TIDMSBRY
RNS Number : 1159S
Sainsbury(J) PLC
02 November 2023
2 November 2023
J Sainsbury Plc
Interim Results for the 28 weeks ended 16 September 2023
Investment in value, innovation and service delivering strong
volume and market share growth
We're gaining volume from all of our grocery competitors, have
grown ahead of the market throughout the first half and made record
market share gains. This is the result of the strategic investment
we have made in our food business over the last three years,
improving value, innovation and customer service. Customers are
noticing and they're doing more of their grocery shopping with us,
trusting us to deliver consistent value as well as the great
quality and service they've always expected from Sainsbury's.
We're continuing to make balanced choices, so while we're
investing to help customers and colleagues, we also expect the
strength of our volume performance to result in underlying profit
before tax in FY2023/24 of between GBP670 million and GBP700
million, the upper half of our previous guidance range, and retail
free cash flow of at least GBP600 million, higher than our previous
guidance of at least GBP500 million.
As we look to build on the success of Food First and towards our
next phase of progress, we will host a Strategy Update on 7
February 2024.
Financial Highlights
-- Grocery sales up 10.1%. Volume growth across both quarters
driving record market share gains and consistent market
outperformance
-- General Merchandise sales up 1.1% despite tough weather
comparatives over the summer (up 2.5% excluding the impact of the
closure of Argos in the Republic of Ireland)
-- Clothing sales down 8.4%, reflecting a disciplined trading
approach in a seasonally weak and promotionally-driven market
-- Statutory Group sales up 3.5%, with fuel sales down 19.6%
driven by lower input prices. Like-for-like Retail sales (excluding
fuel) up 8.4%
-- Retail operating profit GBP485 million, up 2%, reflecting
strong volume-driven grocery profit growth and continued delivery
of Save to Invest cost saving benefits, partially offset by the
impact of weaker seasonal sales on General Merchandise profits
-- Financial Services operating profit of GBP13 million versus
GBP19 million last year. This primarily reflects net interest
margin reduction, with higher funding costs not being fully passed
on through higher lending costs
-- Underlying profit before tax of GBP340 million, flat year-on-year
-- Underlying earnings per share 10.5 pence, down 6% due to the higher rate of corporation tax
-- Statutory profit before tax of GBP275 million, down 27%,
predominantly reflecting non-cash movements and one-off income from
legal settlements in the prior year. Statutory earnings per share
6.6 pence, down 46%
-- Retail free cashflow of GBP520 million, driven by strong
grocery sales growth and seasonal H1 benefit from timing of
payments
-- Net debt including leases GBP701 million lower at GBP5,643
million, reflecting strong cash generation and a GBP1,042 million
reduction in lease debt as a result of the Highbury & Dragon
property transaction. Net debt excluding leases increased by GBP375
million to GBP231 million, reflecting the GBP670 million cash costs
of funding the consideration for the transaction
-- Interim dividend of 3.9 pence, unchanged year-on-year in line
with our policy of paying 30% of the prior full year dividend per
share
Simon Roberts, Chief Executive of J Sainsbury plc, said: "Food
is firmly back at the heart of Sainsbury's. We've never been more
competitive on price and our focus on value, innovation and service
is giving more customers more reasons to shop with us.
"We know people are still finding things tough and we're working
harder than ever to reduce our costs, putting the money back into
our customers' pockets through lower prices on the products they
buy most often. I'm pleased to say food inflation is coming down
and we are passing savings on to customers. We've rolled out Nectar
Prices to over 6,000 products and the vast majority of customers
are now shopping with Nectar, saving over GBP450 million since
April.
"We have extended increased colleague discount and free food
during shifts indefinitely and, thanks to the hard work across our
entire team, we're delivering leading customer service and
availability. I want to thank all of my colleagues for their
fantastic efforts.
"We're ready to give customers at Sainsbury's and Argos
everything they want to have a brilliant Christmas. We're helping
everyone to treat themselves with fantastic value and more
delicious new food than ever before. As we head into this key
trading period, we are encouraged by our strong momentum and we
remain fully focused on delivering for customers and
shareholders."
Strategic highlights
-- Food First: Customers want consistently good value, exciting
products and great service and our relentless focus has helped us
deliver record market share gains(1)
o We're the most competitive we have ever been(2) and customers'
perception of our value is consistently improving(3) , which is why
we're the only full-choice supermarket gaining spend from limited
choice competitors(4,5)
o We have invested GBP118 million since March in keeping prices
low and our targeted investment choices are delivering. Our focus
on lowering prices on centre of the plate products - those our
customers buy most often - has led to more customers doing their
big shop with us(6) and we have driven volumes ahead of the market
across the full basket(7)
o We launched and rapidly rolled out Nectar Prices across all
supermarkets and to Groceries Online. It is now available on over
6,000 products and has saved customers over GBP450 million since
the launch. Customer response has exceeded our expectations, with
more than three million new Digital Collectors since April. The
vast majority of Sainsbury's customers regularly use Nectar Prices,
saving almost GBP10 on a typical GBP80 weekly shop
o Supporting our Good food for all of us brand promise, we
continue to be bold and ambitious on innovation, launching 600 new
products in the half and growing Taste the Difference volumes by
8.4 per cent in Q2, outperforming the market and all competitors in
Premium Own Label volume growth(8) , driven in part by our Summer
innovation
o We have invested significantly in colleague pay and extended
our increased colleague discount and free food during shifts
indefinitely and our colleague engagement scores have increased 8
percentage points(9) . We believe having highly engaged colleagues
delivers leading customer service and our overall customer
satisfaction is consistently ahead of full-choice
competitors(10)
-- Brands that Deliver: We remain focused on improving the
efficiency and resilience of our brands, supporting our strong
customer offers and investment in our food business
o Nectar sales participation has increased significantly and we
now have 14 million Nectar Digital Collectors, driven by the rapid
rollout of Nectar Prices. This will support the growth of
Nectar360, which is on track to deliver GBP90 million of additional
profit by March 2026, as will the expansion of our connected
digital screen network to over 800 screens - making our
'Sainsbury's Live' network one of the largest digital retailer
screen networks in the UK
o Argos profitability has improved in recent years as we have
lowered the fixed cost base, while improving our product range and
expanding the number of points where customers can conveniently
collect products. Lower fixed costs helped reduce the impact in the
half of significantly lower seasonal sales during a colder and
wetter Summer
o Argos sales were resilient, with sales up 3.3 per cent
excluding the impact of closing Argos in the Republic of Ireland,
driven by continuing market share gains(11) , strong consumer
electronics sales and activity supporting Argos's 50(th)
birthday
o Tu maintained a disciplined trading approach, with lower sales
but stable full-price sales participation protecting profitability
in a seasonally weak and promotionally driven market. We now have
37 third party brands on Tu.co.uk, with nine new branded fashion
destination hubs in Sainsbury's supermarkets driving higher average
customer spend
o Financial Services profits declined, with net interest margin
compression as higher funding costs were not passed through to
lending costs. This reflects the nature of our lending products,
including buy now pay later at Argos and customers continuing to
clear balances rather than incur interest costs. We now expect full
year Financial Services profits to be lower than last year
-- Save to Invest: We are on track to deliver GBP1.3 billion of
cost savings by March 2024, future proofing our business with a
structurally lower cost base and fuelling investment in our
customer proposition. As we move towards the next phase of our
strategy we have a strong plan and are confident of continued
momentum and competitive advantage through unique cost savings
opportunities
o Delivered GBP1.1 billion of cost savings over the last two and
a half years
o We progressed key structural change projects, are continuing
to transform and simplify our logistics operations and have begun
to consolidate our data centres, which will modernise, simplify and
future-proof our technology estate
-- Plan for Better: We are making good progress on our Plan for
Better, investing in sustainable supply chains and continue to make
progress against targets including plastic packaging and carbon
reduction
o Our new Taste the Difference Aberdeen Angus beef range is
revolutionising how we produce beef in the UK, with a 25 per cent
lower carbon footprint compared to industry standard
o We won the Marine Stewardship Council UK Supermarket of the
Year and Aquaculture Stewardship Council UK Retailer of the Year
titles, recognising our commitment to sourcing from certified
sustainable, responsibly managed fisheries and aquaculture
H1 Financial Summary 2023/24 2022/23 YoY
Statutory performance
----------------------------------- ------------ ------------ ----------
Group revenue (excl. VAT, inc.
fuel) GBP16,983m GBP16,408m 3.5%
------------ ------------ ----------
Profit before tax GBP275m GBP376m (27)%
------------ ------------ ----------
Profit after tax GBP155m GBP285m (46)%
------------ ------------ ----------
Basic earnings per share 6.6p 12.3p (46)%
------------ ------------ ----------
Business performance
----------------------------------- ------------ ------------ ----------
Group sales (inc. VAT) GBP18,865m GBP18,338m 2.9%
------------ ------------ ----------
Retail sales (inc. VAT, excl.
fuel) GBP15,805m GBP14,674m 7.7%
------------ ------------ ----------
Underlying profit before tax GBP340m GBP340m -
------------ ------------ ----------
Underlying basic earnings per
share 10.5p 11.2p (6)%
------------ ------------ ----------
Interim dividend per share 3.9p 3.9p -
------------ ------------ ----------
Net debt (inc. lease liabilities) GBP(5,643)m GBP(6,165)m GBP522m
------------ ------------ ----------
Non-lease net (debt)/funds GBP(231)m GBP361m GBP(592)m
------------ ------------ ----------
Return on capital employed 7.9% 7.7% 20bps
------------ ------------ ----------
Like-for-like sales performance 2022/23 2023/24 YoY 2023/24 exc. Argos ROI
------------------------------ ------------------------- --------------------------
Q1 Q2 Q3 Q4 Q1 Q2 H1 Q1 Q2 H1
------ ----- ------ ------- ------- -------- ------- -------
Like-for-like sales (excl.
fuel) (4.0)% 3.7% 5.9% 7.8% 9.8% 6.6% 8.4% 10.0% 6.6% 8.5%
------- ------ ----- ------ ------- ------- ------- -------- ------- -------
Like-for-like sales (incl.
fuel) 2.9% 7.7% 6.8% 5.9% 3.9% 2.2% 3.2% 4.0% 2.2% 3.2%
------- ------ ----- ------ ------- ------- ------- -------- ------- -------
Total sales performance 2022/23 2023/24 YoY 2023/24 exc. Argos ROI
------------------------------ ------------------------- --------------------------
Q1 Q2 Q3 Q4 Q1 Q2 H1 Q1 Q2 H1
------- ------- ------- -------- ------- -------
Grocery (2.4)% 3.8% 5.6% 7.4% 11.0% 8.9% 10.1% 11.0% 8.9% 10.1%
------- ------ ----- ------ ------- ------- ------- -------- ------- -------
Total General Merchandise (11.2)% 1.2% 4.6% 7.6% 4.0% (2.6)% 1.1% 4.9% (0.6)% 2.5%
------- ------ ----- ------ ------- ------- ------- -------- ------- -------
GM (Argos) (10.5)% 1.6% 4.5% 9.3% 5.1% (2.6)% 1.7% 6.1% (0.1)% 3.3%
------- ------ ----- ------ ------- ------- ------- -------- ------- -------
GM (Sainsbury's) (14.6)% (1.3)% 5.4% (1.0)% (1.2)% (2.7)% (1.9)% (1.2)% (2.7)% (1.9)%
------- ------ ----- ------ ------- ------- ------- -------- ------- -------
Clothing (10.1)% (0.2)% 1.3% (1.9)% (3.7)% (14.6)% (8.4)% (3.7)% (14.6)% (8.4)%
------- ------ ----- ------ ------- ------- ------- -------- ------- -------
Total Retail (excl. fuel) (4.5)% 3.1% 5.2% 7.1% 9.2% 5.8% 7.7% 9.3% 6.2% 8.0%
------- ------ ----- ------ ------- ------- ------- -------- ------- -------
Fuel 48.3% 29.1% 12.2% (2.8)% (21.4)% (17.1)% (19.6)% (21.4)% (17.1)% (19.6)%
------- ------ ----- ------ ------- ------- ------- -------- ------- -------
Total Retail (incl. fuel) 2.5% 7.2% 6.2% 5.4% 3.3% 1.5% 2.6% 3.5% 1.9% 2.8%
------- ------ ----- ------ ------- ------- ------- -------- ------- -------
Outlook
Consistent investment in our customer proposition has driven
strong momentum and profit growth in our grocery business and
continued market share gains for Argos. This strong trading
momentum has continued in recent weeks and we are confident heading
into the peak trading period. Hence, despite headwinds in Financial
Services and some tough comparatives ahead, we now expect to report
underlying profit before tax in FY 2023/24 of between GBP670
million and GBP700 million, the upper half of our previous guidance
range (GBP640 million to GBP700 million). We expect to generate
Retail free cash flow of at least GBP600 million, higher than our
previous guidance of at least GBP500 million.
Notes
Certain statements made in this announcement are forward-looking
statements. Such statements are based on current expectations and
are subject to a number of risks and uncertainties that could cause
actual events or results to differ materially from any expected
future events or results referred to in these forward-looking
statements. They appear in a number of places throughout this
announcement and include statements regarding our intentions,
beliefs or current expectations and those of our officers,
directors and employees concerning, amongst other things, our
results of operations, financial condition, liquidity, prospects,
growth, strategies and the business we operate. Unless otherwise
required by applicable law, regulation or accounting standard, we
do not undertake any obligation to update or revise any
forward-looking statements, whether as a result of new information,
future developments or otherwise.
A webcast presentation and live Q&A will be held at 9:00
(GMT). This will be available to view on our website at the
following link:
https://sainsburys-interim-results-nov-2023.open-exchange.net/registration
A recorded copy of the webcast and Q&A call, alongside
slides and a transcript of the presentation will be available at
www.about.sainsburys.co.uk/investors/results-reports-and-presentations
following the event.
Sainsbury's will issue its 2023/24 Third Quarter Trading
Statement at 07:00 (GMT) on 10 January 2024.
Enquiries
Investor Relations Media
James Collins Rebecca Reilly / Fleur
Wylie
+44 (0) 7801 813 074 +44 (0) 20 7695 7295
Food First
Food is firmly back at the heart of Sainsbury's. Our relentless
focus on value, innovation and service has helped us drive volumes,
improve absolute value(2) , increase value perception(3) and win
new customers(12) . More customers are shopping their full basket
with us(7) and we are gaining volumes from every supermarket
including limited-choice competitors(4) .
Value
-- We have never been more competitive on price(2) and customers
are noticing: value perception is improving consistently(3,) we are
outperforming the market on volume growth every week of the
half(13) and we are the only full-choice supermarket winning
volumes from limited choice competitors(4) , with more customers
doing more of their shopping with us(12) , particularly their big
shops(6)
-- We invested a further GBP118 million in lowering prices and
led the industry on passing lower cost prices through to customers,
so hundreds of the products they buy most often, like cheese, pasta
and fish fingers, now cost less. We are consistently inflating
behind key competitors(14) and our biggest ever Aldi Price Match
campaign now includes over 400 products
-- We know that when customers are getting great value on the
items they buy most often, they'll do more of their shop with us.
Our focus on investing in the centre of the plate - fresh food like
meat, fish and fruit and veg - is winning, we are outperforming the
market across the full basket(7) and growing our market
share(1)
-- We launched and rolled out Nectar Prices across all
supermarkets and to Groceries Online. Nectar Prices are now
available on over 6,000 products across all areas of food and
grocery, saving customers almost GBP10 on a typical GBP80 weekly
shop. Customers know they can find market-leading offers through
Nectar Prices and suppliers are providing great support for the
deals. The vast majority of our customers are now regularly using
Nectar and customers have saved over GBP450 million since launch in
April, helping drive improved value perceptions(3) and leading to
strong customer satisfaction scores for offers(15)
-- Groceries Online customers are already highly engaged with
Nectar Prices and we anticipate this growing following this week's
launch of Your Nectar Prices online, offering personalised
discounts based on the items our customers buy the most often.
SmartShop customers have already saved GBP80 million through using
Your Nectar Prices(16) in store
-- Our new value range Stamford Street is bigger than ever at
over 200 products, growing sales by almost 60 per cent year-on-year
and driving Economy Own Label volume growth ahead of the
market(17)
Innovation
-- Supporting our Good food for all of us brand promise, we
launched almost 600 new products in H1, with more than 70 per cent
of those in Fresh. Customer favourites included our Taste the
Difference Chorizo, Nduja and Mozzarella sandwich, by Sainsbury's
Sweet and Sticky BBQ British Pork Skewers and Taste the Difference
Lemon Cheesecake Inspired Cookies
-- Driven by strong performance over the Summer and the
successful refresh of our Taste the Difference GBP12 Dine In deal,
Taste the Difference volumes grew by 8.4 per cent in Q2,
outperforming the market and all competitors in Premium Own Label
volume growth(8)
-- With our Food to Go range now more popular than pre-pandemic,
we increased the options available to customers with the launch of
Kitchen Deli, a specialty selection of fresh ready-prepared
sandwiches, salads, cold and heat-up ready meals, giving customers
a new and convenient way to sample the best of what Sainsbury's has
to offer
-- We continue to be bold and ambitious on innovation, with over
360 products launching through Autumn and Winter. We are launching
170 new Taste the Difference products this Christmas and are well
set up for success
Best of British
-- We're committed to working with our suppliers to build
sustainable, resilient supply chains which are fit for the future.
Our suppliers and partners are key to delivering our promise of
Good food for all of us
-- We announced an additional investment of GBP6 million
annually into supporting our dairy farmers, on top of the
independently calculated Cost of Production price of milk
-- We are investing in supply chain innovation, launching a new
Taste the Difference Aberdeen Angus beef range which is
revolutionising how we produce beef in the UK. The reinvigorated
range will offer a 25 per cent lower carbon footprint compared to
industry standard, making it the largest low carbon beef range ever
produced in the UK and is one of the ways we're progressing towards
our ambition to become Net Zero across our own operations by 2035
and our value chain by 2050
-- We made changes to our chicken welfare standards in March:
they now have 20 per cent more space than industry standard,
helping us raise happier, healthier by Sainsbury's chickens. With
great value for customers, often matched to the lowest market
prices, this has helped to contribute towards a 3.6 per cent market
share increase(18) for this category
Service
-- We have invested significantly in colleague pay and extended
indefinitely our increased colleague discount and free food during
shifts. Our colleague engagement scores have increased 8 percentage
points(9) and we have had better retention and lower absence
-- We believe having engaged colleagues delivers leading
customer service and our overall customer satisfaction scores are
consistently ahead of full-choice competitors(10) . Our strong
colleague availability and speed of checkout scores(14) reflect
changes we've made that free up colleagues to better serve
customers, including colleague headset rollout and better
efficiencies in stock and ordering processes
-- Our focus on service and efficiency in Groceries Online has
led to customer satisfaction improving and moving ahead of all
competitors during Q2, with strong improvements in availability,
variety, ease of checkout and delivery slot availability(19)
-- Our Convenience performance was strong, with 11 million more
Convenience transactions year-on-year. We have diversified the
offer to meet customer needs, growing Taste the Difference share of
sales 8 percentage points since May, while our Pocket Friendly
Prices highlight our value offer to customers. Our Convenience
customer satisfaction scores have improved 6 percentage points
year-on-year(20)
-- On Demand sales through our partnerships with Deliveroo, Uber
Eats and Just Eat and our Chop Chop service continue to grow,
increasing 50 per cent. With almost 900 stores live with at least
one app, we continue to have market leading coverage in all cities
and further opportunities for growth
Brands that Deliver
We remain focused on improving the efficiency and resilience of
our brands, supporting strong customer offers and our core food
business. Argos has proved resilient, delivering strong market
share gains(11) and benefiting from its leaner cost structure,
while Tu prioritised full price clothing sales in a more
promotional market.
Nectar
-- We have rapidly rolled out Nectar Prices across the store and
it's now available across all grocery categories - delivering
additional value to customers. The customer response has exceeded
our expectations, strengthening value perception(3) and driving
Nectar participation levels, with more than three million new
Nectar Digital Collectors since April
-- Revenues for Nectar360, our digital media and shopper
marketing agency, are continuing to grow supported by Nectar's
growing Digital Collector base and the business is on track to
deliver at least GBP90 million of additional profit by March 2026.
