM business rates
reimbursement.
Underlying Basic A reconciliation of the measure is provided
basic earnings * Earnings per share using underlying profit as in note 8 of the financial statements.
earnings per share described above. This is a key measure to evaluate
per share the performance of the business and returns generated
for investors.
Retail No direct 28 weeks 28 weeks
underlying equivalent * Retail underlying operating profit as above, before to to
EBITDAR rent, depreciation, and amortisation. 19 September 21 September
2020 2019
GBPm GBPm
Retail underlying
operating profit (note
4a) 555 437
Add: Retail depreciation
and amortisation expense
(note 4b) 647 653
Less: Non underlying
depreciation and amortisation
(note 3) (12) (17)
Add/Less: Net rental
expense/(income) (note
11) 4 (3)
Other - (3)
1,194 1,067
Underlying Finance A reconciliation of this measure is included
net income * Net finance costs before any non-underlying items as in note 6 of the financial statements.
finance less defined above that are recognised within finance
costs finance income / expenses. The adjusted items are as follows:
costs
* Fair value remeasurement 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 included
tax rate tax rate * Tax on underlying items, divided by underlying profit in note 3 of the financial 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 28 weeks 28 weeks weeks
Review to to to
19 21 7
September September March
2020 2019 2020
Ref GBPm GBPm GBPm
Net interest
paid a (213) (226) (405)
Repayment
of lease
liabilities b (223) (230) (419)
Repayment
of
borrowings c (519) (160) (379)
Other d (26) 1 (3)
* 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 Dividends
combined. The cash flow in note 4 of the financial and
statements includes a reference to show what has been distributions
combined in these line items. received e 22 118 143
Retail Net cash
free cash generated
flow from Reconciliation of 52
operating retail free cash 28 weeks 28 weeks weeks
activities flow to to to
19 21 7
September September March
2020 2019 2020
GBPm GBPm GBPm
Cash generated from
retail operations 1,719 1,275 1,971
Net interest paid
(ref (a) above) (213) (226) (405)
Corporation
tax (88) (8) (113)
Retail purchase
of property, plant
and equipment (257) (213) (517)
Retail purchase
of intangible assets (33) (35) (82)
Retail proceeds
from disposal of
property, plant
and equipment 19 54 81
Initial direct costs
on right-of-use
assets (3) (2) (13)
Repayments of
obligations
under leases (223) (230) (419)
Dividends and
distributions
received 22 118 143
Bank capital
injections - (35) (35)
* 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 Retail free
business. cash flow 943 698 611
APM Closest Definition/Purpose Reconciliation
equivalent
IFRS
measure
Underlying No direct
working equivalent 52
capital 28 weeks 28 weeks weeks
movements to to to
19 21 7
September September March
2020 2019 2020
GBPm GBPm GBPm
Retail working
capital
movements per
cash
flow (note 4b) 713 289 (71)
Adjustments for:
Retail
non-underlying
impairment
charges
(per note 4b) 187 177 257
Non-underlying
restructuring
and impairment
charges
(per note 3) (473) (228) (328)
Less Bank
impairment
charges (per
note
3) 105 - -
ATM income (per
note
3) 42 - -
Other - (3) (3)
Non-underlying
working
capital
movements
before cash
movements (139) (54) (74)
Non-underlying
cash
movements:
Restructuring
(per
note 3) 9 4 34
ATM income (per
note
3) (12) - -
Argos
integration
costs (per note
3) - 3 2
Transaction
costs
relating to the
proposed
merger with
Asda (per
note 3) - 11 13
Other - (2) (1)
(3) 16 48
Total
adjustments
for
non-underlying
working capital (142) (38) (26)
* To provide a reconciliation of the working capital
movement in the Financial statements to the
underlying working capital movement in the Financial
review.
Underlying
working
* Removes working capital and cash movements relating capital
to non-underlying items. movements 571 251 (97)
Net cash Cash 28 weeks 28 weeks 52 weeks
generated generated * This enables management to assess the cash generated to to to
from retail from from its core retail operations. 19 September 21 September 7 March
operations operations 2020 2019 2020
(per Financial
Review) * A reconciliation between this and cash generated from GBPm GBPm GBPm
operations per the accounts is shown here: Retail cash generated
from operating
activities (per
note 4b) 1,438 1,059 1,474
Perpetual security
coupons (20) (20) (23)
Interest received - 2 (2)
Net retail cash
generated from
operations in Financial
Review 1,418 1,041 1,453
Core retail No direct
capital equivalent 28 weeks
expenditure 28 weeks to to
19 September 21 September
2020 2019
GBPm GBPm
Purchase of property,
plant and equipment (257) (213)
Purchase of intangibles (33) (35)
Cash capital expenditure
before strategic
capital
expenditure (note 4b) (290) (248)
* Capital expenditure excludes Sainsbury's Bank, after
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.
APM Closest Definition/ Purpose Reconciliation
equivalent
IFRS
measure
Net debt Borrowings, A reconciliation of the measure is provided
cash, * Net debt includes the capital injections into in note 15 of the financial statements.
derivatives, Sainsbury's Bank, but excludes the net debt of In addition, to aid comparison to the balance
financial Sainsbury's Bank and its subsidiaries. sheet, reconciliations between financial
assets assets at FVTOCI and derivatives per the
at FVTOCI, balance sheet and Group net debt (i.e. including
lease Financial Services) is included below:
liabilities 28 weeks 28 weeks 52 weeks
to to to
19 September 21 September 7 March
2020 2019 2020
GBPm GBPm GBPm
Financial instruments
at FVTOCI per balance
sheet 924 1,020 1,054
Less equity-related
securities (279) (220) (251)
Financial instruments
at FVTOCI included
in Group net debt 645 800 803
Net derivatives
per balance sheet (66) (4) (71)
Less derivatives
not used to hedge
borrowings 48 - 60
Derivatives included
in Group net debt (18) (4) (11)
* 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.
Other
Net debt/ No direct Net debt as provided in note 15. Group
underlying equivalent * Net debt divided by Group underlying EBITDAR. underlying EBITDAR is reconciled within
EBITDAR the fixed charge cover analysis below.
* This helps management measure the ratio of the
business's debt to operational cash flow.
Return No direct An explanation of the calculation is provided
on capital equivalent * Return on capital employed is calculated as return in the Financial Review on page 18.
employed divided by average capital employed.
* 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 24 weeks 28 weeks 52 weeks 52 weeks
charge equivalent * Group underlying EBITDAR divided by rent to to to to
cover (representing capital and interest repayments on 7 March 19 September 19 September 7 March
leases) and underlying net finance costs, where 2020 2020 2020 2020
interest on perpetual securities is treated as an GBPm GBPm GBPm GBPm
underlying finance cost. All items are calculated on Group underlying
a 52 week rolling basis. operating profit
(note 4a) 529 500 1,029 986
Add: Group
* This helps assess the Group's ability to satisfy depreciation
fixed financing expenses from performance of the and amortisation
business. expense (note
4b) 589 661 1,250 1,256
Less: Non underlying
depreciation
and amortisation
(note 3) (11) (12) (23) (28)
Add/Less: Net
rental expense/(income)
(note 11) (7) 4 (3) (10)
Other - - - (1)
Group underlying
EBITDAR 2,253 2,203
Repayment of
capital element
of lease obligations
(note 4b) (189) (224) (413) (420)
Underlying
finance income
(note 6) 2 2 4 4
Underlying
finance costs
(note 6) (183) (201) (384) (404)
Fixed charges (793) (820)
Fixed charge
cover 2.8 2.7
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November 05, 2020 02:00 ET (07:00 GMT)
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