This profit will also be supported by the expansion of our
connected digital screen network to over 800 screens, making our
'Sainsbury's Live' network one of the largest digital retailer
screen networks in the UK
-- Our off-site Digital Trading Platform revenue is growing,
driven by market-leading innovation and strong returns on
advertising spend
Argos and Habitat
-- Argos continues to gain market share(11) , reflecting the
increasing strength and depth of the product offer, a
continually-improving digital experience and the speed and
convenience of our market-leading Click & Collect and Home
Delivery propositions. 93% of households have access to our same
day delivery service
-- Sales increased 1.7%, with seasonal declines offset by strong
Consumer Electronics & Technology sales and a positive customer
and colleague response to the Argos 50(th) birthday celebrations.
Excluding the impact of the planned closure of Argos in the
Republic of Ireland, Argos sales were up 3.3 per cent
-- Argos product availability has improved by almost 5
percentage points versus this time last year and we have made
improvements to the online checkout experience across all three
General Merchandise brands, adding guest check out and a new "email
when back in stock" function, resulting in higher sales
conversion
-- To better serve the increasing number of online customers,
Habitat launched a digital showroom, an online service showcasing
the product offering and offering advice via video call
Tu
-- Tu sales declined, reflecting weak seasonal demand as a
result of poor summer weather and a warm early September. We
maintained a disciplined trading approach in a highly promotional
market, with stable full price sales participation and good stock
control, mitigating the impact of the sales decline
-- We remain focused on offering customers choice and are
growing our third party brands proposition at pace. We now have 37
third party brands - including Simply Be, Sosandar, Finery and
French Connection - on Tu.co.uk and launched new branded fashion
destination hubs in nine Sainsbury's supermarkets in September.
Through the new venture, we will create at least 50 fashion
destination hubs in stores
Financial Services
-- We continue to simplify our Financial Services business,
completing the sale of the mortgage book during the half and
further focusing on providing Financial Services for Sainsbury's
and Argos customers
-- Financial Services underlying operating profit reduced to
GBP13 million in the half, down GBP6 million versus last year. This
primarily reflected net interest margin compression. Higher funding
costs on bank deposits, the result of the significant and rapid
increase in Bank of England base rates, were not fully passed on to
customers
-- This was driven largely by the nature of our lending book.
This includes buy now pay later at Argos, an important element of
the Argos customer proposition, and a high proportion of both
credit card and Argos card customers continuing to clear balances
rather than incurring interest costs
-- Impairments remain stable, with the bad debt ratio down 10 basis points year-on-year
Save to Invest
We have focused on simplifying our business, making tougher
prioritisation decisions and investing capital to drive
efficiencies, future proofing our business with a structurally
lower cost base and providing fuel to invest in our customer
proposition
-- Our Save to Invest cost saving programme has delivered GBP1.1
billion of cost savings since March 2021 and is on track to deliver
GBP1.3 billion of cost savings in the three years to March 2024,
which is double the run rate of savings in the previous three
years
-- We are transforming and simplifying our logistics operations
by moving to three dedicated partnerships across transport, food,
General Merchandise and clothing, instead of multiple different
contracts across the network. We have already transferred 12 of our
depot contracts, delivered with no impact to depot performance
metrics. The remaining moves are on track for completion next
year
-- We have further transformed the Argos store and distribution
network, increasing the speed at which we can fulfil customer
orders, improving product availability and contributing to customer
satisfaction. More than 90 per cent of UK households are
conveniently located within a 15-minute drive of Argos.
Additionally, we made structural savings through the closure of
Argos in the Republic of Ireland, including all 34 stores and the
website, further rationalising our property estate and reducing
complexity
-- We are moving at pace to deliver leading automation and
machine learning in our supply chain. Our new systems are driving
end-to-end efficiencies, reducing manual tasks and leading to
better outcomes across supply chain, commercial and retail
teams
Plan for Better
We are committed to playing a leading role in offering
affordable high-quality food that supports healthy and sustainable
diets and helps customers reduce their impact on the planet. We
know how important it is for our customers, colleagues, communities
and shareholders that we deliver on our Plan for Better goals. We
continue to make progress against targets, including plastic
packaging and carbon reduction and are encouraging our customers to
eat healthier and more sustainable diets through offering great
value on healthy choices and sharing recipes to inspire a greater
variety of meal choices.
Better for the Planet
-- Plastic reduction initiatives launched in the first half of
the year will save nearly 1,000 tonnes of plastic per year. We
announced the biggest plastics reduction in our grocery business to
date when we became the first UK retailer to switch from plastic to
paper packaging across our entire own-brand toilet paper and
kitchen towel ranges, saving 485 tonnes. We also led the market in
changing our range of babywear to cardboard hangers, with the new
packaging set to save 103 tonnes. Our efforts to reduce plastic in
meat ranges have delivered big results, such as removing the
plastic trays from steaks and whole chickens, each delivering
around a 70 per cent plastic saving - or an estimated 395
tonnes
-- In Q2, we announced that we will be swapping use-by dates for
best-before dates across our own-brand milk range in 2024, making
us the biggest UK retailer to make this change and empowering
customers to make their own decisions on whether their food is good
to eat, helping to prevent them from disposing of food too
early
-- We also donated almost 17 million meals through our
partnership with Neighbourly - helping manage our back of store
food donation programme and connecting our stores with local
partners who will redistribute food to those in need
-- We announced a 15-year investment into the Longhill Burn Wind
Farm in Scotland. This will add up to 50 megawatts of electrical
capacity to the grid in the form of renewable energy. The turbines
are the largest and most powerful available onshore in the UK
Better for Everyone
-- In recognition of our commitment to sourcing from fisheries
and aquaculture that are certified as sustainable and responsibly
managed, we won the Marine Stewardship Council UK Supermarket of
the Year and Aquaculture Stewardship Council UK Retailer of the
Year titles - the first time a major retailer has won both
awards
-- To help tackle food poverty, we donated over GBP3 million to
Comic Relief through our Nourish the Nation campaign. Running from
May to July 2023, the campaign donated 50p for every Inspired to
Cook range product sold. The campaign has funded initiatives
designed to tackle food insecurity and ensure communities have
access to balanced, nutritional and sustainable food sources
-- We are passionate about playing an active role in our
communities and aim to help positively impact those in need through
fundraising, volunteering, donations and by raising awareness. We
donated GBP500,000 to Oxfam and the British Red Cross, supporting
those affected by the recent devastating events in Morocco and
Libya
-- Tu donated GBP100,000 from the proceeds of school uniform
sales to Comic Relief to help support free school meals and kids'
food clubs across the UK
Better for You
-- We know how important it is for our customers to eat a varied
and healthy diet, which is why it's our ambition to deliver good
food for all of us by helping customers eat well at affordable
prices
-- Our Aldi Price Match campaign helps customers balance their
diets and their budgets, including oily fish, wholewheat brown rice
and pasta and healthy dairy alternatives, inspiring customers with
healthy and sustainable recipe suggestions for all mealtimes
-- The Great Fruit and Veg challenge returned to Sainsbury's for
the fourth year running from August to October. Over 710,000
customers took part, the highest we have seen for a Nectar event,
awarding customers nearly GBP1.7 million of Nectar points
(1) Nielsen Panel volume market share H1 17/18 - H1 23/24. Total
FMCG (Excluding Kiosk & Tobacco), Market Universe: Total
Outlets
(2) Value Reality. Acuity, internal modelling - H1 23/24 vs each
half year period since tracking began in 2016
(3) CSAT Competitor Benchmark, Sainsbury's Value Perception
Score H1 23/24, 28 weeks to 16 September 2023
(4) Nielsen Panel data, Sainsbury's to / from net volume
switching - Total FMCG excl. Kiosk and Tobacco. Trended 12 week
rolling for Q2 23/24
(5) "Full-choice" supermarkets refers to Tesco, Morrisons and
Asda and "Limited choice" refers to Aldi and Lidl
(6) Nielsen panel data, Total FMCG excl. Kiosk and Tobacco.
Shopper missions growth by volume. 28 weeks to 16 September
2023
(7) Nielsen panel data, Total FMCG excl. Kiosk and Tobacco.
Volume growth differential to the market by category, 28 weeks to
16 September 2023
(8) Nielsen Panel Premium Own Label Volume Growth YoY - Total
FMCG excl. Kiosk and Tobacco. 28 weeks to 16 September 2023
(9) eSAT scores July 2023 vs. April 2021 (baseline)
(10) Competitor benchmarking survey. Overall Supermarket
customer satisfaction % score April 2022 - September 2023
(11) GfK tracked market share 6 months to September 2023
(12) Nielsen panel data, Total FMCG excl. Kiosk and Tobacco.
Primary and Secondary Shoppers numbers growth YoY. 28 weeks to 16
September 2023
(13) Nielsen EPOS data - Sainsbury's weekly volume growth
differential to market. Weekly data from 5 March to 16 September
2023
(14) Nielsen panel data, Total FMCG excl. Kiosk and Tobacco. Top
100 SKUs by retailer. Average Selling Price YoY growth. 52 weeks to
16 September 2023
(15) Competitor benchmarking survey. Q2 23/24 supermarket CSAT
scores 12 weeks to 16 September 2023
(16) Since launch in September 2021
(17) Nielsen Panel Economy Own Label Volume Growth YoY - Total
FMCG excl. Kiosk and Tobacco. 12 weeks to 16 September 2023
(18) Nielsen Panel data, volume market share % growth YoY, H1
23/24 vs H1 22/23, Chicken category
(19) Competitor benchmarking survey. Q2 23/24 Online CSAT scores
12 weeks to 16 September 2023
(20) Lettuce know Convenience Satisfaction % score, Q2 23/24, 12
weeks to 16 September 2023, versus Q2 22/23, 12 weeks to 17
September 2022
Financial Review for the 28 weeks to 16 September 2023
In the 28 weeks to 16 September 2023, the Group generated profit
before tax of GBP275 million (HY 2022/23: GBP376 million) and an
underlying profit before tax of GBP340 million (HY 2022/23: GBP340
million).
A number of Alternative Performance Measures ('APMs') have been
adopted by the Directors to provide additional information on the
underlying performance of the Group. These measures are intended to
supplement, rather than replace the measures provided under IFRS.
APMs are defined and reconciled to the nearest IFRS measure on
pages 54 to 60.
Summary income statement 28 weeks to 28 weeks to 52 weeks
to
16 September 17 September Change 4 March
2023 2022 2023
GBPm GBPm % GBPm
Group sales (including VAT) 18,865 18,338 2.9 35,157
Retail sales (including VAT) 18,547 18,084 2.6 34,626
Retail sales (excluding fuel,
including VAT) 15,805 14,674 7.7 28,664
Group sales (excluding VAT) 16,983 16,408 3.5 31,491
Retail sales (excluding VAT) 16,665 16,154 3.2 30,960
Underlying operating profit
Retail 485 477 2 926
Financial services 13 19 (32) 46
-------------------------------- ------------- ------------- ------- ---------
Total underlying operating
profit 498 496 - 972
Underlying net finance costs (158) (156) (1) (282)
Underlying profit before
tax 340 340 - 690
Items excluded from underlying
results (65) 36 N/A (363)
-------------------------------- ------------- ------------- ------- ---------
Profit before tax 275 376 (27) 327
Income tax expense (120) (91) (32) (120)
-------------------------------- ------------- ------------- ------- ---------
Profit for the financial
period 155 285 (46) 207
-------------------------------- ------------- ------------- ------- ---------
Underlying basic earnings
per share 10.5p 11.2p (6) 23.0p
Underlying diluted earnings
per share 10.3p 11.1p (7) 22.7p
Basic earnings per share 6.6p 12.3p (46) 9.0p
Diluted earnings per share 6.5p 12.1p (46) 8.8p
Interim Dividend per share 3.9p 3.9p - 3.9p
We have continued to invest in our grocery business over the
first half, protecting value for customers, inflating behind the
market and passing cost price reductions through to customers. This
has driven grocery volume growth and consistent market share gains.
Our ongoing cost programme helped us mitigate the impact of rising
operating cost inflation in order to deliver for customers,
colleagues and shareholders. The combination of volume gains and
cost reductions delivered strong grocery profit growth in the half,
partially offset by the impact, year-on-year, of poor weather on
general merchandise and clothing sales and lower financial services
profits. Another strong retail free cash flow result further
strengthened our balance sheet and supports consistent dividend
payments. We continue to make balanced investment choices,
supporting our customers and colleagues whilst also delivering for
shareholders.
Group sales
Group sales (including VAT) increased by 2.9 per cent
year-on-year as a 7.7 per cent increase in Retail sales (including
VAT, excluding fuel) and a 25.2 per cent increase in Financial
Services sales more than offset a 19.6 per cent decrease in Fuel
sales (including VAT).
Total sales (including 28 weeks to 16 28 weeks to Change
VAT) September 2023 17 September
by category 2022
GBPbn GBPbn %
----------------------- ---------------------------- ----------------------------- --------------------------------
Grocery 12.4 11.3 10.1
General Merchandise 2.9 2.9 1.1
Clothing 0.5 0.5 (8.4)
----------------------- ---------------------------- -----------------------------
Retail (exc. fuel) 15.8 14.7 7.7
----------------------- ---------------------------- ----------------------------- --------------------------------
Fuel sales 2.7 3.4 (19.6)
Retail (inc. fuel) 18.5 18.1 2.6
----------------------- ---------------------------- ----------------------------- --------------------------------
Like-for-like sales
growth
(exc. fuel) 8.4
----------------------- ---------------------------- ----------------------------- --------------------------------
Like-for-like sales
growth
(inc. fuel) 3.2
----------------------- ---------------------------- ----------------------------- --------------------------------
Grocery sales increased 10.1 per cent as we continued to
prioritise value for customers, inflating behind key competitors.
This included the successful launch of Nectar Prices, offering
lower prices for every loyalty customer alongside extra
personalised prices through 'Your Nectar Prices'.
General Merchandise sales increased 1.1 per cent. Strong sales
of Consumer Electronics and Technology products, driven by
continued strong Argos market share gains and improved availability
more than offset significantly lower seasonal sales, which were
impacted by a wetter and cooler summer compared to a very warm and
dry summer last year. Sales were also affected by the closure of
Argos Republic of Ireland on 24 June. Stripping out the effect of
the Republic of Ireland closure, General Merchandise sales
increased 2.5 per cent.
Clothing sales were adversely impacted by a cooler summer and
warm early autumn, reducing demand for seasonal items.
Fuel sales decreased by 19.6 per cent, driven primarily by the
year-on-year reduction of average pump price.
Total sales (including VAT) performance 28 weeks to 28 weeks to
by channel
16 September 17 September
2023 2022
------------- -------------
Total Sales fulfilled by Supermarket
stores 9.6% (0.5)%
Supermarkets (inc Argos stores in Sainsbury's) 10.8% 2.9%
Groceries Online 2.3% (17.4)%
Convenience 10.5% 10.5%
------------------------------------------------------ ------------- -------------
Sales fulfilled from our Supermarkets grew by 9.6 per cent,
primarily driven by grocery inflation. Groceries Online sales
increased by 2.3 per cent, with order numbers returning to growth
in the second quarter, driven by improvements in availability and
service. Convenience sales increased by 10.5 per cent, with growth
strongest in 'Food on the Move' city centre stores and more urban
locations.
Space
In the first half of 2023/24, Sainsbury's opened one new
supermarket (HY 2022/23: one closed), and opened nine new
Convenience stores, closing two (HY 2022/23: four opened and two
stores closed).
During the period, we opened seven new Argos stores in
Sainsbury's while 47 standalone Argos stores were closed, of which
34 were closed as a result of the cessation of Republic of Ireland
operations, in line with our Argos transformation plan. The number
of Argos collection points in Sainsbury's stores increased from 420
to 434. As at 16 September 2023, Argos had 669 stores including 431
stores in Sainsbury's and a total of 1,103 points of presence.
Store numbers and retailing space
As at As at
----------- ---------------------
4 March 16 September
2023(1) New stores Disposals / closures 2023
--------------------------------- -------- ----------- --------------------- -------------
Supermarkets 595 1 - 596
Supermarkets area '000 sq. ft. 20,610 25 - 20,635
Convenience 814 9 (2) 821
Convenience area '000 sq. ft. 1,961 26 (4) 1,983
Sainsbury's total store numbers 1,409 10 (2) 1,417
--------------------------------- -------- ----------- --------------------- -------------
Argos stores 285 - (47) 238
Argos stores in Sainsbury's 424 7 - 431
Argos total store numbers 709 7 (47) 669
Argos collection points 420 15 (1) 434
Habitat 3 - (3) -
--------------------------------- -------- ----------- --------------------- -------------
1. In H1 2023/24 there was a store re-measurement exercise
resulting in changes to sales areas for 577 Supermarkets and 788
Convenience stores.
In total for 2023/24, we expect to open three supermarkets,
around 25 new convenience stores, with one supermarket and five to
ten convenience stores to close. In addition, we expect to open
around 25 Argos stores inside Sainsbury's and close around 100
Argos standalone stores, including 34 stores in the Republic of
Ireland which were closed during the first half.
In the UK, we expect the standalone Argos store estate will
reduce to around 180 stores by March 2024, while we expect to have
430-460 Argos stores inside Sainsbury's supermarkets as well as
450-500 collection points.
Retail underlying operating profit
28 weeks 28 weeks
to to
16 September 17 September
2023 2022 Change
Retail underlying operating profit (GBPm)(1) 485 477 1.7%
Retail underlying operating margin (%)(1) 2.91 2.95 (4)bps
Retail underlying EBITDA (GBPm) (1) 1,082 1,087 (0.5)%
Retail underlying EBITDA margin (%)(1) 6.49 6.73 (24)bps
---------------------------------------------- ------------- ------------- --------
1 Refer to the Alternative Performance Measures on pages 54 to 60 for reconciliation
Retail underlying operating profit increased by 1.7 per cent to
GBP485 million (HY 2022/23: GBP477 million) and retail underlying
operating margin decreased by 4 basis points year-on-year to 2.91
per cent (HY 2022/23: 2.95 per cent). Strong grocery profit growth
was driven by higher volumes and cost savings, offsetting higher
operating costs and value investment. This was partially offset by
lower General Merchandise margins which reflected the mix impact of
lower seasonal sales and higher Consumer Electronics sales.
Continued step changes in our retail operating model delivered
savings, led by enhanced labour productivity, structural
distribution platform savings and ongoing optimisation of our
estate through front end configuration.
In 2023/24, Sainsbury's expects a retail underlying depreciation
and amortisation charge of around GBP1,150 million, including
around GBP450 million right of use asset depreciation.
Financial Services
Financial Services results
6 months to 31 August 2023 2022 Change
Underlying revenue (GBPm) 318 254 25%
Interest and fees payable (GBPm) (97) (28) (246)%
Total income (GBPm) 221 226 (2)%
Underlying operating profit (GBPm) 13 19 (32)%
-------------------------------------------- ------- ------- ---------
Net interest margin (%)(1) 4.7 5.2 (50)bps
Cost:income ratio (%) 70 67 300bps
Bad debt as a percentage of lending (%)(2) 2.1 2.2 (10)bps
Tier 1 Capital ratio (%) 15.6 14.9 70bps
Total Capital ratio (%)(3) 18.1 17.3 80bps
Customer deposits (GBPbn) (4.8) (4.6) 4%
Total customer lending (GBPbn)(4) 4.8 5.1 (6)%
of which Unsecured lending (GBPbn) 4.8 4.4 8%
of which Secured lending (GBPbn) - 0.7 (100)%
-------------------------------------------- ------- ------- ---------
1 Net interest income divided by average interest-bearing assets
2 Bad debt expense divided by average net lending
3 Total capital divided by risk-weighted assets
4 Amounts due from customers at the Balance Sheet date in
respect of loans, mortgages, credit cards and store cards net of
provisions
Financial Services underlying operating profit of GBP13 million
reduced by GBP6 million (HY 2022/23: GBP19 million), reflecting the
impact of both higher funding costs and higher operating costs not
being fully passed on to customers. This in part is due to a high
proportion of non-interest bearing credit balances, including a
high quality credit card book where many customers pay off balances
every month.
Financial Services total income of GBP221 million reduced by two
per cent and net interest margin reduced by 50 basis points. Strong
underlying revenue growth of 25 per cent was driven by selective
unsecured customer lending growth alongside strong growth in Travel
Money. Interest and fees payable grew 246 per cent, driven by the
increase in the Bank of England base rate since HY 2022/23.
The Financial Services cost:income ratio increased to 70 per
cent (HY 2022/23: 67 per cent), reflecting the pressure on income
from higher funding costs, and the impact of inflation on operating
costs and higher depreciation costs.
Bad debt as a percentage of lending improved 10 basis points to
2.1 per cent (HY 2022/23: 2.2 per cent) as impairments remain low
and stable with the normalisation of low arrears levels post
COVID-19.
As previously disclosed, the Mortgage portfolio was sold to The
Co-operative Bank on 15(th) August 2023 reflecting the earlier
strategic decision to exit mortgages to simplify the business. This
reduced customer lending by GBP449 million on sale.
Financial Services remains well capitalised, with a Total
Capital ratio of 18.1 per cent, an increase of 80 basis points
since prior half year and 20 basis points since full year 2022/23
(HY 2022/23: 17.3 per cent, FY 2022/23: 17.9 per cent).
Underlying net finance costs
Underlying net finance costs increased to GBP158 million (HY
2022/23: GBP156 million). These costs include GBP23 million of net
non-lease interest (HY 2022/23: GBP17 million). The increase of net
non-lease interest was driven by a term loan that was used to fund
the acquisition of the commercial property investment pool, known
as Highbury & Dragon. This was partly offset by increased
interest income as we benefited from higher interest rates. Net
financing costs on lease liabilities reduced to GBP135 million (HY
2022/23: GBP139 million), due primarily to the declining remaining
term of the existing lease portfolio, with lower costs associated
with leases as they age.
We expect underlying net finance costs in 2023/24 of between
GBP295 million - GBP305 million, including around GBP245 million -
GBP255 million of lease interest.
Items excluded from underlying results
In order to provide shareholders with insight into the
underlying performance of the business, items recognised in
reported profit 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 28 weeks to 28 weeks to
results
16 September 17 September
2023 2022
GBPm GBPm
------------------------------------ ------------- -------------
Restructuring programmes (32) (33)
Income recognised in relation to
legal disputes - 30
Disposal of mortgage book (14) -
Net defined benefit pension scheme
income 21 35
Property, finance and acquisition
adjustments (40) 4
------------------------------------- ------------- -------------
Items excluded from underlying
results (65) 36
------------------------------------- ------------- -------------
- Restructuring costs of GBP32 million (HY 2022/23: GBP33
million) were recognised in relation to the restructuring
programmes announced in the year ended 6 March 2021. Cash costs in
the period were GBP40 million (HY 2022/23: GBP33 million). We still
expect to incur one off costs from these retail infrastructure and
operating model changes of around GBP900 million to GBP1 billion,
with cash costs of around GBP300 million, with the majority to be
incurred in the period to March 2024. To date we have incurred
costs of GBP778 million and cash costs of GBP243 million. In
addition to the GBP40 million cash costs in the period, for 2023/24
we expect to incur a further GBP20 million in relation to this
programme, giving total cash costs of GBP60 million for
2023/24.
- The 28 weeks to 17 September 2022 included GBP30 million of
income recognised in relation to legal disputes relating to
settlements for overcharges from payment card processing fees net
of legal fees. No income from legal disputes has been recognised in
the current period.
- During the period, the Group disposed of its mortgage
portfolio for proceeds of GBP446 million which resulted in a
non-underlying charge of GBP(14) million, which includes a loss on
disposal including goodwill, transaction costs and the recognition
of onerous contract provisions.
- Net defined benefit pension scheme income of GBP21 million (HY
2022/23: GBP35 million) comprises pension finance income of GBP25
million and scheme expenses of GBP4 million. The lower pension
income in the current period is primarily driven by a settlement
credit of GBP8 million recognised in the prior year relating to a
gain on payments made to members exiting the scheme relative to the
liabilities extinguished.
- Other movements of GBP40 million expense (HY 2022/23: GBP4
million income) include GBP6 million related to property
transactions, GBP8 million of acquisition adjustments and GBP26
million of non-underlying finance and fair value adjustments.
Non-underlying finance and fair value adjustments were impacted by
a loss on energy derivatives of GBP20 million (HY 2022/23: GBP28
million gain) caused by decreases in electricity forward prices in
the period.
Taxation
The tax charge was GBP120 million (HY 2022/23: GBP91 million).
The underlying tax rate was 27.6 per cent (HY 2022/23: 23.5 per
cent) and the effective tax rate was 43.6 per cent (HY 2022/23:
24.2 per cent). The 2023/24 charges are structurally higher due to
an increase in the headline rate of corporation tax to 25 per cent
(previously 19 per cent), effective from 1 April 2023.
The effective tax rate for the half year is significantly higher
than the prior year and headline tax rates due to the discrete
impact of the release of a deferred tax asset on capital losses
(giving rise to a tax charge of GBP40 million) previously
recognised against fair value gains within the Highbury &
Dragon structure (against which a deferred tax liability was
recognised). During the period, an GBP80 million credit to reserves
was recognised in respect of the release of the deferred tax
liability; this credit had no impact on the effective tax rate.
We expect an underlying tax rate in 2023/24 of around 29 per
cent.
Earnings per share
Underlying basic earnings per share decreased to 10.5 pence (HY
2022/23: 11.2 pence), driven by the increase in corporation tax
rate. Basic earnings per share decreased to 6.6 pence (HY 2022/23:
12.3 pence). Underlying diluted earnings per share decreased to
10.3 pence (HY 2022/23: 11.1 pence) and diluted earnings per share
decreased to 6.5 pence (HY 2022/23: 12.1 pence).
Dividends
The Board has recommended an interim dividend of 3.9 pence per
share (HY 2022/23: 3.9 pence) reflecting 30 per cent of the 2022/23
full year dividend per share. This will be paid on 15 December 2023
to shareholders on the Register of Members at the close of business
on 10 November 2023. Sainsbury's has a Dividend Reinvestment Plan
(DRIP), which allows shareholders to reinvest their cash dividends
in our shares. The last date that shareholders can elect for the
DRIP is 24 November 2023.
Net debt and retail cash flows
As at 16 September 2023, net debt was GBP5,643 million (4 March
2023: GBP6,344 million), a decrease of GBP701 million (HY 2022/23:
GBP594 million decrease). Excluding the impact of lease liabilities
on net debt, non-lease net debt increased by GBP375 million in the
year, moving to a net debt position of GBP231 million (4 March
2023: net funds of GBP144 million), impacted by the GBP670 million
net consideration relating to the Highbury & Dragon property
transaction and partially offset by positive cash generation. We
continue to expect to generate retail free cash flow of at least
GBP600 million in the coming year (excluding the Highbury &
Dragon property transaction).
Net debt includes lease liabilities of GBP5,412 million (4 March
2023: GBP6,488 million). Lease liabilities have decreased by
GBP1,076 million, largely impacted by the Highbury & Dragon
property transaction which resulted in a reduction of lease debt of
GBP1,042 million.
Summary cash flow statement (1) Retail Retail Retail
28 weeks 28 weeks 52 weeks
to to to
16 September 17 September 4 March
2023 2022 2023
GBPm GBPm GBPm
----------------------------------------------------- ------------- ------------- ---------
Retail underlying operating profit 485 477 926
Adjustments for:
Retail underlying depreciation and amortisation 597 610 1,134
Share based payments and other 36 34 49
Retail exceptional operating cash flows
(excluding pensions) (40) (33) (23)
Adjusted retail operating cash flow before
changes in working capital(2) 1,078 1,088 2,086
----------------------------------------------------- ------------- ------------- ---------
Decrease in working capital(3) 284 360 174
----------------------------------------------------- ------------- ------------- ---------
Net interest paid(3) (166) (161) (307)
Cash contributions to defined benefit schemes (23) (23) (44)
Corporation tax paid (17) (32) (99)
------------- ------------- ---------
Net cash generated from operating activities 1,156 1,232 1,810
----------------------------------------------------- ------------- ------------- ---------
Cash capital expenditure(3) (389) (297) (717)
Repayments of lease liabilities (252) (245) (512)
Initial direct costs on right-of-use assets (11) (9) (16)
Proceeds from disposal of property, plant
and equipment(3) 16 28 29
Dividends and distributions received(3) - 50 51
Retail free cash flow(3) 520 759 645
----------------------------------------------------- ------------- ------------- ---------
Dividends paid on ordinary shares (215) (229) (319)
Net Drawdown / (Repayment) of borrowings(3) 555 (22) (40)
Net consideration paid for Highbury & Dragon (670) - -
property transaction
Other(3) (7) (23) (32)
Net increase in cash and cash equivalents 183 485 254
----------------------------------------------------- ------------- ------------- ---------
(Increase) / decrease in debt (303) 267 552
Highbury & Dragon non-cash lease movements 1,042 - -
Other non-cash and net interest movements(4) (221) (158) (391)
Movement in net debt 701 594 415
----------------------------------------------------- ------------- ------------- ---------
Opening net debt (6,344) (6,759) (6,759)
-----------------------------------------------------
Closing net debt (5,643) (6,165) (6,344)
----------------------------------------------------- ------------- ------------- ---------
of which
Lease Liabilities (5,412) (6,526) (6,488)
----------------------------------------------------- ------------- ------------- ---------
(Net Debt) / Net Funds Excluding Lease
Liabilities (231) 361 144
----------------------------------------------------- ------------- ------------- ---------
1 See note 5b 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 54 to 60 for reconciliation
4 Other non-cash includes new leases and lease modifications and
fair value movements on derivatives used for hedging long-term
borrowings
Adjusted retail operating cash flow before changes in working
capital decreased by GBP10 million year-on-year to GBP1,078 million
(HY 2022/23: GBP1,088 million) mainly due to lower underlying
EBITDA and increased retail exceptional operating cash flows.
Retail exceptional operating cash flows of GBP40 million (HY
2022/23: GBP33 million) reflect restructuring costs, including
costs associated with the closure of Argos operations in Republic
of Ireland. Working capital reduced by GBP284 million (HY 2022/23:
GBP360 million reduction). Working capital balances typically
decrease between year end and half year, driven by seasonality and
the phasing of payables.
Corporation tax of GBP17 million was paid in the half (HY
2022/23: GBP32 million). Pension contributions of GBP23 million (HY
2022/23: GBP23 million) are consistent with the prior year as no
funding level events have occurred. Proceeds of GBP16 million (HY
2022/23: GBP28 million) resulted from disposals of non-trading
sites. No dividends and distributions were received in the period
while the prior year included a GBP50 million dividend received
from Sainsbury's Bank.
Cash capital expenditure was GBP389 million (HY 2022/23: GBP297
million). This is in line with expectations and our full year
2023/24 guidance of GBP750 million - GBP800 million.
Retail free cash flow declined by GBP239 million year-on-year to
GBP520 million (HY 2022/23: GBP759 million), with the year-on-year
movement driven by the lower working capital inflow (GBP76
million), increase in capital investment (GBP92 million) and prior
year dividend received from Sainsbury's Bank (GBP50 million).
Dividends of GBP215 million were paid in the period to 16
September 2023 (HY 2022/23: GBP229 million). Net drawdown of
borrowings includes GBP575 million drawdown of the three year
unsecured term loan facility used to part fund the Highbury &
Dragon property transaction.
On 17 March 2023, the Group completed the purchase of a
commercial property investment pool, known as Highbury &
Dragon, in which it already held a beneficial interest. The
investment pool contained 26 supermarkets, all of which were
formerly leased to Sainsbury's. Of the 26 stores acquired, 21 have
been retained, four have been sold and leased back in the half, and
one is held for sale. The total consideration paid for the asset
acquisition was GBP731 million, which included fully funding the
GBP300 million bond redemptions attached to the property pool.
Proceeds of GBP61 million were received for the four supermarkets
sold and leased back.
Financial Ratios
Key financial ratios(1) 16 September 17 September 4 March
2023 2022 2023
-------------------------------- ------------- ------------- ----------
Return on capital employed (%) 7.9 7.7 7.6
Net debt to EBITDA 2.6 times 2.9 times 3.0 times
Fixed charge cover 2.6 times 2.7 times 2.7 times
-----------------------------------------------------------------------------
1 Refer to the Alternative Performance Measures on pages 54 to 60 for reconciliation
Return on capital employed (ROCE) has improved primarily due to
lower capital employed, driven by a decline in the average value of
derivatives, right of use assets and property, plant and equipment,
and the impacts of the Highbury & Dragon transaction.
Sainsbury's continues to target leverage of 3.0x - 2.4x to
deliver a solid investment grade balance sheet. An improvement in
net debt to EBITDA to 2.6x from 3.0x at 4 March 2023 reflects the
timing benefit from working capital flows and overall net debt
benefit from the Highbury & Dragon property transaction. Fixed
charge cover is stable.
Defined benefit pensions
At 16 September 2023, the net defined benefit surplus under
IAS19 for the Group was GBP987 million (excluding deferred tax).
The surplus remained stable over the half, with a GBP2 million
decrease from 4 March 2023. This primarily reflected increased
discount rates and updated mortality assumptions, offset by
inflation and a reduction in matching assets.
There have been no changes in the half to the previously
disclosed triennial valuation information.
For 2023/24, total Defined Benefit pension scheme contributions
are expected to be GBP45 million.
Retirement benefit obligations
Sainsbury's Argos Group Group
as at as at as at as at
16 September 16 September 16 September 4 March
2023 2023 2023 2023
GBPm GBPm GBPm GBPm
Present value of funded obligations (4,898) (765) (5,663) (5,921)
Fair value of plan assets 5,761 911 6,672 6,934
Pension surplus 863 146 1,009 1,013
Present value of unfunded
obligations (12) (10) (22) (24)
------------------------------------- ------------- ------------- ------------- --------
Retirement benefit surplus 851 136 987 989
Deferred income tax liability (262) (68) (330) (330)
------------------------------------- ------------- ------------- ------------- --------
Net retirement benefit surplus 589 68 657 659
------------------------------------- ------------- ------------- ------------- --------
Group income statement
28 weeks to 16 September 28 weeks to 17 September
2023 2022
(unaudited) (unaudited)
Non-underlying Non-underlying
(Note (Note
Underlying 3) Total Underlying 3) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ----- ----------- --------------- --------- ----------- --------------- ---------
Revenue 4 16,983 - 16,983 16,408 - 16,408
Cost of sales (15,658) (65) (15,723) (15,167) (11) (15,178)
Impairment loss on financial
assets (52) - (52) (72) - (72)
----------------------------- ----- ----------- --------------- --------- ----------- ---------------
Gross profit/(loss) 1,273 (65) 1,208 1,169 (11) 1,158
Administrative expenses (804) (30) (834) (695) (18) (713)
Other income 29 11 40 22 40 62
----------------------------- ----- ----------- --------------- --------- ----------- --------------- ---------
Operating profit/(loss) 498 (84) 414 496 11 507
Finance income 7 12 25 37 5 30 35
Finance costs 7 (170) (6) (176) (161) (5) (166)
Profit/(loss) before tax 340 (65) 275 340 36 376
Income tax expense 8 (94) (26) (120) (80) (11) (91)
----------------------------- ----- --------- ---------
Profit/(loss) for the
financial
period 246 (91) 155 260 25 285
----------------------------- ----- ----------- --------------- --------- ----------- --------------- ---------
Earnings per share 9 pence pence
----------------------------- ----- ----------- --------------- --------- ----------- --------------- ---------
Basic 6.6 12.3
Diluted 6.5 12.1
----------------------------- ----- ----------- --------------- --------- ----------- --------------- ---------
52 weeks to 4 March
2023
(audited)
------------------------------ ----- --- ---------------------------------------
Underlying Non-underlying
(Note
3) Total
Note GBPm GBPm GBPm
------------------------------ ----- --- ----------- --------------- ---------
Revenue 4 31,491 - 31,491
Cost of sales (28,996) (413) (29,409)
Impairment loss on financial
assets (78) - (78)
Gross profit/(loss) 2,417 (413) 2,004
Administrative expenses (1,480) (35) (1,515)
Other income 35 38 73
------------------------------ ----- --- ----------- --------------- ---------
Operating profit/(loss) 972 (410) 562
Finance income 7 18 56 74
Finance costs 7 (300) (9) (309)
Profit/(loss) before tax 690 (363) 327
Income tax (expense)/credit 8 (157) 37 (120)
------------------------------ ----- --- ---------
Profit/(loss) for the
financial period 533 (326) 207
------------------------------ ----- --- ----------- --------------- ---------
Earnings per share 9 pence
------------------------------ ----- --- ----------- --------------- ---------
Basic 9.0
Diluted 8.8
------------------------------ ----- --- ----------- --------------- ---------
Impairment loss on financial assets has been disclosed
separately in the current period and prior interim comparative.
Refer to note 2 for further details.
Group statement of comprehensive income/(loss)
28 weeks 28 weeks 52 weeks
to to to
16 September 17 September 4 March
2023 2022 2023
(unaudited) (unaudited) (audited)
Note GBPm GBPm GBPm
-------------------------------------------------- ----- --------------- --------------- ------------
Profit for the financial period 155 285 207
-------------------------------------------------- ----- --------------- --------------- ------------
Items that will not be reclassified subsequently
to the income statement
Remeasurement on defined benefit pension
schemes 18 (46) (886) (1,398)
Movements on financial assets at fair value
through other comprehensive
income (OCI) (1) (6) 1
Cash flow hedges fair value movements -
inventory hedges (48) 171 123
Current tax relating to items not reclassified 1 14 25
Deferred tax relating to items not reclassified 89 208 322
-------------------------------------------------- ----- --------------- --------------- ------------
(5) (499) (927)
-------------------------------------------------- ----- --------------- --------------- ------------
Items that may be reclassified subsequently
to the income statement
Currency translation differences (5) 5 4
Movements on financial assets at fair value
through other comprehensive
income (1) (1) 1
Items reclassified from financial assets
at fair value through other
comprehensive income reserve 1 (1) (1)
Cash flow hedges fair value movements -
non-inventory hedges (24) 31 (30)
Items reclassified from cash flow hedge
reserve 1 (10) (18)
Deferred tax on items that may be reclassified 14 (34) 14
-------------------------------------------------- ----- --------------- --------------- ------------
(14) (10) (30)
-------------------------------------------------- ----- --------------- --------------- ------------
Total other comprehensive loss for the
financial period (net of tax) (19) (509) (957)
-------------------------------------------------- ----- --------------- --------------- ------------
Total comprehensive income/(loss) for
the financial period 136 (224) (750)
-------------------------------------------------- ----- --------------- --------------- ------------
Group balance sheet
16 September 4 March 17 September
2023 2023 2022
(unaudited) (audited) (unaudited)
Note GBPm GBPm GBPm
----------------------------------------------- ----- -------------- ------------ --------------
Non-current assets
Property, plant and equipment 11 9,148 8,201 8,272
Right-of-use assets 12 4,298 5,345 5,456
Intangible assets 13 1,009 1,024 1,021
Investments in joint ventures and associates 2 2 3
Financial assets at fair value through
other comprehensive income 14a 666 515 249
Trade and other receivables 73 56 75
Amounts due from Financial Services customers
and other banks 14d 1,508 1,908 2,013
Derivative financial assets 14c 89 217 434
Net retirement benefit surplus 18 987 989 1,455
17,780 18,257 18,978
----------------------------------------------- ----- -------------- ------------ --------------
Current assets
Inventories 2,187 1,899 1,891
Trade and other receivables 669 627 728
Amounts due from Financial Services customers
and other banks 14d 3,313 3,484 3,275
Financial assets at fair value through
other comprehensive income 14a 36 494 522
Derivative financial assets 14c 107 70 112
Cash and cash equivalents 17 2,067 1,319 1,580
------------ --------------
8,379 7,893 8,108
Assets held for sale 19 10 8 8
----------------------------------------------- ----- ------------ --------------
8,389 7,901 8,116
----------------------------------------------- ----- -------------- ------------ --------------
Total assets 26,169 26,158 27,094
----------------------------------------------- ----- -------------- ------------ --------------
Current liabilities
Trade and other payables (5,278) (4,837) (4,966)
Amounts due to Financial Services customers
and other deposits 14a (5,436) (4,880) (4,719)
Borrowings 16 (64) (53) (52)
Lease liabilities 12 (473) (1,533) (1,536)
Derivative financial liabilities 14c (30) (16) (4)
Taxes payable (204) (155) (234)
Provisions (109) (140) (88)
----------------------------------------------- ----- ------------ --------------
(11,594) (11,614) (11,599)
----------------------------------------------- ----- -------------- ------------ --------------
Net current liabilities (3,205) (3,713) (3,483)
----------------------------------------------- ----- -------------- ------------ --------------
Non-current liabilities
Trade and other payables (13) - (28)
Amounts due to Financial Services customers
and other deposits 14a (621) (1,066) (1,013)
Borrowings 16 (1,151) (603) (687)
Lease liabilities 12 (4,939) (4,956) (4,992)
Derivative financial liabilities 14c (70) (58) (52)
Deferred income tax liability (424) (476) (651)
Provisions (134) (132) (143)
(7,352) (7,291) (7,566)
Total liabilities (18,946) (18,905) (19,165)
----------------------------------------------- ----- -------------- ------------ --------------
Net assets 7,223 7,253 7,929
----------------------------------------------- ----- -------------- ------------ --------------
Equity
Called up share capital 677 672 670
Share premium 1,427 1,418 1,408
Merger reserve 568 568 568
Capital redemption and other reserves 997 954 1,117
Retained earnings 3,554 3,641 4,166
----------------------------------------------- ----- ------------ --------------
Total equity 7,223 7,253 7,929
----------------------------------------------- ----- -------------- ------------ --------------
Group statement of changes in equity
For the 28 weeks to 16 September 2023 (unaudited)
Capital
Called Share redemption
up share premium Merger and other Retained Total
capital account reserve reserves earnings Equity
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ---------- --------- --------- ------------ ---------- --------
At 5 March 2023 672 1,418 568 954 3,641 7,253
------------------------------------- ---------- --------- --------- ------------ ---------- --------
Profit for the period - - - - 155 155
Other comprehensive loss - - - (77) (46) (123)
Tax relating to other comprehensive
loss - - - 92 12 104
------------------------------------- ---------- --------- --------- ------------ ---------- --------
Total comprehensive income - - - 15 121 136
------------------------------------- ---------- --------- --------- ------------ ---------- --------
Cash flow hedges gains transferred
to inventory - - - 14 - 14
------------------------------------- ---------- --------- --------- ------------ ---------- --------
Transactions with owners:
Dividends - - - - (215) (215)
Share-based payment - - - - 38 38
Purchase of own shares - - - (18) - (18)
Allotted in respect of share
option schemes 5 9 - 32 (34) 12
Tax on items charged to equity - - - - 3 3
------------------------------------- ---------- --------- --------- ------------ ---------- --------
At 16 September 2023 677 1,427 568 997 3,554 7,223
------------------------------------- ---------- --------- --------- ------------ ---------- --------
For the 28 weeks to 17 September 2022 (unaudited)
Capital
Called Share redemption
up share premium Merger and other Retained Total
capital account reserve reserves* earnings* equity
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ---------- --------- --------- ------------ ----------- --------
At 6 March 2022 668 1,406 568 1,021 4,760 8,423
------------------------------------- ---------- --------- --------- ------------ ----------- --------
Profit for the period - - - - 285 285
Other comprehensive income/(loss) - - - 189 (886) (697)
Tax relating to other comprehensive
income/(loss) - - - (34) 222 188
------------------------------------- ---------- --------- --------- ------------ ----------- --------
Total comprehensive income/(loss) - - - 155 (379) (224)
------------------------------------- ---------- --------- --------- ------------ ----------- --------
Cash flow hedges losses transferred
to inventory - - - (56) - (56)
------------------------------------- ---------- --------- --------- ------------ ----------- --------
Transactions with owners:
Dividends - - - - (229) (229)
Share-based payment - - - - 37 37
Purchase of own shares - - - (25) - (25)
Allotted in respect of share
option schemes 2 2 - 21 (23) 2
Other adjustments - - - 1 2 3
Tax on items charged to equity - - - - (2) (2)
------------------------------------- ---------- --------- --------- ------------ ----------- --------
At 17 September 2022 670 1,408 568 1,117 4,166 7,929
------------------------------------- ---------- --------- --------- ------------ ----------- --------
* In order to provide better visibility of reserves, the Group
presented the Own share reserve within Capital redemption and other
reserves for the first time in the prior year. The Own Share
Reserve of GBP72 million as at 17 September 2022 has subsequently
been reclassified from Retained Earnings to Capital redemption and
other reserves.
For the 52 weeks to 4 March 2023 (audited)
Capital
Called Share redemption
up share premium Merger and other Retained Total
capital account reserve reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ---------- --------- --------- ------------ ---------- --------
At 6 March 2022 668 1,406 568 1,021 4,760 8,423
------------------------------------- ---------- --------- --------- ------------ ---------- --------
Profit for the period - - - - 207 207
Other comprehensive income/(loss) - - - 80 (1,398) (1,318)
Tax relating to other comprehensive
income/(loss) - - - 14 347 361
------------------------------------- ---------- --------- --------- ------------ ---------- --------
Total comprehensive income/(loss) - - - 94 (844) (750)
------------------------------------- ---------- --------- --------- ------------ ---------- --------
Cash flow hedges losses transferred
to inventory - - - (139) - (139)
------------------------------------- ---------- --------- --------- ------------ ---------- --------
Transactions with owners:
Dividends - - - - (319) (319)
Share-based payment - - - - 58 58
Purchase of own shares - - - (45) - (45)
Allotted in respect of share
option schemes 4 12 - 23 (26) 13
Other adjustments - - - - 5 5
Tax on items charged to equity - - - - 7 7
------------------------------------- ---------- --------- --------- ------------ ---------- --------
At 4 March 2023 672 1,418 568 954 3,641 7,253
------------------------------------- ---------- --------- --------- ------------ ---------- --------
Group cash flow statement
28 weeks 28 weeks 52 weeks
to to to
16 September 17 September 4 March
2023 2022 2023
(unaudited) (unaudited) (audited)
Note GBPm GBPm GBPm
------------------------------------------------- --------- --------------- --------------- ------------
Cash flows from operating activities
Profit before tax 275 376 327
Net finance costs 139 131 235
Operating profit 414 507 562
Adjustments for:
Depreciation expense 11,12 530 564 1,036
Amortisation expense 13 101 86 172
Net impairment charge on property, plant
and equipment, right-of-use
assets, and intangible assets 11,12,13 21 20 315
Non-cash adjustments arising from acquisitions - (1) -
Loss/(profit) on sale of non-current
assets and early termination of leases 17 2 (12) (15)
Non-underlying fair value movements 19 (28) 29
Share-based payments expense 38 37 59
Defined benefit scheme expenses/(income) 18 4 (5) (2)
Cash contributions to defined benefit
schemes 18 (23) (23) (44)
Operating cash flows before changes
in working capital 1,106 1,145 2,112
Changes in working capital
Increase in inventories 17 (274) (87) (105)
(Increase)/decrease in financial assets
at fair value through other
comprehensive income 17 (60) 22 (207)
(Increase)/decrease in trade and other
receivables 17 (80) (51) 68
Decrease/(increase) in amounts due from
Financial Services customers and
other deposits 17 126 (135) (231)
Increase in trade and other payables 17 570 438 280
Increase in amounts due to Financial
Services customers and other deposits 17 111 472 687
Decrease in provisions and other liabilities 17 (29) (41) -
Cash generated from operations 1,470 1,763 2,604
Interest paid (166) (161) (316)
Corporation tax paid (20) (34) (103)
Net cash generated from operating activities 1,284 1,568 2,185
------------------------------------------------- --------- --------------- --------------- ------------
Cash flows from investing activities
Purchase of property, plant and equipment(1) (1,041) (202) (525)
Initial direct costs on new leases (11) (9) (16)
Purchase of intangible assets (89) (106) (213)
Proceeds from disposal of amounts due
from Financial Services customers 3 446 - -
Proceeds from disposal of property, plant
and equipment(1) 77 28 29
Dividends and distributions received - - 1
Net cash used in investing activities (618) (289) (724)
------------------------------------------------- --------- --------------- --------------- ------------
Cash flows from financing activities
Proceeds from issuance of ordinary shares 11 2 13
Proceeds from borrowings 15 575 - -
Repayment of borrowings 15 (20) (22) (95)
Purchase of own shares (18) (25) (45)
Capital repayment of lease obligations 15 (253) (246) (514)
Dividends paid on ordinary shares 10 (215) (229) (319)
Net cash generated/(used) in financing
activities 80 (520) (960)
------------------------------------------------- --------- --------------- --------------- ------------
Net Increase in cash and cash equivalents 746 759 501
Opening cash and cash equivalents 1,319 818 818
Closing cash and cash equivalents 17 2,065 1,577 1,319
------------------------------------------------- --------- --------------- --------------- ------------
1. Amounts in the current period include cashflows in relation
to the asset acquisition transaction, as detailed in note 2.4 .
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
1. General information
The Condensed Consolidated Interim Financial Statements are
unaudited but have been reviewed by the auditors . 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 2023 have been filed with
the Registrar of Companies. The Auditor's report on those Financial
Statements was unqualified and did not contain a statement under
Section 498 of the Companies Act 2006.
The financial period represents the 28 weeks to 16 September
2023 (comparative financial period 28 weeks to 17 September 2022;
prior financial year 52 weeks to 4 March 2023). The financial
information comprises the results of the Company and its
subsidiaries (the 'Group') and the Group's interests in joint
ventures and associates.
The Group's principal activities are Food, General Merchandise
& Clothing Retailing and Financial Services.
2. Basis of preparation and accounting policies
2.1 Basis of preparation
The Interim Results, comprising the Condensed Consolidated
Interim Financial Statements and the Interim Management Report,
have been prepared in accordance with the Disclosure and
Transparency Rules of the UK's Financial Conduct Authority and with
the requirements of UK adopted IAS 34 'Interim Financial
Reporting'.
The financial information contained in the Condensed
Consolidated Interim Financial Statements should be read in
conjunction with the Annual Report and Financial Statements 2023,
which were prepared in accordance with UK adopted international
accounting standards in conformity with the requirements of the
Companies Act 2006.
Sainsbury's Bank plc and its subsidiaries have been consolidated
for the six months to 31 August 2023 (17 September 2022: six months
to 31 August 2022; 4 March 2023: twelve months to 28 February
2023). No significant transactions occurred in this period and
therefore, no adjustments have been made to reflect the difference
in balance sheet dates.
In accordance with IAS 1 Presentation of Financial Statements,
Impairment loss on financial assets has been separately disclosed
within the Consolidated income statement. At the previous interim
reporting date, these amounts were included within Cost of sales
and Administrative expenses. The interim comparative amount of Cost
of sales has therefore been restated from GBP15,183 million to
GBP15,167 million before non-underlying items, and from GBP15,194
million to GBP15,178 million in total. The interim comparative
amount of Administrative expenses has also been restated from
GBP751 million to GBP695 million before non-underlying items, and
from GBP769 million to GBP713 million in total. There is no impact
to Operating profit or Profit before tax. As part of this,
adjustments for Financial Services impairment losses on loans and
advances within the cash flow statement are now presented within
changes in working capital.
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 1 March 2025.
In assessing the Group's ability to continue as a going concern,
the Directors have considered the Group's most recent corporate
planning and budgeting processes. This includes an annual review
which considers profitability, the Group's cash flows, committed
funding and liquidity positions and forecasted future funding
requirements over three years, with a further two years of
indicative movements.
The Group manages its financing by diversifying funding sources,
structuring core borrowings with phased maturities to manage
refinancing risk and maintaining sufficient levels of standby
liquidity via the Revolving Credit Facility. This seeks to minimise
liquidity risk by maintaining a suitable level of undrawn
additional funding capacity.
The Revolving Credit Facility of GBP1,000 million comprises two
GBP500 million tranches. Tranche A has a final maturity of December
2026 and Tranche B has a final maturity of December 2027. As at 16
September 2023, the Revolving Credit Facility was undrawn.
In assessing going concern, scenarios in relation to the Group's
principal risks have been considered in line with those disclosed
at year-end by overlaying them into the corporate plan and
assessing the impact on cash flows, net debt and funding headroom.
These severe but plausible scenarios included modelling
inflationary pressures on both food and general recession-related
risks, the impact of any regulatory fines and failure to deliver
planned cost savings.
In performing the above analysis, the Directors have made
certain assumptions around the availability and effectiveness of
the mitigating actions available to the Group. These include
reducing any non-essential capital expenditure and operating
expenditure on projects, bonuses and dividend payments.
The Group's most recent corporate planning and budgeting
processes includes assumed cashflows to address climate change
risks, including costs associated with initiatives in place as part
of the Plan for Better commitment which include reducing
environmental impacts and meeting customer expectations in this
area, notably through reducing packaging and reducing energy usage
across the estate. Climate-related risks do not result in any
material uncertainties affecting the Group's ability to continue as
a going concern.
As a consequence of the work performed, the Directors considered
it appropriate to adopt the going concern basis in preparing the
Financial Statements with no material uncertainties to
disclose.
2.3 Accounting judgements and estimates
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
In preparing these Condensed Consolidated Interim Financial
Statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
Consolidated Financial Statements for the year ended 4 March 2023
unless otherwise stated.
2.4 Asset Acquisition
The Group purchased Supermarket Income REIT's beneficial
interest in a commercial property investment pool, in which the
Group already held a beneficial interest, on 17 March 2023, through
the acquisition of Hobart Property plc, Avenell Property plc,
Horndrift Limited and Cornerford Limited. This investment pool
consisted of 26 supermarket stores, all of which were formerly
leased to Sainsbury's. Of the 26 stores acquired, 21 stores have
been retained and one store has been vacated and recognised within
assets held for sale. The remaining four stores have been sold and
leased back to the Group.
The Group considered both the optional 'concentration test' and
the 'substantive process test' set out within IFRS 3 Business
Combinations to assess whether the assets and liabilities acquired
in the transaction constituted a business. The value of investment
properties represented substantially all of the fair value of the
gross assets acquired and as such the transaction has been
accounted for as an asset acquisition.
The impact of this transaction on the Group's accounts is
explained within the notes to the accounts as set out over the
following pages. The Group recognised GBP1,021 million of property,
plant and equipment for the stores acquired and derecognised
GBP1,042 million in lease liabilities and GBP1,031 million in right
of use assets respectively as a result of the transaction. The net
difference in the lease liabilities and right-of-use assets
derecognised is included within the recognition of the property,
plant and equipment. The lease balances had included the payment of
purchase options at the end of the lease terms, which were
rescinded as part of the transaction.
The total consideration paid for the asset acquisition was
GBP731 million, which included fully funding the bond redemptions
attached to the property pool of GBP300 million. Proceeds of GBP61
million were received for the four stores sold and leased back. As
the proceeds in the sale and leaseback were equal to the fair value
of the assets sold, these cashflows have been presented within
investing cashflows. The consideration and bond repayments are
presented within the Group cashflow statement as investing
activities as shown below.
28 weeks
to
16 September
2023
GBPm
------------------------------------------- --------------
Cash flows from investing activities
Proceeds from property disposal 61
Purchase of property, plant and equipment (731)
------------------------------------------- --------------
Previously the Group had held a portion of the beneficial
interest in this commercial property investment pool, recognised
within financial assets at fair value through other comprehensive
income. This balance of GBP366 million was fully derecognised as
part of the acquisition.
2.5 New standards, interpretations and amendments adopted by the Group
New accounting standards, interpretations or amendments which
became applicable during the period were either not relevant or had
no impact on the Group's results or net assets other than
disclosures. This includes the adoption of IFRS 17 Insurance
Contracts, which became effective in the current financial
period.
The accounting policies have remained unchanged from those
disclosed in the Annual Report for the year ended 4 March 2023.
2.6 Alternative performance measures (APMs)
In the reporting of financial information, the Directors use
various APMs. These APMs are defined and reconciled to the nearest
IFRS measure on pages 54 to 60, and should be considered in
addition to, and are not intended to be a substitute for, IFRS
measurements. As they are not defined by International Financial
Reporting Standards, they may not be directly comparable with other
companies' APMs.
3. Non-underlying items
In order to provide shareholders with additional insight into
the year-on-year performance of the business, an adjusted measure
of profit (underlying profit before tax) is provided to supplement
the reported IFRS numbers, which reflects how the business measures
performance internally. This adjusted measure excludes items
recognised in reported profit or loss before tax which, if
included, could distort comparability between periods.
Determining which items are to be adjusted requires judgement,
in which the Group considers items which are significant either by
virtue of their size and/or nature, or that are non-recurring. The
same assessment is applied consistently to any reversals of prior
non-underlying items.
Underlying profit is not an IFRS measure and therefore not
directly comparable to other companies.
Below highlights the grouping in which non-underlying items have
been allocated and provides further detail on why such items have
been recognised within non-underlying items.
28 weeks to 16 September 2023
Cost Administrative Other Net Total Tax Total
of expenses income finance adjustments adjustments
sales income/ before
(costs) tax
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------- --------------- -------- --------- ----- -------------
Disposal of mortgage
book - (14) - - (14) 3 (11)
Restructuring programmes (28) (4) - - (32) 8 (24)
Property, finance, pension
and acquisition adjustments
Property related transactions (17) - 11 - (6) (1) (7)
Non-underlying finance
and fair value movements (20) - - (6) (26) 7 (19)
Defined benefit pension
scheme (expenses)/income - (4) - 25 21 (5) 16
Acquisition adjustments - (8) - - (8) 2 (6)
Total property, finance,
pension and acquisition
adjustments (37) (12) 11 19 (19) 3 (16)
Tax - Capital loss recognition - - - - - (40) (40)
Total adjustments (65) (30) 11 19 (65) (26) (91)
-------------------------------- ------- --------------- -------- --------- ----- -------------
Disposal of the mortgage book
During the period, the Group disposed of its mortgage portfolio
for proceeds of GBP446 million which resulted in a non-underlying
charge of GBP(14) million, which includes a loss on disposal
including goodwill, transaction costs and the recognition of
onerous contract provisions.
Restructuring programmes
In the year ended 6 March 2021, the Group announced a
restructuring programme to accelerate the structural integration of
Sainsbury's and Argos and further simplify the Argos business;
create a new supply chain and logistics operating model, moving to
a single integrated supply chain and logistics network across
Sainsbury's and Argos; and further rationalise/repurpose the
Group's supermarkets and convenience estate. The programme also
considered the Group's Store Support Centre ways of working.
The programme is a multi-year activity and has continued into
the current year. Total cumulative costs to 16 September 2023 are
GBP(778) million split between GBP(746) million in the prior years
and GBP(32) million in the current period as detailed in the table
below. Total costs are still expected to be in the range of GBP900
million to GBP1 billion, with the majority in the period to March
2024.
28 weeks 28 weeks 52 weeks
to 16 September to 17 September to 4 March
2023 2022 2023
GBPm GBPm GBPm
------------------------------------ ----------------- ----------------- ------------
Write downs of property, plant and
equipment - (2) (8)
Write downs of leased assets (2) (13) (21)
Write down of intangible assets - (5) (5)
Closure provisions (a) (2) (8) 1
Accelerated depreciation of assets
(b) (8) (12) (20)
Redundancy provisions (c) (3) (5) (54)
Consultancy costs (6) - (12)
Other costs (d) (12) - -
Gain on lease terminations (e) 1 1 2
Profit on disposal of properties - 11 11
Restructuring programmes (32) (33) (106)
------------------------------------- ----------------- ----------------- ------------
a) Closure provisions relate to onerous contract costs,
dilapidations and strip out costs on leased sites that have been
identified for closure. Business rates on leased property where the
Group no longer operates from are recognised in the period they are
incurred.
b) The remaining useful economic lives of corresponding sites
have been reassessed to align with closure dates, resulting in an
acceleration in depreciation of these assets. The existing
depreciation of these assets (depreciation that would have been
recognised absent of a closure decision) is recognised within
underlying expenses, whereas accelerated depreciation above this is
recognised within non-underlying expenses.
c) Redundancy costs are recognised as the plan is announced and
a valid expectation raised with the affected colleagues.
d) Other costs predominantly consist of costs associated with
moving to a single integrated supply chain and logistics network
across Sainsbury's and Argos.
e) Gains on lease terminations relate to sites impaired in a
prior year for which it has been negotiated to exit the leases
before the contractual end date. This includes the release of any
lease liabilities, as well as any closure provisions previously
recognised.
As the costs incurred facilitate future underlying cost savings,
it was considered whether it was appropriate to report these costs
within underlying profit. Whilst they arise from changes in the
Group's underlying operations, they can be separately identified,
are material in size and do not relate to ordinary in-year trading
activity. In addition, the areas being closed or restructured no
longer relate to the Group's remaining underlying operations and
their exclusion provides meaningful comparison between financial
years.
Property, finance, pension and acquisition adjustments
- Property related transactions predominantly relate to the gain
on disposal of non-trading properties, which comprised of GBP11
million in the period, and an impairment charge of GBP(19) million
recognised as part of the asset acquisition of 21 stores. These are
excluded from underlying profit as such profit/(charges) are not
related to the ongoing operating activities of the Group.
- Non-underlying finance movements for the financial period
comprised GBP(26) million for the Group. Included within cost of
sales is GBP(20) million in relation to unfavourable movements on
long-term, fixed price power purchase arrangements (PPAs) with
independent producers. These are accounted for as derivative
financial instruments, however are not designated in hedging
relationships, therefore gains and losses are recognised in the
income statement. The fair value movements are driven by external
market factors and can significantly fluctuate year-on-year, and
are therefore excluded to ensure consistency between periods. The
remaining movements of GBP(6) million within finance income and
costs includes lease interest on impaired non-trading sites,
including site closures, which is excluded as they do not
contribute to the operating activities of the Group. These are
analysed further in note 7.
- Defined benefit pension interest and expenses comprises
pension finance income of GBP25 million, and scheme expenses of
GBP(4) million (see note 18). The Group has chosen to exclude net
retirement benefit income and costs from underlying profit as,
following closure of the defined benefit scheme to future accrual,
it is not part of the ongoing operating activities of the Group and
its exclusion is consistent with how the Directors assess the
performance of the business.
- Acquisition adjustments of GBP(8) million reflect the unwind
of non-cash fair value adjustments arising from the Home Retail
Group acquisition. The Group would not normally recognise these as
assets outside of a business combination. Therefore the unwinds are
classified as non-underlying and are recognised as follows:
28 weeks to 16 28 weeks to 17 52 weeks to
September 2023 September 2022 4 March 2023
HRG Nectar Total HRG Nectar Total HRG Nectar Total
Group Group Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ----- ------- ------- ----- ------- ------- ----- ------- -------
Cost of sales - - - 1 - 1 1 - 1
Depreciation 1 - 1 - - - 1 - 1
Amortisation (9) - (9) (9) (3) (12) (18) (4) (22)
(8) - (8) (8) (3) (11) (16) (4) (20)
--------------- ----- ------- ------- ----- ------- ------- ----- ------- -------
Comparative information
28 weeks to 17 September 2022
Net finance Total
Cost Administrative Other income/ adjustments Tax Total
of sales expenses income (costs) before adjustments
tax
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ----------- ----------------- --------- ------------ ---------------- ------ --------------
Income recognised
in
relation to legal
disputes - - 30 - 30 (5) 25
Restructuring
programmes (39) (4) 10 - (33) 5 (28)
Property, finance,
pension
and acquisition
adjustments
Property related
transactions - (8) - - (8) 2 (6)
Non-underlying
finance
and fair value
movements 28 - - (5) 23 (5) 18
Defined benefit
pension
scheme
(expenses)/income - 5 - 30 35 (8) 27
Acquisition
adjustments - (11) - - (11) 2 (9)
Total property,
finance,
pension and
acquisition
adjustments 28 (14) - 25 39 (9) 30
Tax adjustments
Revaluation of
deferred
tax balances and
changes
in law - - - - - (1) (1)
Capital loss
recognition - - - - - (1) (1)
------------------- ----------- ----------------- --------- ------------ ------ --------------
Total tax
adjustments - - - - - (2) (2)
Total adjustments (11) (18) 40 25 36 (11) 25
------------------- ----------- ----------------- --------- ------------
52 weeks to 4 March 2023
Net finance Total
Cost Administrative Other income/ adjustments Tax Total
of sales expenses income (costs) before adjustments
tax
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ----------- ----------------- --------- ------------ ---------------- --------------
Income recognised
in
relation to legal
disputes - - 30 - 30 (6) 24
Restructuring and
impairment
Restructuring
programmes (103) (14) 11 - (106) 7 (99)
Impairment of
non-financial
assets (281) - - - (281) 38 (243)
Total
restructuring
and impairment (384) (14) 11 - (387) 45 (342)
Property, finance,
pension
and acquisition
adjustments
ATM business rates
reimbursement 3 - - - 3 (1) 2
Property related
transactions (3) (3) (3) - (9) 2 (7)
Non-underlying
finance
and fair value
movements (29) - - (9) (38) 7 (31)
Defined benefit
pension
scheme
(expenses)/income - 2 - 56 58 (11) 47
Acquisition
adjustments - (20) - - (20) 4 (16)
Total property,
finance,
pension and
acquisition
adjustments (29) (21) (3) 47 (6) 1 (5)
Tax adjustments
Over provision in
prior
years - - - - - 2 2
Difference due to
change
in applicable
rate of
deferred tax - - - - - (5) (5)
------ --------------
Total tax
adjustments - - - - - (3) (3)
Total adjustments (413) (35) 38 47 (363) 37 (326)
------------------- ----------- ----------------- --------- ------------ ---------------- ------ --------------
Income recognised in relation to legal disputes
In the prior year, an agreement was reached in relation to
overcharges from payment card processing fees, which largely
reflect inter-bank "interchange fees". This led to net income of
GBP30 million being recognised.
Impairment of non-financial assets
In the prior year, a non-cash impairment charge of GBP(281)
million was recognised on non-financial assets, driven by an
increase in discount rates. Discount rates have remained largely
stable since 4 March 2023, and no impairment charge or reversal of
impairment has been recognised in the period to 16 September
2023.
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 16 September to 17 September to 4 March
2023 2022 2023
GBPm GBPm GBPm
------------------------------------------ ----------------- ----------------- ------------
Cash flows from operating activities
Defined benefit scheme expenses (4) (3) (7)
Restructuring programmes (40) (33) (50)
Net income recognised in relation to
legal disputes - - 30
ATM Rates reimbursement - - 3
Property related transactions - - (6)
Cash used in operating activities (44) (36) (30)
Cash flows from investing activities
Proceeds from property disposals 16 28 29
Proceeds from disposal of amounts due 446 - -
from Financial Services customers
Cash generated from investing activities 462 28 29
Net cash flows 418 (8) (1)
------------------------------------------- ----------------- ----------------- ------------
4. Disaggregation of revenue
28 weeks 28 weeks 52 weeks
to 16 September to 17 September to 4 March
2023 2022 2023
GBPm GBPm GBPm
------------------------------------------------ ----------------- ----------------- ------------
Grocery, General Merchandise & Clothing (GM&C) 14,380 13,314 25,993
Fuel 2,285 2,840 4,967
Total retail sales 16,665 16,154 30,960
Financial Services interest receivable 264 183 394
Financial Services fees and commission 54 71 137
------------------------------------------------ ----------------- ----------------- ------------
Total Financial Services revenue 318 254 531
Total revenue 16,983 16,408 31,491
------------------------------------------------ ----------------- ----------------- ------------
5. Segment reporting
The Group's operating segments have been determined based on the
information regularly provided to the Chief Operating Decision
Maker (CODM), which has been determined to be the Group Operating
Board, which is used to make optimal decisions on the allocation of
resources and assess performance.
The CODM is presented information for the following operating
segments:
-- Retail - Food
-- Retail - General Merchandise and Clothing
-- Financial Services
In determining the Group's reportable segments, management have
considered the economic characteristics, in particular average
gross margin, similarity of products, production processes,
customers, sales methods and regulatory environment of its two
Retail segments. In doing so it has been concluded that they should
be aggregated into one 'Retail' segment within the financial
statements given the similar economic characteristics between the
two. This aggregated information provides users the financial
information needed to evaluate the business and the environment in
which it operates.
The Group's reportable operating segments have therefore been
identified as follows:
-- Retail; comprising the sale of food, household, general
merchandise, clothing and fuel primarily through store and online
channels.
-- Financial Services; comprising banking and insurance services
through Sainsbury's Bank and Argos Financial Services.
The CODM uses underlying profit before tax as the key measure of
segmental performance as it represents the ongoing trading
performance with additional insight into year-on-year performance
that is more comparable over time. The use of underlying profit
before tax aims to provide parity and transparency between users of
the financial statements and the CODM in assessing the core
performance of the business and performance of management.
a. Income statement and balance sheet
Retail Financial Group
Services
28 weeks to 16 September 2023 GBPm GBPm GBPm
--------------------------------------------- --------- ---------- ---------
Segment revenue
Retail sales to external customers 16,665 - 16,665
Financial Services to external customers - 318 318
Revenue 16,665 318 16,983
--------------------------------------------- --------- ---------- ---------
Underlying operating profit 485 13 498
Underlying finance income 12 - 12
Underlying finance costs (170) - (170)
Underlying profit before tax 327 13 340
Non-underlying expense (note 3) (65)
Profit before tax 275
Income tax expense (note 8) (120)
Profit for the financial period 155
--------------------------------------------- --------- ----------
Assets 18,859 7,308 26,167
Investment in joint ventures and associates 2 - 2
Segment assets 18,861 7,308 26,169
Segment liabilities (12,548) (6,398) (18,946)
--------------------------------------------- --------- ----------
Retail Financial Group
Services
28 weeks to 17 September 2022 GBPm GBPm GBPm
--------------------------------------------- --------- ---------- ---------
Segment revenue
Retail sales to external customers 16,154 - 16,514
Financial Services to external customers - 254 254
Revenue 16,154 254 16,408
--------------------------------------------- --------- ---------- ---------
Underlying operating profit 477 19 496
Underlying finance income 5 - 5
Underlying finance costs (161) - (161)
Underlying profit before tax 321 19 340
Non-underlying income (note 3) 36
Profit before tax 376
Income tax expense (note 8) (91)
Profit for the financial period 285
--------------------------------------------- --------- ----------
Assets 20,078 7,013 27,091
Investment in joint ventures and associates 3 - 3
Segment assets 20,081 7,013 27,094
Segment liabilities (13,042) (6,123) (19,165)
--------------------------------------------- --------- ----------
Retail Financial Group
Services
52 weeks to 4 March 2023 GBPm GBPm GBPm
--------------------------------------------- --------- ---------- ---------
Segment revenue
Retail sales to external customers 30,960 - 30,960
Financial Services to external customers - 531 531
Revenue 30,960 531 31,491
--------------------------------------------- --------- ---------- ---------
Underlying operating profit 926 46 972
Underlying finance income 18 - 18
Underlying finance costs (300) - (300)
Underlying profit before tax 644 46 690
Non-underlying expense (note 3) (363)
Profit before tax 327
Income tax expense (note 8) (120)
Profit for the financial period 207
--------------------------------------------- --------- ----------
Assets 18,925 7,231 26,156
Investment in joint ventures and associates 2 - 2
Segment assets 18,927 7,231 26,158
Segment liabilities (12,584) (6,321) (18,905)
--------------------------------------------- --------- ----------
b. Segmented cash flow statement
28 weeks to 16 28 weeks to 17
September September 2022
2023
APM Retail Financial Group Retail Financial Group
Services Services
reference(1)
GBPm GBPm GBPm GBPm GBPm GBPm
Profit/(loss) before tax 277 (2) 275 357 19 376
------------------------------------------------------ --------- ---------- --------- ------- ---------- -------
Net finance costs 139 - 139 131 - 131
------------------------------------------------------ --------- ---------- --------- ------- ---------- -------
Operating profit/(loss) 416 (2) 414 488 19 507
Adjustments for:
Depreciation and amortisation
expense 613 18 631 634 16 650
Net impairment charge on property,
plant and equipment, right-of-use assets,
and intangible assets 21 - 21 20 - 20
Non-cash adjustments arising
from acquisitions - - - (1) - (1)
(Profit)/loss on sale of non-current
assets and early termination
of leases (12) 14 2 (12) - (12)
Non-underlying fair value movements 19 - 19 (28) - (28)
Share-based payments expense 36 2 38 34 3 37
Defined benefit scheme expenses/(income) 4 - 4 (5) - (5)
Cash contributions to defined
benefit schemes (23) - (23) (23) - (23)
------------------------------------------------------ --------- ---------- --------- ---------- -------
Operating cash flows before
changes in working capital 1,074 32 1,106 1,107 38 1,145
Movements in working capital 265 99 364 318 300 618
------------------------------------------------------ --------- ---------- --------- ------- ---------- -------
Cash generated from operations 1,339 131 1,470 1,425 338 1,763
Interest paid a (166) - (166) (161) - (161)
Corporation tax paid (17) (3) (20) (32) (2) (34)
Net cash generated from operating
activities 1,156 128 1,284 1,232 336 1,568
------------------------------------------------------ --------- ---------- --------- ------- ---------- -------
Cash flows from investing activities
Purchase of property, plant
and equipment(2) (1,040) (1) (1,041) (201) (1) (202)
Initial direct costs on new
leases (11) - (11) (9) - (9)
Purchase of intangible assets (80) (9) (89) (96) (10) (106)
Proceeds from disposal of property,
plant and equipment(2) 77 - 77 28 - 28
Proceeds from disposal of amounts
due from Financial Services
customers - 446 446 - - -
Dividends and distributions
received/(paid) e - - - 50 (50) -
-------------------------------------- -------------- ------- ---------- -------
Net cash (used in)/generated
from in investing activities (1,054) 436 (618) (228) (61) (289)
------------------------------------------------------ --------- ---------- --------- ------- ---------- -------
Cash flows from financing activities
Proceeds from issuance of ordinary
shares d 11 - 11 2 - 2
Proceeds from borrowings c 575 - 575 - - -
Repayment of borrowings c (20) - (20) (22) - (22)
Purchase of own shares d (18) - (18) (25) - (25)
Capital repayment of lease
obligations b (252) (1) (253) (245) (1) (246)
Dividends paid on ordinary shares (215) - (215) (229) - (229)
Net cash generated from/(used
in) financing activities 81 (1) 80 (519) (1) (520)
------------------------------------------------------ --------- ---------- --------- ------- ---------- -------
Net increase in cash and cash
equivalents 183 563 746 485 274 759
------------------------------------------------------ --------- ---------- --------- ------- ---------- -------
1. Refer to the Retail Cash flow items in Financial Review APM
for reconciliation.
2. Amounts in the current period include cashflows in relation
to the asset acquisition transaction, as detailed in note 2.4.
52 weeks to 4
March
2023
APM Retail Financial Group
Services
Reference(1)
GBPm GBPm GBPm
Profit before tax 284 43 327
-------------------------------------------------------------------- ------- ------------- --------
Net finance costs 235 - 235
-------------------------------------------------------------------- ------- ------------- --------
Operating profit 519 43 562
Adjustments for:
Depreciation and amortisation expense 1,175 33 1,208
Net impairment charge on property, plant and
equipment, right-of-use assets, and intangible
assets 315 - 315
Profit on sale of properties and early termination
of leases (15) - (15)
Non-underlying fair value movements 29 - 29
Share-based payments expense 54 5 59
Defined benefit scheme (income)/expenses (2) - (2)
Cash contributions to defined benefit schemes (44) - (44)
-------------------------------------------------------------------- ------- ------------- --------
Operating cash flows before changes in working
capital 2,031 81 2,112
Changes in working capital
Movements in working capital 185 307 492
-------------------------------------------------------------------- ------- ------------- --------
Cash generated from operations 2,216 388 2,604
Interest paid a (307) (9) (316)
Corporation tax paid (99) (4) (103)
Net cash generated from operating activities 1,810 375 2,185
-------------------------------------------------------------------- ------- ------------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (523) (2) (525)
Initial direct costs on new leases (16) - (16)
Purchase of intangible assets (194) (19) (213)
Proceeds from disposal of property, plant and
equipment 29 - 29
Dividends and distributions received/(paid) e 51 (50) 1
---------------------------------------------------- -------------- ------- ------------- --------
Net cash used in investing activities (653) (71) (724)
-------------------------------------------------------------------- ------- ------------- --------
Cash flows from financing activities
Proceeds from issuance of ordinary shares d 13 - 13
Repayment of borrowings c (40) (55) (95)
Purchase of own shares d (45) - (45)
Capital repayment of lease obligations b (512) (2) (514)
Dividends paid on ordinary shares (319) - (319)
Net cash used in financing activities (903) (57) (960)
-------------------------------------------------------------------- ------- ------------- --------
Net increase in cash and cash equivalents 254 247 501
-------------------------------------------------------------------- ------- ------------- --------
1. Refer to the Retail Cash flow items in Financial Review APM
for reconciliation.
6. Supplier arrangements
Supplier incentives, rebates and discounts, collectively known
as 'supplier arrangements', represent a material deduction to cost
of sales and directly affect the Group's reported margin.
The types of supplier arrangements applicable to the Group are
as follows:
-- Discounts and supplier incentives - these represent the
majority of all supplier arrangements and are linked to individual
unit sales. The incentive is typically based on an agreed sum per
item sold on promotion for a period and therefore is considered
part of the purchase price of that product.
-- Fixed amounts - these are agreed with suppliers primarily to
support in-store activity including promotions, such as utilising
specific space.
-- Supplier rebates - these are typically agreed on an annual
basis, aligned with the Group's financial year. The rebate amount
is linked to pre-agreed targets such as sales volumes.
-- Marketing and advertising income - advertising income from
suppliers through online marketing and advertising campaigns.
Amounts recognised in the income statement during the period for
fixed amounts, volume-based rebates and marketing and advertising
income are shown below. Discounts and supplier incentives are not
shown as they are deemed to be part of the cost price of
inventory.
28 weeks 28 weeks 52 weeks
to 16 September to 17 September to 4 March
2023 2022 2023
GBPm GBPm GBPm
---------------------------------- ----------------- ----------------- ------------
Fixed amounts 115 81 192
Supplier rebates 29 47 94
Marketing and advertising income 59 41 97
Total supplier arrangements 203 169 383
----------------------------------- ----------------- ----------------- ------------
Of the above amounts, the following was outstanding and held on
the balance sheet at the period-end:
16 September 4 March 17 September
2023 2023 2022
GBPm GBPm GBPm
---------------------------------- ------------- -------- -------------
Within inventory (4) (4) (4)
Within current trade receivables
Supplier arrangements due 29 45 33
Accrued supplier arrangements 58 43 47
Within current trade payables
Supplier arrangements due 30 49 25
Accrued supplier arrangements - 2 1
Deferred income (2) - (1)
Total supplier arrangements 111 135 101
----------------------------------- ------------- -------- -------------
7. Finance income and finance costs
28 weeks to 16 September 28 weeks to 17 52 weeks to 4 March
2023 September 2022 2023
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 11 - 11 4 - 4 16 - 16
IAS 19
pension
financing
income - 25 25 - 30 30 - 56 56
Finance
income
from
sub-leasing
of
right-of-use
assets 1 - 1 1 - 1 2 - 2
-----------
Finance
Income 12 25 37 5 30 35 18 56 74
-------------- ----------- --------------- ------ ----------- --------------- ------ ----------- --------------- ------
Secured
borrowings (19) - (19) (20) - (20) (41) - (41)
Unsecured
borrowings (16) - (16) (1) - (1) (2) - (2)
Lease
liabilities (136) (6) (142) (140) (5) (145) (258) (9) (267)
Interest
capitalised
- qualifying
assets 1 - 1 - - - 1 - 1
Finance costs (170) (6) (176) (161) (5) (166) (300) (9) (309)
-------------- ----------- --------------- ------ ----------- --------------- ------ ----------- --------------- ------
8. Income tax expense
Tax charged within the 28 weeks ended 16 September 2023 has been
calculated by applying the effective rate of tax which is expected
to apply to the Group for the period ending 2 March 2024 using
rates substantively enacted by 16 September 2023 as required by IAS
34 'Interim Financial Reporting'.
28 weeks 28 weeks 52 weeks
to 16 September to 17 September to 4 March
2023 2022 2023
GBPm GBPm GBPm
--------------------------------------------------- ----------------- ----------------- ------------
Current year UK tax 70 72 105
Current year overseas tax - 2 3
(Under)/over provision in prior years (1) (1) 2
Total current tax expense 69 73 110
Origination and reversal of temporary differences 20 16 9
(Under)/over provision in prior years (9) - 3
Adjustment from change in applicable rate of
deferred tax - 1 (2)
Derecognition of capital losses 40 1 -
Total deferred tax expense 51 18 10
Total income tax expense in income statement 120 91 120
--------------------------------------------------- ----------------- ----------------- ------------
Analysed as:
Underlying tax 94 80 157
Non-underlying tax 26 11 (37)
Total income tax expense in income statement 120 91 120
--------------------------------------------------- ----------------- ----------------- ------------
Underlying tax rate 27.6% 23.5% 22.8%
Effective tax rate 43.6% 24.2% 36.7%
--------------------------------------------------- ----------------- ----------------- ------------
The effective tax rate is significantly higher than the standard
rate of corporation tax in the UK of 25% primarily due to the
impact of a release of a deferred tax asset held against the fair
value gains on the Group's beneficial interest in the commercial
property investment pool (refer to note 2). The gains were
extinguished on the acquisition of the entities which held the
remainder of the beneficial interest, and therefore the asset could
no longer be carried.
Finance Act 2020 included legislation restricting the amount of
chargeable gains that a company can relieve with its
carried-forward capital losses from previous accounting periods.
Broadly, from 1 April 2020 a company is only able to offset up to
50 per cent of chargeable gains using carried forward capital
losses. The Group has considered the expected impact of the tax law
in respect of the utilisation of carried-forward tax losses.
Accordingly, approximately GBP357 million of the Group's carried
forward unrestricted capital losses (4 March 2023: GBP194 million)
have not been recognised as at 16 September 2023.
Finance (No.2) Act 2023 was substantively enacted in the UK on
20 June 2023, introducing a global minimum effective tax rate of
15%. The legislation will implement a domestic and a multinational
top-up tax, effective for accounting periods starting on or after
31 December 2023. Initial work undertaken by the group indicates
that the impact of this legislation is not expected to be material.
The Group has applied the exception under IAS 12 to recognising and
disclosing information about deferred tax assets and liabilities
related to top-up income taxes.
9. Earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to ordinary shareholders of J Sainsbury plc by the
weighted average number of Ordinary shares in issue during the
year, excluding own shares held by the J Sainsbury Employee Share
Ownership Trust (ESOT).
Diluted earnings per share amounts are calculated by dividing
the profit attributable to ordinary shareholders of J Sainsbury plc
by the weighted average number of Ordinary shares in issue during
the year, excluding own shares held, and adjusted for the effects
of potentially dilutive shares. The dilutive impact is calculated
as the weighted average of all potentially diluted ordinary shares.
These represent share options granted by the Group, including
performance-based options, where the scheme to date performance is
deemed to have been earned.
In addition, underlying basic earnings per share and underlying
diluted earnings per share are presented to reflect the underlying
profit attributable to ordinary shareholders of J Sainsbury plc and
the underlying trading performance of the Group. In calculating the
APMs, the profit attributable is adjusted for items considered
non-underlying as defined in note 3. No adjustments have been made
to the weighted average number of Ordinary or potentially dilutive
shares which continue to be determined in accordance with IAS.
All operations are continuing for the periods presented.
16 September 17 September 4 March
2023 2022 2023
million million million
--------------------------------------------------- ------------- ------------- -----------
Weighted average number of shares in issue
for calculating basic earnings per share 2,332.5 2,314.3 2,312.6
Weighted average number of dilutive share options 54.4 35.9 39.6
Total number of shares for calculating diluted
earnings per share 2,386.9 2,350.2 2,352.2
--------------------------------------------------- ------------- ------------- -----------
GBPm GBPm GBPm
--------------------------------------------------- ------------- ------------- -----------
Profit for the financial period attributable
to ordinary shareholders 155 285 207
--------------------------------------------------- ------------- ------------- -----------
Profit for the financial period attributable
to ordinary shareholders of the parent 155 285 207
Adjusted for non-underlying items (note 3) 65 (36) 363
Tax on non-underlying items 26 11 (37)
Underlying profit after tax attributable to
ordinary shareholders of the parent 246 260 533
Pence Pence per Pence
per share share per share
--------------------------------------------------- ------------- ------------- -----------
Basic earnings 6.6 12.3 9.0
Diluted earnings 6.5 12.1 8.8
Underlying basic earnings 10.5 11.2 23.0
Underlying diluted earnings 10.3 11.1 22.7
--------------------------------------------------- ------------- ------------- -----------
10. Dividends
28 weeks 52 weeks
28 weeks to to to
16 September 17 September 4 March
2023 2022 2023
GBPm GBPm GBPm
----------------------------------------- -------------- -------------- ---------
Amounts recognised as distributions
to ordinary shareholders in the year:
Final dividend for the year ended
5 March 2022 of 9.9p - 229 229
Interim dividend for the year ended
4 March 2023 of 3.9p - - 90
Final dividend for the year ended
4 March 2023 of 9.2p 215 - -
215 229 319
----------------------------------------- -------------- -------------- ---------
An interim dividend of 3.9 pence per share has been approved by
the Board of Directors for the financial year ending 2 March 2024,
resulting in an interim dividend of GBP91 million. The interim
dividend was approved by the Board on 1 November 2023 and as such
has not been included as a liability at 16 September 2023.
11. Property, plant and equipment
28 weeks
28 weeks 52 weeks to 17
to 16 September to 4 March September
2023 2023 2022
GBPm GBPm GBPm
------------------------------------------------- ------------------- ------------ -----------
Net book value
At the beginning of the period 8,201 8,402 8,402
Additions 1,263 534 199
Disposals - (15) (14)
Depreciation expense for the period (292) (566) (310)
Impairment loss for the period (19) (149) (2)
Transfer to assets held for sale (5) (5) (3)
At the end of the period 9,148 8,201 8,272
------------------- ------------ -----------
Comprising
-------------------------------------------------
Land and buildings 7,706 6,712 6,794
Fixtures and fittings 1,442 1,489 1,478
-------------------
9,148 8,201 8,272
Capital commitments contracts, but not provided
for 251 159 159
------------------------------------------------- ------------------- ------------ -----------
As part of the asset acquisition detailed in note 2, the Group
has recognised GBP1,021 million of property, plant and equipment.
This is presented within additions in Land and Buildings.
Transfer to assets held for sale include GBP3 million of assets
no longer classified as held for sale during the period (4 March
2023: GBPnil; 17 September 2022: GBPnil).
At each reporting date, the Group reviews the carrying amounts
of its non-financial assets to determine whether there is any
indication that those assets have suffered an impairment loss. As a
result of the recognition of property, plant and equipment as part
of the asset acquisition, all 21 stores acquired were reviewed for
impairment, as the asset base of these stores' cash-generating
units (CGUs) has significantly changed. This review resulted in the
recognition of GBP19 million of impairment.
12. Leases
28 weeks
28 weeks 52 weeks to 17
to 16 September to 4 March September
2023 2023 2022
Right-of-use-assets GBPm GBPm GBPm
------------------------------------------- ----------------- ------------ -----------
At the beginning of the period 5,345 5,560 5,560
New leases and modifications(1) 224 398 163
Derecognised as part of asset acquisition (1,031) - -
Depreciation charge (238) (470) (254)
Impairment charge (2) (143) (13)
At the end of the period 4,298 5,345 5,456
------------------------------------------- ----------------- ------------ -----------
Comprising
-------------------------------------------
Land and buildings 4,006 5,032 5,164
Equipment 292 313 292
4,298 5,345 5,456
------------------------------------------- ----------------- ------------ -----------
1. Includes new leases, terminations, modifications and
reassessments.
28 weeks
28 weeks 52 weeks to 17
to 16 September to 4 March September
2023 2023 2022
Lease liabilities GBPm GBPm GBPm
------------------------------------------- ----------------- ------------ -----------
At beginning of the period 6,489 6,621 6,621
New leases and modifications(1) 218 382 153
Derecognised as part of asset acquisition (1,042) - -
Interest expense 142 267 145
Payments (395) (781) (391)
-------------------------------------------
At the end of the period 5,412 6,489 6,528
-------------------------------------------
Comprising
Current 473 1,533 1,536
Non-current 4,939 4,956 4,992
-------------------------------------------
5,412 6,489 6,528
------------------------------------------- ----------------- ------------ -----------
1. Includes new leases, terminations, modifications and
reassessments.
The 26 occupied stores in a commercial property investment pool
(refer note 2) were previously leased to the Group, and as such
were recognised within lease liabilities and right-of-use assets.
Consequently, these balances have been derecognised as part of the
asset acquisition. Four of these stores have been sold and leased
back in the current period as part of the transaction; these
balances have been presented within new leases and
modifications.
Income statement disclosures
28 weeks 28 weeks 52 weeks
to 16 September to 17 September to 4 March
2023 2022 2023
GBPm GBPm GBPm
------------------------------------------------- ----------------- ----------------- ------------
Depreciation of right-of-use assets (238) (254) (470)
Impairment of right-of-use assets (2) (13) (143)
Interest on lease liabilities (142) (145) (267)
Variable lease payments not included in the
measurement of lease liabilities - (1) (1)
Finance income from sub-leasing of right-of-use
assets 1 1 2
Operating sublet income 26 32 48
Expenses relating to short-term leases (14) (14) (26)
Expenses relating to leases of low-value assets (2) (1) (2)
Total amount recognised in profit or loss (371) (395) (859)
------------------------------------------------- ----------------- ----------------- ------------
Total cash outflow for leases (excluding sublet
income) (411) (407) (810)
------------------------------------------------- ----------------- ----------------- ------------
Maturity analysis
28 weeks
28 weeks 52 weeks to 17
to 16 September to 4 March September
2023 2023 2022
GBPm GBPm GBPm
------------------------------------------- ----------------- ------------ -----------
Contractual undiscounted cash flows
Less than one year 722 1,798 1,775
One to two years 675 680 707
Two to three years 637 632 655
Three to four years 590 591 611
Four to five years 554 541 570
Total less than five years 3,178 4,242 4,318
Five to ten years 2,569 2,473 2,533
Ten to fifteen years 1,983 1,981 2,016
More than fifteen years 3,005 3,505 3,215
Total undiscounted lease liability 10,735 12,201 12,082
------------------------------------------- ----------------- ------------ -----------
Lease liabilities included in the balance
sheet 5,412 6,489 6,528
Current 473 1,533 1,536
Non-current 4,939 4,956 4,992
------------------------------------------- ----------------- ------------ -----------
13. Intangible assets
28 weeks
28 weeks 52 weeks to 17
to 16 September to 4 March September
2023 2023 2022
GBPm GBPm GBPm
------------------------------------- ----------------- ------------ -----------
Net book value
At the beginning of the period 1,024 1,006 1,006
Additions 93 213 106
Disposals (7) - -
Amortisation expense for the period (101) (172) (86)
Impairment loss for the period - (23) (5)
At the end of the period 1,009 1,024 1,021
----------------- ------------ -----------
Comprising
-------------------------------------
Goodwill 345 352 366
Software 612 610 584
Acquired brands 52 62 70
Customer relationships - - 1
1,009 1,024 1,021
----------------- ------------ -----------
14. Financial instruments
a. Financial assets and liabilities by category
Fair
Fair value
value through
Amortised through profit
cost OCI or loss Total
At 16 September 2023 GBPm GBPm GBPm GBPm
---------- --------- --------- --------
Cash and cash equivalents 2,067 - - 2,067
Trade and other receivables 504 - - 504
Amounts due from Financial Services customers
and other banks 4,821 - - 4,821
Financial assets at fair value through other
comprehensive income - 702 - 702
Trade and other payables (4,931) - - (4,931)
Borrowings (1,215) - - (1,215)
Amounts due to Financial Services customers
and other deposits (6,057) - - (6,057)
Derivative financial instruments - - 96 96
Lease liabilities (5,412) - - (5,412)
(10,223) 702 96 (9,425)
----------------------------------------------- ---------- --------- --------- --------
Fair
Fair value
value through
Amortised through profit
cost OCI or loss Total
-----------------------------------------------
At 4 March 2023 GBPm GBPm GBPm GBPm
----------------------------------------------- ---------- --------- --------- --------
Cash and cash equivalents 1,319 - - 1,319
Trade and other receivables 477 - - 477
Amounts due from Financial Services customers
and other banks 5,392 - - 5,392
Financial assets at fair value through other
comprehensive income - 1,009 - 1,009
Trade and other payables (4,495) - - (4,495)
Borrowings (656) - - (656)
Amounts due to Financial Services customers
and other deposits (5,946) - - (5,946)
Derivative financial instruments - - 213 213
Lease liabilities (6,489) - - (6,489)
(10,398) 1,009 213 (9,176)
----------------------------------------------- ---------- --------- --------- --------
Fair
Fair value
value through
Amortised through profit
cost OCI or loss Total
-----------------------------------------------
At 17 September 2022 GBPm GBPm GBPm GBPm
----------------------------------------------- ---------- --------- --------- --------
Cash and cash equivalents 1,580 - - 1,580
Trade and other receivables 592 - - 592
Amounts due from Financial Services customers
and other banks 5,288 - - 5,288
Financial assets at fair value through other
comprehensive income - 771 - 771
Trade and other payables (4,626) - - (4,626)
Borrowings (739) - - (739)
Amounts due to Financial Services customers
and other deposits (5,732) - - (5,732)
Derivative financial instruments - - 490 490
Lease liabilities (6,528) - - (6,528)
(10,165) 771 490 (8,904)
----------------------------------------------- ---------- --------- --------- --------
Trade and other receivables excludes prepayments and accrued
income. Trade and other payables excludes deferred income, other
taxes and social security costs payable, and other accruals.
b. Carrying amount versus fair value
Set out below is a comparison of the carrying amount and the
fair value of financial instruments that are carried in the
financial statements at a value other than fair value. The fair
value of financial assets and liabilities are based on prices
available from the market on which the instruments are traded.
Where market values are not available, the fair values of financial
assets and liabilities have been calculated by discounting expected
future cash flows at prevailing interest rates. The fair values of
short-term deposits, trade receivables, overdrafts and payables are
assumed to approximate to their book values.
Carrying
amount Fair value
At 16 September 2023 GBPm GBPm
------------------------------------------------------- --------- -----------
Financial assets
Amounts due from Financial Services customers and
banks 4,821 4,694
Financial liabilities
Loans due 2031 (518) (535)
Term Loan (580) (575)
Tier 2 Capital (118) (127)
Amounts due to Financial Services customers and banks (6,057) (6,045)
------------------------------------------------------- --------- -----------
Carrying
amount Fair value
At 4 March 2023 GBPm GBPm
------------------------------------------------------- --------- -------------
Financial assets
Amounts due from Financial Services customers and
banks 5,392 5,340
Financial liabilities
Loans due 2031 (539) (639)
Tier 2 Capital (122) (131)
Amounts due to Financial Services customers and banks (5,946) (5,954)
------------------------------------------------------- --------- -------------
Carrying
amount Fair value
At 17 September 2022 GBPm GBPm
------------------------------------------------------- --------- -------------
Financial assets
Amounts due from Financial Services customers and
banks 5,288 5,252
Financial liabilities
Loans due 2031 (558) (594)
Tier 2 Capital (178) (177)
Amounts due to Financial Services customers and banks (5,732) (5,729)
------------------------------------------------------- --------- -------------
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 16 September 2023 GBPm GBPm GBPm GBPm
--------------------------------------------- ------ ------ ------ ------
Financial instruments at fair value through
other comprehensive income
Other financial assets - 16 - 16
Investment securities 686 - - 686
Derivative financial assets - 114 82 196
Derivative financial liabilities - (100) - (100)
--------------------------------------------- ------ ------ ------ ------
Level Level Level Total
1 2 3
At 4 March 2023 GBPm GBPm GBPm GBPm
--------------------------------------------- ------ ------ ------ ------
Financial instruments at fair value through
other comprehensive income
Other financial assets - 383 - 383
Investment securities 626 - - 626
Derivative financial assets - 156 131 287
Derivative financial liabilities - (74) - (74)
--------------------------------------------- ------ ------ ------ ------
Level Level Level Total
1 2 3
At 17 September 2022 GBPm GBPm GBPm GBPm
--------------------------------------------- ------ ------ ------ ------
Financial instruments at fair value through
other comprehensive income
Other financial assets - 376 - 376
Investment securities 395 - - 395
Derivative financial assets - 314 232 546
Derivative financial liabilities - (56) - (56)
--------------------------------------------- ------ ------ ------ ------
During the period, the Group derecognised its financial asset at
fair value through other comprehensive income of GBP366 million,
which was previously presented within Other financial assets. This
amount represented the Group's beneficial interest in a property
investment pool, and was derecognised as part of the asset
acquisition. Refer to note 2 for further details.
There have been no transfers of assets between Levels 1, 2 or 3
during the period.
Level 3 Financial assets
A reconciliation of recurring fair value measurements
categorised within Level 3 of the fair value hierarchy is set out
below:
Commodity
derivatives Total
------------------------------------------------
GBPm GBPm
------------------------------------------------ ------------- ------
At 5 March 2023 131 131
In cost of sales in the Group income statement (20) (20)
In other comprehensive income (29) (29)
At 16 September 2023 82 82
------------------------------------------------ ------------- ------
Commodity
derivatives Total
-------------------------------------------------
GBPm GBPm
------------------------------------------------- ------------- ------
At 6 March 2022 180 180
In cost of sales in the Group income statement (30) (30)
In other comprehensive income (19) (19)
At 4 March 2023 131 131
------------------------------------------------- ------------- ------
Commodity
derivatives Total
-------------------------------------------------
GBPm GBPm
------------------------------------------------- ------------- ------
At 6 March 2022 180 180
In finance income in the Group income statement 28 28
In other comprehensive income 24 24
At 17 September 2022 232 232
------------------------------------------------- ------------- ------
16 September 4 March 17 September
2023 2023 2022
Commodity derivative financial assets GBPm GBPm GBPm
---------------------------------------------- ------------- -------- -------------
Designated in a cash flow hedge relationship 48 79 123
Not in a hedge relationship 34 52 109
82 131 232
---------------------------------------------- ------------- -------- -------------
Level 3 derivative financial assets - power purchase
agreement
The Group has entered into several long-term fixed-price power
purchase agreements with independent producers. Included within
derivative financial instruments is a net asset of GBP82 million
relating to these agreements at 16 September 2023 (at 17 September
2022: GBP232 million; at 4 March 2023: GBP131 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, which are
unobservable (Level 3) inputs. The sensitivity of this balance to
changes of 20 per cent in the assumed rate of energy output and 20
per cent in the implied forward energy prices holding other
assumptions constant is shown below:
Not in a hedge relationship
4 March
16 September 2023 2023
Change in
Change in electricity
electricity forward
Change in forward pricing Change in pricing
volume +/-20.0% +/-20.0% volume +/-20.0% +/-20.0%
GBPm GBPm GBPm GBPm
---------------------------------- ----------------- ----------------- ----------------- -------------
Derivative financial instruments 7/(7) 15/(15) 20/(20) 11/(11)
---------------------------------- ----------------- ----------------- ----------------- -------------
17 September 2022
Change in electricity
Change in volume forward price
+/- 20.0% +/- 20.0%
--------------------------------- ---------------- ---------------------
GBPm GBPm
--------------------------------- ---------------- ---------------------
Derivative financial instruments 29/(29) 22/(22)
----------------------------------- ---------------- ---------------------
Designated in a cash flow
hedge relationship
4 March
16 September 2023 2023
Change in
Change in electricity
electricity forward
Change in forward pricing Change in pricing
volume +/-20.0% +/-20.0% volume +/-20.0% +/-20.0%
GBPm GBPm GBPm GBPm
---------------------------------- ----------------- ----------------- ----------------- -------------
Derivative financial instruments 10/(10) 37/(37) 43/(44) 15/(16)
---------------------------------- ----------------- ----------------- ----------------- -------------
17 September 2022
Change in electricity
forward price
Change in volume +/- 20.0% +/- 20.0%
--------------------------------- ------------- ------------ ---------------------------- -----------------------
GBPm GBPm
--------------------------------- ------------- ------------ ---------------------------- -----------------------
Derivative financial instruments 35/(35) 24/(24)
-------------------------------------------------------------- ---------------------------- -----------------------
d. Financial Services expected credit loss (ECL)
Loans and advances are initially recognised at fair value and
subsequently held at amortised cost, using the effective interest
method, less provision for impairment and recognised on the balance
sheet when cash is advanced:
16 September 4 March 17 September
2023 2023 2022
GBPm GBPm GBPm
---------------------------------------------------- ------------- -------- -------------
Non-current
Loans and advances to customers 1,566 1,959 2,065
Impairment of loans and advances (58) (51) (52)
1,508 1,908 2,013
---------------------------------------------------- -------- -------------
Current
Loans and advances to customers 3,503 3,573 3,329
Loans and advances to banks - 100 120
Impairment of loans and advances (190) (189) (174)
3,313 3,484 3,275
---------------------------------------------------- -------- -------------
Loan commitment provisions (14) (19) (19)
Total impairment provisions for loans and advances
to customers and loan commitments (262) (259) (245)
---------------------------------------------------- -------- -------------
Impairment provisions as a percentage of loans
and advances to customers 5.2% 4.7% 4.5%
The ECL models utilise four scenarios including a 'base case'
scenario considered to be the most likely outcome together with an
upside, downside and severe downside scenario. The base case has
been assigned a probability weighting of 40% with the upside,
downside and severe downside scenarios weighted 30%, 25%, 5%
respectively.
16 September 2023
Base Upside Downside Severe
Downside
5-year average % % % %
-----
Unemployment rate 4.2 3.8 5.3 7.0
Consumer price growth 2.7 2.0 3.8 5.0
GDP 1.2 1.8 0.4 (0.6)
Mortgage debt as a percentage of
household income 93.2 91.0 96.5 99.6
Real household disposable income 1.4 2.0 0.6 (0.4)
Probability weighting 40 30 25 5
-----
At 4 March 2023
Base Upside Downside Severe
Downside
5-year average % % % %
Unemployment rate 5.3 4.5 6.2 7.6
Consumer price growth 3.4 2.9 3.8 4.3
GDP 0.8 1.4 0.3 (0.3))
Mortgage debt as a percentage of
household income 99.9 97.6 102.0 104.5
Real household disposable income 0.8 1.2 0.2 (0.3)
Probability weighting 40 30 25 5
At 17 September 2022
Base Upside Downside Severe
Downside
5-year average % % % %
Unemployment rate 4.9 4.1 5.8 7.4
Consumer price growth 5.4 5.0 5.8 6.4
GDP 1.2 1.6 0.8 0.3
Mortgage debt as a percentage of
household income 98.9 96.5 101.5 104.8
Real household disposable income 0.5 1.1 (0.2) (1.0)
Probability weighting 45 35 15 5
Like many other banks, the Group's ECL models were developed
under a more benign interest rate and inflationary environment, and
the current volatility in these measures requires additional post
model adjustments (PMAs) to be held. The aggregate amount of
economic PMA now held at 16 September 2023 is GBP3.3 million.
ECL sensitivity
The economic conditions impact the probability of default of the
customers. The impact of 100% weighting of each of the economic
scenarios is outlined as follows:
ECL Sensitivity
Impact on the loss allowance
16 September 4 March 17 September
2023 2023 2022
GBPm GBPm GBPm
--------
Closing ECL Allowance 262 259 245
Base scenario (5) (3) -
Upside scenario (13) (13) (9)
Downside scenario 16 13 12
Severe Downside scenario 57 45 38
--------
15. Analysis of net (debt)/funds
The Group's definition of net debt includes lease liabilities as
recognised under IFRS 16 and the capital injections to Sainsbury's
Bank, but excludes derivatives that are not used to hedge
borrowings and the net debt of Sainsbury's Bank and its
subsidiaries (Financial Services). Financial Services' net debt
balances are excluded because they are required as part of the
business as usual operations of a bank, as opposed to specific
forms of financing for the Group.
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
-------------
5 March Cash Net Accrued Other Changes 16 September
2023 flows interest Interest non-cash in fair 2023
excluding (received) movements value
interest / paid
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Retail
Net derivative financial - - (2) 1 - 1 -
instruments
Borrowings (excluding
overdrafts) (539) (555) 26 (29) - - (1,097)
Lease liabilities (6,488) 252 142 (142) 824 - (5,412)
Arising from financing
activities (7,027) (303) 166 (170) 824 1 (6,509)
Cash and cash equivalents 683 185 - - - - 868
Bank overdrafts - (2) - - - - (2)
Retail net debt (6,344) (120) 166 (170) 824 1 (5,643)
Financial Services
Net derivative financial
instruments - - - - - (4) (4)
Borrowings (excluding
overdrafts) (122) - 6 (6) - 4 (118)
Lease liabilities (1) 1 - - - - -
Arising from financing
activities (123) 1 6 (6) - - (122)
Financial assets at
fair value through
other comprehensive
income 626 60 - - - - 686
Cash and cash equivalents 636 563 - - - - 1,199
Financial Services
net funds 1,139 624 6 (6) - - 1,763
Group
Net derivative financial
instruments - - (2) 1 - (3) (4)
Borrowings (excluding
overdrafts) (661) (555) 32 (35) - 4 (1,215)
Lease liabilities (6,489) 253 142 (142) 824 - (5,412)
Arising from financing
activities (7,150) (302) 172 (176) 824 1 (6,631)
Financial assets at
fair value through
other comprehensive
income 626 60 - - - - 686
Cash and cash equivalents 1,319 748 - - - - 2,067
Bank overdrafts - (2) - - - - (2)
Group net debt (5,205) 504 172 (176) 824 1 (3,880)
Retail net debt (6,344) (120) 166 (170) 824 1 (5,643)
Of which:
Leases (6,488) (5,412)
Net funds/(debt) excluding
lease liabilities 144 (231)
Other non-cash movements predominantly comprise new leases and
lease modifications.
Overdraft balances are included within borrowings in the Group
balance sheet, and within cash and cash equivalents in the Group
cash flow statement.
Cash Movements Non-Cash Movements
6 March Cash flows Net Accrued Other Changes 17 September
2022 excluding interest Interest non-cash in fair 2022
interest (received) movements value
/ paid
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Retail
Net derivative financial
instruments 5 - - 1 - (1) 5
Borrowings (excluding
overdrafts) (575) 22 16 (21) - - (558)
Lease liabilities (6,618) 245 145 (145) (153) - (6,526)
Arising from financing
activities (7,188) 267 161 (165) (153) (1) (7,079)
Cash and cash equivalents 436 481 - - - - 917
Bank overdrafts (7) 4 - - - - (3)
Retail net debt (6,759) 752 161 (165) (153) (1) (6,165)
Financial Services
Net derivative financial
instruments 4 - - - - (3) 1
Borrowings (excluding
overdrafts) (179) - - - 1 - (178)
Lease liabilities (3) 1 - - - - (2)
Arising from financing
activities (178) 1 - - 1 (3) (179)
Financial assets at
fair value through other
comprehensive income 418 (22) - - - (1) 395
Cash and cash equivalents 389 274 - - - - 663
Financial Services net
funds 629 253 - - 1 (4) 879
Group
Net derivative financial
instruments 9 - - 1 - (4) 6
Borrowings (excluding
overdrafts) (754) 22 16 (21) 1 - (736)
Lease liabilities (6,621) 246 145 (145) (153) - (6,528)
Arising from financing
activities (7,366) 268 161 (165) (152) (4) (7,258)
Financial assets at
fair value through other
comprehensive income 418 (22) - - - (1) 395
Cash and cash equivalents 825 755 - - - - 1,580
Bank overdrafts (7) 4 - - - - (3)
Group net debt (6,130) 1,005 161 (165) (152) (5) (5,286)
Retail net debt (6,759) 752 161 (165) (153) (1) (6,165)
Of which:
Leases (6,618) (6,526)
Net (debt)/funds excluding
lease liabilities (141) 361
Cash Movements Non-Cash Movements
--------
6 March Cash flows Net Accrued Other Changes 4 March
2022 excluding interest Interest non-cash in fair 2023
interest (received) movements value
/ paid
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Retail
Net derivative financial
instruments 5 - (5) 5 (5) - -
Borrowings (excluding
overdrafts) (575) 40 45 (40) (9) - (539)
Lease liabilities (6,618) 512 267 (267) (382) - (6,488)
Arising from financing
activities (7,188) 552 307 (302) (396) - (7,027)
Financial assets at fair - - - - - - -
value through other comprehensive
income
Cash and cash equivalents 436 247 - - - - 683
Bank overdrafts (7) 7 - - - - -
Retail net debt (6,759) 806 307 (302) (396) - (6,344)
Financial Services
Net derivative financial
instruments 4 - - - - (4) -
Borrowings (excluding
overdrafts) (179) 55 9 (12) - 5 (122)
Lease liabilities (3) 2 - - - - (1)
Arising from financing
activities (178) 57 9 (12) - 1 (123)
Financial assets at fair
value through other comprehensive
income 418 207 - - - 1 626
Cash and cash equivalents 389 247 - - - - 636
Financial Services net
funds 629 511 9 (12) - 2 1,139
Group
Net derivative financial
instruments 9 - (5) 5 (5) (4) -
Borrowings (excluding
overdrafts) (754) 95 54 (52) (9) 5 (661)
Lease liabilities (6,621) 514 267 (267) (382) - (6,489)
Arising from financing
activities (7,366) 609 316 (314) (396) 1 (7,150)
Financial assets at fair
value through other comprehensive
income 418 207 - - - 1 626
Cash and cash equivalents 825 494 - - - - 1,319
Bank overdrafts (7) 7 - - - - -
Group net debt (6,130) 1,317 316 (314) (396) 2 (5,205)
Retail net debt (6,759) 806 307 (302) (396) - (6,344)
Of which:
Leases (6,618) (6,488)
Net (debt)/funds excluding
lease liabilities (141) 144
Reconciliation of net cash flow to movement in Retail net
debt
28 weeks 28 weeks 52 weeks
to 16 September to 17 to 4 March
2023 September 2023
2022
GBPm GBPm GBPm
-----------------
Opening net debt (6,344) (6,759) (6,759)
-----------------
Cash flow movements
Net increase in cash and cash equivalents
(including overdrafts) 746 759 501
Elimination of Financial Services movement
in cash and cash equivalents (563) (274) (247)
(Increase)/decrease in retail borrowings (555) 22 40
Decrease in retail lease obligations 252 245 512
Net interest paid on components of Retail
net debt 166 161 307
Changes in net debt resulting from cash
flow 46 913 1,113
Non-cash movements
Accrued interest (170) (165) (302)
Retail fair value and other non-cash
movements 825 (154) (396)
-----------------
Changes in net debt resulting from non-cash
movements 655 (319) (698)
Movement in net debt 701 594 415
Closing net debt (5,643) (6,165) (6,344)
----------------- ------------
16. Borrowings
16 September 2023 4 March 2023
Current Non-current Total Current Non-current Total
GBPm GBPm GBPm GBPm GBPm GBPm
Loan due 2031 51 467 518 48 491 539
Term loan 5 575 580 - - -
Bank overdrafts 2 - 2 - - -
Transaction costs - (3) (3) (1) (4) (5)
Sainsbury's Bank Tier
2 Capital 6 112 118 6 116 122
Total borrowings 64 1,151 1,215 53 603 656
17 September 2022
Current Non-current Total
GBPm GBPm GBPm
-------- ------------
Loan due 2031 46 512 558
Bank overdrafts 3 - 3
Sainsbury's Bank Tier 2 Capital 3 175 178
Total borrowings 52 687 739
Available facilities
The Group refinanced its Revolving Credit Facility in December
2022. The Revolving Credit Facility is split into two Facilities, a
GBP500 million Facility (A) and a GBP500 million Facility (B).
Facility A has a maturity of December 2027 and Facility B has a
maturity of December 2026. As at 16 September 2023, the Revolving
Credit Facility was undrawn (4 March 2023: GBPnil; 17 September
2022: GBPnil).
The Revolving Credit Facility incurs commitment fees at market
rates and drawdowns bear interest at a margin above SONIA.
The Group maintains uncommitted facilities to provide additional
capacity to fund short-term working capital requirements. Drawdowns
on these uncommitted facilities bear interest at a margin.
Uncommitted facilities of GBP2 million were drawn at 16 September
2023 (4 March 2023: GBPnil; 17 September 2022: GBP3 million).
The Group entered into a GBP575 million unsecured term loan in
December 2022, with maturity of March 2026. As at 16 September
2023, the term loan was fully drawn (4 March 2023: GBPnil; 17
September 2022: GBPnil). Included within the current term loan
balance is GBP5 million of interest accrued.
17. Cash and cash equivalents
16 September 4 March 17 September
2023 2023 2022
GBPm GBPm GBPm
-------------------------------------------------- ------------- -------- -------------
Cash in hand and bank balances 680 569 586
Money market funds 250 255 372
Money market deposits 210 150 230
Deposits at central banks 927 345 392
Cash and bank balances as reported in the
Group balance sheet 2,067 1,319 1,580
-------------------------------------------------- ------------- -------- -------------
Bank overdrafts (within current borrowings) (2) - (3)
Net cash and cash equivalents as reported
in the Group cash flow statement 2,065 1,319 1,577
-------------------------------------------------- ------------- -------- -------------
Restricted amounts included above:
Held as a reserve deposit with the Bank of
England 15 15 15
For insurance purposes 7 3 1
Held within the Group's Employee Share Ownership - 10
Trust -
22 28 16
-------------------------------------------------- ------------- -------- -------------
Restricted amounts with the Bank of England are not available
for use in day-to-day operations.
Reconciliation of cash flow items
Working capital
Financial
assets Amounts Amounts
at fair due from due to
value Trade Financial Trade Financial
through and other Services and other Services
Inventories OCI receivables customers payables customers Provisions
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ----------- ----------- ----------- -----------
At 16 September
2023 2,187 702 742 4,821 (5,291) (6,057) (243)
At 4 March 2023 1,899 1,009 683 5,392 (4,837) (5,946) (272)
---------- ------------- ----------- ----------- ----------- -----------
Balance sheet movement (288) 307 (59) 571 454 111 (29)
Fair value movements - (1) - - - - -
Hedge adjustment 14 - - - - - -
to inventory
Reclassification
to other lines in
the cash flow statement - - (23) - 119 - -
Movement in capital
accruals - - (2) - 9 - -
Derecognition of
beneficial interest
in property pool - (366) - - (19) - -
Proceeds from disposal - - - (446) - - -
of mortgage book
Other - - 4 1 7 - -
Movement shown in
cash flow statement (274) (60) (80) 126 570 111 (29)
Financial
assets Amounts Amounts
at fair due from due to
value Trade Financial Trade Financial
through and other Services and other Services
Inventories OCI receivables customers payables customers Provisions
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ----------- ----------- -----------
At 17 September 2022 1,891 771 803 5,288 (4,994) (5,732) (231)
At 5 March 2022 1,797 800 748 5,189 (4,570) (5,259) (271)
------------- ----------- ----------- ----------- -----------
Balance sheet movement (94) 29 (55) (99) 424 473 (40)
Fair value movements - (7) - (35) - - -
Hedge adjustment 7 - - - - - -
to inventory
Reclassification
to other lines in
the cash flow statement - - 4 - 24 - -
Movement in capital - - - - 3 - -
accruals
Other - - - (1) (13) (1) (1)
Movement shown in
cash flow statement (87) 22 (51) (135) 438 472 (41)
---------- ------------- ----------- ----------- ----------- -----------
Financial
assets Amounts Amounts
at fair due from due to
value Trade Financial Trade Financial
through and other Services and other Services
Inventories OCI receivables customers payables customers Provisions
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ----------- ----------- -----------
At 4 March 2023 1,899 1,009 683 5,392 (4,837) (5,946) (272)
At 5 March 2022 1,797 800 748 5,189 (4,570) (5,259) (271)
------------- ----------- ----------- ----------- -----------
Balance sheet movement (102) (209) 65 (203) 267 687 1
Fair value movements - 2 - (27) - - -
Hedge adjustment
to inventory (3) - - - (2) - -
Interest in working - - - - 9 - -
capital
Reclassification
to other lines in
the cash flow statement - - 3 - 11 - -
Movement in capital - - - - (8) - -
accruals
Other - - - (1) 3 - (1)
Movement shown in
cash flow statement (105) (207) 68 (231) 280 687 -
---------- ------------- ----------- ----------- ----------- -----------
Loss/(profit) on the sale of non-current assets and early
termination of leases in the cash flow statement is reconciled as
follows:
28 weeks 28 weeks 52 weeks
to 16 September to 17 to 4 March
2023 September 2023
2022
GBPm GBPm GBPm
-----------------
(Profit)/loss on disposal of properties (note
3) (11) - 3
Non underlying gain on early termination of
leases (note 3) (1) (1) (2)
Profit on disposal of properties within restructuring
programmes (note 3) - (11) (11)
Underlying gain on early termination of leases - - (4)
Profit on disposal of intangible assets - - (1)
Loss on disposal of amounts due from Financial
Services customers 14 - -
Loss/(profit) on sale of non-current assets
and early termination of leases 2 (12) (15)
-----------------
18. Retirement benefit obligations
All retirement benefit obligations relate to the Sainsbury's
Pension Scheme plus three 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 Trustee's triennial valuation is used to determine the
contributions required for the Scheme to pay all the benefits due,
now and in the future. There have been no changes to the previously
disclosed triennial valuation information, which can be found in
note 35 of the Group's Annual Report and Financial Statements
2023.
16 September 2023 4 March 2023
Sainsbury's Argos Group Sainsbury's Argos Group
GBPm GBPm GBPm GBPm GBPm GBPm
Present value of funded obligations (4,898) (765) (5,663) (5,128) (793) (5,921)
Fair value of plan assets 5,761 911 6,672 6,007 927 6,934
Retirement benefit surplus 863 146 1,009 879 134 1,013
Present value of unfunded obligations (12) (10) (22) (12) (12) (24)
Retirement benefit surplus 851 136 987 867 122 989
17 September 2022
Sainsbury's Argos Group
GBPm GBPm GBPm
Present value of funded obligations (5,836) (922) (6,758)
Fair value of plan assets 7,176 1,064 8,240
Retirement benefit surplus 1,340 142 1,482
Present value of unfunded obligations (15) (12) (27)
Retirement benefit surplus 1,325 130 1,455
The principal actuarial assumptions used at the balance sheet
date are as follows:
16 September 4 March 17 September
2023 2023 2022
% % %
--------
Discount rate 5.40 5.00 4.45
Inflation rate - RPI 3.35 3.25 3.45
Inflation rate - CPI 2.70 2.55 2.75
1.90 - 2.30 -
Future pension increases 1.90-3.00 2.95 3.35
--------
The amounts recognised in the income statement in respect of the
IAS 19 charges for the defined benefit schemes are as follows:
28 weeks 28 weeks 52 weeks
to to to
16 September 17 September 4 March
2023 2022 2023
GBPm GBPm GBPm
--------------
Excluded from underlying profit
before tax:
Interest cost on pension liabilities (145) (119) (221)
Interest income on plan assets 170 149 277
Total included in finance income 25 30 56
Defined benefit pension scheme
expenses (4) (3) (6)
Settlement gains - 8 8
Total excluded from underlying
profit before tax 21 35 58
Total income statement credit 21 35 58
--------------
The movements in the net defined benefit surplus are as
follows:
28 weeks 52 weeks 28 weeks
to 16 September to 4 March to 17 September
2023 2023 2022
GBPm GBPm GBPm
At the beginning of the period 989 2,283 2,283
Net interest income 25 56 30
Remeasurement losses (46) (1,398) (886)
Pension scheme expenses (4) (6) (3)
Contributions by employer 23 44 23
Benefits paid - 2 -
Settlement gains - 8 8
At the end of the period 987 989 1,455
Cash contributions
Cash contributions for the full year are expected to be
approximately GBP45 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 31
March. The Group therefore performs a roll-forward for these
valuations to 16 September 2023, adjusting for cash received or
paid and applying the changes seen in relevant liquid indices as
follows:
Asset Class Returns
Global equity USD return 6.94%
Global High Yield Debt USD return 3.41%
US loans USD return 6.71%
UK REITS GBP return (3.64)%
The roll-forward has increased the valuation of illiquid assets
by GBP55.7 million. A 1% increase/decrease in the indices used
would have caused a GBP14.4 million increase/decrease in the
adjustment.
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 321 57 378
A decrease of 0.5% in the discount rate would increase
the present value of funded obligations by 356 64 420
An increase of 0.5% in the inflation rate would increase
the present value of funded obligations by 174 42 216
A decrease of 0.5% in the inflation rate would decrease
the present value of funded obligations by 170 39 209
An increase of 0.5% in the inflation rate for future
pension increases in payment only would increase
the present value of funded obligations by 81 21 102
A decrease of 0.5% in the inflation rate for future
pension increases in payment only would reduce the
present value of funded obligations by 85 20 105
Demographic sensitivities
An increase of one year to the life expectancy would
increase the present value of funded obligations
by 154 22 176
Changing the 2020, 2021 and 2022 weighting parameters
in CMI 2022 to 0% would increase the present value
of funded obligations by 37 6 43
Changing the 2020, 2021 and 2022 weighting parameters
in CMI 2022 to 25% would decrease the present value
of funded obligations by 31 5 36
19. Assets held for sale
28 weeks
28 weeks 52 weeks to 17
to 16 September to 4 March September
2023 2023 2022
GBPm GBPm GBPm
---------------- -----------
Opening balance 8 8 8
Classified as held for sale in the period 8 5 3
Acquisitions 63 - -
No longer classified as held for sale (3) - -
Sold in the period (66) (5) (3)
Closing balance 10 8 8
---------------- -----------
As part of the asset acquisition detailed in note 2, GBP63
million of assets held for sale were acquired by the Group, of
which GBP61 million had been sold to third parties by 16 September
2023. For the remaining assets, the sale is still considered
probable in the next 12 months and so they remain classified as
held for sale. The fair value of assets held for sale is based on
independent market valuations of the assets. Proceeds from
disposals of assets held for sale have been presented within
proceeds from disposal of property, plant and equipment in the
Group's cash flow statement.
20. Contingent liabilities
The Group has a number of contingent liabilities in respect of
historical guarantees, particularly in relation to disposed assets,
which if the current tenant and their ultimate parents become
insolvent, may expose the Group to a material liability. This is
not expected to materialise.
Along with other retailers, the Group is currently subject to
claims from current and ex-employees in the Employment Tribunal for
equal pay under the Equality Act 2010 and/or the Equal Pay Act
1970. There are currently circa 14,300 equal pay claims from circa
10,200 claimants, in which the claimants are alleging that their
work within Sainsbury's stores is or was, of equal value to that of
colleagues working in Sainsbury's distribution centres, and that
differences in terms and conditions relating to pay are not
objectively justifiable. The claimants are seeking the differential
back pay based on the higher wages in distribution centres, and the
equalisation of wages and terms and conditions on an ongoing basis.
The Group believes further claims will be served.
There are three stages in the tribunal procedure for equal value
claims of this nature and the claimants will need to succeed in all
three. The first stage is whether store claimants have the legal
right to make the comparison with depot workers. Following European
and Supreme Court decisions in other similar litigation,
Sainsbury's has conceded this point. The second stage is the
lengthy process to determine whether any of the claimants' roles
are of equal value to their chosen comparators. This process is
likely to continue for several more years. In the event that any of
the claimants succeed at the second stage there will be further
hearings, in the years following, to consider whether any pay
differential is justified.
Given that the outcome of the second and third stages in the
litigation remains highly uncertain at this stage, the Group cannot
make any assessment of the likelihood nor quantum of any outcome.
No provision has therefore been recognised on the Group's balance
sheet. There are substantial factual and legal defences to these
claims and the Group intends to defend them vigorously
Principal risks and uncertainties
Risk is an inherent part of doing business. The J Sainsbury plc
Board has overall responsibility for the identification and
management of the principal risks, emerging risks and internal
control of the Company. The Board has identified the following
principal potential risks to the successful operation of the
business. These risks, along with the events in the financial
markets and their potential impacts on the wider economy, remain
those most likely to affect the Group in the second half of the
year.
-- Business continuity, operational resilience and major incidents response
-- Business strategy and change
-- Colleague engagement, retention and capability
-- Customer
-- Data security
-- Environment and sustainability
-- Financial and treasury
-- Health and safety
-- Political and regulatory environment
-- Product safety and sourcing
-- Sainsbury's Bank
-- Trading environment and competitive landscape
All Principal Risks remain unchanged from those reported in the
Group's Annual Report and Financial Statements 2023. For more
information on these risks, please refer to pages 44 to 57 of the J
Sainsbury plc Annual Report and Financial Statements 2023, a copy
of which is available on the Group's corporate website
www.sainsburys.co.uk .
Statement of Directors' responsibilities
The Directors confirm that this set of Condensed Consolidated
Interim Financial Statements has been prepared in accordance with
UK adopted IAS 34 'Interim Financial Reporting' and the Disclosure
and Transparency Rules of the UK's Financial Conduct Authority, and
that the Interim Management Report herein includes a true and fair
review of the information required by DTR 4.2.7R and DTR 4.2.8R,
namely:
-- that the report contains a fair review of important events
that have occurred during the first 28 weeks of the financial year,
and their impact on the condensed set of financial statements, and
of the principal risks and uncertainties for the remaining six
months of the financial year; and
-- that the report contains a fair review of material related party transactions.
The Directors of J Sainsbury plc are listed in the J Sainsbury
plc Annual Report and Financial Statements 2023.
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
1 November 2023
Bláthnaid Bergin
Chief Financial Officer
1 November 2023
INDEPENT REVIEW REPORT TO J SAINSBURY PLC
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the interim financial report for the 28
week period ended 16 September 2023 which comprises the Group
income statement, the Group statement of comprehensive
income/(loss), the Group balance sheet, the Group statement of
changes in equity, the Group cash flow statement and the related
explanatory notes. We have read the other information contained in
the interim financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the interim financial report for the 28 week period ended 16
September 2023 is not prepared, in all material respects, in
accordance with UK adopted International Accounting Standard 34 and
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" (ISRE) issued by the Financial Reporting Council. A review
of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with UK adopted international
accounting standards. The condensed set of financial statements
included in this interim financial report has been prepared in
accordance with UK adopted International Accounting Standard 34,
"Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that management have inappropriately adopted
the going concern basis of accounting or that management have
identified material uncertainties relating to going concern that
are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE, however future events or conditions may
cause the entity to cease to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the interim
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the interim financial report, the Directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the interim report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statements in the interim financial report. Our
conclusions, including our Conclusions Relating to Going Concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
1 November 2023
Alternative performance measures (APMs)
In the reporting of financial information, the Directors use
various APMs which they believe provide additional useful
information for understanding the financial performance and
financial health of the Group. These APMs should be considered in
addition to, and are not intended to be a substitute for, IFRS
measurements. As they are not defined by International Financial
Reporting Standards, they may not be directly comparable with other
companies who use similar measures.
The Directors believe that these APMs provide additional useful
information for understanding the financial performance and health
of the Group. They are also used to enhance the comparability of
information between reporting periods (such as like-for-like sales
and underlying profit) by adjusting for non-recurring or
uncontrollable factors which affect IFRS measures, to aid users in
understanding the Group's performance.
Consequently, APMs are used by the Directors and management for
performance analysis, planning, reporting and incentive setting
purposes.
Adjusted net cash generated from retail operations is no longer
used as an APM as there were no adjusting items to cash generated
from retail operations in the current or comparative periods.
All of the following APMs relate to the current period's results
and comparative periods.
APM Closest Definition Purpose Reconciliation
equivalent
IFRS measure
Income statement
- Revenue
Retail Revenue Group sales Shows the A reconciliation of the measure is
sales less Financial annual provided in note 4 of the financial
Services rate of statements.
revenue. growth
in the
Group's
Retail
business
sales.
Like-for-like No direct Year-on-year The measure 28
sales equivalent growth in is used weeks 28 weeks
sales including widely to 16 to 17
VAT, excluding in the September September
fuel and retail 2023 2022
Financial industry Retail like-for-like
Services, as an (exc. Fuel, inc. VAT) 8.4% (0.8)%
for stores indicator Underlying net new space
that have of current impact (0.7)% (0.5)%
been open trading Retail sales growth/(decline)
for more performance (exc. Fuel, inc. VAT) 7.7% (1.3)%
than one and is Fuel impact (5.1)% 5.7%
year. useful Total retail sales growth
when (inc. Fuel, inc. VAT) 2.6% 4.4%
The relocation comparing VAT impact 0.6% (0.3)%
of Argos growth Total retail sales growth 3.2% 4.1%
stores into between
Sainsbury's retailers
supermarkets that have
are classified different
as new space, profiles
while the of expansion,
host supermarket disposals
is classified and closures.
like-for-like.
APM Closest Definition Purpose Reconciliation
equivalent
IFRS
measure
Income statement - Profit
Retail Profit Underlying This 52
underlying before earnings is the 28 weeks 28 weeks weeks
operating tax before lowest to to 17 to
profit interest, level 16 September September 4 March
tax, Financial at which 2023 2022 2023
Services the retail GBPm GBPm GBPm
operating segment Group PBT (note 5a) 275 376 327
profit and can be Less Group non-underlying
Sainsbury's viewed items (note 3) 65 (36) 363
underlying from Group UPBT 340 340 690
share of a management Financial Services underlying
post-tax perspective, operating profit (13) (19) (46)
profit from with Retail underlying profit
joint ventures finance before tax 327 321 644
and associates. costs Net underlying finance
managed costs 158 156 282
for the Retail underlying operating
Group profit 485 477 926
as a
whole. Retail sales (note 5a) 16,665 16,154 30,960
Retail underlying operating
margin 2.91% 2.95% 2.99%
Underlying Profit Underlying In order Underlying profit before tax is bridged
profit before results to provide to statutory profit before tax in the income
before tax exclude shareholders statement and note 3 of the financial statements.
tax items with
recognised additional The adjusted items are as described in
in reported insight note 3 of the financial statements.
profit or into
loss before the underlying
tax which, performance
if included, of the
could distort business,
comparability this
between adjusted
periods. measure
In determining of profit
which items is provided
to exclude to supplement
from underlying the reported
profit, IFRS
the Group numbers,
considers and reflects
items which how the
are significant business
either by measures
virtue of performance
their size internally.
and/or nature,
or that
are
non-recurring.
Underlying Basic Earnings This A reconciliation of the measure is provided
basic earnings per share is a in note 9 of the financial statements.
earnings per using key measure
per share share underlying to evaluate
profit as the
described performance
above. of the
business
and returns
generated
for investors.
Underlying Diluted Diluted This A reconciliation of the measure is provided
diluted earnings earnings is a in note 9 of the financial statements.
earnings per per share key measure
per share share using to evaluate
underlying the
profit as performance
described of the
above. business
and returns
generated
for investors.
Retail No direct Retail EBITDA 28 52
underlying equivalent underlying is used weeks 28 weeks weeks
EBITDA operating to review to to to
profit as the retail 16 17 4
above, before segment's September September March
underlying profit 2023 2022 2023
depreciation, generation GBPm GBPm GBPm
and and the Retail underlying operating
amortisation. sustainability profit 485 477 926
of ongoing Add: Retail depreciation
capital and amortisation expense 613 634 1,175
reinvestment Less: Non-underlying
and finance depreciation and amortisation (16) (24) (41)
costs. Retail underlying EBITDA 1,082 1,087 2,060
Retail sales (note 5a) 16,665 16,154 30,960
Retail underlying EBITDA
margin 6.49% 6.73% 6.65%
APM Closest Definition Purpose Reconciliation
equivalent
IFRS
measure
Underlying Finance Net finance This provides A reconciliation of this measure
net income costs before shareholders is included in note 7 of the financial
finance less any with statements.
costs finance non-underlying additional
costs items as insight into The adjusted items are as follows:
defined the underlying * Non-underlying finance and fair value movements -
above that are net finance these include fair value remeasurements on
recognised costs of the derivatives not in a hedging relationship and lease
within Group by interest on impaired non-trading sites, including
finance income excluding site closures. The fair value movements are driven
/ expenses. non-recurring by
one-off items. external market factors and can significantly
fluctuate year-on-year. They are therefore excluded
to ensure consistency between periods. Lease intere
st
on impaired, non-trading sites is excluded as they
do
not contribute to the operating activities of the
Group.
* Defined benefit pension interest. The Group has
chosen to exclude net retirement benefit income and
costs from underlying profit as, following closure
of
the defined benefit scheme to future accrual, it is
not part of the ongoing operating activities of the
Group and its exclusion is consistent with how the
Directors assess the performance of the business.
Underlying Effective Tax on Provides an The tax on non-underlying items
tax tax underlying indication of is included in note 3 of the financial
rate rate items, divided the tax rate statements
by underlying across the
profit before Group
tax. before the
impact
of
non-underlying
items.
APM Closest Definition Purpose Reconciliation
equivalent
IFRS
measure
Cash flows and net debt
Retail No direct N/A To help the 28 weeks 28 weeks 52 weeks
cash equivalent reader to to 17 to 4
flow understand 16 September September March
items cash flows 2023 2022 2023
in of the Ref GBPm GBPm GBPm
Financial business -------------
Review a Net interest paid a (166) (161) (307)
summarised Repayment of lease
cash flow liabilities b (252) (245) (512)
statement Proceeds from/(repayment
is included of) borrowings c 555 (22) (40)
within the Other d (7) (23) (32)
Financial Dividends and distributions
Review. received e - 50 51
-------------
As part of
this a
number
of line
items
have been
combined.
The cash
flow
in note 5
of
the
financial
statements
includes a
reference
to
show what
has
been
combined
in these
line
items.
Retail Net Net cash This 28 weeks 28 weeks 52 weeks
free cash generated measures to to 17 to 4
cash generated from retail cash 16 September September March
flow from operations, generation, 2023 2022 2023
operating after cash working GBPm GBPm GBPm
activities capital capital Cash generated from retail
expenditure efficiency operations 1,339 1,425 2,216
but before and capital Net interest paid (ref
strategic expenditure (a) above) (166) (161) (307)
capital of the Corporation Tax (17) (32) (99)
expenditure, retail Retail purchase of property,
and business plant and equipment (1,040) (201) (523)
including Less: amounts paid for
payments of asset acquisition 731 - -
lease Retail purchase of intangibles
obligations, assets (80) (96) (194)
cash flows Retail proceeds from disposal
from of property, plant and
joint equipment 77 28 29
ventures Less: amounts received
and from asset acquisition (61) - -
associates Initial direct costs on
and right-of-use assets (11) (9) (16)
Sainsbury's Repayments of obligations
Bank capital under leases (252) (245) (512)
injections. Dividends and distributions
received - 50 51
Retail free cash flow 520 759 645
APM Closest Definition Purpose Reconciliation
equivalent
IFRS
measure
Cash flows and net debt
Underlying No direct Removes To provide
working equivalent working a reconciliation 28 52
capital capital of the weeks 28 weeks weeks
movements and cash working to to to
movements capital 16 17 4
relating movement September September March
to non-underlying in the 2023 2022 2023
items. financial GBPm GBPm GBPm
statements Retail working capital
to the movements per
underlying cash flow (note 5) 265 318 185
working
capital Adjustments for:
movement Retail non-underlying impairment
in the charges
financial (note 3) 21 20 315
review. Non-underlying restructuring
and impairment
charges (note 3) (32) (33) (387)
Accelerated depreciation
(note 3) 8 12 20
Gains on early termination
of leases (note 3) (1) (1) (2)
Profit on disposal of properties
within restructuring
programme (note 3) - (11) (11)
ATM income (note 3) - - 3
Income recognised in relation
to legal disputes
(note 3) - 30 30
Property related transactions
(note 3) (17) (8) (9)
Other - - 7
Non-underlying working
capital movements before
cash movements (21) 9 (34)
Non-underlying cash movements
(note 3):
Restructuring 40 33 50
ATM income - - (3)
Income recognised in relation
to legal disputes - - (30)
Property related transactions - - 6
Retail non-underlying
operating cash flows
(excluding pensions) 40 33 23
Total adjustments for
non-underlying working
capital 19 42 (11)
Underlying working capital
movements 284 360 174
APM Closest Definition Purpose Reconciliation
equivalent
IFRS
measure
Core No direct Capital This allows 28 weeks 28 weeks 52 weeks
retail equivalent expenditure management to to 17 to 4
capital excluding to 16 September September March
expenditure Sainsbury's assess core 2023 2022 2023
Bank. retail GBPm GBPm GBPm
capital Purchase of property, plant
expenditure and equipment (1,040) (201) (523)
in the Purchase of intangibles (80) (96) (194)
period Less: amounts paid for asset
in order to acquisition transaction
review the reported outside of Retail
strategic free cashflow 731 - -
business Cash capital expenditure (389) (297) (717)
performance.
Net debt Borrowings, Net debt This shows A reconciliation of the measure is provided in note
cash, includes the 15 of the financial statements. In addition, to aid
derivatives the capital overall comparison to the balance sheet, reconciliations between
, injections strength financial assets at FVTOCI and derivatives per the
financial into of the balance sheet and Group net debt (i.e. including Financial
assets Sainsbury's balance Services) is included below:
at FVTOCI, Bank, sheet 28 weeks 28 weeks 52 weeks
lease but excludes alongside to to 17 to 4
liabilities the net the 16 September September March
debt of liquidity 2023 2022 2023
Sainsbury's and its GBPm GBPm GBPm
Bank and its indebtedness -------------
subsidiaries. and whether Financial instruments at FVTOCI
the Group per balance sheet 702 771 1,009
It is can Less: equity related securities (16) (376) (383)
calculated cover its Financial instruments at FVTOCI
as: debt included in net debt 686 395 626
financial commitments. -------------
assets at
fair value Net derivatives per balance
through sheet 96 490 213
other Less: derivatives not used to
comprehensive hedge borrowings (100) (484) (213)
income Derivatives included in net
(excluding debt (4) 6 -
equity -------------
investments)
+ net
derivatives
to hedge
borrowings
+ net cash
and cash
equivalents +
loans
+ lease
obligations.
APM Closest Definition Purpose Reconciliation
equivalent
IFRS
measure
Other
Net No direct Net debt This helps Net debt as provided in note 15.
debt/ equivalent divided management Group underlying EBITDA is reconciled
underlying by Group measure the within the fixed charge cover analysis
EBITDA underlying ratio of below.
EBITDA where the
EBITDA is business's
calculated debt to
on a 52 week operational
rolling cash flow.
basis.
Return No direct Return on This 52 weeks 52 weeks 52 weeks
on equivalent capital represents to to 17 to 4
capital employed is the total 16 September September March
employed calculated as capital 2023 2022 2023
return that GBPm GBPm GBPm
divided the Group -------------
by average has Underlying profit before
capital utilised tax 690 699 690
employed. in order to Add: Underlying net interest 284 294 282
generate Return 974 993 972
Return is profits. -------------
defined Management
as 52 week use this to Capital employed is reconciled
rolling assess the as follows:
underlying performance Group net assets 7,221 7,929 7,253
profit of the Less: Pension surplus (note
before business. 18) (987) (1,455) (989)
interest Deferred tax on pension
and tax. surplus 330 454 330
Less: net debt (note 15) 5,643 6,165 6,344
Capital Effect of in-year averaging 121 (228) (101)
employed Capital employed 12,328 12,865 12,837
is defined as -------------
Group net
assets Return on capital employed 7.9% 7.7% 7.6%
excluding -------------
pension
surplus, less
net debt. The
average is
calculated
on a 14 point
basis.
The 14-point
basis uses
the
average of 14
datapoints -
the prior
year
closing
capital
employed, the
current year
closing
capital
employed and
12 intra-year
periods as
this
more closely
aligns to the
recognition
of amounts in
the income
statement.
Fixed No direct Group This helps
charge equivalent underlying assess the 24 weeks 28 weeks 52 weeks 52 weeks
cover EBITDA Group's to to to to 4
divided ability 4 March 16 September 16 September March
by rent to satisfy 2023 2023 2023 2023
(representing fixed GBPm GBPm GBPm GBPm
capital and financing -------------
interest expenses Group underlying
repayments from operating profit 476 498 974 972
on leases). performance Add: Group depreciation
All items are of the and amortisation
calculated on business. expense 558 631 1,189 1,208
a 52 week Less: Non-underlying
rolling depreciation and
basis. amortisation expense (17) (16) (33) (41)
Group underlying
EBITDA 1,017 1,113 2,130 2,139
Repayment of capital
element of lease
obligations (268) (253) (521) (514)
Underlying finance
income 13 12 25 18
Underlying finance
costs (139) (170) (309) (300)
Fixed charges (394) (411) (805) (796)
Fixed charge cover 2.6 2.7 2.6 2.7
-------------
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END
IR NKDBKDBDBCDK
(END) Dow Jones Newswires
November 02, 2023 03:00 ET (07:00 GMT)
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